Edited version of private advice

Authorisation Number: 1012635113932

Ruling

Subject: GST and government and subdivision 153-B arrangements

Issue 1

Question 1

For the purposes of Subdivision 153-B of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), is Department A acting as an intermediary for the other government departments when it facilitates the purchase of real property, even though Department A and the other government departments are not separate legal entities under common law?

Answer

Yes, for the purposes of Subdivision 153-B of the GST Act, Department A is acting as an intermediary for the government departments when it facilitates the purchase of real property, even though they are not separate legal entities under common law.

Issue 2

Question 1

If there are valid subdivision 153-B arrangements in place, does subsection 9-17(3) of the GST Act apply to the related payments made by the government departments to Department A?

Answer

No, provided there are valid subdivision 153-B arrangements in place, subsection 9-17(3) of the GST Act will have no application.

Question 2

What are the implications if the Subdivision 153-B arrangements between Department A and the government departments must be removed?

Answer

As Department A is acting as an intermediary for the government departments, it is not necessary to remove the Subdivision 153-B arrangements. Consequently this question is no longer applicable.

Relevant facts and circumstances

Department A facilitates the sale and purchase of real property for certain government departments.

Department A and each of the government departments are all government related entities and each department is separately registered for GST.

With each of the government departments, Department A has entered into a subdivision 153-B arrangement such that both parties are treated as separate acquirers for GST purposes where Department A facilitates the acquisition of real property.

Some government departments, have certain authorisations.

All departments hold the real property on their asset register.

Regardless of whether the relevant government department has legislative authority to facilitate the real property transaction, Department A facilitates the process because it has the appropriate mechanisms in place.

Department A uses Government funds allocated to it by way of appropriation, to pay for its expenses that are not directly attributable to a particular sale or purchase.

When a particular government department wishes to source land for a particular purpose, that department will contact Department A and provide information and estimates in relation to the amount they are willing to pay and any other requirements.

Department A invoices the department based on an estimation of the purchase price. When the funds are received from the department by Department A, these funds are allocated into a trust fund set up for this purpose. Subsequently Department A will source an appropriate property which may take months and Department A may incur costs such as valuation fees, legal fees and transport costs during this period.

Department A may pay for the costs by drawing down on the trust funds it receives from the department.

All suppliers contract directly with Department A for the purchases and all expenses are incurred by Department A.

The monies which the particular government department uses to purchase the real property are appropriated from consolidated funds. This authority is expressed in the Budget papers for each department and the relevant Appropriations Act for that year.

Usually the suppliers of the real property are registered for GST, however, occasionally the real property is supplied by a supplier who is not registered for GST.

All of the properties are acquired solely for a creditable purpose by the government departments.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-17(3)

A New Tax System (Goods and Services Tax) Act 1999 Division 149

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 153-B

A New Tax System (Goods and Services Tax) Act 1999 Section 184-1

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

A New Tax System (Australian Business Number) Act 1999 Section 41

Reasons for decision

Issue 1

Question 1

Summary

Under the GST Act, Department A and the government departments are treated as entities carrying on enterprises in their own right and therefore are entitled to be registered for GST. As a separate GST registered entity facilitating the process, including payment of the real property, Department A acts as an intermediary. Therefore for the purposes of subdivision 153-B of the GST Act, Department A acts as intermediary for the government departments regardless of common law.

Detailed reasoning

For subdivision 153-B of the GST Act to apply, there are several requirements to be met but there must firstly be an agency or intermediary relationship between two separate GST registered entities.

For GST purposes, 'entity' is defined in subsection 184-1 of the GST Act to mean, among other things, a 'body politic'.

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) considers the meaning of the terms 'entity' and 'enterprise' for the purposes of the A New Tax System (Australian Business Number) Act 1999 (ABN Act). The principles in this Ruling can be relied upon for GST purposes.

Paragraph 26 of MT 2006/1 advises that where terms are not defined in the GST Act, they take their meaning from the general law (which in MT 2006/1 is used as the term for common law and Australian statute law).

'Body politic' is not a defined term in the GST Act. Paragraph 38 of MT 2006/1 advises that the term takes its meaning from the general law. It includes the Crown in right of the Commonwealth, a State or Territory. However, government departments are not bodies politic in their own right. Instead, they are part of the larger body politic of the Commonwealth or State or Territory.

Consequently, Australian state government departments are technically not separate legal entities.

Division 149 of the GST Act provides that parts of the Commonwealth of Australia, a State or a Territory may register for GST even if they are not separate legal entities.

Section 149-5 of the GST Act states:

(1) A *government entity may apply to be *registered under section 23-10 even if:

(a) it is not an entity; and

(b) it is not *carrying on an *enterprise or is not intending to carry on an enterprise.

(2) For the purposes of subsections 25-5(1) and (3), the Commissioner is to treat the government entity as an entity.

(3) The Commissioner must *register the government entity whether or not the Commissioner is satisfied that it is *carrying on an *enterprise or intending to carry on an enterprise.

(4) This section has effect despite section 23-10 (which is about who may be registered) and modifies the effect of section 25-5 (which is about when the Commissioner must register an entity).

Section 195-1 of the GST Act provides that a 'government entity' has the meaning given by section 41 of the ABN Act which states:

government entity means:

(a) a Department of State of the Commonwealth; or

(b) a Department of the Parliament; or

(c) an Executive Agency, or Statutory Agency, within the meaning of the Public Service Act 1999; or

(d) a Department of State of a State or Territory; or

(e) an organisation that:

(i) is not an entity; and

(ii) is either established by the Commonwealth, a State or a Territory (whether under a law or not) to carry on an *enterprise or established for a public purpose by an *Australian law; and

(iii) can be separately identified by reference to the nature of the activities carried on through the organisation or the location of the organisation;

whether or not the organisation is part of a Department or branch described in paragraph (a), (b), (c) or (d) or of another organisation of the kind described in this paragraph.

Section 149-15 of the GST Act states:

149-15 GST law applies to registered government entities

For the purposes of the *GST law, a *government entity that is *registered is treated, while its registration has effect, as if it were an entity carrying on an *enterprise.

Section 195-1 of the GST Act states that a 'GST law' means:

(a) this Act; and

(b) any Act that imposes GST; and

(c) the A New Tax System (Goods and Services Tax Transition) Act 1999; and

(d) the Taxation Administration Act 1953, so far as it relates to any Act covered by paragraphs (a) to (c); and

(e) any other Act, so far as it relates to any Act covered by paragraphs (a) to (d) (or to so much of that Act as is covered);

(f) regulations under any Act, so far as they relate to any Act covered by paragraphs (a) to (e) (or to so much of that Act as is covered).

Consequently, the government departments are taken to be separate entities in their own right for GST purposes and therefore are entitled to be registered for GST, even though they are not technically 'entities' under common law.

Prior to entering into a subdivision 153-B arrangement, a principal and agent or principal and intermediary relationship must exist between the parties to the arrangement.

Subdivision 153-B of the GST Act provides a mechanism for principals and agents or principals and intermediaries to be treated as separate suppliers or acquirers for GST purposes. Originally this subdivision only applied to principals and agents. Agent and agency are not defined in the GST Act. Paragraph 111 of MT 2006/1 advises that the general law of agency applies to entities.

An amendment was introduced into subdivision 153-B to substitute 'intermediary' for 'agent' effective 1 July 2010 to enable those acting for a principal who are not agents in the common law sense to access this subdivision. The term intermediary includes agents in the common law sense but has a broader meaning. Subsection 153-50(2) of the GST Act specifically provides that for the purposes of subsection 153-50(1) an entity can be an intermediary, whether or not the entity is the agent of the principal.

The Explanatory Memorandum to the Tax Laws Amendment (2009 GST Administration Measures) Bill 2009 (EM) states:

3.1 Schedule 3 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to increase the range of entities entitled to act as a principal for goods and services tax (GST) accounting purposes.

….

3.3 The amendments allow those acting for a principal who are not agents in the common law sense to access the simplified accounting procedures in Subdivision 153-B of the GST Act.

….

3.6 The Subdivision only applies to an entity that would qualify under the common law as an agent. This means that the agent must be authorised to act on behalf of the principal so as to create or affect legal relations between the principal and third parties. Representatives of the principal who are not agents under the common law (for example, paying agents, billing agents and commission agents) are not covered by the Subdivision.

3.7 For example, the Subdivision cannot be used by entities ('intermediaries') who make or receive payments on behalf of another entity (the 'principal') for supplies or acquisitions to or from third parties, but do not make those supplies or acquisitions on that other entity's behalf. Nor can certain other service providers who perform functions for the principal but fall short of the legal definition of an agent, use Subdivision 153-B.

….

3.12 The amendments will reduce the compliance costs of GST accounting where paying agents, billing agents and other transaction facilitators are used by an entity.

….

3.13 The amendments allow entities that facilitate the supplies or acquisitions of an enterprise carried on by another entity through acting as an intermediary to use Subdivision 153-B, irrespective of whether the intermediary can legally bind the principal by their acts. Billing and paying agents, among others, would be able to access these accounting procedures. In short, the amendments permit those that would be considered 'transaction facilitators' but fall short of the requirements to be regarded as common law agents to use the same accounting procedures in Subdivision 153-B.

….

3.18 The amendments are not intended to affect the existing operation of Subdivision 153-B with respect to common law agents.

Department A acts as a transaction facilitator for the government departments in respect of the real property sales and purchases. Accordingly, it is concluded there is an intermediary relationship between Department A and the government departments for the purposes of subdivision 153-B of the GST Act.

Issue 2

Question 1

Summary

Nothing in subsection 153-60 of the GST Act allows the requirements of subsection 9-17(3) to be considered.

Detailed reasoning

Section 153-50 of the GST Act provides that entities may enter into an arrangement under which an intermediary (including an agent) is treated as a separate supplier or acquirer when accounting for GST. To enter into this arrangement, among other things, both parties must be registered for GST and there must be a written arrangement between the principal and intermediary which specifies the types of supplies and/or acquisitions that are to be treated in this way.

The general effect of entering into these arrangements in respect of both supplies and acquisitions is that the principal and its intermediary are treated as acting as between a principal and another principal. Taxable supplies made by the principal to third parties through the intermediary become two separate taxable supplies. Creditable acquisitions that the principal makes from third parties through the intermediary become two separate creditable acquisitions.

Paragraph 78 of GSTR 2000/37 advises that a taxable supply made to a third party is taken to be a taxable supply made by the intermediary (the intermediary's supply). The principal is taken to have made a taxable supply to the intermediary of the same thing that the intermediary is taken to supply. Additionally the intermediary is taken to have made a corresponding creditable acquisition from the principal.

GSTR 2000/37 advises at paragraph 86 that when an intermediary makes a creditable acquisition from a third party on behalf of the principal, it is taken to make a creditable acquisition in its own right (the intermediary's acquisition). The intermediary is entitled to claim an input tax credit on that acquisition. Following on from this, paragraph 87 of GSTR 2000/37 advises that the intermediary is taken to make a taxable supply to the principal of the same thing that the intermediary is taken to acquire. Additionally, the principal is taken to have made a creditable acquisition from the intermediary (if the acquisition by the principal from the third party would have been creditable).

Under section 153-60 of the GST Act, which deals with the effect of these arrangements on acquisitions, the purchase of the property by Department A for the government department is taken to be a creditable acquisition made by Department A from the third party. Department A is then taken to have made a taxable supply of the property to the government department. Subsection 153-60(2) states:

(2) In addition, the intermediary is taken to make a supply that is a *taxable supply to the principal. This supply is taken:

(a) to be a supply of the same thing as is acquired in the *creditable acquisition (the intermediary's acquisition) that the intermediary is taken to make….

Nothing in section 153-60 of the GST Act allows the requirements of subsection 9-17(3) of the GST Act to be considered.

Additionally there is nothing in section 9-17 of the GST Act which provides that this section applies despite subdivision 153-B of the GST Act.

Therefore, subsection 9-17(3) does not have any effect.