Private ruling: Entitlement to input tax credits - utilities rebate
Published: May 2013

Ruling: Q1: Have you made a creditable acquisition where you pay amounts to utilities retailers (retailers) under the written rebate agreement? | A1: Yes. Please note that, contrary to our original advice, you also make creditable acquisitions in relation to retrospective rebates. | Q2: Do you hold valid tax invoices in respect of your acquisitions from the retailers such that you are entitled to claim input tax credits for the creditable acquisitions made? | A2: Yes. Our response to this question confirms our original advice.

Relevant facts and circumstances: · You are a Government department and are registered for GST. · You are tasked with providing a range of public services to the community, including providing funding to support eligible persons in the community. · You operate a rebate scheme under the following arrangements: · You provide a rebate on the cost of utilities supplied to eligible concession cardholders. · You have entered into a written agreement with retailers,. · This agreement outlines the relevant responsibilities of the parties to the agreement. · You have already received a private ruling considering your arrangements under the Scheme. · The facts of this ruling are the same as provided for the original ruling. · A summary of relevant terms of the agreement are as follows: · In order to determine the eligibility of potential participants, participants are required to complete an application form and this is lodged with the retailers. · The retailers are responsible for receiving and processing the applications and providing the rebates under the terms and conditions set out in the Agreement. · The rebate is delivered by the retailers to the card holders by deducting the value of the card holder's rebate entitlement from the value of their utilities supply. Eligible participants are then only required to pay the price on the invoice issued to them. · The Agreement states that any payments made by you will be subject to GST where appropriate. · The Agreement sets out the obligations that the retailers are required to complete in order to receive reimbursement of the rebate from you. · Under the Agreement, if a utilities customer requests that a rebate be given to them retrospectively, and they meet the eligibility criteria, the Retailer must give the rebate for the period up to 12 months before the successful request. · In these circumstances the retailer includes any retrospective claims in the current claim form and advises you by email. · Any older retrospective claims must be separately considered by you. · Where the retailer receives a claim from a customer for a retrospective rebate that relates to a period over 12 months prior to the application, they must refer the claim to you for determination. On request, the retailer must also assist you to determine whether the claim should be accepted or rejected. They must then pay the rebate to the customer for the period that you inform them in writing that the customer is entitled to the rebate. · No retrospective payments can be given for any periods before 1 July 2007. · The retailers issue tax invoices to you, which detail the total value and number of rebates provided to eligible participants on a monthly basis. It is understood that the retailers remit GST on the consideration received from you. · You have provided a sample copy of a tax invoice issued on by a retailer for the rebates provided. · Under the original ruling, we advised that you make a creditable acquisition where you pay an amount to the retailers under the agreement. However, we advised that where you pay a retrospective rebate you do not make a creditable acquisition. · As a result of our advice, you did not claim a percentage of the input tax credits for the rebates paid. This percentage was agreed with us by email communication. The percentage was determined by an analysis of the number of retrospective claims in a sample period of claims. · The state government also enter into similar schemes using essentially the same written agreement. A recent ruling we have provided on a similar arrangement has caused us to review your original ruling on these arrangements, particularly in respect of retrospective rebates. · This replacement ruling applies to you on behalf of the State, and may be applied to any other Departments who may have (or may have had) responsibility for the administration of the rebate scheme under the terms of the written agreement as provided.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Division 9 | Division 11 | Section 29-10 | Section 29-70

Reasons for decision: Summary: The retailers make a supply to customers as well as a separate supply to you under the agreement. Your payments are consideration for the supply made to you, and the supply is a taxable supply. As you are the recipient of a taxable supply you therefore make a creditable acquisition. | Detailed Reasoning - Detailed reasoning: To determine the supplies that are made in your circumstances it is necessary to look at the agreements between the parties (the agreement is the logical starting point when working out the entity making the supply and the recipient of that supply, see proposition 11 of GSTR 2006/9). We note that Goods and Services Tax Ruling (GSTR) 2006/9 has been updated to reflect the decision in Commissioner of Taxation v Secretary to the Department of Transport (Victoria) [2010] FCAFC 84 (Department of Transport Case). Following the principles in GSTR 2006/9 (and the Department of Transport Case), one set of activities may constitute the making of two (or more) supplies. Where an entity (such as a utilities retailer) agrees with you to provide goods, services, rebates or anything else to another party (the eligible person), if the retailer enters into a binding obligation with you to provide goods under certain terms, perform services or do something else for the eligible person, and you are liable to pay for those services, the retailer makes a supply to you, even though the supply may be provided to another entity. Similarly, you may enter into a pre-existing framework or arrangement with the retailer which contemplates that the parties act in a particular manner in respect of supplies by the supplier to the eligible person which establishes a liability owed by you to the retailer (rather than the eligible person having the liability to the retailer) in the event that there is a supply to the eligible person. Both of these types of arrangement (binding obligation or pre-existing framework) result in a supply being made to you under the arrangement. In your circumstances, you have entered into a written agreement (the Agreement) with the retailers. We consider that your written agreement forms and details the binding obligations between you and the retailer. When the retailer enters into the Agreement with you they are entering into an obligation to do something, which results in a supply being made to you (see section 9-10(2)(g)(i)). Your agreement sets out the terms and conditions governing the parties (the retailer and you) and requires the retailer to act in a particular manner in respect of the supplies provided to third parties (eligible persons). It covers arrangements with regards to receiving and processing applications for the rebate, the eligibility criteria that must be used, verification processes and paying the rebate to eligible customers. We consider that under the agreement it is the retailer that is required to provide the rebate to the eligible participant. Under the agreement you are required to reimburse the retailer for any rebate validly given to an eligible person. You also pay an administration fee to the retailer. There are mechanisms for how and when the retailer submits their claims. Your payments of the amounts under the arrangement are payments for the liability that you owe in your own right, for the supplies contemplated under the Agreement. We consider that there are two supplies made by the retailers under your particular arrangements - one to you and a separate (and not necessarily concurrent) one to the eligible rebate recipients. The supply made to you is the retailer's service of administering and providing the rebates to eligible persons under the Agreement. The eligible person receives the supply of the actual utility, for consideration being the lesser amount that they are required to pay (reduced because of the rebate). The consideration received from each party is in connection with the corresponding supplies made to them. Your payments of the reimbursement amounts (and the administration costs) are consideration for the separate supply made to you. The supply is made by a registered supplier in the course of their enterprise, it is connected with Australia and the supply is for consideration. Therefore the supply made to you is a taxable supply. From the perspective of the retailer it is not important who provides the consideration for the taxable supplies that are made, GST is payable on the full consideration received. However, as you are the recipient of a taxable supply from the retailer this is relevant to your entitlement to input tax credits. You make a creditable acquisition if you acquire something solely or partly for a creditable purpose, the supply of the thing to you is a taxable supply, you provide or are liable to provide consideration for the supply, and you are registered or required to be registered (section 11-5 GST Act). You have made a creditable acquisition as you have acquired the services under the agreement in carrying out your enterprise, and it is not in relation to making supplies that are input taxed or private or domestic (section 11-15 GST Act). You have acquired the service as part of your 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). Therefore you are entitled to input tax credits. You may claim past credits for the period we advised in our response to your notification of entitlement to those credits, subject to you holding a valid tax invoice. This is considered below. | Detailed Reasoning - Payments in connection with retrospective rebates: We also note that your agreement allows that the retailer may provide retrospective rebates to eligible persons. Where the retailer acts in accordance with the terms of the agreement and a retrospective rebate is paid, we consider that this is also a payment pursuant to your binding obligations with the retailer. Therefore, for the reasons given above, the payment is consideration for their supply of services under the Agreement to you, and these are taxable supplies and you will be entitled to input tax credits for these supplies also. GSTR 2006/9 confirms that in your situation the entry by the retailers into a binding obligation to administer, and pay current as well as retrospective rebates to eligible participants is the subject matter of the supply. Paragraph 137 of GSTR 2006/9 states; 137. The grant of a right or entry into an obligation may be a term or condition of a larger transaction. Where the grant of the right or entry into the binding obligation is the substance of the transaction it will be the subject matter of a supply It does not matter that the payment is linked to retrospective rebates, as it is more directly connected to the retailer's services and supplies under the Agreement that they have entered into with you. Therefore you are the recipient of a taxable supply by the retailer in these circumstances also, and are entitled to input tax credits on your acquisition. We note that no retrospective rebates can be given for periods before 1 July 2007. We note that this current advice is contrary to advice provided to you in your original ruling. The advice in this ruling replaces (and withdraws) the advice in the original ruling. We confirm that you are entitled to input tax credits for all creditable acquisitions under the scheme, including the percentage that you did not claim based on our original advice. We consider that you are entitled to claim the additional percentage for the same period that you were entitled to the remaining percentage already claimed. | Summary: You already hold valid tax invoices in respect of your acquisitions from the retailers such that you are entitled to claim input tax credits for the creditable acquisitions made. Therefore it is not necessary for the Commissioner to exercise his discretion to treat the documents as valid tax invoices. We confirm our advice in the original ruling on this matter. | Detailed Reasoning - Detailed reasoning: Under section 29-10 of the GST Act, you are required to hold a valid tax invoice to claim input tax credits relating to creditable acquisitions (where the supply is over $75). A tax invoice for a taxable supply must be issued by the supplier and must contain relevant information (subsection 29-70(1) GST Act). However, the Commissioner may treat as a tax invoice a particular document that is not a tax invoice. We have reviewed the documentation that you have provided as a sample of the documentation that you hold for all the relevant supplies. We consider that the information provided on the original invoice from the retailer in their usual format meets the requirements of a tax invoice under section 29-70 of the GST Act. In particular: · The tax invoice is issued by the supplier of the supply · It is in the approved form · The supplier's identity and ABN are provided · The recipient's identity (your billing area) · What is supplied, including the quantity (if applicable) and the price of what is supplied (provides that the invoice is for eligible concessions, the period to which it applies, and the particular types of eligible persons and the amounts paid) · The date the document is issued · The amount of GST payable in relation to each supply to which the document relates is shown, and the total GST payable is given. Therefore the tax invoice provided meets the requirements of a valid tax invoice. Where your other suppliers provide you with a document that contains all of this information the documents will also be valid tax invoices.