ATO ID 2003/993: GST and the supply of disability services where the service provider receives block funding
Date of decision: 4 July 2003
Business line: Indirect Tax

Issue
Is the entity, a disability support service provider, making a GST-free supply under section 38-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies disability support services, for which it receives block funding, to a client who pays for the disability services in full?

Decision
Yes, the entity is making a GST-free supply under section 38-40 of the GST Act when it supplies disability support services, for which it receives block funding, to a client who pays for the disability services in full.

Facts
The entity is a disability support service provider. The entity supplies disability services to a particular client with a disability. The entity charges this client for the disability services and for all overheads associated with the provision of these services. The entity receives funding under a State law, which is complementary to the Disability Services Act 1986 , to supply disability services to its clients. This funding comes in the form of 'block funding' and 'packages'. The block funding is provided to help fund the general provision of disability services to its clients. Package funding is provided for the purpose of funding services to particular clients. This particular client is not one of the clients for which package funding is provided. The terms of the service agreement, between the entity and the government agency that provides the funding, do not restrict the entity from applying all or some of the block funding towards providing disability services to the client. The entity does not apply any of the block funding towards providing disability services to the client. The entity is registered for goods and services tax (GST).

Reasons for decision
Summary: A supply of services is GST-free under section 38-40 of the GST Act, if the supplier receives funding under the Disability Services Act or under a complementary State law or Territory law in respect of the services. The entity receives funding under a State law that is complementary to the Disability Services Act. Therefore, if this funding is in respect of the services provided to the client, the entity's supply will be GST-free. This funding comes in the form of 'block funding' and 'packages'. The package funding is provided for the purpose of funding services to particular clients. However, this particular client is not one of the clients for which this funding is provided. The block funding is provided to help fund the general provision of disability services to its clients. While the entity does not apply any of the block funding towards providing disability services to the client, the service agreement that the entity has with the government agency does not restrict the entity from applying all or some of the block funding towards providing disability services to the client. The entity has the option to apply the funding to the supply of services to this particular client, if the entity chooses to do so. Therefore, the block funding is in respect of the general provision of disability services to its clients including the services provided to the client. This is not altered by the fact that the client pays in full for these services. Accordingly, the entity is making a GST-free supply under section 38-40 of the GST Act when it supplies disability support services, for which it receives block funding, to a client who pays for the disability services in full.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 38-40
Subject references: Goods and services tax GST free GST health Section 38-40 - specialist disability services