Private ruling: GST and entitlement to input tax credits
Published: July 2012

Ruling: Q1: Can the Department (you) claim input tax credits for payments, including past payments, made to transport operators under the A Subsidy Scheme? B Subsidy Scheme? Free Trip Scheme? Subsidised Travel Scheme? | A1: Input tax credits may be claimed for payments made to operators under the A Subsidy scheme and the B Subsidy Scheme. You may not claim input tax credits for payments made in relation to the Annual Free Trip Scheme or the Subsidised Travel Scheme.

Relevant facts and circumstances: The Department is a government entity registered for goods and services tax (GST). The Department makes payments under a number of schemes considered in this ruling: A Subsidy Scheme B Subsidy Scheme Free Trip Scheme Subsidised Travel Scheme A Subsidy Scheme You provide discounts on the cost of travel by coach between certain towns on presentation of an eligible concession card or Senior's card. A number of bus companies are currently involved in this scheme, and the scheme has been operational for many years. At the time of the establishment of this scheme a letter with procedures was sent to each company. You have provided a copy of a similar letter sent to a new transport provider operating under the scheme. The bus company employees know that they must set and charge a lower fare on presentation of a concession card through internal training. Also, through the significant prior practice between the parties it is known that where the reduced fare is charged the company will be reimbursed by the Department. The bus companies submit a monthly invoice to you to recoup the difference between a normal adult fare and the concessional fare charged to the pensioners/seniors. The companies also provide you with statistical and substantiation information for trips under the scheme during the invoice period. B Subsidy Scheme You provide a discount on the cost of travel on a particular bus service on presentation of an eligible concession card or Senior's card. You have advised that a letter with procedures was given to the company at the time of implementing the scheme many years ago. The bus company employees know that they must set and charge a lower fare on presentation of a concession card through internal training. Also, through the significant prior practice between the parties it is known that where the reduced fare is charged the company will be reimbursed by the Department. The company submits a monthly invoice to you to recoup the difference between the normal adult fare and the concessional fare charged to pensioner/senior travellers for the invoice period. Free Trip Scheme You provide journeys, by air or coach, to a certain value to certain eligible pensioners. Pensioners receive a Voucher with their Pension Concession card. A pensioner then completes an application form and submits this with the Voucher to you. After assessment of an eligible application, you provide a Pensioner Voucher (travel voucher) to the pensioner or their nominated travel agent. The pensioner then makes a booking (or the travel agent makes a booking on behalf of the pensioner) for travel with the relevant supplier of air or bus travel with the transport operator as follows: · The supplier is informed that the booking is under the scheme · If booking through an airline, the Department's company profile number is quoted · The travel voucher number is quoted · The completed travel voucher is exchanged for the ticket. Agents are aware of the amount you will pay as they regularly contact you to confirm the amounts that you will reimburse or subsidise. The pensioner pays the difference (if any) between the value of the travel voucher and the value of the transport. The transport operator or travel agent then invoices you, with copies of the tickets issued and the relevant voucher details attached. You then make payment of the invoiced amount after you have verified the amounts invoiced. Subsidised Travel Scheme The operation of the Subsidised Travel Scheme is very similar. A fare allowance is payable to eligible students who travel away from home to attend a recognised school, college or university. Under the scheme, students are entitled to a certain number of free regular passenger return transport trips per year. There are a number of conditions that determine the number of trips per calendar year that eligible students are entitled to take, and the amount of allowance they are entitled to. An eligible student must lodge an application form with you, certified by their school of attendance. Upon approval of the application, you then issue a travel voucher to the student/parent that can then be exchanged for a ticket with most travel agents or travel operators. Alternatively, vouchers can be sent directly to the travel agent (if requested by the student/parent). The student makes a booking (or the travel agent makes a booking on behalf of the pensioner) for travel with the relevant supplier as follows: · The supplier is informed that the booking is under the scheme · If booking through an airline, the Department's company profile number is quoted · The travel voucher number is quoted · The completed travel voucher is exchanged for the ticket. · The transport operator or travel agent then invoices you with copies of the tickets issued and the travel vouchers. · The student pays the difference (if any) between the value of the travel voucher and the value of the transport. · You then make payment of the invoiced amount after you have verified the amounts invoiced.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Division 9 | Division 11

Reasons for decision: Summary: You are the recipient of supplies in relation to the A and B subsidy schemes. You are entitled to claim input tax credits for amounts paid to suppliers under these schemes. However, you are not the recipient of a supply in relation to the free trip scheme, or the subsidised travel scheme. You are not entitled to claim input tax credits for amounts paid to suppliers under these schemes. | Detailed Reasoning - Detailed reasoning: To determine whether the Department is entitled to an input tax credit in relation to the subsidies it is necessary to consider whether the Department is the recipient of a supply when it makes a payment to an operator under the scheme. | Detailed Reasoning - A and B subsidy schemes: Under these subsidies, a supply is made by the bus operator to the eligible person for the reduced amount of the fare. It is necessary to consider whether a further supply is made to the Department, with the subsidy amount paid by the Department being consideration for this supply. If no supply is made to the Department in return for the payment, the Department only makes a third party payment and the payment is not made for any acquisition by the Department. 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. Based on the information provided, you have not entered into a binding obligation with the bus operators. As stated in paragraph 221B of GSTR 2006/9, the Commissioner considers that the following factors, in combination, may point to a supply being made by the supplier to the payer under a tripartite arrangement that involves the supplier providing a service or good to the customer and where there is no binding obligation between the payer and the supplier to provide the services 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. It is a question of fact and degree whether a supply to the payer can be identified (and for which the payment is consideration). The factors listed at paragraph 221B of the Ruling provide a guide, but are not conclusive or prescriptive. It is conceivable that despite all of the listed factors being present, there may be some other relevant factor that points to the payment not being consideration for a supply to the payer. Conversely, if one of the listed factors is not fully met, this does not necessarily preclude identifying the payment as being consideration for a supply to the payer (paragraph 221G, GSTR 2006/9). | Detailed Reasoning - Pre existing framework: We consider that there is a framework in place that sets out the terms and conditions governing the parties (the Department and the bus operators) and requires those entities to act in a particular manner with respect to the supplies provided to the third party (the pensioner). Under the agreement between the department and the bus operators, the bus operator must accept the pension card and accept payment from the pensioner at the reduced rate, being the difference between the total fare and the subsidised amount. The operator and drivers understand that they must collect the discounted fare from the pensioner, and that they will then receive the subsidy payments from the Department. Therefore there is an administrative framework in place governing the operation of the scheme. Once the concession card has been presented the administrative obligations of the scheme must be carried out by both the bus operator and you. These obligations require that the bus operators act in a particular manner in respect of supplies made to pensioners, and specifically the framework requires that the bus operator charge a lower amount to pensioners. | Detailed Reasoning - Mechanism for identifying eligible recipients: Pensioners hold a valid card that enables them to access the bus services at discount. They must present their card at the commencement of the trip in order to pay the reduced fare. Presentation of the card prior to the supply of transport authorises these services as a supply under the scheme. The bus operator obtains advance authorisation in the form of the concession card before providing the transport. The card itself is authorisation from the Department that the member is entitled to benefits under the schemes. | Detailed Reasoning - Supplier knows that if the supply is made to the third party that the agency will pay: The bus operator knows that where the procedures are followed, the Department will make the payment to them when the supply is made under the arrangement. The supplier (bus operator) accepts that they receive the payment for the supply of the services from two payers, the customer and the Department. There are established arrangements for obtaining the amounts from the Department, via the monthly invoices. | Detailed Reasoning - Supplier provides the supply in accordance with the pre-existing framework or agreement.: Accepting the card and charging the lower fare means that the supplier is acting in accordance with the pre-existing arrangement, and has provided the relevant services. In these circumstances the supply is in accordance with the agreement arranged between the Department and the bus operator. Where the requirements under the arrangement with the Department are followed, the bus operator makes supplies of services to the customers and the Department. As well as the supply to the customer of transport services there is another supply to the Department, being the service of transporting the eligible pensioner. This supply is for consideration, being the subsidy amount. | Detailed Reasoning - Not an arrangement to pay on behalf of the third party for a liability already owed by the third party.: When the concession card is presented the supply becomes a supply of transport under the schemes and the Department assumes liability to make payments under the schemes. The Department owes the amount of the subsidy to the bus operator under the schemes in its own right. The arrangement is not an arrangement for the Department to pay the member's liability. Only the reduced amount is the liability of the customer. Rather, under the arrangement the Department is liable in its own right for the subsidised component of the fare. | Detailed Reasoning - Conclusion: In considering the above factors in combination, we accept that a supply has been made to the Department as well as to the pensioner in the above circumstances. The supplies by the bus operator are taxable supplies as they have provided a supply for consideration in the course of their enterprise, the supply is connected with Australia and they are registered for GST (section 9-5 GST Act). Under section 11-5 of the GST Act the Department makes a creditable acquisition if it acquires something solely or partly for a creditable purpose, the supply of the thing to it is a taxable supply, it provides or is liable to provide consideration for the supply, and it is registered or required to be registered. The Department has made creditable acquisitions as they have acquired the service in carrying out their enterprise and it is not in relation to making supplies that are input taxed or private or domestic (section 11-15 GST Act). The Department has acquired the service as part of its enterprise, as an enterprise includes an activity or series of activities done by the Commonwealth, a State or a Territory (section 9-20 GST Act). The supply to the Department is a taxable supply in Australia, the Department have provided consideration and they are registered for GST. This meets all the requirements of section 11-5 of the GST Act. Therefore, the Department is entitled to input tax credits for payments made under these subsidies. You may claim past credits relating to these schemes for the period advised in your notification of entitlement to input tax credits where you have appropriate documentation to substantiate your entitlement. Please note that the bus operator must have paid GST on the total consideration received for the supplies it makes, being consideration from the pensioner and from the Department. | Detailed Reasoning - Free Trip Scheme and Subsidised Travel Scheme: Under these subsidies, the arrangements are quite different. We do not consider that there is a pre-existing framework that establishes that you have any liability or obligation to the supplier in your own right. You have arrangements with the individuals regarding the arrangements and their entitlements under the schemes, but these arrangements do not involve or bind the supplier. It is the individual that enters into contracts or arrangements with the supplier (travel agent or travel provider). They can choose any supplier, and you do not have any advance arrangements with these suppliers. For example, the suppliers do not need to register with you to provide supplies under the scheme, or agree to any particular terms or conditions. At the time of negotiating for the supply, the supplier is not aware that they are entering into an arrangement that involves you. It is once the supply to the individual has been arranged the method of payment is established. Even where suppliers are aware of the subsidy schemes, they do not have any obligations to you before they accept the voucher. Also, there is nothing to suggest (such as licensing or registration requirements) that the suppliers can be compelled to accept your voucher as payment - although we accept that in these circumstances there is unlikely to be any reason why they would not accept this payment method. | Detailed Reasoning - We consider that the benefits under your scheme are an entitlement of the individual.: You have entered into an arrangement under which the subsidy entitlement of the individual is paid by you directly to the supplier rather than to the individual, on authorisation by the individual. Where this occurs, the entitlement of the individual is assigned to the supplier, with the payment being applied by the supplier in satisfaction of the liability owed by the individual to the supplier. Your agreement means that you assume liability to make payment to the supplier on the individual's behalf. However, you do not have a liability to the supplier in your own right. This is demonstrated by the fact that the agent is responsible for chasing any outstanding amount from the pensioner or student that is not met by the subsidy payment. We consider that your only obligations are to the individuals, who in turn enter into obligations with the suppliers. The supplier may accept the amount paid by you as payment for the supply to the individual under this arrangement, and is then required to provide substantiation information. However, the payment by you to the supplier is merely an administrative arrangement to pay on behalf of the individual for a liability owed by the individual to the supplier. That is, the subsidy payment is an entitlement of the individual which is then assigned to the supplier, rather than being a liability owed by you to the supplier. Therefore the supplier is not making a supply to you for which the subsidy payment is consideration (see example 10A, paragraphs 212B to 212D GSTR 2006/9). Merely paying for a supply does not make the Department the recipient of the supply. We consider that the voucher represents an arrangement to pay on behalf of an eligible person for a supply to them. It is not a liability to pay in your own right for a supply made to you. Your payment under the voucher is consideration for a supply made to the individual. Similarly, where you allow the Department's company profile to be used to pay for the travel this is merely a mechanism to pay (much like the voucher). As you are not the recipient of a supply in relation to these schemes you do not make a creditable acquisition and you are not entitled to input tax credits. We note that you requested a refund based on your view that you may have been entitled to input tax credits in relation to this scheme for the period X to Y. Any input tax credits that have been claimed in relation to this scheme beyond this date have been claimed in error based on the views above. Where this is the case we consider that this results in an underpayment of GST. A voluntary disclosure of the shortfall amount should be made in these circumstances.

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.