Private ruling: GST and volume rebates
Date of advice: 10 October 2017
Published: March 2018

Ruling: Q1: In accordance with subsection 29-70(3) of the A New Tax System (Goods and Services Tax) Act 1999 , can you issue recipient created tax invoices (RCTIs) in regard to the rebates you distribute to your members? | A1: No. | Q2: Does the rebate paid to a member trigger an increasing adjustment under Division 19 for the member? | A2: Yes.

Relevant facts and circumstances: ● You are a buyers group whose members are independent retailers. ● You and your members are registered for GST. ● Your buying program entitles your members to purchase goods from selected suppliers on certain terms and conditions that you have negotiated with a number of suppliers. ● You contract with the suppliers to deliver their deal terms to your members. You encourage your members in the strongest possible terms to give the maximum support to each deal consistent with the members’ own business objectives. You do not buy or sell any product. ● Fundamentally, you have only two mutually reinforcing objectives: ● To deliver lower buying prices for your member stores. ● To deliver increased business for your contracted suppliers. ● Members pay a non-refundable joining fee to you upon signing the Membership Agreement. ● The terms of the Membership Agreement provide, among other things, that: ● …you agree that each quarter you will account to the Member for any rebates from Suppliers due to the Member. You will pay to the Member the rebate less the administration rebate and will provide a report detailing the rebate and the purchases from each Suppler... ● …You will do all things reasonably required to obtain payment from each Supplier of any rebate or other amounts due to you pursuant to your buying arrangement however the Member expressly acknowledges that you will not be liable to the Member in the event of any failure to pay or other loss suffered due to the act or omission of a Supplier… ● ..The Member agrees that all rebates due from a Supplier shall be paid to you and that you will be entitled to retain for your own use an amount equal to …% of the total invoiced purchase cost by way of an administration rebate (or such other amount as may be agreed) due to you... ● …The Member and you expressly acknowledge to each other that the Member will directly contact with each Supplier that it chooses to purchase from on terms including those negotiated as part of your Buying Arrangement and it is expressly agreed that you shall in no way be liable to the Supplier or to the Member in any way relating to the Member’s arrangement with each Supplier… ● …Where appropriate you are constituted as the agent of the Member solely for the purposes of rebate administration and that Suppliers may issue Adjustment Notes to you in respect of a supply made to the Member… ● When contracting with a supplier, you and the supplier enter an arrangement. ● Under the terms of the arrangement; ● You promise, among other things, that you will ‘ …promptly remit to the relevant member …% of any member rebate paid by the supplier to you in respect of that member’s purchases from you… ’ ● The supplier promises, among other things, that it will ‘ …correctly complete and deliver a quarterly Rebate Summary in the form requested by you together with payment of the calculated rebate. This report is to include the Members and Administration Rebates and to be delivered to you within a number of days of the end of each quarter ending March, June, September and December… ’ ● You and the supplier acknowledge and agree, among other things, that ‘ …rebates are paid each quarter based on purchases not on payments received by the Supplier. In other words rebates are a pricing matter and not a settlement matter… ’

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 29-70 | A New Tax System (Goods and Services Tax) Act 1999 Section 29-75 | A New Tax System (Goods and Services Tax) Act 1999 Division 19 | A New Tax System (Goods and Services Tax) Act 1999 Division 153

Reasons for decision: Summary: Summary You cannot issue RCTIs in regards to the rebates as you are not the recipient of any supply from your members. Detailed reasoning Generally to be able to claim an input tax credit for a creditable acquisition, you must hold a valid tax invoice issued by your supplier. Subsection 29-70(3) defines a RCTI as a tax invoice belonging to a class of tax invoices that the Commissioner has determined in writing may be issued by the recipient of a supply. From the above it follows that to be able to issue RCTIs in regards to the rebates you distribute to your members you must be in receipt of a supply from these members. In your case, you receive the rebates from the nominated suppliers based on the overall level of sales made by the suppliers to each individual member. You then distribute this rebate to your members based on their level of purchases made from the suppliers, that is, members are eligible to receive their proportionate share of the rebates based on their level of purchases from the nominated suppliers. The transaction to which the rebates relate is between the suppliers and your members. Your members are not making a supply to you in return for the distribution of the rebate to them, but rather the rebate is meant to reduce the consideration paid by the members for the sales made to them by the suppliers. In this instance, in receiving and distributing the rebates, you are acting as agent for your members as provided for under the terms of the Membership Agreement. You are in fact doing so in the course of providing your services to the members, that is, you are making a supply of services to the members for consideration, being the …% you retain from the rebates payable to the members. Summary The effect of the rebate paid to members is to reduce the consideration paid by the members for their acquisitions from the suppliers. Accordingly, where the members have already attributed the input tax credits for the relevant acquisition in a previous tax period, they will have an increasing adjustment under Division 19. Detailed reasoning For commercial law purposes, an agent is a person who is authorised, either expressly or impliedly, by a principal to act for that principal so as to create or affect legal relations between the principal and third parties. The principal is bound by the acts of an agent as a result of the authority given to the agent. In your case, you receive, as agent, the rebates paid to members by suppliers, that is, in receiving the rebates you are in fact standing in the shoes of the members. An adjustment arises under Division 19 where an adjustment event has caused you to account for: ● too much (or too little) GST payable for a supply; or ● too much (or too little) input tax credit for an acquisition, in a previous tax period (emphasis added). Adjustment events include changes in consideration for supplies and acquisitions (such as discounts) and cancellations of supplies or acquisitions (such as the return of a thing to the supplier). Under their terms of trade, suppliers may pay rebates to customers who reach certain levels of purchases. The rebates are typically expressed as a percentage of the purchases made in a particular period. A payment of this type is regarded as a reduction in the consideration for the relevant purchases and so is an adjustment event. Recipients may often enter co-operative buying arrangements with other recipients to negotiate loyalty payments such as volume rebates from suppliers. This may be achieved through a separate entity that receives and administers the payments on behalf of all recipients. The separate entity (here called the administrator) will receive a payment from the supplier when the total acquisitions made by the recipients reach a certain volume. The administrator will then pass on the respective portion of the payment to the individual recipients. In this instance, as is the case in your situation, the administrator is merely the conduit for channelling the payment to the recipients. In your case the payment of the rebates to you (as agent for the members) by suppliers will be adjustment events as the purpose of the payments is to reduce the consideration that the members pay for their purchases from the suppliers. It follows that where a supplier and a member have already attributed the GST payable and the input tax credits for their respective taxable supply and creditable acquisition in a previous tax period, the supplier will have a decreasing adjustment and the member will have an increasing adjustment under Division 19. Generally, a supplier is required to issue an adjustment note where an adjustment arises from an adjustment event relating to a taxable supply. To ascertain the identity of a recipient, an adjustment note must include information to establish the identity of the recipient or recipient's agent where applicable. Accordingly, as you are acting as agent for the members in receiving and distributing the rebates, the suppliers can issue an adjustment note to you on behalf of the members for the amount of the rebate.

Reasons for decision: Note: In these reasons for decision, unless otherwise stated, | ● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) | ● reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au