Private ruling: GST and entitlement to input tax credits (Individual Support Packages)
Published: June 2012

Ruling: Q1: Do you make a creditable acquisition based on your arrangements to provide individually attached funding to people with a disability when the individuals use either a direct payments method or a financial intermediary? | A1: No. | Q2: If yes, are you entitled to input tax credits? | A2: No. As you have not made a creditable acquisition, you are not entitled to claim input tax credits.

Relevant facts and circumstances: You are a government entity and you are registered for GST. You have a legislative basis for the funding of SPs for persons with a disability. You provide individually attached funding to assist people with a disability (the person, individual, Support Package holder) to meet their disability related support needs through the SPs. A SP is funding that has been allocated to a person for assistance with meeting their disability support needs. The funds may be used to buy a range of goods or services (supports) chosen by the person to help achieve their goals. A SP lets the person be in control of working out what supports they need subject to the funding guidelines and departmental approval of a funding plan. The person can choose the supports they need that will best help them to achieve their goals and live the way they want. The individual has a key role in determining what supports they will use. The selection of service providers is both the individual's decision and their responsibility. Supports can be purchased from the following types of providers: · Registered disability service providers (RDSPs) · Providers of personal support - not registered as disability service providers · Providers of generic community services · Providers of commercial goods and services. A SP can be administered in a number of ways: · As a direct payment to the individual or a person they nominate · By a financial intermediary (FI) service · By a disability service provider · A combination of these arrangements You determine that there is funding available and identify eligible persons who meet certain criteria. You provide the potential recipient with a letter of offer. This offer advises the individual that they may receive assistance (facilitation) with developing their support plan and funding proposal, and includes the notional allocation of funding that may be available to enable the person and/or facilitator to plan for support required. The individual's acceptance must be given in writing. The individual must also nominate a preferred method of funding proposal development, either by themselves (with a supporter if necessary) or using a facilitator. If a facilitator is required the facilitator should be nominated, or agreement given for you to allocate one. A support plan and a funding proposal must be developed. You are primarily responsible for administering the support plans developed by or for individuals and providing the SPs. The role of a facilitator is to assist the individual to obtain information that will support them to make decisions about which supports to use and who to obtain them from. Where the person cannot choose independently and does not have supporters to assist, the facilitator must only refer them to RDSPs. Then the individual and/or their facilitator develop a funding proposal. Under an SP the individual may elect one of the three methods described above of administering the funding. You have stated in your original ruling request that the ruling would only have application where the supplies made are taxable supplies. You have not requested a ruling in relation to situations where you have a service agreement with a RDSP. You have only requested a ruling relating to direct payments, including where the financial intermediary is used. Direct payments Under this arrangement the SP is transferred to a person with a disability or a nominated person to purchase supports. The person signs a deed of agreement that they will comply with the requirements of the scheme and their funding plan. The person chooses and pays for supports in line with the goals of their funding plan and is responsible for keeping records of expenditure and meeting the accountability requirements. Financial intermediary service Under this option the FI holds the SP funds allocated to a person, makes payments at the direction of the person in accordance with their funding plan and keeps records of the person's expenditure. The FI is not responsible for negotiating or organising service providers to deliver supports, monitoring delivery or the quality of the supports received. You contract an independent FI to provide a state-wide FI service which includes holding SP funds and paying invoices at the direction of people with a disability and/or their nominated representatives. A disability service provider must provide services to people using the FI Service as they would any other person using their service. This means complying with the Disability Act, the terms of their registration as a disability service provider, and/or their funding agreement with you. Under the FI Service, disability service providers have a direct relationship with the service users and/or their nominated representatives. The following GST information is provided to interested parties: Direct Payments A person's Funding Plan must add GST where applicable. Purchases are made directly by the person from external suppliers/service providers. Funds are paid by the department as a "grant". Hence the total funding in a person's funding plan needs to add GST costs, where applicable. Financial Intermediary The person's funding plan must add GST where applicable. A person's funding is administered by the financial intermediary and payments are made at the direction of the person in accordance with their approved funding plan. Hence the total funding in a person's funding plan needs to add GST costs, where applicable (i.e. excluding where an item is GST-free). Other GST information provided to clients Application of GST to purchases under a SP depends on the type of services being purchased, the funding administration arrangement and from whom the services are being purchased. Any GST that is payable is paid by the department in addition to the funding allocated for supports. That is, it is not included in calculations against the person's notional allocation. When costing a funding proposal, any GST that is in the price needs to be identified. The individual should find this out by asking the service provider if the price includes GST. The department will pay the GST amount in addition to the funding the individual is allocated for supports. Further facts You are only requesting a private ruling in situations where a person purchases services from RDSPs when they are using the direct payments or FI administration options. You have provided information and submissions on the registration and statutory obligations of registered disability service providers. A RDSP is an organisation which is registered pursuant to applicable legislation. The legislation sets out a statutory mechanism for the registration of disability service providers. Service providers are required to comply with the legislation, and you have the power to revoke any registration granted. Registered providers are required to meet performance measures and standards set by you, and are also obliged to maintain an internal process for complaints and report on complaints received and resolutions. You have provided details of a quality framework established by you to ensure that all services to people with a disability meet agreed standards, and that establishes ongoing monitoring of registered providers. You have submitted that the reason why GST is being charged by registered disability services providers is because services are not GST-free because the Subdivision 38-B of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)(GST-free health supplies) are not satisfied on the basis that the supply is made to you and not the individual. While you do not make this fact known, or explicitly indicate that you will be bound by or responsible for the acts or choices of individuals, you have advised that suppliers may contact you and negotiate a payment arrangement if there is a problem with payment by an individual. If payment obligations are not met, the relevant supplier has recourse to contact you and arrange payment in respect of that matter.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 11-5 | Subdivision 38-B

Reasons for decision: Summary: You are not entitled to input tax credits when you provide individually attached funding to people with a disability under either a financial intermediary option or through direct payments. You are not the recipient of a taxable supply and do not make a creditable acquisition. | Detailed Reasoning - Background: In order to determine whether you may be entitled to an input tax credit it is necessary to consider the arrangements that you have entered into when providing SP funding, to determine what supply or supplies are being made and to whom. | Detailed Reasoning - SP arrangements: A direct funding plan enables a person with a disability (or a nominated person) to use their support package to choose, arrange and buy the supports and services that the disabled person requires to meet their needs (in accordance with their approved funding plan). Approved funding plans permit the funding to be used only for paying for the disability services and meeting the direct costs of managing these services, and the individual is liable to repay any money not spent for an approved purpose. There is a fiduciary responsibility on the individual that those funds be used as agreed between the parties. The direct payments user holds the funds for the approved purposes and applies them on behalf of you. They are required to utilise the funds to directly purchase services and goods previously provided through a service provider. There are two ways in which the funding is handled, by payment directly to the eligible person and by payments made to a financial intermediary. The direct payments option is described as follows: Purchases are made directly by the person from external suppliers/service providers. Funds are paid by the department as a "grant". Similarly, the FI option is described as follows: A person's funding is administered by the financial intermediary and payments are made at the direction of the person in accordance with their approved funding plan. We consider that there is effectively no difference between these two options for the purposes of analysing the arrangement and any supplies. The FI merely stands in the shoes of the disabled person for the purposes of managing payment. The FI does not have any responsibility for obtaining or managing the services. We consider that the funding is 'attached' to an individual, or an entitlement of the individual. The individual can pay the supplier themselves, have assistance with the financial aspects from the FI or have the funding paid directly by you to the supplier. For reasons explained below, we consider that the method of payment has no impact on determining the party that the disability service provider makes the supply to. The disability service provider does not make a taxable supply to you A supply may be made to you where you enter into binding obligations with a service provider (supplier), or have a pre-existing framework with that supplier that establishes a liability owed by you to the supplier when the supplier provides the services to the eligible person. | Detailed Reasoning - No binding obligation: If you enter into a binding obligation with a supplier to provide disability services to an eligible person, and you are liable to pay for that supply, the supplier is making a supply to you even though the supply may be provided to the eligible person (see proposition 13, GSTR 2006/9). We consider that there is no binding obligation between you and the service provider. You have an agreement with the eligible person in the form of the support plan (and the deed of agreement where the direct payments option is used). However, you do not enter into an agreement or documentation with the disability suppliers. Your agreement regarding the amount you will pay is made with (and communicated to) the eligible person rather than the supplier. This indicates that your obligations are to the eligible person rather than to the suppliers. Under the direct payments option the eligible person chooses and pays for supports in line with the goals of their funding plan. Therefore it is the individuals that contract with the suppliers. This is also the case where there is an FI used. The FI is not responsible for negotiating or organising service providers to deliver supports, monitoring delivery or the quality of the supports received. It is the individual who chooses and instructs the service provider. The contract, or binding obligation, is between the service provider and the individuals. In these circumstances, the contractual flow of the supply is between the suppliers and the individuals. The actual flow of the supply is also to the individual. Therefore, on the information provided we cannot consider that there is a binding obligation between you and the suppliers. | Detailed Reasoning - No pre-existing framework: Even where the supplier has a binding obligation to another party (to the eligible person under their contract or arrangement), the actions of the supplier can also result in a supply to you. This may occur where you have entered into a pre-existing framework or agreement with the supplier which contemplates that you will both act in a particular manner in relation to supplies that are to be provided by the supplier to the eligible person. Where this establishes that you owe a liability to the supplier (rather than to the eligible person) in the event that the supplier provides the relevant supply to the eligible person then this may mean that you are the recipient of a supply. As stated in the GST ruling GSTR 2006/9 (paragraph 221B), the Commissioner considers that the following factors, in combination, may point to a supply being made by the supplier to the payer in a tripartite arrangement that involves a supplier providing a service or goods to the customer where there is no binding obligation between the payer and the supplier for the supplier to provide the service or goods to the customer: There is a pre-existing framework or agreement between the payer and the supplier which contemplates that the parties act in a particular manner in respect of supplies that are to be provided by the supplier to particular third parties or a class of third parties. The pre-existing framework or agreement identifies a mechanism by which the particular third parties or the class of third parties are to be identified such that the supplies provided to them come within the scope of the framework. The pre-existing framework or agreement specifies that the payer is under an obligation to pay the supplier if the supplier provides a relevant supply to a third party and also sets out a mechanism by which such payment is authorised. The framework or agreement and the mechanism for authorising the payment are in existence before the supplier provides the supply to the third party (i.e. the supplier knows in advance that the payer is obliged to pay some or all of the consideration where that supply is provided to the third party) The supplier provides the supply to the third party in conformity with the pre-existing framework or agreement between the parties; and The obligation of the payer to make payment pursuant to the pre-existing framework or agreement is not an administrative arrangement to pay on behalf of the third party for a liability owed by the third party to the supplier. Rather, once the supply becomes a supply to which the framework or agreement applies, the framework or agreement establishes a liability owed by the payer (not the third party) to the supplier in the event that the supplier provides the relevant supply to the third party. Ultimately, it is a question of fact and degree whether a supply to you can be identified (and for which your payment is consideration). No pre-existing framework for the RDSP to act in a particular manner towards SP holders We consider that there is no specific pre-existing framework between you and the RDSP that determines that you and the RDSP will act in a particular manner in respect of supplies that are to be provided by the RDSP to the SP holders. For a supply to be made to you it is necessary that there be a pre-existing framework between the RDSP (supplier) and you. That framework must identify the particular types of supplies provided to SP holders and create particular arrangements in relation to these. We accept that RDSPs have a legislative framework regulating their supplies, and this legislative framework incorporates you and is overseen by you. However, the framework must be relevant to the particular supplies in question to these individuals (as distinct from any others) rather than governing any supplies made by the RDSP. While the legislation establishes a broad framework as to standards of care generally, this does not create any different or special arrangement between the suppliers and the third parties in this scenario (the SP holders). The obligations to adhere to the legislation are the same for all RDSPs providing services to any client. A framework in relation to the particular supplies to SP holders, as opposed to any other services provided to the community, has not been established. It is the SP holder that enters into contracts or arrangements with the RDSPs. You do not have any further arrangements with the providers beyond your general overview or regulation of the disability services system. We do not consider that the suppliers are aware that they have any further obligations to act in a particular manner towards you (for example as a recipient rather than an overseer) once they have entered into an arrangement with the individual in relation to the actual supplies. We consider that it is reasonable for the RDSP, and the individual, to expect that the arrangement between them means that their responsibilities are to each other rather than to any third parties such as you. The individual also has responsibilities to you by virtue of their funding package, which means that they are only able to acquire the approved services. Your arrangements and documentation in relation to the SPs with the individual sets out the arrangement between you and the individual, but does not constitute a pre-existing framework with the supplier. Therefore we do not consider that there is a pre-existing framework that establishes that you have any liability or obligation to the supplier (RDSP) in your own right. Identifying a relevant pre-existing framework is the most important factor in determining whether a supply is made to you. We consider that the lack of a pre-existing framework in relation to the particular transactions means that there can be no supply to you. However, for the sake of completeness (and to demonstrate the lack of necessary elements) the further elements of a necessary framework will be considered. | Detailed Reasoning - No mechanism for identifying SP holders: We do not consider that there is a pre-existing framework with RDSPs in relation to SP holders, nor a mechanism for identifying SP holders from any other clients of the RDSP. No information has been provided to suggest that there is any way for the RDSPs to determine when they are making a supply to an SP holder. Therefore we consider that the RDSP does not have a way of knowing that an individual is an SP holder, or that if they are then the supplies made to these individuals comes under particular pre-existing arrangements with you. That is, identifying SP holders would be unnecessary as the supplies to them do not involve any further arrangements anyway. We do not consider that you have a pre-existing arrangement with the RDSPs that differentiates the supplies to SP holders from supplies to any other client of the RDSP. You do not have further or additional contact with the RDSP to provide specific terms and conditions in relation to services to SP holders. From the perspective of the RDSP the SP holders are no different to any other individual who does not have an SP arrangement with you. This means that there is nothing to suggest that the RDSP would be aware that they are making a supply to you in these circumstances. General legislation to regulate the disability services industry is not sufficient to establish a pre-existing framework with each RDSP supplier in relation to supplies to SP holders. No requirement to pay the supplier nor an established mechanism for making payment We do not consider that there is a pre-existing framework that specifies that you are under an obligation to pay the RDSP if they provide services to your SP holder, nor any mechanism for any such payment. Once a person has selected their RDSP you are not made aware and you do not discuss payment under that arrangement with the provider. In these circumstances your obligations are to provide funds to the SP holder for their use, or to provide funds to the FI to manage for the SP holder. There is no requirement to pay the supplier, nor a mechanism for doing so. Therefore, these elements of a possible framework are not present in your case. Whilst you do not pay at all in these circumstances, even if you did this would not be enough to make you the recipient of a supply unless there was a pre-existing framework that meant the RDSPs also take on particular obligations to you. Without this any payment made would simply be payment for a supply made by the RDSP to the SP holder. You do not make a creditable acquisition in relation to any such payment because the supply is not made to you as required by section 11-5 of the GST Act. Supplier does not know that where the supply is made to the individual that you will pay The RDSP does not know before making the supplies to the individual that you are obliged to pay some or all of the consideration where a supply is provided to that individual. We consider that you do not have an obligation to pay the supplier. Under your arrangements the individual pays for the supplies (either directly or via the FI). The funding is 'attached' to the individual, or an entitlement of the individual. You make the payment of funding to the individual, not to the disability services provider. The funding information between you and the individuals advises that the eligible persons are responsible for entering into arrangements and paying service providers. You have provided further information that you may have a fall-back requirement to make payment if a person does not meet their obligations to pay. While the RDSPs are unlikely to know this unless a problem arises, even if we accepted that you have this underlying responsibility this does not override the fact that the individual is primarily responsible for making payment for their own obligation. Even if circumstances arose whereby you did make such a payment by forwarding the funding directly to the RDSP (but do not have a service agreement with them), this does not alter the reasoning that the elements of a supply to you have not been established. In those circumstances there is still only one taxable supply - from the supplier to the SP holder. Merely stepping in to pay for a supply does not alter who the supply is made to, any such payment is in the nature of a payment arrangement whereby you meet an SP holder's liability to pay the RDSP. Even though there may be a pre-arranged agreement that the supplier will accept the amount as full payment, the supplier is not making a supply to you for which the payment is consideration (see example 10A GSTR 2006/9). Rather, the supply is still made solely to the individual and you pay on their behalf. Where you pay on behalf of the eligible person for their liability this is an example of a third party payment arrangement. Furthermore, we would expect and assume that any amount paid to suppliers under this arrangement would then come out of the SP entitlement of the individual anyway. This demonstrates again that this would be an administrative arrangement to pay on behalf of the individual. Supplier does not provide the supply in accordance with a pre-existing framework or agreement In these circumstances the RDSP does not provide the supply to the individual in accordance with a particular pre-existing framework or agreement between you and them. As previously discussed, there is no evidence to show that the service provider understands that they have any particular obligations to you in providing the services to the disabled person. The services they provide are determined by their arrangement with the individual, and the individual in turn has responsibilities to you under the SP arrangements. These are separate obligations. There is no particular framework in relation to supplies to SP holders, and it is not possible for the service provider to provide the supply in accordance with an agreement or framework with you. Your role in overseeing all supplies made by RDSPs does not make you the recipient of those supplies. | Detailed Reasoning - Liability is not owed by you: We do not consider that there is any pre-existing framework that establishes that a liability is owed by you to the RDSP where the RDSP provides services to the individuals. We consider that the scheme documentation evidences a clear intention that the individual is responsible for obtaining supplies in their own right under both the direct payment and FI funding options. This means they also have the corresponding liability to pay for these supplies. While you enter into an agreement that means you then have a duty or liability to provide funding to the SP holder, you do not have a liability to the RDSP. We consider that your only obligations are to the funding recipients, who in turn enter into obligations with the RDSP. We consider that your payment to the individual is in connection with your funding obligations, rather than any supplies they then receive as part of their funding agreement. We therefore consider that any payment made by you is not in connection with a supply from the disability services provider, but is in connection with your funding agreement with the individual. The individual (or FI on their behalf) then provides consideration for the supplies by the disability services provider from that funding money. When they make this payment, they are paying for a supply that is made to them. This means that they are paying on their own behalf, or in their own right. Whilst they must do so in accordance with their agreement with you, this is separate to their obligations to the provider which they have entered into in their own right (and in accordance with your requirements). | Detailed Reasoning - Conclusion - no supply to you by disability services provider: Taking into account all the above considerations the factors that may point to a supply being made to a payer (you) where a supply is provided to a third party (the SP holder) are not present in your case. A pre-existing framework of a relevant nature has not been established between you and the RDSP, therefore the only supply the service provider makes is to the individual. Their actions do not result in an additional supply to you in these circumstances. Therefore you are not the recipient of a supply from the RDSP in these circumstances. For you to have made a creditable acquisition there must have been a taxable supply of the disability services to you. As this requirement is not met, you do not make a creditable acquisition and are not entitled to input tax credits. | Detailed Reasoning - Other matters to consider: As requested, we have not provided advice on a scenario where you enter into a 'service agreement' with the RDSP in your own right. This ruling does not apply to that arrangement. Where you have entered into a contractual arrangement with a supplier and you are the recipient of the supply you will be making a creditable acquisition if all of the requirements of section 11-5 of the GST Act are met. Similarly, if you have a pre-existing framework establishing the factors above you would also be the recipient of a supply. As you do not require a ruling on this matter we have not explored the nature of your arrangement under this SP administration model. Please note that as a result of our view that the individual is the recipient of the supply from the service provider for the direct payments and FI scenarios, many of the services provided to the individual may be GST-free under Subdivision 38-B of the GST Act. We note in particular that section 38-40 of the GST Act operates to make a supply of specialist disability services GST-free if the supplier receives funding under the Disability Services Act 1986 or under a complementary State law or Territory law in respect of the specialist disability services. We would consider the relevant legislation to be a complementary State law. Our interpretation of section 38-40 is that services which have been funded to any degree under that legislation will be wholly GST-free to the recipient of the service. For example, where a particular specialist disability service is only partly funded, it is considered that this will not prevent the service from being wholly GST-free to the recipient of the service. We also note that, following ATOID 2003/993 (GST and the supply of disability services where the service provider receives block funding), the RDSP makes a GST-free supply under section 38-40 of the GST Act when it supplies disability support services, for which it receives block funding, to a client who pays for the disability services in full. | Summary: As you do not make a creditable acquisition in relation to your provision of SP packages you are not entitled to input tax credits. | Detailed Reasoning - Detailed reasoning: You are not the recipient of a supply from the RDSP. For you to have made a creditable acquisition there must have been a taxable supply of disability services to you. It is the individuals who are the recipients of supplies from the RDSP rather than you. Therefore you do not make a creditable acquisition and are not entitled to input tax credits.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.