Edited version of private advice

Authorisation Number: 1052341155222

Date of advice: 18 December 2024

Ruling

Subject: GST-free supplies

Question

Are the payments entity A makes to entity B for services provided to eligible entity C consideration for GST-free supplies made to you pursuant to section 9-15 and subsection 38-60(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. The payments entity A makes to entity B for services provided to eligible entity C are not consideration for GST-free supplies made to you pursuant to section 9-15 and subsection 38-60(3) of the GST Act.

This ruling applies for the following periods:

X years from the date of issue

Relevant facts and circumstances

•                     Entity A is registered for goods and services tax (GST).

•                     An example of a service agreement for the provision of X Services between entity B and an entity C was provided.

•                     Entity B proposes to apply to the X Administrator to become an Approved X Service Provider

•                     Entity B agrees to provide the X Services to the entity C after entity B becomes an Approved X Service Provider, and the entity C has agreed to cooperate with entity B, on the terms and conditions set out in the service agreement.

•                     The entity A does not make payment to entity B directly. Funding is available to the X Administrator to make X Payments to entity B.

•                     X is the body contracted to provide administrative and support services to the entity A for various programs.

•                     The X invoice the entity A for projected funds required.

•                     By participating in any programs administered by the X Administrator, entity B agrees to be bound by the specified terms and rules.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-10

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-10(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-60(3)

Reasons for decision

Subsection 9-10(1) of the GST Act provides that a supply is any form of supply whatsoever. Subsection 9-10(2) provides that, without limiting subsection 9-10(1), 'supply'includes, amongst other things: a supply of services. Further, section 195-1 of the GST Act provides that 'consideration', for a supply or acquisition, means any consideration, within the meaning given by sections 9-15 and 9-17 of the GST Act, in connection with the supply or acquisition.

Section 9-15 of the GST Act, which is the relevant provision out of the two above in this case, states as follows:

Consideration

(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, or whether it was by the *recipient of the supply.

...

Therefore, there must be a sufficient nexus between a particular supply and a particular payment, which is provided for that supply, for there to be a supply for consideration. That consideration does not have to come from the recipient of the supply.

To determine the GST treatment of an arrangement, the first step is to identify the supplies, the relevant supplier and recipient of those supplies, and if the supply of the thing is taxable. Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9) examines the meaning of 'supply' in the GST Act and provides a number of propositions to assist in analysing an arrangement. These propositions are equally relevant when considering whether an acquisition has been made. Part 3 of GSTR 2006/9 discusses six propositions on how to analyse a tripartite (multi-party) arrangement in relation to a supply. In this case, Proposition 14 and Proposition 15 are the most relevant.

Proposition 14 outlined in GSTR 2006/9 discusses when a third party may pay for a supply but not be the recipient of the supply. Paragraph 177 states that subsection 9-15(2) of the GST Act provides that the payment does not have to come from the recipient of a supply.

To determine whether the third party is a third party payer or the recipient of a supply regard needs to be had to the true character of the transaction and by looking at all of the transactions entered into and the circumstances in which the transactions are made.

In this case, fund X Services provided to entity C by entity B. The entity C is not required to pay for these services and entity B must not charge the entity C for the provision of the X Services. Entity B must be approved by the X Administrator

While you provide consideration for the supply of X Services to entity C, we consider you are not a mere third party payer on behalf of the entity C because under the arrangement, the entity C does not have a liability owed to the entity B for the Services.

Proposition 15 in GSTR 2006/9 (paragraphs 217-221S) provides that 'one set of activities may constitute the making of two (or more) supplies'.

In paragraph 221B of GSTR 2006/9 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.

However, if there is no pre-existing framework or agreement which identifies the classes of third parties and which triggers the payer's obligation to make a payment to the supplier in the event of the relevant supplies being made to those third parties, the mere act of payment, in the absence of anything else, would not give rise to a supply to the payer. There may instead be a third-party payment like described in proposition 14.

We consider in this case that in line with Proposition 15 of GSTR 2006/9 that entity B is making two supplies:

(i)            The supply of X Services to entity C

(ii)           The supply to you of the service of delivering the X Services to entity C (the underlying supply).

Sufficient nexus

A sufficient nexus between a particular supply and a particular payment, which is provided for that supply, must exist to create 'supply for consideration' relationship. In this case, there is a direct relationship between the payments made by you in response to the supply of the X Services provided by the approved Service Providers to the entity C, establishing a sufficient nexus.

It now needs to be determined if the supply to you from entity B is a GST-free supply.

Subdivision 38-B of the GST Act provides for certain health related supplies to be GST-free. The relevant

provisions are examined below.

Subsection 38-60(3) of the GST Act provides that if a supply (the underlying supply) by an entity (service provider) to an individual is either wholly or partly GST-free under Subdivision 38-B, then a supply of the service of making the underlying supply by the service provider to an Australian government agency is GST-free to the same extent as the underlying supply.

GST-free other health services

A supply of a health service is GST-free when it satisfies all the requirements in subsection 38-10(1) of the GST Act.

The requirements of subsection 38-10(1) of the GST Act are that:

(a) the service is listed in the table in this subsection, or in the GST regulations; and

(b) the supplier is a recognised professional in relation to the supply of services of that kind; and

(c) the supply would generally be accepted in the health profession associated with supplying services of that kind as being necessary for the appropriate treatment of the recipient of the supply.

Pharmacy is listed at item 15 in the table in subsection 38-10(1) of the GST Act, meaning that paragraph 38-10(1)(a) of the GST Act is satisfied. A pharmacist who is registered with the Australian Health Practitioner Regulation Agency (AHPRA) will meet the requirements for being a recognised professional in pharmacy for the purposes of paragraph 38-10(1)(b). Paragraph 38-10(1)(c) requires that the supply of the health service be generally accepted in the relevant health profession as being necessary for the appropriate treatment of the recipient of the supply.

Under the GST health provisions in Subdivision 38-B of the GST Act, including subsection 38-10(1) of the GST Act, generally a supply is only GST-free where an individual receiving the health service is the recipient of the supply. Paragraph 155 of Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies explains that this outcome results from the specific wording in some health provisions, whilst in other provisions it is due to the nature of the services themselves.

In this case under the arrangement, the underlying supply, being the X services that entity B supplies, are not to an individual but rather to an entity C. Therefore, paragraph 38-10(1) of the GST Act is not satisfied. Additionally, the requirement in paragraph 30-60(3)(b) for the supplies to be made to an individual is not satisfied.

As such, the supply of services to you under the arrangement is not a GST-free supply under subsection 38-60(3) of the GST Act. Therefore, the payments you make to entity B under the arrangement for services provided to eligible entity C are not consideration for GST-free supplies made to you pursuant to section 9-15 and subsection 38-60(3) of the GST Act.