Edited version of private advice

Authorisation Number: 1052313485888

Date of advice: 15 January 2025

Ruling

Subject: Accommodation allowance

Issue 1

Goods and services tax (GST) and contractor payments

Question 1

Are the accommodation payments under the agreement between the hospital and Dr X a reimbursement for GST purposes?

Answer 1

No.

Question 2

If the answer to question one above is yes, is the tax invoice for the accommodation to the hospital GST inclusive?

Answer 2

Not applicable.

Question 3

If the answer to question one is no, are the accommodation payments set out in the agreement for a taxable supply by Dr X under section 9-5 of A New Tax System (Goods and Services) Act 1999 (GST Act)?

Answer 3

Yes.

Issue 2

Assessable income - accommodation allowance

Question 1

Are the accommodation payments you received under the agreement assessable income in accordance with section 15-2 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Issue 3

Deduction - accommodation expense

Question 1

Are you entitled to claim the accommodation expense you incur under section 8-1 of the ITAA 1997?

Answer

No.

This ruling applies for the following periods:

XX months

The scheme commenced on:

X DATE

Relevant facts and circumstances

Dr X has an Australian Business Number (ABN) and is registered for goods and services tax (GST) at all relevant times.

You have historically been employed by ZZ (the agency) as a locum doctor.

You moved to undertake a locum contract with a Hospital. Under your arrangement with the hospital, you were required to register for an ABN and GST and operate as a contractor to the hospital rather than as an employee.

You entered into a Medical Services Agreement (agreement) with the hospital on Y DATE.

Relevant schedules and clauses of the agreement are as follows:

•                The hospital has engaged you as a contractor

•                The hospital will pay you for services in accordance with the agreement

•                Commence date - Z DATE.

•                Expiry date - ZZ DATE

•                The location you are required to carry out your medical services is at a hospital

•                Payment - $X per day

•                Other conditions: Accommodation - as per the agreement.

•                The hospital will pay within XX days of them receiving a complying tax invoice from you.

•                You agree to submit regular invoices to the hospital that comply with any statutory requirement. Invoices for the provision of medical services must specify the minimum information stated in the agreement.

Your contract, signed on ZZZ DATE, states the hospital will provide an accommodation allowance while you complete the contract.

Your residential lease agreement with landlord is for a period of X months with weekly rent of $Y.

Your landlord has provided you with a receipt for the payment of your rent; on ZZ DATE for the $Y payment received on Z DATE.

You issued the following documentation requesting payment from the hospital in accordance with the agreement:

•                Tax Invoice number X was issued by Dr X to the Hospital on ZZ DATE. The tax invoice documents the dates worked from ZZDATE to ZZZDATE. Each day Dr X charged the Hospital $XX including GST. The total tax invoice amount was for $XXX including GST.

•                Invoice number Y was issued by Dr X to the Hospital on ZZDATE. The invoice documents the accommodation expense Dr X incurred. The accommodation invoiced was for ZZ PERIOD. Each week's accommodation expense was $XX, excluding GST. The total invoice amount was for $ZZZZ excluding GST.

The invoices that you issue to the hospital are produced by ZZ on your behalf.

The contracting entity issued an EFT Remittance Advice to you on ZZZZDATE, EFT Advice number: XX. The remittance advice confirms you were paid into your nominated bank account for payment of your invoice numbers totalling $ZZ.

The hospital contends that the accommodation payment should not have any GST in the price.

Extracts of key terms of the agreement are omitted.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 9-40

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

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 40-35

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 111-5

Income Tax Assessment Act 1997 section 6-25

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 15-2

Income Tax Assessment Act 1936 section 23L

Reasons for decision

Issue 1 GST and contractor payments

Question 1

Are the accommodation payments under the agreement between the hospital and Dr X a reimbursement for GST purposes?

Summary

The payments are not a reimbursement for GST purposes as they are not made to Dr X in his capacity as an employee, associate of an employee, agent, officer of a company or as a partner in a partnership. Division 111 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) limits reimbursements to those specific relationships.

Detailed Reasoning

Reimbursements are specifically covered in the GST Act, Division 111. That provision is limited by section 111-5 of the GST Act which states:

(1) If one or more of the following applies:

(a) you reimburse an employee or agent for an expense he or she incurs that is related directly to his or her activities as your employee or agent;

(ab) you reimburse an employee (whether or not you are the employee's employer) for an expense that the employee or the employee's associate incurs, and the reimbursement constitutes an expense payment benefit;

(ac) you reimburse an associate of an employee (whether or not you are the employee's employer) for an expense that the associate or employee incurs, and the reimbursement constitutes an expense payment benefit;

(b) you are a company and you reimburse an officer for an expense he or she incurs that is related directly to his or her activities as your officer;

(c) you are a partnership and you reimburse a partner for an expense he or she incurs that is related directly to his or her activities as a partner in the partnership;

the reimbursement is treated as consideration for an acquisition that you make from the employee, associate, agent, officer or partner.

Please note that in this private ruling, terms marked with an asterisk are defined terms in section 195-1 of the GST Act.

The payment made for your accommodation-related expenditure is not a 'reimbursement' for GST purposes. Section 111-5 of the GST Act deals with reimbursements but is not for arrangements of the kind outlined in the agreement with the hospital extracted in the facts of this ruling. Subparagraphs 111-5 (a) to (c) show that the reimbursement is limited to payments made to reimburse employees, associates of employees, agents, officers and partners in a partnership. In the arrangement outlined in the facts of this ruling, Dr X is not in any of those relationships with the hospital and this special rule does not apply.

Consequently the payment must be considered in the context of the ordinary or general principles of the GST Act. Under the general principles, the correct analysis is to determine whether there is a supply made by Dr X and a payment and, if so, whether that supply is made for the payment. This is considered below in relation to whether there is a taxable supply by Dr X.

The payment under the agreement with the hospital is not a 'reimbursement' for GST purposes.

Question 2

If the answer to question one above is yes, is the tax invoice for the accommodation to the hospital GST inclusive?

Not applicable as the answer to question one is no.

Question 3

If the answer to question one is no, are the accommodation payments set out in the agreement consideration for a supply and thereby a taxable supply by Dr X under section 9-5 of A New Tax System (Goods and Services) Act 1999 (GST Act)?

Summary

You are making a taxable supply of services for the payment under the agreement with the hospital.

Detailed Reasoning

Section 9-5 of the GST Act provides that you make a taxable supply if:

(a)           you make the supply for consideration; and

(b)           the supply is made in the course or furtherance of an enterprise that you carry on; and

(c)            the supply is connected with the indirect tax zone (which includes Australia); and

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

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In terms of a taxable supply analysis, it is not in dispute that you:

•                receive consideration

•                are engaged in and make relevant supplies in the course of your enterprise,

•                are located in Australia and

•                are registered for GST.

The remaining issue is about the nature of the supplies you make to the hospital for their consideration and whether the supplies are to any extent GST-free or input taxed.

Supply

'Supply' is a defined term set out in section 9-10 of the GST Act.

(1) A supply is any form of supply whatsoever.

(2) Without limiting subsection (1), supplyincludes any of these:

(a) a supply of goods;

(b) a supply of services;

(c) a provision of advice or information;

(d) a grant, assignment or surrender of real property;

(e) a creation, grant, transfer, assignment or surrender of any right;

(f) a financial supply;

(g) an entry into, or release from, an obligation:

(i) to do anything; or

(ii) to refrain from an act; or

(iii) to tolerate an act or situation;

(h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

Paragraph 9-10(4)(a) excludes the supply of money if it is not provided as consideration for a supply.

This is a wide definition constructed to ensure almost any conceivable arrangement meets the requirement of a supply.

The definition of 'consideration' in section 195-1 of the GST Act is also widely defined as:

consideration, for a supply or acquisition, means any consideration within the meaning given by sections 9-15 and 9-17, in connection with the supply or acquisition.

Consideration in section 9-15 is defined to mean:

(1)           Consideration includes:

(a)           any payment, or any act or forbearance, in connection with a supply of anything; and

(b)           any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

(2)           It does not matter whether the payment, act or forbearance was voluntary...

Paragraph 9-5(a) Supply for consideration - nexus test

Goods and Services Tax Ruling GSTR 2001/4 Goods and Services Tax: GST consequences of court orders and out-of-court settlements (GSTR 2001/4) indicates that there has to be a close connection between the consideration and the supply:

89. A supply is not subject to GST in Australia unless it is made for consideration. 'Consideration' for a supply or acquisition' is defined in section 195-1 as any consideration, within the meaning given by sections 9-15 and 9-17, which is 'in connection with the supply or acquisition'.

91. The references in the GST Act to 'supply for consideration' and more commonly to 'consideration for a supply' underscore the close coupling between the supply and the consideration that is necessary before a payment will be consideration for a supply that will make the supply subject to GST.

92. In a similar fashion to the GST legislation in New Zealand, the nature of the nexus required between supply and consideration is specified in the definition of consideration. A payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply.

93. In determining whether a payment satisfies the requirements of subsection 9-15(1), the test is whether there is a sufficient nexus between the supply and the payment made.

94. This test may establish a nexus between consideration and supply in a broader range of cases than the 'direct link' test which applies in the European Community and in Canada. While caution needs to be exercised in applying decisions on connective terms in other contexts, the term 'in connection with' has been held to be broader in scope than 'for'.

...

96. In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description which parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

[Footnotes omitted]

GSTR 2006/9 Goods and Services Tax: Supplies (GSTR 2006/9) provides the view that in assessing whether a payment is consideration under section 9-15 and whether there is a 'supply for consideration' is tested objectively (at paragraph 180).

The payment of $ZZ from the hospital will amount to consideration in your hands as a contractor to the hospital as it meets the definition of consideration set out above. Objectively the payment is made in connection with securing your services given the payment is made to you and no other party. You are required to obtain accommodation and the payment is arguably made to you in order to ensure you are able to provide services to the hospital.

In this respect, there is no better characterisation of the payment in connection with the supply, given that the payment is not a reimbursement.

Accordingly, you are making a supply to the hospital of services which is the relevant supply having a nexus to the accommodation payments set out in clause 3.2 of the agreement with the hospital.

GST-free or input taxed supply?

The final issue to be considered in determining whether you made a taxable supply is whether the supply is GST-free or input taxed.

Ordinarily, residential rent is an input taxed supply and does not have GST included. However, as stated above, what you are charging your client for is your services; you are not billing the hospital for a supply to them of residential rent and so the supply to the hospital is not to any extent input taxed.

A supply of residential premises by lease is an input taxed supply to you under section 40-35 of the GST Act. Please note that the acquisition by you of the accommodation is not a creditable acquisition. 'Creditable acquisition' is defined in section 11-5 of the GST Act as follows:

You make a creditable acquisition if:

(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.

Under paragraph 11-5(b) of the GST Act, the supply to you is not a taxable supply, and prevents your acquisition being a creditable acquisition. As a result, you cannot claim an input tax credit for that acquisition. When you on-charge the accommodation, it loses its character as input taxed.

We note your questions are limited to the accommodation aspect of your services but we note that you have treated correctly your medical services to the hospital as taxable as they are not GST-free under section 38-7 of the GST Act.

For clarity, we offer the following comments on the documentation provided. In the invoice number XX dated XDATE, it shows your billing for accommodation as $X per week totalling $X.

We consider that this tax invoice should include the $X as a taxable supply. It is a matter of contractual agreement between the parties whether the $X can be 'grossed up' to take the GST into account. From our reading of the documentation, the agreement at clause XX requires 'invoices' to be issued and show the GST inclusive amount but does not discuss the grossing up aspect.

You provided a separate tax invoice number ZZ, dated XDATE, showing billing for work performed being $X per day for one week from XDATE to YDATE. The GST added is $X being and the GST inclusive amount shown is $X. The total on the tax invoice, GST inclusive, is $X.

Therefore, you are making taxable supplies to the hospital of your services, which includes the consideration received as an accommodation payment, but you are not entitled to an input tax credit for the accommodation you acquire.

Issue 2

Assessable income - accommodation allowance

Question 1

Are the accommodation payments you received under the agreement assessable income in accordance with section 15-2 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

The payment you received for your accommodation expense is a condition of your agreement and forms a part of your remuneration package. Therefore, the accommodation payment (or allowance) is assessable income to you.

Detailed reasoning

Allowance and other payments

Section 15-2 of the ITAA 1997 includes in your assessable income the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect to your employment of or services rendered by you, directly or indirectly. Where assessable under section 15-2, the amount will not also be assessable under section 6-5 as ordinary income: section 6-25 of the Income Tax Assessment Act 1936 (ITAA 1936)

If a benefit that would be included in your assessable income under section 15-2 is a fringe benefit, section 23L of the ITAA 1936 applies to deem it to be non-assessable, non-exempt income.

Application to your situation

You have entered a contract to provide services to the hospital as an independent contractor.

The agreement provides that in addition to your daily fee for these services the hospital will reimburse you for the rent you pay on the property you have rented to live in while working for the hospital. This is a benefit paid to you in relation to the services you provide the hospital and so the amount of the accommodation allowance is assessable income to you in accordance with section 15-2 of ITAA 1997.

As the payment is not a fringe benefit it is not non-assessable non-exempt under section 23L of the ITAA 1936.

Issue 3

Deduction - accommodation expense

Question 1

Are you entitled to claim the accommodation expense you incur under section 8-1 of the ITAA 1997?

Summary

You are not entitled to claim the residential rental expense as a tax deduction under section 8-1 of the ITAA 1997 as it is not incurred in gaining or producing your assessable income and it is private and domestic in nature.

Detailed reasoning

Deductibility of expenses

Section 8-1 allows a deduction for any loss or outgoing incurred in gaining or producing assessable income however you relevantly cannot deduct a loss to the extent the amount is private or domestic in nature.

Application to your situation

In your case, you have moved interstate to undertake a locum contract with an entity. The agreement requires you to carry out your medical services at a Hospital.

You have rented a residential home in which you live for the term of the contract. This is not an expense incurred in earning your assessable income, Case V96 88 ATC 634 at [10]. The rent payable is a private and domestic expense, being for a payment for a residence in which you live. This is the case even though you have moved for the purpose of performing your contract, and may maintain another residence: see Case V96 88 ATC 634 at [11]; F.C. of T v. Faichney 72 ATC 4245 at p 4249. Being neither incurred in the course of gaining or producing your assessable income and being private and domestic in nature, you are not entitled to a deduction for your rent under section 8-1 of the ITAA 1997.