Edited version of private advice

Authorisation Number: 1051536447463

Date of advice: 27 June 2019

Ruling

Subject: GST and government rebates

Question 1

Does the government entity make creditable acquisitions under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 when it pays amounts to suppliers from whom citizens receive services?

Answer 1

Yes, the entity makes creditable acquisitions when it makes payments to suppliers who provide taxable supplies to citizens.

Question 2

Does the government entity make creditable acquisitions under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 of a facilitation service provided by a supplier for which the government entity provides no additional consideration?

Answer 2

No, the government entity does not make creditable acquisitions of facilitation services from the supplier as it does not provide (and is not liable to provide) consideration for the supply.

Relevant facts and circumstances

The relevant scheme includes facts included in documents and materials provided with the private ruling application including specific terms and conditions.

The government entity is registered for GST.

The scheme is operated by the government entity and provides certain concessions to citizens.

Citizens are entitled to a payment towards the cost of services provided by the suppliers.

All suppliers are required to agree to operate in accordance with the scheme terms and conditions.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 11-5.

Reasons for decision

Question 1

The government entity is making a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for payments made to suppliers if:

it acquires anything solely or partly for a creditable purpose; and

the supply of the thing is a taxable supply; and

it provides (or is liable to provide) consideration for the supply; and

it is (or is required to be) registered for GST.

As the government entity is registered for GST and is making payments to the suppliers, it will be making creditable acquisitions if it makes an acquisition which is a taxable supply made by the supplier and that acquisition is made for a creditable purpose of the government entity.

In determining whether a payment is consideration for a supply there must be a sufficient nexus between the supply and the payment made. The goods and services tax, Goods and services tax: financial assistance payments (GSTR 2012/2) discusses the GST consequences of payments made to provide support or aid to the payee or to support or aid in the implementation of government policy and initiatives and states.

In Commissioner of Taxation v. Secretary to the Department of Transport (Vic) [2010] FCAFC 84, the Full Federal Court held that a taxi-cab operator made two supplies when the department paid a subsidy to the taxi-cab operator (or where the passenger paid the whole of the fare and the department pays the subsidy to the passenger). The two supplies are described as:

1. the supply of transport to the passenger; and

2. the supply to the department of the service of transporting the passenger.

The subsidy payment was held to be consideration for the supply to the department and therefore the department acquired a taxable supply from the taxi-cab operator and was entitled to the input tax credit for that acquisition. The goods and services tax ruling, Goods and services tax: supplies (GSTR 2006/9) discusses when one set of activities may result in more than one supply. At paragraph 221B, it states:

221B. The Commissioner considers that the following factors, in combination, may point to a supply being made by the supplier to the payer under a tripartite arrangement that involves a supply by the supplier to the customer, even where there is no binding obligation between the payer and the supplier for the supplier to make a supply to the customer:

(a)  there is a pre-existing framework or agreement between the payer and the supplier which contemplates that the parties act in a particular manner in respect of supplies by the supplier to particular third parties or a class of third parties;

(b)  the pre-existing framework or agreement:

(i)    identifies a mechanism by which the particular third parties or the class of third parties are to be identified such that the supplies made to them come within the scope of the framework or agreement; and

(ii)   specifies that the payer is under an obligation to pay the supplier if there is a relevant supply by the supplier to a third party and also sets out a mechanism by which such payment is authorised;

(c)  the framework or agreement and the mechanism for authorising the payment are in existence before the supply by the supplier to the third party (that is, the supplier knows in advance that the payer is obliged to pay some or all of the consideration in the event of the supply to the third party);

(d)  the supplier makes the supply to the third party in conformity with the pre-existing framework or agreement between the parties; and

(e)  the obligation of the payer to make payment pursuant to the pre-existing framework or agreement is not an administrative arrangement to pay on behalf of the third party for a liability owed by the third party to the supplier. Rather, once the supply becomes a supply to which the framework or agreement applies, the framework or agreement establishes a liability owed by the payer (not the third party) to the supplier in the event that there is a supply by the supplier to the third party.

The terms and conditions of the scheme provide the framework under which the scheme operates. It stipulates that a citizen is only entitled to a rebate when he or she makes a purchase through a supplier which is pre-approved by the government to provide services under the scheme.

The terms and conditions commit the government entity to paying a supplier when claims are lodged with specified documentation. The amount of the rebate is specified in the terms and conditions and the rebate claim forms so that suppliers are aware, in advance, of the amount to be paid by the government entity.

Therefore, suppliers are making supplies to the government entity under the scheme. Those supplies will be taxable supplies if the supplier is registered for GST and the supply is not GST-free. The acquisition of those supplies by the government entity are made in the course or furtherance of the enterprise carried on by the government entity.

Consequently, the government entity is making creditable acquisitions when it makes payments to suppliers under the scheme when the supplier is registered (or required to be registered) for GST and the supply is not GST-free

Question 2

As discussed at 1 above, the government entity is making a creditable acquisition when

it acquires anything solely or partly for a creditable purpose; and

the supply of the thing is a taxable supply; and

it provides (or is liable to provide) consideration for the supply; and

it is (or is required to be) registered for GST.

The supply of a facilitation service provided by a supplier to the government entity cannot be a taxable supply unless it is a supply made 'for consideration'. Consideration is defined by section 9-15 of the GST Act broadly and includes any payment or act or forbearance.

The goods and services tax ruling, Goods and services tax: non-monetary consideration (GSTR 2001/6) explains the meaning of consideration and states:

81. For a thing to be treated as a payment for a supply, it must have economic value and independent identity provided as compensation for the making of the supply. That is, it must be capable of being valued and be a thing that an acquirer would usually or commercially pay money to acquire. Whether this requirement is satisfied will usually be demonstrated by the parties to an arrangement assigning a specific or separate value to the thing. However, the assigning of a value by the parties is not necessary for a thing to have economic value.

82. Whether a payment is consideration for a supply depends on the true character of the transaction. Consideration for a supply is something the supplier receives for making the supply. Although a non-monetary payment (and acts or forbearances) can form consideration, the character of the transaction will determine whether it forms part of the consideration received by the supplier for making the supply.

As discussed above, a supplier makes a supply of to the government entity of 'arranging services for citizens' and receives consideration for that supply in the form of the rebate in accordance with the terms and conditions of the scheme. The government entity does not provide the supplier with anything further that could constitute consideration for that supply. The government entity does not provide any further payment, nor does it provide anything tangible or intangible as consideration for any further supplies.

As the government entity does not provide any further consideration for any further supplies that may be made by a supplier, the supplier cannot be making a taxable supply in relation to any supply of facilitation services to the government entity. Consequently, the government entity is not making a creditable acquisition.