Edited version of private advice

Authorisation Number: 1051684234189

Date of advice: 25 May 2020

Ruling

Subject: Goods and services tax (GST) and the payment of a rebate to a student as an incentive to purchasing a course from a third party

Question 1

Does the payment you make to a student as an incentive to purchasing a course reduce your GST liability on the commission you receive from the education institution for placement of the student in the course?

Answer

No.

The payment to the student does not change the consideration (commission) for the supply of the placement service you make to the education institution, as the payment you make to the student is made pursuant to a separate agreement between you and the student, but not involving the education institution. Therefore, the payment does not reduce your GST liability on the commission you receive from the education institution.

Question 2

Does the payment you make to a student as an incentive to purchasing a course result in a decreasing adjustment for you?

Answer

No.

The rebate does not reduce your GST liability on the supply of the placement service you make to the education institution and therefore you are not entitled to a decreasing adjustment under Division 19 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

You are not entitled to a decreasing adjustment under subsection 134-5(1) of the GST Act because the payment you make to a student is not made in connection with, in response to or for the inducement of the student's acquisition of a thing that you supplied to the education institution or any other entity.

There are no other provisions in the GST Act under which you are entitled to a decreasing adjustment.

Question 3

Are you entitled to an input tax credit under section 11-20 of the GST Act for the acquisition (if any) you make from a student in return for the payment you make to the student?

Answer

No.

You are not entitled to an input tax credit under section 11-20 of the GST Act as you have not made any creditable acquisition in return for the payment you make to the student.

Relevant facts and circumstances

You are registered for GST.

Your business is based in Australia and all of your staff are located in Australia.

Your business operates a migration and education agency service. The business earns commission income paid by education institutions for placement of students into courses. For example, where a course fee is paid by the student, then the education institution pays the business a commission for this sale. The business also earns professional fees for being a migration agent.

You have provided us with a copy of the contract you have with an Australian education institution (X). Under the contract:

·        You are required to market the courses of X, its subsidiary and associated providers as identified in the schedule given to you;

·        You will interview and advise prospective students concerning enrolments into X and its subsidiary and associated providers

·        You will arrange necessary English language testing of prospective students under the relevant Australian migration regulations.

·        You will assist the prospective students to enrol in the educational programs run by X, its subsidiary and associated providers.

·        X sets the fees and charges for the program or course and you are authorised to collect the tuition fees from the student on behalf of X.

·        X will pay you a fee for each student you have recruited , enrolled in a program or course, has paid the tuition fees and charges, has commenced the program and who has not subsequent to commencing the program been fully refunded the program fees.

The amount of education commission that you receive from an education institution for placing the student is often known by the student, and it is common practice for the student to demand a rebate (also referred to as a discount) from you before committing to the course.

There is a lot of competition in the industry. If a student has chosen to work with you then you do not want to lose that customer and the commission income to be earned from the educational institution. You agree to pay the student the rebate on the condition that the student completes a 'Student Discount Form'.

The Student Discount Form completed by the student and returned to you is an arrangement between you and the student. The intention of the rebate payment to the student is to secure the commission income.

The student is not required to do anything in order to be entitled to the rebate other than purchasing a course. The student does not pay any fee to you for finding a course place for them.

After the student has agreed to enrol for the course and paid the fee, you pay the rebate to the student. For example, a payment is required by the student prior to them committing to a course. Essentially, when they sign up they know they will pay the education institution say (amount) and will receive a 'rebate' from you of say (amount).

The education institution is not required to pay any money to the student. You will remit the fee set up by the education institution to the education institution after collecting the payment from the student. Your commission is based on the fee that the education institution has received.

The Student Discount Form contains the following text:

• Name of your business and your ABN
• Date
• Student name
• University offered
• Course offered
• Duration of course
• Actual Fees
• Discount offered

Terms and conditions:

1. If college will increase the fees in future, then the student has to make extra payment according to the fees, otherwise discount will remain the same.
2. The discount is offered by you. So, for avail the discount, the student has to pay at your office.

Agreement

I have read and understood all the terms and conditions stated above of discount. I agree with these conditions and like to proceed further my case.

The student is usually here in Australia when the courses are purchased. Many of the customers are studying another course when purchasing a new course. There may be some students that purchase directly from their home countries overseas but this is a small portion of the business.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-70

A New Tax System (Goods and Services Tax) Act 1999 section 9-75

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

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

A New Tax System (Goods and Services Tax) Act 1999 Division 19

A New Tax System (Goods and Services Tax) Act 1999 section 134-5

Reasons for decisions

Question 1

Summary

The rebate does not change the consideration for the supply of the placement service you make to the education institution, as the payment is made pursuant to a separate agreement between you and the student, but not involving the education institution.

Therefore, the payment does not reduce your GST liability on the commission you receive from the education institution.

Detailed reasoning

GST on a taxable supply is worked out as 1/11^th of the price of the supply. Therefore, if there is a reduction to the previously agreed consideration for a taxable supply, whether due to the offer of a discount or otherwise, this results in a reduction in the GST payable on the supply.

Paragraphs 40 to 41 of Goods and Services Tax Ruling GSTR 2000/19 provide assistance in determining the GST implications of the rebate that you pay to a student, as this part of that public ruling deals with the situation where an entity (first entity) purchases something from second entity and a third party then pays a rebate to the first entity.

Paragraphs 40 to 41 of GSTR 2000/19 state:

Payments to third parties

40. An entity (such as a manufacturer) may offer to make a payment to a third party end user if the end user acquires a thing from another entity (such as a retailer). Typically, the manufacturer will make the payment directly to the end user independently of the retailer. The payment is made pursuant to a separate agreement between the end user and the manufacturer but not involving the retailer.17A A payment made in these circumstances cannot give rise to an adjustment event. It does not change the consideration received by the retailer for the supply by the retailer to the end user, nor does it change the consideration received by the manufacturer for the supply by the manufacturer to the retailer. A change in the consideration for these supplies cannot occur independently of the retailer.

40A. Although the third party payment the manufacturer makes to the end user in relation to the end user's acquisition of the thing does not result in an adjustment event under Division 19, a third party payment may result in an adjustment Division 134. Division 134 can only apply if the third party payment is made on or after 1 July 2010.

40B. Under Division 134, a manufacturer registered for GST may be entitled to a decreasing adjustment, as if the consideration for the manufacturer's taxable supply of the thing to the retailer had been reduced by the amount of the third party payment. An end user registered for GST may be subject to an increasing adjustment under Division 134, as if the consideration for the payee's acquisition of a taxable supply of the thing by the retailer had been reduced by the amount of the payment.

40C. One of the conditions for a decreasing adjustment under Division 134 is that the third party payment is not consideration for a supply made to the payer (paragraph 134-5(1)(e)). One of the conditions for an increasing adjustment for a payee is that the third party payment is not consideration for a supply by the payee (paragraph 134-10(1)(e)).

41. In some circumstances, it may be necessary to consider whether a separate supply is made by the end user to the manufacturer in return for the payment. This will depend on the arrangement between the parties, including any contract between them. For example, where the end-user is merely accepting the manufacturer's standing offer by way of making a purchase from the retailer, the end user does not enter any binding obligation in favour of the manufacturer. Nor does it provide goods, services, or anything else which can be described as a supply to the manufacturer. As such it makes no supply. By contrast, the manufacturer may offer a rebate to the end user under a separate agreement entered into by both parties. Where the agreement requires the end user to do something specific, such as participate in a publicity promotion for the manufacturer, the end user is making a supply for consideration. The supply is the entry into and fulfilment of the obligation to participate in the promotion. The consideration is the rebate.

In accordance with paragraph 40 of GSTR 2000/19, the rebate does not change the consideration for the supply of the placement service you make to the education institution, as the rebate is made pursuant to a separate agreement between you and the student, but not involving the education institution. A change in the consideration for the supply you make to the education institution cannot occur independently of the education institution.

Therefore, the payment of the rebate does not reduce your GST liability on the supply you make to the education institution.

Question 2

Summary

The rebate does not reduce your GST liability on the supply of the placement service you make to the education institution and therefore you are not entitled to a decreasing adjustment under Division 19 of the GST Act.

You are not entitled to a decreasing adjustment under subsection 134-5(1) of the GST Act because the payment you make to a student is not made in connection with, in response to or for the inducement of the student's acquisition of a thing that you supplied to the education institution or any other entity.

There are no other provisions in the GST Act under which you are entitled to a decreasing adjustment.

Detailed reasoning

GST on a taxable supply is worked out as 1/11^th of the price of the supply. Therefore, if there is a reduction to the previously agreed consideration for a taxable supply, whether due to the offer of a discount or otherwise, this results in a reduction in the GST payable on the supply.

In certain situations, a reduction in consideration for a supply will result in a decreasing adjustment for the supplier. A decreasing adjustment is a reduction in the net amount that a taxpayer owes the ATO. Decreasing adjustments are reported in a BAS that is lodged subsequent to the BAS in which the taxable supply was reported.

Decreasing adjustments can also arise in certain other circumstances, for example, in certain situations where an entity pays another entity (the payee) a rebate in response to the payee purchasing something from a third party.

Decreasing adjustments for adjustment events

Division 19 of the GST Act provides that a decreasing adjustment can arise for a taxable supply where there is an adjustment event.

Subsection 19-10(1) of the GST Act defines adjustment event. It states:

An adjustment event is any event which has the effect of:

(a)   cancelling a supply or acquisition; or

(b)   changing the *consideration for a supply or acquisition; or

(c)   causing a supply or acquisition to become, or stop being, a *taxable supply or *creditable acquisition.

(*is a defined term in section 195-1 of the GST Act)

In accordance with subsection 19-10(2) of the GST Act, an adjustment event includes, amongst other things, a change to the previously agreed consideration for a supply, whether due to the offer of a discount or otherwise.

A supplier has an adjustment for a taxable supply if:

(a)   in relation to the supply, an adjustment event occurs during a tax period; and

(b)   GST on the supply was attributable to an earlier tax period; and

(c)   as a result of the adjustment event, the previously attributed GST amount for the supply no longer correctly reflects the amount of GST on the supply.

If the adjustment event happens in the same tax period as the tax period to which the taxable supply is attributable and as a result of the adjustment event, the GST amount originally calculated on the supply no longer correctly reflects the GST on the supply, the supplier does not have an adjustment under Division 19 of the GST Act, but instead reports the corrected GST amount in the BAS for the tax period to which the sale is attributable.

Adjustments for third party payments

In accordance with subsection 134-5(1) of the GST Act, you may be entitled to a decreasing adjustment if:

• you make a payment to an entity (the payee ) that acquires a thing that you supplied to another entity (whether or not that other entity supplies the thing to the payee); and
• your supply of the thing to the other entity was a taxable supply; and
• the payment is made in connection with, in response to or for the inducement of the payee's acquisition of the thing; and
• the payment is not * consideration for a supply to you.

As determined in question 1, the rebate does not change the consideration for the supply of the placement service you make to the education institution, as the rebate is made pursuant to a separate agreement between you and the student, but not involving the education institution. A change in the consideration for the supply you make to the education institution cannot occur independently of the education institution.

Therefore, the payment of the rebate does not reduce your GST liability on the supply you make to the education institution. Hence, you do not have a decreasing adjustment under Division 19 of the GST Act.

You are not entitled to a decreasing adjustment under subsection 134-5(1) of the GST Act because the payment you make to a student is not made in connection with, in response to or for the inducement of the student's acquisition of a thing that you supplied to the education institution or any other entity.

There are no provisions in the GST Act which give rise to a decreasing adjustment for you as a result of the payment of the rebate.

Question 3

Summary

You are not entitled to an input tax credit as you do not make a creditable acquisition from the student in return for the rebate.

Detailed reasoning

You are entitled to an input tax credit if you make a creditable acquisition.

You make a creditable acquisition where you meet the requirements in section 11-5 of the GST Act, which states:

You make a creditable acquisition if:

(a)   you acquire something 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 for GST.

A student purchases a course from an education institution. You are a third party in relation to this transaction. You pay a rebate to a student as an inducement to purchase the course. A student merely accepts your offer to make a payment to them by purchasing a course from an education institution. The student is not required to do anything else in order to receive the rebate. Therefore, in accordance with paragraph 41 of GSTR 2000/19, the student does not supply an obligation or anything else to you in return for the rebate and has not made a taxable supply to you .The requirements for a creditable acquisition in section 11-5 of the GST Act are not met and therefore, you are not entitled to an input tax credit.