Edited version of your written advice

Authorisation Number: 1012935546708

Date of advice: 8 March 2016

Ruling

Subject: Goods and services tax (GST) and payments made to and received from entities

Question 1

Are the funding payments made by Entity A (you) to Entity B treated as not being the provision of consideration under subsection 9-17(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 1

No, the provisions of subsection 9-17(3) of the GST Act do not apply as Entity B is not a government related entity. Therefore, the payments are subject to the basic GST rules.

Question 2

Are the funding payments you make to Entity C treated as not being the provision of consideration under subsection 9-17(3) of the GST Act?

Answer 2

No, the provisions of subsection 9-17(3) of the GST Act do not apply as Entity C is not a government related entity. Therefore, the payments are subject to the basic GST rules.

Question 3

Are the payments made by Entity D to you for services you provide treated as not being the provision of consideration under subsection 9-17(3) of the GST Act?

Answer 3

Yes, the payments are treated as not being the provision of consideration under subsection 9-17(3) of the GST Act. Therefore, the payments are not subject to GST.

Relevant facts and circumstances

You are a government entity and you are registered for GST.

You provide funding to Entity B and Entity C.

You provide services to Entity D for which you receive payments.

Entity B is a public company, limited by guarantee.

Voting members of Entity B are organisations that are legal entities and have rights to:

• nominate individuals to the Board

• vote at the annual general meeting (AGM).

Entity C is a public company, limited by guarantee.

Entity D was established as a Commonwealth entity.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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

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

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

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

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

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

Question 1

In your case, subsection 9-17(3) is relevant in examining if the payment is consideration for a supply.

Subsection 9-17(3) is intended to ensure that non-commercial activities of GREs are not subject to GST. This is achieved by treating a payment which meets certain conditions as not being the provision of consideration and therefore not subject to the basic GST rules.

Under subsection 9-17(3), a payment is not the provision of consideration where the payment:

• is made by a GRE to another GRE for making a supply

• is covered by an appropriation under an Australian law, and

• satisfies a non-commercial test.

In examining the first condition, that the payment must be made by a GRE to another GRE, it is necessary to establish if Entity B is a GRE.

Meaning of GRE

The term 'government related entity' is defined in section 195-1 and states at paragraph (b):

(b) an entity that would be a government entity but for subparagraph (e)(i) of the definition of government entity in the A New Tax System (Australian Business Number) Act 1999.

Paragraph (e) of the definition of the term 'government entity' in section 41 of the A New Tax System (Australian Business Number) Act 1999 (ABN Act) states:

(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.

To determine if Entity B is a GRE, it is necessary to examine how paragraph (e) of the definition of government entity in section 41 of the ABN Act applies.

Entity

Subparagraph (e)(i) of the definition of government entity in section 41 of the ABN Act applies to an organisation that is not an entity. The term 'entity' is defined for this purpose in section 41 of the ABN Act in the same terms as the definition of 'entity' in section 184-1 and includes a company.

As Entity B is a public company, it is an entity.

Therefore, as Entity B does not satisfy subparagraph e(i) of the definition of government entity in section 41 of the ABN Act, this element of paragraph (b) of the definition of GRE (requiring Entity B to be an entity in its own right) is satisfied.

Established by the Commonwealth

Under subparagraph (e)(ii) of the definition of government entity in section 41 of the ABN Act, the organisation must be established by the Commonwealth (whether under a law or not) to carry on an enterprise or established for a public purpose by an Australian law.

In this case, Entity B is funded by you and is a public company, limited by guarantee.

Goods and Services Tax Ruling GSTR 2006/5 - Goods and services tax: meaning of 'Commonwealth, a State or a Territory' (GSTR 2006/5) provides relevant guidance in these circumstances and explains, at paragraph 8, that the meaning is not limited to government departments, agencies and organisations and may include a corporation which is not a 'government entity' as defined in section 195-1. However, not every corporation in which the Commonwealth has an interest is part of the Commonwealth.

Paragraph 11 of GSTR 2006/5 discusses the principles drawn from several court cases to determine if a corporation is characterised as the Commonwealth or not and states:

11. The fundamental principle established by these cases is that, if the corporation is discharging governmental functions for the State - that is, the State is carrying on the relevant business or other function through the corporation - the corporation is the State.5 On the other hand, if the intention is for the corporation to perform its functions independently of, and not as an instrument of, the State - so that the concept of a State activity cannot be realistically applied to that which the corporation does - the corporation is not the State.

Paragraph 12 lists principles to be considered in determining the characterisation of a corporation in a specific case. Of particular relevance are principles (b) and (c), relating to ownership, management and control of the corporation, which state:

(b) it is the ownership and management of a corporation, and the purposes it is required to pursue, that will most often reveal whether the corporation is the State. If examination of those features reveals that the corporation is wholly owned and controlled by the State, and must act solely in the interests of the State, the conclusion that it is the State will readily follow;

(c) it follows that it is not sufficient to demonstrate a government policy of favouring or facilitating the creation of the corporation in pursuit of some aspect of the public interest. If the State does not control the conduct of the affairs of the corporation, the State cannot be said to be carrying on activities of government through the corporation;

In considering these principles in relation to Entity B, it is noted that Entity B is an independent entity.

Further, voting members of Entity B are organisations that are legal entities. Voting members have rights to:

• nominate individuals to the Board

• vote at the AGM.

As Entity B has broad membership and voting members have rights to nominate individuals to the Board and vote at the AGM, it is considered that Entity B is characterised as not being the Commonwealth. The Commonwealth does not control the conduct of the affairs of Entity B and cannot be said to be carrying on activities of government through the corporation. Further, although Entity B is funded by you, this interest does not mean that Entity B is characterised as part of the Commonwealth.

Therefore, as Entity B is not characterised as the Commonwealth, the requirement of subparagraph (e)(ii) of the definition of government entity in section 41 of the ABN Act, that the organisation must be established by the Commonwealth, is not satisfied.

Consequently, Entity B does not satisfy paragraph (b) of the definition of GRE and, therefore, is not a GRE.

Conclusion

Accordingly, the provisions of subsection 9-17(3) do not apply to the payments you make to Entity B as it is not a GRE. The payments are subject to the basic GST rules.

Question 2

As discussed above in Answer 1, the first condition of subsection 9-17(3) to be satisfied for a payment to be treated as not being the provision of consideration is that the payment must be made by a GRE to another GRE. Therefore, it is necessary to establish if Entity C is a GRE.

Meaning of GRE

To determine if Entity C is a GRE, it is necessary to examine how paragraph (e) of the definition of government entity in section 41 of the ABN Act applies.

Entity

Subparagraph (e)(i) of the definition of government entity in section 41 of the ABN Act applies to an organisation that is not an entity. The term 'entity' is defined for this purpose in section 41 of the ABN Act in the same terms as the definition of 'entity' in section 184-1 and includes a company.

As Entity C is a public company, it is an entity.

Therefore, as Entity C does not satisfy subparagraph e(i) of the definition of government entity in section 41 of the ABN Act, this element of paragraph (b) of the definition of GRE (requiring Entity C to be an entity in its own right) is satisfied.

Established by the Commonwealth

Under subparagraph (e)(ii) of the definition of government entity in section 41 of the ABN Act, the organisation must be established by the Commonwealth (whether under a law or not) to carry on an enterprise or established for a public purpose by an Australian law.

In this case, Entity C is public company, limited by guarantee.

GSTR 2006/5 provides relevant guidance in these circumstances and explains, at paragraph 8, that the meaning of the Commonwealth is not limited to government departments, agencies and organisations and may include a corporation which is not a 'government entity' as defined in section 195-1. However, not every corporation in which the Commonwealth has an interest is part of the Commonwealth

As discussed above in Answer 1, paragraph 11 of GSTR 2006/5 discusses the principles drawn from several court cases to determine if a corporation is characterised as the Commonwealth. Paragraph 12 lists principles to be considered in determining the characterisation of a corporation in a specific case. Of particular relevance are principles (b) and (c), relating to ownership, management and control of the corporation.

In considering these principles in relation to Entity C, it is noted that Entity C is an independent entity.

As Entity C has broad membership it is considered that Entity C is characterised as not being the Commonwealth. The Commonwealth does not control the conduct of the affairs of Entity C and cannot be said to be carrying on activities of government through the corporation. Further, although Entity C is funded by you, this interest does not mean that Entity C is characterised as part of the Commonwealth.

Therefore, as Entity C is not characterised as the Commonwealth, the requirement of subparagraph (e)(ii) of the definition of government entity in section 41 of the ABN Act, that the organisation must be established by the Commonwealth, is not satisfied.

Consequently, Entity C does not satisfy paragraph (b) of the definition of GRE and, therefore, is not a GRE.

Conclusion

Accordingly, the provisions of subsection 9-17(3) do not apply to the payments you make to Entity C as it is not a GRE. The payments are subject to the basic GST rules.

Question 3

Under subsection 9-17(3), a payment which meets certain conditions is treated as not being the provision of consideration.

Meaning of GRE

The first condition of subsection 9-17(3) is that the payment must be made by a GRE to another GRE for making a supply, in accordance with paragraph 9-17(3)(a).

Under section 195-1, a GRE includes:

• a department of state of the Commonwealth

• an entity established by the Commonwealth (whether under a law or not) to carry on an enterprise or established for a public purpose by an Australian law and can be separately identified by reference to the nature of the activities carried on through the entity.

For the purposes of this ruling, we accept that Entity D is a GRE.

As you are also a GRE the payment made to you by Entity D is a payment made between GREs.

Therefore, the condition in paragraph 9-17(3)(a) is satisfied.

Payments

In your circumstances, you provide services to Entity D for which you receive payments.

In relation to the relevant second condition in subsection 9-17(3), the condition in paragraph 9-17(3)(b) is satisfied.

Non-commercial test

The third condition of subsection 9-17(3) is that the payment must satisfy the non-commercial test set out in paragraph 9-17(3)(c).

The test is that the payment is calculated on the basis that the sum of the payment received by the GRE supplier and anything else received by it from another entity in connection with the supply (or any other related supply), does not exceed the actual or anticipated costs of making those supplies.

In your case, the amounts of the payments for the services you supply to Entity D are calculated on a cost recovery basis.

Therefore, the payments you receive from Entity D satisfy the non-commercial test as the payments do not exceed your anticipated or actual costs of making the supply of services to Entity D.

Therefore, the condition in paragraph 9-17(3)(c) is satisfied.

Conclusion

In summary, we consider the payments satisfy the conditions set out in subsection 9-17(3). Specifically:

• paragraph 9-17(3)(a) is satisfied as the payment is made by a GRE to another GRE, being paid by Entity D to you; and

• subparagraph 9-17(3)(b) is satisfied, and

• paragraph 9-17(3)(c) is satisfied as the payment has been calculated on the basis that the payment does not exceed your anticipated or actual costs of making the supply.

Therefore, the payments are treated as not being the provision of consideration and are not subject to GST.