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Edited version of private advice
Authorisation Number: 5010077495355
Date of advice: 8 October 2021
Ruling
Subject: GST and supply of services under an agreement
Question 1
Is the supply of services by Entity A to Entity B under an agreement a part input taxed and part taxable supply for GST purposes?
Answer
Yes. Under the agreement, Entity A is making a mixed supply to Entity B consisting of a taxable part and an input taxed part.
Question 2
If the answer to 1 is yes, can Entity A apportion the consideration it receives in relation to its supplies to Entity B under the agreement between its taxable and input taxed parts for GST purposes in accordance with section 9-80 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
Yes. Entity A must apportion the management fee it receives from Entity B for the mixed supply made under the agreement between its taxable and input taxed parts.
Relevant facts and circumstances
Entity A is registered for GST.
Entity A entered into an agreement with Entity B to provide various services for a fee.
Entity B is not a non-resident.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-5
A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-10(2)(f)
A New Tax System (Goods and Services Tax) Act 1999 subsection 9-25(5)
A New Tax System (Goods and Services Tax) Act 1999 subsection 9-30(2)
A New Tax System (Goods and Services Tax) Act 1999 section 9-80
A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(1)
A New Tax System (Goods and Services Tax) Act 1999 section 40-5
A New Tax System (Goods and Services Tax) Regulations 2019 Subdivision 40-A
A New Tax System (Goods and Services Tax) Regulations 2019 section 40-5.06
A New Tax System (Goods and Services Tax) Regulations 2019 section 40-5.09
A New Tax System (Goods and Services Tax) Regulations 2019 section 40-5.10
A New Tax System (Goods and Services Tax) Regulations 2019 section 40-5.12
A New Tax System (Goods and Services Tax) Regulations 2019 section 196-1.01
Reasons for decision
Under section 9-5 of the GST Act, a supply is 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; 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.
Entity A is prima facie making taxable supplies of services under the agreement. However, pursuant to section 9-5 of the GST Act, the supply will not be a taxable supply to the extent it is GST-free or input taxed.
In this case, under the agreement, the supply from Entity A to Entity B can be characterised as a mixed supply of taxable and input taxed parts. In line with paragraph 92 of GSTR 2002/2, the parts of the mixed supply need to be separated.
Apportionment of the consideration for a supply that includes taxable and non-taxable parts is discussed in Goods and Services Tax Ruling GSTR 2001/8: Apportioning the consideration for a supply that includes taxable and non-taxable parts. In the case of a mixed supply that has non-taxable parts that are GST-free or input taxed, the value of the taxable part is determined in accordance with section 9-80 of the GST Act. To determine the value of the taxable part it is necessary to calculate the taxable proportion, that is, the proportion of the value of the actual supply that the taxable part represents.
Paragraph 26 of GSTR 2001/8 states that apportionment must be undertaken as a matter of practical common sense. Any reasonable basis can be used to apportion the consideration. Depending on the facts and circumstances of the supply, a direct or indirect method may be an appropriate basis upon which to apportion the consideration and ascertain the value of the taxable part of the supply. The basis you choose must be supportable in the particular circumstances. Records must be kept that explain the basis used to apportion the consideration between the taxable and non-taxable parts of a supply.