Edited version of your written advice

Authorisation Number: 1013110549617

Date of advice: 21 October 2016

Ruling

Subject: GST and subdivision 153-B arrangements

Unless otherwise stated, all legislative references in this edited version of the private ruling are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and all terms used in this edited version of the ruling that are defined in the GST Act will have the same meaning as the GST Act.

Question 1

Can two X entities, Entity A and Entity B, enter into a subdivision 153-B arrangement with respect to the supplies and acquisitions that they make to each other?

Answer

Yes, two X entities can enter into a subdivision 153-B arrangement with respect to the supplies and acquisitions that they make to each other.

Question 2

When both Entity A and Entity B enter into a subdivision 153-B arrangement, can both entities attribute the GST payable and the input tax credits according to the attribution rules contained in Division 29?

Answer

Yes, when both Entity A and Entity B enter into a subdivision 153-B arrangement, both entities attribute the GST payable and the input tax credits according to the attribution rules contained in Division 29.

Question 3

When both Entity A and Entity B enter into a subdivision 153-B arrangement, can they issue a recipient created tax invoice (RCTI) which includes taxable supplies and creditable acquisitions that they make to each other?

Answer

Yes, when two X entities enter into a subdivision 513-B arrangement, they can issue an RCTI which includes taxable supplies and creditable acquisitions that they make to each other.

Relevant facts and circumstances

Entity A and Entity B are both X entities.

Entity A and Entity B are separately registered for GST purposes and both entities are reporting on an accrual basis.

Both Entity A and Entity B perform different functions.

As part of the roles and responsibilities, Entity B makes taxable supplies on behalf of Entity A to third parties. During the course of making such supplies, Entity B makes acquisitions on behalf of Entity A as well as making separate taxable supplies to Entity A.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999, Division 29

A New Tax System (Goods and Services Tax) Act 1999, subsections 48-57(1)

A New Tax System (Goods and Services Tax) Act 1999, subsection 54-50(1)

A New Tax System (Goods and Services Tax) Act 1999, Division 153

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

Reasons for decision

Question 1

Section 153-50 provides that an entity (the principal) may, in writing, enter into an arrangement with another entity (the intermediary) under which the intermediary is treated as a separate supplier and/or acquirer. The intermediary is treated as principal in its own right.

The term 'entity' is defined in section 184-1 to include an individual, a body corporate, a corporation sole, a body politic, a partnership, any other incorporated association or body of persons, a trust, a superannuation fund.

Miscellaneous Taxation Ruling MT 2011/1 Miscellaneous taxes: application of penalties and interest charges to the Commonwealth, States, Northern Territory and Australian Capital Territory (MT 2011/1) states that the term 'entity' includes a Commonwealth body. The term 'Commonwealth body' refers to the Crown in right of the Commonwealth or any emanation or instrumentality, including a statutory corporation. This term also refers to an untaxable Commonwealth entity, an authority of the Commonwealth or a Commonwealth authority (paragraph 7 MT 2011/1).

Accordingly, both Entity A and Entity B are entities for the purpose of the GST Act. Further, subsection 153-50(2) provides that an entity can be an intermediary whether or not the entity is the agent of the principal. It follows that Entity B can be treated as an intermediary for the purposes of subdivision 153-B in respect of supplies and acquisitions made on behalf of Entity A (as principal) and can therefore enter into any agreement under section 153-50 with respect to the supplies and acquisitions that they make to each other.

However, it is important to note that section 153-55, which is about the effect of this arrangement on supplies, only applies to the taxable supplies covered by the arrangement. Similarly, section 153-60, which is about the effect of these arrangements on acquisitions, only applies to the creditable acquisitions covered by the arrangement. For supplies outside the scope of the agreement, Entity A and Entity B will need to account for them as being from principal to principal for GST purposes, separately from the supply of intermediary services. This is because sections 153-55 and 153-60 of the GST Act do not apply in these circumstances.

Question 2

When the intermediary (Entity B) makes a taxable supply to a third party, subsection 153-55(2) provides that the principal (Entity A) is taken to have made a taxable supply to the intermediary of the same thing that the intermediary is taken to supply.

GST payable by Entity A is attributed in accordance with Division 29. The tax period in which Entity A is required to report the GST payable will be determined by the business process that is put in place between Entity A and Entity B. Section 29-5 provides that the GST payable by an entity is attributable to the tax period in which any of the consideration is received for the supply or if, before any of the consideration is received, an invoice is issued relating to the supply - the tax period in which the invoice is issued.

As the supply by Entity A to Entity B is a taxable supply, Entity B is entitled to claim input tax credits for its creditable acquisitions. The input tax credit is attributed in accordance with Division 29. The tax period in which Entity B can claim its input tax credits will be determined by the business process that is put in place between Entity A and Entity B. Section 29-10 provides that the input tax credit to which an entity is entitled for a creditable acquisition is attributable to the tax period in which the entity provides any of the consideration for the acquisition or if, before any of the consideration is provided, an invoice is issued relating to the acquisition - the tax period in which the invoice is issued.

Similarly, subsection 153-60(1) provides that the principal (Entity A) and the intermediary (Entity B) treat creditable acquisitions that the principal makes from third parties through the intermediary as two separate acquisitions and that they are treated as acting between themselves as principal to principal for GST purposes. When Entity B makes a creditable acquisition from a third party on behalf of Entity A, Entity B is taken to make a taxable supply to Entity A of the same thing that Entity B is taken to acquire (subsection 153-60(2)).

As the supply by Entity B to Entity A is a taxable supply under the arrangement, Entity B is required to account for the amount of GST payable on the supply to the Commissioner. GST payable by Entity B is attributed in accordance with Division 29. The tax period in which Entity B is required to report the GST payable will be determined by the business process that is put in place between Entity A and Entity B. Section 29-5 provides that the GST payable by an entity is attributable to the tax period in which any of the consideration is received for the supply or if, before any of the consideration is received, an invoice is issued relating to the supply - the tax period in which the invoice is issued.

As the supply by Entity B to Entity A is a taxable supply, Entity A is entitled to claim input tax credits for the creditable acquisitions. The input tax credit is attributed in accordance with Division 29. The tax period in which Entity A can claim its input tax credits will be determined by the business process that is put in place between Entity A and Entity B. Section 29-10 provides that the input tax credit to which an entity is entitled for a creditable acquisition is attributable to the tax period in which the entity provides any of the consideration for the acquisition or if, before any of the consideration is provided, an invoice is issued relating to the acquisition - the tax period in which the invoice is issued.

Question 3

Under A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoice Determination (No 1) 2000 (the determination) the Commissioner determined that a recipient of a taxable supply may issue a tax invoice for a taxable supply made to an entity that is a X related entity and the tax invoice satisfied the requirements in Clause 4 of the determination.

Requirements that must be satisfied by a recipient of a taxable supply

Clause 4. A recipient must satisfy the following requirements:

(a) the recipient must be registered for GST;

(b) the recipient must set out in the tax invoice the ABN of the supplier;

(c) the recipient must issue the original or a copy of the tax invoice to the supplier within 28 days of making, or determining, the value of a taxable supply and must retain the original or the copy;

(d) the recipient must issue the original or a copy of an adjustment note to the supplier within 28 days of the adjustment and must retain the original or the copy;

(e) the recipient must reasonably comply with its obligations under the taxation laws;

(f)  the recipient must have either:

● a written agreement with the supplier specifying the supplies to which it relates, that is current and effective when the RCTI is issued, agreeing that:

(i)  the recipient can issue tax invoices in respect of the supplies;

(ii) the supplier will not issue tax invoices in respect of the supplies;

(iii) the supplier acknowledges that it is registered for GST when it enters into the agreement and that it will notify the recipient if it ceases to be registered; and

(iv) the recipient acknowledges that it is registered when it enters into the agreement and that it will notify the supplier if it ceases to be registered for GST; or

● an agreement with the supplier embedded in an RCTI it issues that contains the following statement:

The recipient and the supplier declare that this agreement applies to supplies to which this tax invoice relates. The recipient can issue tax invoices in respect of these supplies. The supplier will not issue tax invoices in respect of these supplies. The supplier acknowledges that it is registered for GST and that it will notify the recipient if it ceases to be registered. The recipient acknowledges that it is registered for GST and that it will notify the supplier if it ceases to be registered for GST. Acceptance of this RCTI constitutes acceptance of the terms of this written agreement.

 Both parties to this supply agree that they are parties to an RCTI agreement. The supplier agrees to notify the recipient if the supplier does not wish to accept the proposed agreement within 21 days of receiving this document;

(g) the recipient must not issue a document that would otherwise be a recipient created tax invoice, on or after the date when the recipient or the supplier has failed to comply with any of the requirements of this determination.

Goods and Services Tax Ruling GSTR 2000/10 Goods and services tax: recipient created tax invoices (GSTR 2000/10) explains the determination. Paragraphs 25 to 27 of GSTR 2000/10 explain 'supplies to related X entities'.

Section 195-1 defines 'X related entity' to mean:

(a)  a X entity; or

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

(c)  a local governing body established by or under a State law or Territory law.

The term X entity' is defined in section 41 of the A New Tax System (Australian Business Number) Act 1999 to mean:

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

(b) a Department of the Parliament established under the Parliamentary Service Act 1999 ; 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.

Both Entity A and Entity B fall within the definition of X related entity. Based on the facts provided, it is likely that Entity A and Entity B will make taxable supplies to each other when performing their respective functions. Accordingly, either Entity A or Entity B can issue an RCTI for a matter provided they both satisfy the requirements in the determination. Further, if the RCTI includes appropriate details of the separate supply (as required by subsection 29-70(1)) from the recipient to the supplier, it can also be accepted as the tax invoice for that supply (subject to subsections 48-57(1) and 54-50(1) in relation to GST Groups and GST branches respectively).

The RCTI issued must meet the requirements in section 29-70 as follows:

(1) it must be issued by the recipient

(2) it must be in the approved form

(3) it contains enough information to enable the following to be clearly ascertained:

(i) the supplier's identity and ABN

(ii) the recipient's identity and ABN

(iii) what is supplied, including the quantity and the price of what is supplies

(iv) the extent to which each supply to which the document relates is a taxable supply

(v) the date the document is issued

(vi) the amount of GST (if any) payable in relation to each supply to which the document relates

(vii) that the GST is payable by the supplier

(viii) such other matters as the regulations specify

(4) it can be clearly ascertained from the document that the document was intended to be a RCTI.