Private ruling: GST and supply of child care services with an agreement with the approved child care service provider.
Date of advice: 18 September 2017
Published: January 2018
Ruling period: Not applicable
Date scheme commenced: Not applicable

Ruling: Q1: Are you making a GST-free supply of childcare services when you provide the services as a contractor under an agreement with an approved childcare services provider? | A1: No. The supply of child care services provided by you under the agreement with the approved child care service provider will be taxable supply. Please refer to the reasons for decision.

Relevant facts and circumstances: ● You carry on an enterprise of providing child care services and is registered for goods and services tax (GST). ● You have signed a contract with an approved child care service provider (supplier) to operate a child care services under their scheme and to be monitored by them. ● The supplier is an approved child care service provider and receives funding from the Government. ● You do not enter into agreements with clients on behalf of the supplier to provide the child care services. ● The supplier enters into agreements with the clients.

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 – section 38-140, 38-145 and 38-150, 38-155 | A New Tax System (Family Assistance)(Administration) Act 1999 – section 3

Reasons for decision: Summary: Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you make a taxable supply if you make the supply for consideration; and the supply is made in the course or furtherance of an enterprise that you carry on; and the supply is connected with the indirect tax zone; and 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. You provide child care services for consideration; the supply of child care services is made in the course or furtherance of your enterprise; the supply is connected with the indirect tax zone and you are registered for GST. The supply of child care services is not input taxed. However, it should be determined whether the supply of child care services by you will be GST-free. Subdivision 38-D of the GST Act explains when a supply of child care services will be GST-free. Registered carers under the Family Assistance Law Section 38-140 of the GST Act provides a supply of childcare by a registered carer (within the meaning of section 3 of the A New Tax System (Family Assistance)(Administration) Act 1999 (FAA) will be GST-free. The FAA defines ‘registered carer’ in section 3 as ‘an individual approved as a registered carer under Division 2 of Part 8’. An individual who provides (or proposes to) care for a child/children may apply to be an approved carer for the purposes of the Family Assistance Law (subsection 209(1)). However, subsection 209(2) provides an exception that an individual cannot apply to be a registered carer if, amongst others, it provides childcare under a contract with an approved in-home care service (paragraph 209(2)(d)). You provide child care services under the contract with the supplier. You cannot be a registered carer pursuant to Division 2 of Part 8 of the FAA and do not satisfy section 38-140 of the GST Act. Approved child care services under the Family Assistance Law Section 38-145 of the GST Act provides that a supply is GST-free if it is a supply of child care by an approved child care service (within section 3 of the FAA). The FAA defines ‘approved child care service’, amongst others, as ‘approved in-home care service’ (paragraph (ba) of the definition). An ‘approved in-home care service’ is defined in the FAA as an in-home service with an approval as an in-home care service in force under Division 1 of Part 8. The supply of child care services by the supplier as an approved child care service provider will be GST-free under section 38-145 of the GST Act. The supply of child care services by you under the contract with the supplier will not be GST-free under this provision as you are not an approved child care provider. Other Child care Former section 38-150 of GST Act states: A supply is GST-free if it is a supply of child care by a supplier that is eligible for funding (whether or not in respect of that particular supply) from the Commonwealth under guidelines made by the Child Care Minister that relate to the funding of: (a) family day care; or (b) occasional care; or (c) outside school hours care; or (d) vacation care; or (e) any other type of care determined in writing by that Minister. Up to 4 April 2017, the former section 38-150 of the GST Act provided that a supply is GST-free if it is a supply of child care by a supplier that is eligible for funding from the Commonwealth (whether or not in respect to that supply) under guidelines made by the Child Care Minister that relate to the funding of various types of care including a type of care determined in writing by the Minister (paragraph 38-150(e)). Former section 38-150 of the GST Act does not apply as you do not receive funding directly from Commonwealth under guidelines made by the Child Care Minister. On and from 5 April 2017, subsection 38-150(1) of the GST Act provides that a supply is GST-free if it is a supply of child care specified in a determination made under subsection 38-150(2) of the GST Act. Under subsection 38-150(2) of the GST Act, the Child Care Minister may, by legislative instrument, determine the kinds of child care for the purposes of subsection 38-150(1) of the GST Act. A kind of child care may only be included in a determination if the supplier of the care is eligible for Commonwealth funding in respect of the kind of care. Supplies directly related to child care that is GST-free Section 38-155 of the GST Act states: A supply is GST-free if it is a supply that is directly related to a supply of child care that is: (a) GST-free because of section 38-140, 38-145 or 38-150; and (b) supplied by, or on behalf of, the supplier of the child care. Section 38-155 of the GST Act applies to additional services that are directly related to the provision of child care such as additional fees for holiday activities or administrative fees to the extent that they enable amenities and service that are directly related to child care services. Under the arrangement you are not providing additional services to the supplier in relation to the child care services provided by the supplier. You are providing the child care services on behalf of the supplier and monitored by them. Therefore, the supplies made by you will not be GST-free under section 38-155 of the GST Act. Supply made by you Under the agreement with the supplier, you make supply to the supplier of your services of providing child care to the supplier’s clients. The supplier is responsible for providing the services to their client and has made arrangements with you to provide the services on their behalf. The supply is made to the supplier as the recipient but provided to the supplier’s clients. According to the Family Day Care Business Model, you are an independent educator who has signed an agreement with the supplier to provide the child care services. The supplier will make payments to you from the proceeds of any Government subsidies such as Child Care Benefit (CCB) and Child Care Rebate (CCR) they receive for the eligible parents plus the gap charge after taking away the hourly levy which includes family levy and educator levy. We note that the supplier does not receive any Government subsidies on your behalf and the parents have to choose to have their benefits paid to the supplier. There are two supplies have been made under the arrangement. The supply of child care services by the supplier to their clients as per the agreement the supplier made with their clients. And the supply of services provided by you to the supplier under the agreement between them. Consideration for a supply According to the facts sheet on ‘Obligations and Expectations of Family Day Care educators’ you as an educator may issue invoice to the clients on behalf of the supplier. If you are required to issue invoice for the gap payment directly to the clients, we consider that the gap payment is the consideration for the supply of child care services provided by the supplier and not for the supply made by you to the supplier’s clients. However, you and the supplier have the option to negotiate or arrange on how you both wish to collect the payments from the clients for the supply of child care. The payments collected by you on behalf of the supplier may be used to offset against the remuneration or the consideration the supplier owes you. Under the agreement, you acknowledge that the fees include all costs and expenses incurred in performing the services and complying with all the other obligations. Subsection 9-15(1) of the GST Act provides that the consideration for a supply incudes any payment ‘in connection with’, ‘in response to’ or ‘for the inducement of’ a supply of anything. Subsection 9-15(2) of the GST Act provides that the payment does not have to come from the recipient of the supply. In this case, you make the supply of your services to the supplier in providing child care to the supplier’s clients. The supplier will provide consideration for the services provided by you as per the Schedule of the contract. We note that the full payment is calculated based on any Government subsidies the supplier may receive for their clients plus the gap charges less hourly levy. Conclusion As explained above, the supply of child care provided by you is not GST-free as the supply does not satisfy the requirements of sections 38-140, 38-145, 38-150 and 38-155 of the GST Act. The supply of services provided by you to the supplier under the agreement is a taxable supply as the supply satisfies all the requirements of a taxable supply under section 9-5 of the GST Act. Any payments that you receive from the clients can be offset against the consideration the supplier is required to provide to you. You are required to report the GST to the ATO on the supply of your services to the supplier.