Private ruling: GST and appropriations
Date of advice: 26 March 2019
Published: May 2019

Ruling: Q1: Are the payments received by Entity A (you) from Entity B treated as not being the provision of consideration under subsection 9-17(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes, the payments received by you from Entity B are treated as not being the provision of consideration under subsection 9-17(3) of the GST Act. The supplies to which the payments relate are not subject to GST.

Relevant facts and circumstances: You were established under an Australian law and you are registered for GST. You have certain national responsibilities and functions. Pursuant to legislation and an agreement you receive certain funds from Entity B. Entity B is a Department of State of a government and is registered for GST

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 7-1 | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-17(3)

Reasons for decision: Summary: All legislative references are to the GST Act unless otherwise stated. Subsection 7-1(1) provides that GST is payable on taxable supplies. Under section 9-5 one of the requirements for making a taxable supply is that you make a supply for consideration. Therefore, to determine if you have made a taxable supply for which you receive the payments, it is first necessary to consider whether you have made a supply for consideration. In your case, subsection 9-17(3) is relevant in examining if the payment is consideration for a supply. Subsection 9-17(3) is intended to ensure that non-commercial activities of government related entities are not subject to GST. This is achieved by treating a payment which meets certain conditions as not being the provision of consideration and therefore not subject to the basic GST rules. Under subsection 9-17(3), a payment is not the provision of consideration where the payment: ● is made by a government related entity to another government related entity for making a supply ● is covered by an appropriation under an Australian law, and ● satisfies a non-commercial test. Government related entity The first condition of subsection 9-17(3) is that the payment must be made by a government related entity to anoth er government related entity for making a supply. The term ‘government related entity’ is defined in section 195-1 and includes: ● department of state of a state or territory ● an entity established by a state (whether under a law or not) to carry on an enterprise or established for a public purpose by an Australian law and can be separately identified by reference to the nature of the activities carried on through the entity. For the purposes of this ruling, we accept that you are a government related entity because you: ● were established under an Australian Law ● were established by a State to carry on an enterprise, or established for a public purpose, and ● can be separately identified by reference to the nature of the activities you carry on. Entity B is a government related entity as it is a Department of State of a government. As you receive payments from Entity B, the payments made to you are payments made between government related entities. Payment covered by an appropriation In relation to the second condition in subsection 9-17(3), it is necessary to determine if the payment is covered by an appropriation under an Australian law. Relevant guidance is contained in the Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2012 Measures No.1) Bill 2012 (EM). In particular, clause 2.17 of the EM explains that a payment is covered by an appropriation under an Australian law if the payment is made pursuant to an appropriation. An appropriation is not in itself a payment. Payments cannot be drawn from a government’s consolidated revenue fund unless the funds for which the payment is for have been appropriated for that purpose. In relation to the payments you receive, the appropriation for the expenditure of money has occurred via legislation which provides for amounts appropriated from consolidated revenue to Entity B. Budget papers detail funding to be provided to you. We accept that appropriation of expenditure of money has occurred via an Appropriation Act as a statute of a government. Therefore, the payment is ‘covered’ by an appropriation under an Australian law. Non-commercial test The third condition of subsection 9-17(3) is that the payment must satisfy a non-commercial test. The test is that the payment is calculated on the basis that the sum of the payment received by the government related entity supplier and anything else received by it from another entity in connection with the supply (or any other related supply), does not exceed the actual or anticipated costs of making those supplies. In your case, the amount of the payments is calculated by Entity B and is to compensate you for the anticipated expenditure that you will incur in making the supplies. The calculation of the payments does not include a return on assets and is not based on opportunity cost or forgone revenue. Therefore, the non-commercial test is satisfied. Conclusion In summary, we consider the payments satisfy the conditions set out in subsection 9-17(3). Specifically, the payments: ● are made by a government related entity to another government related entity, being paid by Entity B to you ● are covered by an appropriation under an Australian law, being an Appropriation Act of a government, and ● have been calculated on the basis that the payment does not exceed your anticipated or actual costs of making the supply. Therefore, the payments are treated as not being the provision of consideration. As you have not made a supply for consideration for the purposes of section 9-5, the supplies to which the payments relate are not subject to GST.