Edited version of your written advice

Authorisation Number: 1013139941993

Date of advice: 13 February 2017

Ruling

Subject: No creditable acquisition when funding education courses

Question 1

Is the Entity making a creditable acquisition pursuant to section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it makes a payment to the Registered Training Organisation (RTO) for the delivery of the Course A and/or the Course B program with associated administration and child care services?

Answer

No. The acquisition is not a creditable acquisition. This is because the acquisition by the Entity is an acquisition of GST-free education courses the consideration for which is the payments that it makes to the Registered Training Organisation (RTO).

The scheme commences on:

1 July 201X

Relevant facts and circumstances

The Entity is registered for GST and funding for the course B program and the course A is provided.

As part of its enterprise these courses /programs are administered by the Entity which outsources the delivery of the programs, through contracting arrangements, to Registered Training Organisations (RTO) known as service providers.

The Entity will enter into contracts with service providers for the delivery of the course B and course A to eligible clients.

The contracts will be titled the New Agreement.

Under the New Agreement a Registered Training Organisation is defined as, an organisation registered as a Registered Training Organisation on the National Register maintained by the Australian Skills Quality Authority.

The Entity will fund service providers relating to:

● training for the course A to eligible clients and child care, and

● training of eligible clients under the course B program.

Under the New Agreement the Entity is required to pay the scheduled fees to the service providers for the delivery of the course B program and course A to eligible clients.

The New Agreement provides the framework on how the Couse B program and course A will be administered and the roles and responsibilities of the service provider and the Entity.

The New Agreements will be formalised into contracts between the Entity and service providers in 201X. The terms of this agreement are summarised below:

At a broader level the course B program is the Entities primary program, administered by the Entity, for helping eligible job seekers to improve their language, literacy and numeracy (LLN) skills.

Under the terms of the New Agreement the Entity is obligated to provide payment to the service provider in relation to the course B Services which include, pre- training assessments, tuition and work experience.

Course B clients are eligible for funding when they meet the criteria set out in the terms of the New Agreement.

Course B pre-training

Service providers will conduct a Pre-training Assessment to determine each course B clients' performance against the Australian Core Skills Framework (ACSF) to measure learning, reading, writing, oral communication and numeracy to participate effectively in the local labour force or in further training. The service providers will support the clients through the ACSF, place course B clients into appropriate streams and provide each client with a VET qualification or VET statement of Attainment.

Course B tuition and vocational placement

Service providers delivering the Course B tuition will conduct assessments and issue VET qualifications and VET Statements of Attainment to Course B client who meet the relevant competencies that appear against the Contractor's Scope of Registration.

For the Course B program, the definition of the term 'VET Accredited Courses' in the New Agreement has the same meaning as in the National Vocational Education and Training Regulator Act 2011.

The delivery of the Course B training includes a component for contractors to claim fees xx of vocational placement for each course B client.

The course A is an English language program, providing English language tuition to eligible new client. The program is outsourced by the Entity to service providers who provide English language tuition, in any combination of the Pre-employment English Stream and the Social English Stream, to clients within first five years.

The funding for course A will include: Initial assessment; pre-employment tuition; social English tuition; Distance learning tuition; home tutoring, work experience; child care and child care administration along with a payment for administration in the absence of a fully functional management information system (MIS).

Clients are eligible for course A if they are in Australia; don't have functional English, comply with the course A registration, comply with commencement and completion time limits and meet at least visa requirements.

English proficiency is assessed by course A service providers using 'procedures or standards for Functional English'. Migrants that do not have an International Second Language Proficiency Rating (ISLPR) score xx are eligible for the course A.

Service providers must seek approval from the Entity before issuing the social English and pre-employment tuition for the purposes of issuing a certificate.

The certificates I, II, III, and IV in Spoken and Written English, are made available to users under licence.

The course A administration fees that are not part of the Management information system (MIS) will be paid by the Entity to the service provider as compensation for not having the monitoring system available to record fees. As such, the payment is not dependent on the course A provided by service providers.

Child care fees will be charged to the Entity by service providers for the transportation to and from child care as well as fees to place children in child care.

Care is provided for children that are less than six years of age where the parents attend face to face training under the course A special language pathway.

The Entity does not collect information from service providers on the type of child care being used for the Course A program.

The child care providers are all registered carers or provide child care services.

Child care can be provided in 'centre based long day care' or 'family day care' or in other registered child care facilities.

Child care cannot be provided by a client's relative or in the child's home.

Child care places can be provided by the service provider, where they operate a child care facility or sub contract to a third party provider. For example, the service provider books a number of places in a long day care organisation.

The Entity will pay the service provider for the child care place and any administrative cost of maintaining records of the child care arrangements, which are incidental to the course A.

Relevant legislative provisions

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999

Section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999

Section 38-85 of the A New Tax System (Goods and Services Tax) Act 1999

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

Reasons for decision

Summary

The Entity is not making a creditable acquisition. This is because the payment to the Registered Training Organisation (i.e. the service provider) represents consideration for a supply of an education course that is GST-free under section 38-85 of the GST Act.

It is our view that the Entity has acquired the supply made by the service providers which is delivered by the service providers to the students. As the Entity is in receipt of a GST-free supply, the Department is not making a creditable acquisition in relation to the acquisition of the education course with associated administration and childcare services.

Detailed reasoning

You are entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you make a 'creditable acquisition'.

To be 'creditable' an acquisition must meet the requirements that are set out in section 11-5 of the GST Act. It states:

(a)  you acquire anything solely or partly for a * creditable purpose; and

(b)  the supply of the thing to you is a * taxable supply; and

(c)  you provide, or are liable to provide, * consideration for the supply; and

 (d)  you are * registered, or * required to be registered.

It is not in contention that the Entity will satisfy the requirements of paragraph 11-5(c) and 11-5(d) of the GST Act. However what remains to be considered is whether the Entity has 'acquired' the relevant services from the service providers and whether the relevant acquisition is a 'taxable supply'.

In this case we accept that the Entity has made the acquisition from the service providers. Relevantly, Goods and Services Tax Ruling GSTR 2006/9, Goods and services tax: supplies (GSTR 2006/9) examine the meaning of 'supply' in the GST Act. This ruling looks at how to identify and characterise supplies in the context of the transactions in which they are made.

GSTR 2006/9 provides a number of propositions which focus on analysing the various arrangements in which supplies are made. The propositions are not universal as they may have exceptions or be qualified either by the operation of particular provisions of the GST Act, or by the facts and circumstances of a transaction.

GSTR 2006/9 also explains that complex arrangements involving more than two entities are called 'tripartite arrangements'. In tripartite arrangements, as in two party transactions, the GST consequences turn on identifying:

● one or more supplies;

● consideration;

● a nexus between the supply and the consideration, and

● to whom the supply is made.

Consistent with the principles discussed in GSTR 2006/9 we consider the New Agreement presents a tripartite arrangement between the Entity, the service provider and the eligible clients. Therefore the issues to be determined in this case are whether the supply made by the service provider is an acquisition for the Entity, and the GST character of that supply if acquired by the Entity.

Proposition 13 in GSTR 2006/9 explains that when A has an agreement with B for B to provide a supply to C, there is a supply made by B to A (contractual flow) that B provides to C (actual flow).

Accordingly, consistent with proposition 13 we consider that the supply is made by the service provider to the Entity. That is, pursuant to the terms of the New Agreement the service providers agree to supply (and the Entity acquires) the required education course, assessment services, associated administration and childcare services under either the course A or B program to the eligible clients.

On the basis that the acquisition is made in furtherance of the Entities enterprise, we accept that the Entity satisfies section 11-5(a) of the GST Act.

Therefore what now needs to be considered is whether the acquisition by the Entity is a taxable supply.

It is our view that the supply to the Entity is not a taxable supply. Our reasons are as follows.

Taxable supplies are defined in section 9-5 of the GST Act, relevantly they do not include supplies that are either GST-free under Division 38 of the GST Act or input taxed supplies under Division 40 of the GST Act. From the facts presented there are no relevant input taxed supplies.

Section 38-85 provides:

A supply is GST-free if it is a supply of:

(a) an *education course; or

(b) administrative services directly related to the supply of such a course, but only if they are supplied by the supplier of the course.

*as defined in section 195-1

The definition of an education course includes (d) a tertiary course with a further definition at section 195-1 of the GST Act. This definition is also provided in Paragraph13-14 of Goods and services tax: supplies that are GST-free for tertiary education courses (GSTR 2001/1), it states:

Requirements specified in paragraph (a) of a 'tertiary course' as defined in the Act

13. A tertiary course includes all tertiary courses covered by the determination issued by the Education Minister under the Student Assistance Act 1973.⁸ This determination is also used to identify those courses that students must be undertaking to be eligible for income support as full-time students. The determination lists the type of course and types of educational institutions that can deliver the course. The eligibility of courses for the Student Assistance Act 1973 is reviewed periodically by the Education Minister.

14. In determining whether an education course is an approved tertiary course, it does not matter to whom the course is delivered. For example, an education course specified as an approved tertiary course under the Education Minister's determination will be GST-free regardless of whether it is delivered to resident students or non-resident students studying in Australia.

Relevantly, schedule 2 in The Student Assistance (Education Institutions and Courses) Determination 2009 (No. 2). (Education Minister's determination) provides that a tertiary course includes a pre-vocational course delivered by an RTO, a VET course when delivered by an RTO and a course of instructions in English as a second language (ESL course) delivered by an RTO, Higher education institution or any other body approved by the relevant State or Territory to conduct the course.

The Entity will be funding transactions related to the course A and B programs delivered by service providers, they are:

● Course B transactions related to pre-training assessment; tuition and work experience.

● Course A transactions related to the Initial assessment; pre-employment tuition; social English tuition; Distance learning tuition; home tutoring and work experience and

The above transactions are discussed separately below.

Course B program and pre-vocational course and VET course

Education Minister's determination provides the following definitions:

Pre-vocational course means, a course designed to assist people to gain entry to a specific related VET course or an Australian Apprenticeship, and includes an Australian Apprenticeships Access Programme.

VET course means

(a ) the units of competency of a training package that is endorsed by the Ministerial Council which has responsibility for the VET Quality Framework;

(b) the modules of a VET accredited course; or

(c) the modules of a course accredited by the VET Regulator of a State which is a non-referring State within the meaning of section 7 of the National Vocational Education and Training Regulator Act 2011.

We consider the pre- training assessment performed by the service providers prior to entering into the New Agreement satisfies the pre-vocational course definition in the Education Ministers Determination because it is designed to assist people to gain entry to a specific related VET course in this case the tuition provided in the course B training.

Furthermore, both the tuition and work experience transactions satisfy the definition of a VET course, in the Education Ministers Determination. We considered as these transactions are accredited under the National Vocational Education and Training Regulation Act 2011 they will satisfy the Education Ministers Determination under item (c) of the above VET definition.

Course A and English as a Second Language (ESL)

An ESL course is a tertiary course provided in column 1 of the Education Minister's Determination, and when delivered by an RTO the course will satisfies the definition of a tertiary course in section 195-1 of the GST Act.

The course A transactions can be classified as a GST-free tertiary course defined at section 195 -1 of the GST Act.

Course A payment for administration transactions where there is no MIS

The ATO view for administration services that are directly related to a tertiary course is outlined in paragraph 75 of GSTR 2001/1 provides a non-exhaustive list of services that are considered to be administrative services for tertiary courses and this list includes record keeping.

We consider, payments from the Entity to the service providers to record data related to the education courses are directly related to the supply of an education course because they are for the purposes of record keeping. Therefore these administration fees when paid by the Department will be GST-free under paragraph 38-85(b) of the GST Act.

Course A incidental child care and administration transactions

As part of the Course A the service provider must provide or arrange for the provision of, suitable child care in accordance with the Course A service provider instructions issued by the Commonwealth. This service is provided for the children of Course A client who are under 6 years of age and not enrolled in school. The service provider is required to collect attendance data from the child care provider which is recorded in the approved form required by the Commonwealth (i.e. administration transactions). Paragraph 63 to 66 of GSTR 2006/9 describes a supply that contains a dominant part, but also includes something that is integral, ancillary or incidental to that part is a 'composite supply' being the supply of a single thing. Therefore, the arrangements made by the service provider for child care services relating to Course A eligible clients needing child care are incidental to the provision of the education course supplied and is a single supply of the Course A education course.

A table summarising the GST-free classifications for each transaction is provided below.

Table1: GST-free classification of COURSE B program and COURSE A transactions.