Private ruling: GST and payments to office holders
Date of advice: 16 July 2021
Published: September 2021
Ruling period: Tax periods ending on or after XX Month 20XX

Ruling: Q1: Is the entity entitled to input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 when it engages an office holder? | A1: Where the office holder is registered for GST and makes supplies to the entity in the course or furtherance of the office holder's enterprise, the entity is entitled to the input tax credits on the acquisitions. | Q2: Are travel and other allowances paid by the entity to office holders part of the consideration provided under paragraph 11-5(c) of the A New Tax System (Goods and Services Tax) Act 1999 ? | A2: Yes, the consideration provided to office holders includes allowances. | Q3: Are superannuation contributions made by the entity on behalf of office holders part of the consideration provided under paragraph 11-5(c) of the A New Tax System (Goods and Services Tax) Act 1999 ? | A3: No, superannuation contributions are not consideration for an acquisition made by the entity.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The entity is registered for GST. The entity engages individuals to fill positions as office holders. Office holders are not employees of the entity. Upon appointment to an office, all office holders are required to provide the entity with their Tax File Number and Australian Business Number (ABN). The remuneration of office holders is inclusive of the superannuation contribution and the entity also withholds Pay As You Go Withholding (PAYG) with respect to salary, wages and allowances and, where relevant, travel allowances paid to the office holders. The amounts withheld from office holders for PAYG purposes are done so in accordance with section 12-45 of Schedule 1 to the Taxation Administration Act 1953 . Office holders may carry on an enterprise: • that is directly connected to the purpose of their appointment to the office; or • is in a field that is relevant to the appointment; or • is not directly related to the appointment. Some office holders are registered for GST.

Relevant legislative provisions: Taxation Administration Act 1953 section 12-45 of Schedule 1. | A New Tax System (Goods and Services Tax) Act 1999 section 9-5. | A New Tax System (Goods and Services Tax) Act 1999 section 9-20. | A New Tax System (Goods and Services Tax) Act 1999 section 11-5. | A New Tax System (Goods and Services Tax) Act 1999 section 11-20 | Superannuation Guarantee Administration Act 1992.

Reasons for decision: Summary: Generally, an entity is entitled to input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on any creditable acquisition that it makes. An entity makes creditable acquisition where it makes an acquisition that: • is made solely or partly for a creditable purpose; and • the supply of the thing is a taxable supply; and • the entity provides or is liable to provide consideration for the supply; and • the entity is registered, or required to be registered for GST. As the acquisitions of services from office holders made by the entity are for a creditable purpose; the entity provides consideration for those services (ie renumeration) and the entity is registered for GST, the acquisitions will be creditable acquisitions provided that the supply is a taxable supply. Section 9-5 of the GST Act provides that an entity makes a taxable supply where: • the supply is made for consideration; and • the supply is made in the course or furtherance of an enterprise that is carried on by the supplier; and • the supply is connected with the indirect tax zone (Australia); and • the supplier is registered, or required to be registered for GST; and • the supply is neither GST-free nor input taxed. The supplies made by office holders are made for consideration (the renumeration paid by the entity), are connected with the indirect tax zone (as the services are provided in Australia) and are not GST-free or input taxed. The supplies will be taxable supplies where the services provided to the entity as an office holder are made in the course or furtherance of an enterprise that is carried on by the office holder and the office holder is registered for GST (or is required to be registered). An enterprise is defined by section 9-20 of the GST Act as: | Detailed Reasoning - 9-20 Enterprises: (1) An enterprise is an activity, or series of activities, done: (a) in the form of a business; or (b) in the form of an adventure or concern in the nature of trade; or (c) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or (d) ... The Miscellaneous Taxation Ruling, The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) explains when an entity is carrying on enterprise for the purposes of holding an Australian Business Number and the ruling applies equally to the meaning of carrying on an enterprise for the GST Act. Paragraph 174 of MT 2006/1 states: 174. Although the phrase 'in the form of a business' is broad it requires a focus on and understanding of the concept of a business. Section 195-1 of the GST Act defines 'business' to include: any profession, trade, employment, vocation or calling, but does not include occupation as an employee. Although there is no single test to determine whether a business is being conducted, MT 2006/1 provides the following indicators: • a significant commercial activity; • a purpose and intention of the taxpayer to engage in commercial activity; • an intention to make a profit from the activity; • the activity is or will be profitable; • the recurrent or regular nature of the activity; • the activity is carried on in a similar manner to that of other businesses in the same or similar trade; • activity is systematic, organised and carried on in a businesslike manner and records are kept; • the activities are of a reasonable size and scale; • a business plan exists; • commercial sales of product; and • the entity has relevant knowledge or skill. Generally, it would be expected that the office holders will be carrying on an enterprise as defined by subsection 9-20(1) of the GST Act as the appointment will involve the supply of services by the office holders in a commercial manner where the office holders are renumerated on commercial terms. The office holders will have the expertise or knowledge that is relevant to the specific appointment and the activities undertaken by the office holders will be systemic and carried on in a businesslike manner. However, subsections 9-20(2) and 9-20(4) of the GST Act specifically excludes activities that are done by an office holder that is in receipt of payments that are covered by section 12-45 of Schedule 1 to the Taxation Administration Act 1953 (TAA), unless those activities are specifically done in the course of or in connection with the appointment as office holder: (2) However, enterprise does not include an activity, or series of activities, done: (a) by a person as an employee or in connection with earning withholding payments covered by subsection (4) (unless the activity or series is done in supplying services as the holder of an office that the person has accepted in the course of or in connection with an activity or series of activities of a kind mentioned in subsection (1)); or ... If the appointment of an office holder is connected to the enterprise that the officer holder carries on separately from the appointment, then the activity of supplying services as an office holder are not impacted by subsection 9-20(2) of the GST Act and those services will be provided in the course or furtherance of the office holder's enterprise. MT 2006/1 provides some guidance on office holders and states: 345. Whether an activity or activities done in supplying services as the holder of an office has occurred 'in the course of' or 'in connection with' an enterprise must be determined after considering all the facts and circumstances surrounding the activity. 'In the course of' and 'in connection with' are not defined terms and therefore take their ordinary meaning, however these terms have been considered by the courts in relation to legislation other than the ABN Act. 346. The closest consideration of whether a position is accepted in the course of an enterprise is in relation to workers' compensation matters. In these cases, the courts have considered whether an incident has occurred in the course of a person's employment. It has been held that in determining whether something has occurred in the course of a person's employment regard must be had to the general nature, terms and circumstances of the employment. MT 2006/1 provides examples (paragraphs 355 - 364) of three scenarios to demonstrate the connection between the appointment as office holder and the person's enterprise. However, there are likely to be many more examples where the connection between the services provided as an office holder and the enterprise being carried on by that individual are not as obvious. An office holder will need to consider their specific individual circumstances to determine if their appointment is made in the course or furtherance of their own enterprise. The enterprise being carried on by the office holder must be: • that person's own enterprise as a sole trader; • the enterprise of a partnership of which the individual is a partner; • the enterprise of a trust of which the person is a trustee; or • the enterprise of an employer of which the person is an employee. Where the enterprise being carried on by the office holder is one of providing services such as advice, guidance, direction or leadership, the appointment to an office is likely to be in course or furtherance of that enterprise. This is because the enterprise doesn't necessarily involve specific knowledge of a particular field or industry but may involve providing advice or guidance on a wide range of matters to a varied customer base. For example, a lawyer may specialise in providing advice on commercial law matters but the specific issues are likely to be very broad depending on the client's needs. Therefore, it is reasonable to summarise the enterprise being carried on as one of providing advice and guidance and any appointment where the lawyer provides advice or guidance is likely to be done in the course of that enterprise even though the appointment may not specifically relate to commercial law matters. Where there are specific pre-requisite attributes or qualifications that are required for appointment to an office, if the office holder carries on a separate enterprise and provides similar services in that enterprise, then it is reasonable to conclude that the services provided by the office holder in the course of the appointment will be supplies made in the course or furtherance of their enterprise. Where there are no specific services required for the appointment to an office, careful consideration will need to be given to what the office holder supplies in their enterprise and how that aligns to what the office holder provides to the entity in the course of their appointment. The fact that a person may be appointed as an office holder on a full-time basis does not necessarily mean that the person is not providing services to the entity in the course or furtherance of an enterprise that they carry on separate from the entity. This is because an enterprise may take many forms and may not always involve significant amounts of time operating the enterprise. For example, it is reasonable to assume that a lawyer appointed as an office holder on a full-time basis may also continue to provide advice on an ad-hoc basis to clients outside of the hours required to fulfil their obligations with the entity. The enterprise may reduce in size or output during the period of appointment but it does continue to be carried on. In all cases, the office holder will need to determine whether the supply of services to the entity is a supply made in the course or furtherance of an enterprise that they carry on outside of the appointment. | Detailed Reasoning - Question 3: The consideration for a creditable acquisition under section 11-5 of the GST Act requires that the entity making the acquisition provides, or is liable to provide 'consideration' for the acquisition. Generally, consideration means payment and the entity pays office holders in the form of renumeration. However, the term 'consideration' is defined by section 9-15 of the GST Act to include: • any payment, or any act or forbearance, in connection with a supply of anything; and • any payment, or any act or forbearance, in response to or for the inducement of a supply of anything. The Goods and Services Tax Ruling, Goods and services tax: non-monetary consideration (GSTR 2001/6) discusses the meaning of 'consideration' in the context of the GST and states: 66. The references in the GST Act to 'supply for consideration' and more commonly to 'consideration for a supply' underscore the close coupling between the supply and the consideration that is necessary before a payment will be consideration for a supply that will make the supply subject to GST. 67. In a similar fashion to the GST legislation in New Zealand, the nature of the nexus required between supply and consideration is specified in the definition of consideration. A payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply. 68. In determining whether a payment is consideration under subsection 9-15(1), the test is whether there is a sufficient nexus between the supply and the payment made. 69. This test may establish a nexus between consideration and supply in a broader range of cases than the 'direct link' test that applies in the European Community and in Canada. While caution needs to be exercised in applying decisions on connective terms in other contexts, the term 'in connection with' has been held to be broader in scope than 'for'. 70. The meaning given to the term 'in connection with' in Berry v. FC of T (1953) 89 CLR 653 ('Berry's case') is similar to that which was described by the Court of Appeal in New Zealand Refining, but needs to be applied with regard to the structure of the definition of supply in the GST Act. In Berry's case, Kitto J held that 'in connection with' was a broader test than 'for'. At page 659, his Honour commented that consideration will be in connection with property where: 'the receipt of the payment has a substantial relation, in a practical business sense, to that property'. 71. In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description that parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made. 72. The test as to whether there is a sufficient nexus is an objective test. The motive of the supplier and the recipient also may be relevant in determining whether the supply was made for consideration, if a reasonable assessment of the evidence supports that motive. Payments of allowances by the entity to office holders are made because of the supply of services that the office holders make to the entity. Although the amount of the allowances may be calculated with refence to a specific cost incurred by the office holder (as in the case of travel allowances), the entity is not paying for that travel. The entity is required to pay the allowance to the office holder as a term of the appointment. Consequently, the payment of allowances forms part of the overall consideration provided by the entity to the office holder as the payment is made in connection with the supply of services made by the office holder. | Detailed Reasoning - Question 4: As explained above (at Question 3), the term 'consideration' includes any payment in connection with a supply and any payment in response to a supply. The ATO Interpretative Decision, Goods and Services Tax - GST and provision of superannuation support for contractors (ATO ID 2002/22) explains that superannuation contributions, made on behalf of a supplier, by the recipient of the entity's services, do not form part of the consideration for the entity's taxable supply of services. The office holders are not employees of the entity and the obligation for the entity to make superannuation contributions on behalf of office holders arises because the Superannuation Guarantee Administration Act 1992 (SGA Act) expands the common law definition of employee to include payments made to office holders. ATO ID 2002/22 states: The deeming effect of the definition of employee in the SGA Act is for the purposes of providing superannuation support only and does not alter the contractual relationship between the parties. For GST purposes, the effect of the deemed employee relationship is that payment of the superannuation support contribution is not consideration for something done in the course or furtherance of an enterprise carried on by the entity (paragraph 9-20(2)(a) of the GST Act). On this basis, the superannuation support contributions made by the recipient are not part of the total payment for the taxable supply of labour. Therefore, the superannuation support contributions made on behalf of the entity, by the recipient of the entity's services, do not form part of the consideration for the entity's taxable supply of services to the recipient under section 9-5 of the GST Act.