ATO ID 2013/54: GST and payments for seconded employees
Date of decision: 14 October 2013
Business line: Indirect Tax

Issue
Is a government agency, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services tax) Act 1999 when it receives a payment for the secondment of its employees to another government entity?

Decision
No, the payment received is not the provision of consideration for a supply.

Facts
The entity is a government related entity. It has reciprocal arrangements for the secondment of its employees to other government related entities (recipient). The entity is registered for good and services tax (GST). The supply of the services that are provided by the entity's seconded employees is connected with Australia. The secondment to the recipient does not change the employment status of the employees. The entity continues to pay the salaries of the employees. The entity enters into agreements to charge the recipient the anticipated costs of employing the seconded employees during the duration of the secondments. The calculation takes into account the salaries of the employees, plus the relevant on-costs such as annual leave, long service leave, payroll tax, workers compensation, superannuation, use of the entity's motor vehicles and mobile phones and the entity's administration costs. The payment by the recipient is covered by an appropriation under an Australian Law.

Reasons for decision
Summary: All legislative references in this document are to the GST Act. The existence of a 'supply' itself is an essential element in determining whether the transaction is a taxable supply under section 9-5. Section 9-10 discusses the meaning of the word 'supply' for GST purposes. Paragraph 9-10(2)(b) states that a supply includes a supply of services. In this case, it is considered that the entity makes a supply of services when it seconds its employees to the recipient. The term 'consideration' is defined in section 195-1 and 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. Paragraph 9-15(1)(a) includes any payment, or any act or forbearance, in connection with a supply as consideration. Section 9-17 provides that certain payments and other things are not consideration. Relevant to these facts, subsection 9-17(3) provides that a payment is not the provision of consideration if: The first two tests are satisfied, as indicated in the facts above. Paragraph 9-17(3)(c) sets out the non-commercial test and to satisfy this requirement, the amount of the payment must be calculated on the basis that the sum of the following does not exceed the anticipated or actual cost of making those supplies: The entity has only received the payment from the recipient in regards to the supply of services by its seconded employees. The term 'cost' includes the entity's direct and indirect costs of making the supplies. It does not include a return on capital or concepts of cost which are measured based on opportunity cost or forgone revenue. The basis of the calculation of the payment was to cover the anticipated costs that would be payable by the entity as a result of continuing to employ the employees during the secondment period. The anticipated costs include both direct costs such as the salary of the employee and also indirect costs such as the costs of administration. As the payment is based on anticipated costs, it is not necessary to subsequently review the calculation once the actual cost of making the supply is known. In this case the requirements of subsection 9-17(3) are satisfied and therefore the payment is not the provision of consideration. As these payments do not constitute consideration, the supplies to which the payment relates do not satisfy the requirements of section 9-5. Therefore, these supplies are not taxable supplies.

Legislative references: A New tax system (Goods and Services Tax) Act 1999 section 9-5 section 9-10 paragraph 9-15(1)(a) subsection 9-17(3) section 195-1
Related ATO interpretative decisions: ATO ID 2001/474
Subject references: Good and services tax GST supplies and acquisitions GST consideration GST supply taxable supply