Private ruling: GST and Government appropriations
Published: April 2014

Ruling: Q1: Does GST apply to payments of the loan funds made by the Commonwealth to the Agency on behalf of the Department for the delivery of a Commonwealth scheme? | A1: No | Q2: Are the payments made by the Commonwealth, to you for administrative services consideration for a supply? | A2: No | Q3: Are the payments made by the Commonwealth, to the Agency on your behalf, consideration for administrative services provided by the Agency to you? | A3: No

Relevant facts and circumstances: The Commonwealth the Department and the Agency intend to enter into agreements whereby the Department will deliver a scheme. The Department will engage the Agency to assist the Department to deliver the scheme. Each of the entities in the agreement is a government entity. The payer entity is funded from a Commonwealth Appropriation Act for its general operation expenses which includes the loan funds and supplies of your administrative services.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-17 | Subsection 9-17(3) | Subsection 9-17(4) | Section 195-1 | A New Tax System (Australian Business Number) Act 1999 Section 41

Reasons for decision: Summary: Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). You make a taxable supply if: (a) you make the supply for *consideration (b) the supply is made in the course or furtherance of an *enterprise that you *carry on (c) the supply is* connected with Australia; and (d) you are* registered, or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or* input taxed. (* denoted a term defined in section 195-1 of the GST Act). A taxable supply cannot exist unless there is a supply for consideration. There are three questions that are relevant to determining this question: • is there a supply; • is there consideration; and • does the necessary relationship exist between supply and consideration? A supply is a taxable supply, if, among other things, the supply is made for consideration. Thus, there must be some nexus or connection between a particular supply and particular consideration which is provided for that supply. A supply is defined to mean any form of supply whatsoever. Without limiting the fact that a supply is any form of supply, a supply is defined in subsection 9-10(2), to include any of the following: (a) a supply of goods; (b) a supply of services; (c) a provision of advice or information; (d) a grant, assignment or surrender of real property; (e) a creation, grant, transfer, assignment or surrender of any right; (f) a financial supply; (g) an entry into, or release from, an obligation: (i) to do anything; or (ii) to refrain from an act; or (iii) to tolerate an act or situation; (h) and any combination of any 2 or more of the matters referred to in paragraphs (a) to (g). However, a supply does not include a supply of money unless the money is provided as consideration for a supply that is a supply of money. This is also confirmed at paragraph 99 of the Goods and Services Tax Ruling GSTR 2002/2: GST treatment of financial supplies and related supplies and acquisitions which provides that the definition of supply excludes a supply of money unless the money is provided as consideration for a supply that is a supply of money. Therefore, where the consideration for a supply is money, the consideration will not itself be a supply unless the other supply is also money. The loan agreement funds provided by the Commonwealth are not consideration for a supply and therefore the requirements of section 9-5 of the GST Act are not met and not subject to GST. | Detailed Reasoning - Questions 2 and 3: Section 9-17 of the GST Act deals with payments and other things that are not consideration for the purposes of the GST Act. Specifically in subsection 17(3) and (4) of the GST Act which state: (3) A payment is not the provision of consideration if: (a) the payment is made by a *government related entity to another government related entity for making a supply; and (b) the payment is: (i) covered by an appropriation under an *Australian law; or (ii) made under the National Health Reform Agreement agreed to by the Council of Australian Governments on 2 August 2011, as amended from time to time; or (iii) made under another agreement entered into to implement the National Health Reform Agreement; and (c) the payment is calculated on the basis that the sum of: (i) the payment (Including the amounts of any other such payments) relating to the supply; and (ii) anything (including any payment for any act or forbearance) that the other government related entity receives from another entity in connection with, or in response to, or for the inducement of, the supply, or for any other related supply; does not exceed the supplier's anticipated or actual costs of making those supplies. (4) A payment is not the provision of consideration if the payment is made by a government related entity to another *government related entity and the payment is of a kind specified in regulations made for the purposes of this subsection. Therefore, a payment by one government related entity to another government related entity in respect of a supply will not be subject to GST where it satisfies the above criteria. The key elements in determining whether a specific payment will fall under subsection 9-17(3) of the GST Act are: • the entities making and receiving the payment are government related entities; • there is an appropriation under an Australian law which supports the payment, and • the payment is not paid in a commercial manner with reference to the costs of making the related supplies. On the facts, the Commonwealth, you and the Government agency are government related entities for the purposes of subsection 9-17(3) of the GST Act. Accordingly, the first requirement of subsection 9-17(3) of the GST Act is satisfied. The second requirement of subsection 9-17(3) of the GST Act to consider, in your circumstances, is whether the payment is covered by an appropriation under an Australian law. The payer entity is funded from a Commonwealth Appropriation Act for its general operation expenses which include supplies of your administrative services. Accordingly, the payments the recipient entity made to you for services are covered by an appropriation under an Australian law and thus, the second requirement of subsection 9-17(3) of the GST Act is satisfied. Non-commercial test The third requirement of subsection 9-17(3) of the GST Act to consider (referred to as the non-commercial test) is whether the payment was calculated on the basis that the sum of: • the payment (including the amounts of any other such payments) relating to the supply, and • anything (including any payments for any act or forbearance) that the other government related entity receives from another entity in connection with, or in response to, or for the inducement of, the supply, or for any other related supply does not exceed the supplier's anticipated or actual costs of making those supplies. This is achieved by requiring that the payment for the supply in question (administrative services) be calculated on the basis that the sum of the payment and anything else received from another entity in connection with, or in response to, or for the inducement of, the supply of administration services or any other related supply, does not exceed your anticipated or actual cost of making the supplies. The reference to 'anything' in the third requirement of subsection 9-17(3) of the GST Act ensures that things of a non-monetary nature received by you (the government related entity supplier) from another entity is taken into account in determining whether the sum of the payment and things received by you (the government related entity supplier) in connection with the supply does not exceed your anticipated or actual costs of making the supply. The payments for the supply of services are calculated on the basis that the sum of the payment relating to the supply of the administrative services and anything that you receive from the Commonwealth for your services to the Department in connection with the supply does not exceed your anticipated costs of making those supplies. As the amounts of the payments are calculated to equal your anticipated costs of providing the services the third requirement of subsection 9-17(3) of the GST Act is satisfied. As all three of the requirements of subsection 9-17(3) of the GST Act are satisfied, the payments made by the Commonwealth to you and the Agency in connection with the supplies of the administrative services are not the provision of consideration and therefore not subject to GST.