Private ruling: GST and appropriations
Date of advice: 26 June 2020
Published: August 2020

Ruling: Q1: Can the Commissioner of Taxation (Commissioner) confirm that: (a) the payment by Entity A to Entity B fall within paragraph 9-17(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? (b) if the response to question 1 is 'yes', is Entity B entitled to a decreasing adjustment under section 19-55 of the GST Act for the GST incorrectly charged? and (c) the decreasing adjustment is to be attributed in accordance with section 29-20 of the GST Act, being the tax period in which Entity B became aware of the relevant adjustment? | A1: The Commissioner confirms that: (a) the payments fall within paragraph 9-17(3) of the GST Act. For a supply to be a taxable supply the requirements of section 9-5 of the GST Act must be met. One requirement is that a supply must be for consideration. Subregulation 81-10.01(2) A New Tax System (Goods and Services Tax) Regulations 1999 ensures that payments covered by subsection 9-17(3) or (4) of the GST Act are not treated as the provision of consideration and therefore do not give rise to a taxable supply. This ensures that payments between government related entities covered by these subsections are not subject to GST. Section 9-17 of the GST Act provides that certain payments and other things are not consideration where certain requirements are met. Relevantly from 1 July 2012, a payment will not be subject to GST if all of the following apply: · the payment is made by a government related entity (GRE) to another GRE for making a supply, · the payment is covered by an appropriation under an Australian law or is made under a specified intergovernmental health reform agreement, · the payment satisfies the non-commercial test. Accordingly, as all three requirements listed above have been met, the payment is not consideration for a supply, thus all the requirements under section 9-5 are not met, the supply is not a taxable supply. (b) when Entity B reimburses Entity A the passed-on GST, Entity B is entitled to a decreasing adjustment under section 19-55 of the GST Act. Relevantly, Division 142 of the GST Act deals with excess GST and section 142-10 states: 142-10 Refunding the excess GST For the purposes of each *taxation law, so much of the excess from subsection 142-5(1) (the excess GST ) as you have *passed on to another entity is taken to have always been: (a) payable; and (b) on a * taxable supply; until you reimburse the other entity for the passed-on GST. Note 1:If you reimburse the passed-on GST so that this section ceases to apply there will be an adjustment event under paragraph 19-10(1)(b) or (c). You will have a decreasing adjustment (see section 19-55) and the other entity may have an increasing adjustment (see section 19-80)... Therefore, on the basis that Entity B reimburses Entity A the passed-on GST, consistent with Note 1 in paragraph 142-10 of the GST Act, Entity B will have a decreasing adjustment under section 19-55 of the GST Act for the GST incorrectly charged. (c) the decreasing adjustment is to be attributed to the tax period in which the reimbursement is made by Entity B. Relevantly Goods and Services Tax Ruling, GSTR 2015/1, Goods and services tax: the meaning of the terms 'passed on' and reimburse' for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 (GSTR 2015/1) provides the Commissioner's view on when an amount of excess GST has been passed on to another entity. Paragraph 17 and 18 of GSTR 2015/1 state: Excess GST passed on 17. If the excess GST has been passed on to the recipient, section 142-10 applies to treat the excess GST as always having been payable, and payable on a taxable supply, until the excess GST has been reimbursed to the recipient. Once section 142-10 ceases to apply, the supplier can claim a refund of the excess GST. 18. In cases where the supplier actually makes a supply, an adjustment event arises under Division 19 when the supplier reimburses the recipient as the reimbursement has the effect of changing the consideration for the supply, or causing the supply to stop being a taxable supply. In these cases, the supplier has a decreasing adjustment which is attributable to the tax period in which the reimbursement is made to its recipient. The recipient has an increasing adjustment where it is registered for GST and has claimed an input tax credit in relation to the acquisition. The Commissioner's view on the operation of Division 19 is explained in Goods and Services Tax Ruling GSTR 2000/19 Goods and services tax: making adjustments under Division 19 for adjustment events. Therefore, consistent with the above paragraphs in GSTR 2015/1 the decreasing adjustment is attributed by Entity B to the tax period in which the reimbursement is made to Entity A.

Relevant facts and circumstances: Entity A and Entity B are both government related entities and registered for GST. Entity A and Entity B have entered into an agreement under which Entity B makes supplies to Entity B. The payment for the supplies is covered by an appropriation under an Australian law. Entity B calculates the payment on a cost recovery basis. Entity B has reported GST on the supplies to Entity A.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 9-17(3) | A New Tax System (Goods and Services Tax) Act 1999 42-10 | A New Tax System (Goods and Services Tax) Act 1999 19-55 | A New Tax System (Goods and Services Tax) Act 1999 29-20