Edited version of private advice

Authorisation Number: 1012654449797

Ruling

Subject: GST and Funds

Question

Is the payment of Funds by the Commonwealth to the entity, pursuant to a Contract for Services, consideration for a supply by the entity to the Commonwealth under paragraph 9-5(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the payment of the Funds by the Commonwealth to the entity is not consideration for a supply by the entity to the Commonwealth under paragraph 9-5(a) of the GST Act.

Relevant facts and circumstances

• The entity is a body corporate and is registered for goods and services tax (GST).

• Pursuant to a Contract for Services (the Contract) with the Commonwealth, the entity has been engaged by the Commonwealth to perform certain services for particular Programmes specified in the Contract.

• The Commonwealth will pay to the entity monthly fees for the provision of the services specified in the Contract.

• Under the Contract, the Commonwealth agrees to make available to the entity, Funds for distribution to eligible claimants in connection with the Programmes specified in the Contract.

• The Contract provides that the Funds are 'public money. This means that the money is in the custody of or under the control of the entity acting for or on behalf of the Commonwealth.

• The entity is required to have a bank account solely to hold the Funds, unspent funds and interest earned on those funds. No other monies can be held in that bank account.

• The entity is required to issue the Commonwealth with an invoice for the payment of the Funds after the Commonwealth confirms in writing that it accepts the deliverable.

• The Commonwealth pays the Funds to the entity exclusive of GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-10

A New Tax System (Goods and Services Tax) Act 1999 section 9-15

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

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

Reasons for decision

The first requirement for a taxable supply in paragraph 9-5(a) of the GST Act is that 'you make the supply for consideration'. It is the ATO's view in Goods and Services Tax Ruling GSTR 2001/6: non-monetary consideration that in the context of the GST Act, the expression 'you make the supply for consideration' in paragraph 9-5(a) has a similar meaning to 'there is consideration for the supply that you make'.

The issue that needs to be addressed in the present case is whether the payment of the Funds by the Commonwealth to the entity is consideration for a supply that the entity makes to the Commonwealth.

GSTR 2001/6 provides guidance on the meaning of consideration.

Paragraph 49 of GSTR 2001/6 explains that consideration is defined in section 195-1 of the GST Act to mean any consideration, within the meaning given by sections 9-15 and 9-17 of the GST Act in connection with the supply. The meaning given to consideration in section 9-15 of the GST Act extends beyond payments to include such things as acts and forbearances. It may include payments made voluntarily, and payments made by persons other than the recipient of a supply.

Paragraph 50 of GSTR 2001/6 states:

50. Section 9-15 further provides that a payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply. Thus, there must be a sufficient nexus between a particular payment and a particular supply for the payment to be consideration for that supply.

It follows that there are two elements to the definition of consideration. The first is the payment by one entity to another. The second element is the nexus that must be established between the payment and a supply.

In the present case, there is a payment by the Commonwealth to the entity in the form of the Funds so the first element is satisfied.

It is necessary to establish whether the entity is making a supply before the second element to the definition of consideration can be determined.

The meaning of 'supply' is given in section 9-10 of the GST Act. It states:

(1) A supply is any form of supply whatsoever.

(2) Without limiting subsection (1), supply includes any of these:

(a) a supply of goods;

(b) a supply of services;

(c) - (h) …

Goods and Services Tax Ruling: GSTR 2006/9 Goods and services tax: supplies provide guidance in relation to the identification and character of a supply.

Paragraph 33 of GSTR 2006/9 explains that the words in subsection 9-10(1) of the GST Act cover all supplies regardless of whether they concern goods or services.

GSTR 2006/9 uses various propositions to assist in analysing a transaction to identify the supply or supplies made in that transaction. The propositions may have exceptions depending on the facts and circumstances of a transaction.

In Propositions 1 and 2 of GSTR 2006/9, at paragraphs 52 and 53, the Commissioner considers that for every supply there is a supplier and generally, for every supply there is a recipient and an acquisition. The Commissioner, in Proposition 5 at paragraph 71 of GSTR 2006/9, explains that to make a supply, an entity must do something.

In the present case, pursuant to the Contract, the Commonwealth engages the entity to perform certain services. The performance of these services is a taxable supply by the entity to the Commonwealth for which the Commonwealth pays monthly fees including GST to the entity.

With regard to the Funds, based on the terms and conditions of the Contract, the entity holds and distributes the Funds to eligible claimants in connection with the relevant Programmes on behalf of the Commonwealth. The payment of the Funds by the Commonwealth to the entity is to fund certain programmes that the Commonwealth is obliged to do so and is not a payment to the entity for any supply that the entity makes to the Commonwealth.

As such, the payment of the Funds by the Commonwealth to the entity is not consideration for a supply under paragraph 9-5(a) of the GST Act.