Private ruling: Entitlement to input tax credits in relation to a concession scheme
Published: July 2012

Ruling: Q1: Does Entity B make a taxable supply to you for which the payments made by you are consideration for this supply, and therefore you are making a creditable acquisition? | A1: You have not provided sufficient evidence to show that Entity B is making a taxable supply to you and that you are therefore making a creditable acquisition. | Q2: Do you hold valid tax invoices in respect of your acquisitions such that you are entitled to claim input tax credits for the creditable acquisitions made? | A2: Not applicable given the answer to question 1.

Relevant facts and circumstances: · You are registered for GST. · You are responsible for a range of services being provided to the community. · Entity A is also a Government Department. It is also responsible for services being provided to the community. · Entity B is a major supplier of services to the community. · The concession scheme provides a concession on the cost of services supplied to eligible citizens. · The concession scheme is provided to eligible citizens by Entity B, such that eligible citizens are only required to pay reduced concession prices. · To receive the concession prices, eligible citizens must present valid documentation. · Entity B entered into an agreement with Entity A. You have stated that Entity A acts on behalf of the State in entering into this agreement. · The agreement prescribes the services to be provided by Entity B, including the concession scheme and the amount that Entity A will pay for the delivery of those services, and sets out the rights and obligations of Entity B and Entity A. · You not a party to the agreement. · You have no rights or obligations under the agreement. · There is no other agreement in place between you and Entity B that contemplates that the parties act in a particular manner in relation to supplies made to eligible citizens. · A schedule to the agreement specifies that Entity B is required to submit a claim to you each month to seek reimbursement for offering the services at a concession price. It states that reimbursement is from a special allocation from the State for that purpose. · State Budget papers when listing concessions paid by agency show this concession scheme under you. · You contend that Entity B makes a supply to you, that being the agreement to administer the concession scheme including satisfying its obligations to provide information to you as outlined in the agreement.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-10.

Reasons for decision: Summary: The evidence you have provided is not sufficient to show that you are the recipient of a supply in respect of the concession reimbursement payments. Therefore, you are not entitled to input tax credits. | Detailed Reasoning - Detailed reasoning: Section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999 (the Act) states: … Meaning of supply (1) A supply is any form of supply whatsoever. (2) Without limiting subsection (1), supply includes 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) financial supply; (g) an entry into, or release from, an obligation: (i) to do anything; (ii) to refrain from an act; (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) … The ATO view on the meaning of supply is provided by Goods and Services Tax Ruling GSTR 2006/9: Goods and services tax: supplies (GSTR 2006/9). Paragraph 221B of GSTR 2006/9 provides that the following factors, in combination, may point to a supply being made by the supplier to the payer in a tripartite arrangement that involves a supplier providing a service or goods to the customer where there is no binding obligation between the payer and the supplier for the supplier to provide the service or goods to the customer: · 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 that are to be provided by the supplier to particular third parties or a class of third parties. · The pre-existing framework or agreement identifies a mechanism by which the particular third parties or the class of third parties are to be identified such that the supplies provided to them come within the scope of the framework. · The pre-existing framework or agreement specifies that the payer is under an obligation to pay the supplier if the supplier provides a relevant supply to a third party and also sets out a mechanism by which such payment is authorised. · The framework or agreement and the mechanism for authorising the payment are in existence before the supplier provides the supply to the third party (ie the supplier knows in advance that the payer is obliged to pay some or all of the consideration where that supply is provided to the third party). · The supplier provides the supply to the third party in conformity with the pre-existing framework or agreement between the parties; and · 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 the supplier provides the relevant supply to the third party. It is a question of fact and degree whether a supply to the payer can be identified (and for which the payment is consideration). The factors listed at paragraph 221B provide a guide, but are not conclusive or prescriptive (refer paragraph 221G of GSTR 2006/9). | Detailed Reasoning - Pre-existing framework or agreement between the payer and the supplier for the supplier to act in a particular manner: The evidence you have provided does not indicate that there is a pre-existing framework between the payer (you) and Entity B of the sort contemplated at paragraph 221B of GSTR 2006/9. There is an agreement in place between Entity A and Entity B that contemplates that the supplier (Entity B) acts in a particular manner in respect of supplies that are provided to particular third parties (eligible citizens). Entity A have entered into the agreement with Entity B which prescribes the services to be provided by Entity B to Entity A and the amount that Entity A will pay for the delivery of those services, and sets out the rights and obligations of Entity B and Entity A. The agreement is a pre-existing agreement as described in paragraph 221B of GSTR 2006/9. However, you are not a party to the agreement. You have no rights or obligations under the agreement. Except to the extent that Entity B is to seek reimbursement from you for revenue forgone and do the things necessary for that reimbursement, the agreement does not contemplate that you have any role in the manner in which either party acts in respect of supplies that are to be provided by Entity B to eligible citizens. There is no evidence of any other agreement in place between you and Entity B that contemplates that the parties to the agreement act in a particular manner in relation to the supplies. | Detailed Reasoning - Mechanism for identifying eligible citizens: It is accepted that there is a mechanism for identifying eligible citizens by which the supplies provided to them come within the scope of the framework. The mechanism is that to receive the concession prices, eligible citizens must present valid documentation to Entity B. | Detailed Reasoning - Requirement to pay the supplier and an established mechanism for making payment: The schedule to the agreement specifies that Entity B is required to submit a claim to you each month to seek reimbursement for offering the concession prices. It states that reimbursement shall be by a method agreed between you and Entity B. It further states that reimbursement is from a special allocation from the State for that purpose. While neither the schedule nor any other information you have provided make clear any obligation to Entity B, it is accepted that there is an expectation that you will reimburse Entity B and that, subject to the method you have agreed, you do reimburse. We consider that you have are expected to pay Entity B and that there is an established framework and mechanism for doing so. | Detailed Reasoning - Supplier knows that where the supply is made to the eligible passenger that you will pay: As noted above, it is accepted that there is an expectation that you will reimburse Entity B. | Detailed Reasoning - Supplier provides the supply in accordance with the pre-existing framework or agreement: Entity B provides the supplies in accordance with the agreement. The agreement does not contemplate any supply by Entity B to you except to the extent that Entity B is required to submit claims to you for reimbursement and do the things necessary for that reimbursement. You contend in part that Entity B makes a supply to you by satisfying its obligation to provide information to you as outlined in the agreement. Entity B does make a supply to you when it provides the information you require in order to make reimbursement. However, this supply does not have sufficient nexus with the reimbursement payments that you make and does not give rise to a taxable supply to you. Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments (GSTR 2012/2), considers the need to establish a sufficient nexus between the payment made and the supply in the case of financial assistance payments. Paragraph 15 of GSTR 2012/2 states in part: For a financial assistance payment to be consideration for a supply there must be a sufficient nexus between the financial assistance payment made by the payer and a supply made by the payee Paragraph 40 of GSTR 2012/2 goes on to state: … In some circumstances, things may be supplied by the payee that are merely incidental or have an insufficient nexus to the financial assistance payment. Further, in such circumstances, although there may be supplies which are merely incidental or have an insufficient nexus to the financial assistance payment, the payment may be consideration for a good, service or some other thing supplied under the arrangement … GSTR 2012/2 provides Example 6 at paragraphs 41 to 43 which reads: 41. A business qualifies for a government financial assistance payment that is to promote the advancement of technology. For the purposes of the government agency's own internal assurances, the business is required to provide a report to the agency outlining how the funds were expended. 42. The payment is made to enable the business to improve its technological capability, not to obtain the report on how the financial assistance payment was expended. The financial assistance payment does not have a sufficient nexus with the supply of the report because the payment was not in connection with, in response to or for the inducement of the report. 43. Therefore, there are no GST consequences for either party. It is considered that this is analogous to the circumstances of this case where Entity B provides the information you require in order to make reimbursement. The explanation at paragraphs 131 to 133 of Appendix 1 to GSTR 2012/2, while not part of the legally binding public ruling, provides further guidance. | Detailed Reasoning - Liability is owed by you: The reimbursements you make to Entity B are not an administrative arrangement to pay on behalf of either the eligible passenger or Entity A for a liability owed by either to Entity B. There is no evidence that either the eligible passenger or Entity A have a liability to pay Entity B for the revenue forgone by your providing the services at concession prices. However, neither is there any apparent liability for you to make payment to Entity B. As noted above, it is accepted that there is an expectation that you will reimburse Entity B for the revenue forgone and that there has been a framework in place between you and Entity B for Entity B to receive the reimbursement. | Detailed Reasoning - Conclusion: You contend that Entity B makes a supply to you, that being the agreement to administer the concession scheme including satisfying its obligations to provide information to you as outlined in the agreement. In relation to the concession scheme, we consider that there is a supply by Entity B to the citizen and a supply by Entity B of providing the service to the eligible citizen at a concessional price to Entity A, those being evidenced by the agreement. It is accepted that you have a responsibility for a range of services being providing to the community and that you have an expectation that Entity B will provide the concession prices to eligible citizens. However, as discussed at paragraphs 102 and 103 of MT 2006/9, expectation in the absence of a binding agreement does not create a supply. Entity B does not have any contractual obligation to you to provide the concessional prices. That obligation is to Entity A under the agreement. While the reimbursement amounts paid by you to Entity B do relate to the concession prices provided by Entity B, you have not provided sufficient evidence to show that Entity B have an agreement with you to administer the concessional scheme or that (reimbursement requirements aside) there is any other supply by Entity B to you. As noted above, Entity B does make a supply to you when it provides the information you require in order to receive reimbursement, but this supply does not have sufficient nexus with the reimbursement payments that you make and does not give rise to a taxable supply to you. As you are not the recipient of a supply, it follows that there is no taxable supply to you and you do not make a creditable acquisition in relation to these concession reimbursement payments. Therefore you are not entitled to input tax credits. Question 2 | Summary: As the evidence you have provided is not sufficient to show that you are the recipient of a taxable supply from the service provider, you are not entitled to receive a tax invoice. It is therefore not necessary to consider whether the documentation you hold is a tax invoice.

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