Class Ruling CR 2021/10

What this ruling is about: 1. This Ruling sets out the goods and services tax (GST) consequences of funding made to an owners' corporation (OC) by the Victorian Building Authority (VBA) (of which Cladding Safety Victoria (CSV) is a division) on behalf of the Victorian Government for the remedy of external wall cladding on residential buildings ('the funding'), pursuant to the A New Tax System (Goods and Services Tax) 1999 (GST Act). 2. Full details of this scheme are set out in paragraphs 9 to 37 of this Ruling. 3. All legislative references in this Ruling are to the GST Act unless otherwise indicated. Who this Ruling applies to 4. The class of entities to which this scheme applies are OCs established by the Subdivision Act 1988 (Vic) and the Owners Corporations Act 2006 (Vic) who enter into a funding agreement in respect of the scheme with the Department of Environment, Land, Water and Planning (DELWP), the VBA, or CSV (as and when CSV becomes established as a separate legal entity) on behalf of the Victorian Government. When this Ruling applies 5. The Ruling applies from 19 November 2019 to 30 June 2025. 6. An OC makes a supply of an entry into obligations to undertake cladding rectification works under the funding agreements for which the funding is consideration. Such supply by the OC will be a taxable supply under the scheme on the basis that: 7. OCs that are not already registered will be required to register for GST if the amount of the funding it receives results in the OC meeting the GST registration turnover threshold of $150,000 for the value of all supplies it makes under the respective current and projected turnover tests. 8. The Commissioner may allow an OC to cancel its GST registration within 12 months of the registration date following the completion of the particular rectification plan if, less than 12 months after being registered, the entity applies for cancellation of the registration in the approved form and the Commissioner is satisfied that the entity is not required to be registered. An OC would need to make an objective assessment of its projected GST turnover and current GST turnover to determine if it is still required to be registered for GST at that point. In considering the entity's application, the Commissioner may have regard to how long the entity has been registered, whether it has previously been registered, and any other relevant matters. 9. The following description of the scheme is based on information provided by the applicant. If the scheme is not carried out as described, this Ruling cannot be relied upon. 10. The Victorian Cladding Taskforce (VCT) was established by the Victorian Government in July 2017 to oversee a comprehensive audit of Victorian buildings to identify instances of inappropriate cladding that pose an unacceptable risk to human life. 11. VCT identified at least two classes of aluminium external wall (façade) cladding, being aluminium composite panel and expanded polystyrene panel with a polyethylene core, which pose a fire risk to people and property if not rectified. 12. A report by the co-chairs of the VCT recommended the development of Rectification Guidelines by the VCT. The Rectification Guidelines are currently awaiting approval by the VBA. The VBA is a Victorian Government regulatory body within the DELWP that regulates Victoria's building and plumbing practitioners. 13. In response to the recommendations of the report, the Victorian Government announced a grant-based funding project (the Project) to assist with the remedy of external wall cladding on Class 2 residential apartment buildings which pose a fire risk to people and property and which do not comply with the proposed rectification standards. 14. To administer and implement the Project, the Victorian Government initially established CSV as a division of the VBA. 15. CSV will manage funding of the Project and provide support and guidance to OCs of buildings with combustible cladding determined to be 'higher risk' where rectification work is required to reduce risks to an acceptable level. 16. OCs under the scheme carry on an enterprise of managing and administering properties. 17. OCs under the scheme are not-for-profit bodies for GST purposes. Legislation 18. On 1 December 2020, CSV was established as a standalone entity under the Cladding Safety Victoria Act 2020. Administration of the Project and funding granted to the OCs is to be at the complete discretion of CSV. The Project does not create an entitlement in any OC or any other third party affected by the issue of hazardous cladding to receive any funding from CSV. In particular, the legislation does not create a right in any OC or third party to receive any of the funds from the Project from CSV. Proposed funding mechanism 19. The precise mechanism for providing the funding and the terms of the funding agreement are being finalised by the Victorian Government. In broad terms, it is intended that the VBA through CSV (refer to paragraph 20 of this Ruling) will work with the relevant OC for the affected buildings to develop a rectification plan and the OC will engage the necessary building practitioners to execute the plan. 20. Legislation [1] that received Royal Assent on 19 November 2019 permitted the VBA through CSV to act as the authorising body entering into the funding arrangements. Any further references to CSV in this Ruling are therefore to both CSV as a standalone entity, and to the VBA who carried out actions through CSV (for the time period prior to the establishment of CSV as a standalone entity). 21. CSV will provide agreed funding to each affected OC it chooses to enter into a funding agreement with on a reimbursement basis for agreed rectification works, subject to certain milestones or phases of the approved rectification plan. Funding under the scheme is not in the nature of compensation or reimbursement of actual costs incurred by OCs. Rather, the quantum of funding is determined by reference to actual costs incurred by the OCs, and the maximum instalment amount funded pursuant to a funding agreement can be less than actual costs incurred by an OC. Proposed funding arrangements 22. Each OC will be responsible for the rectification works, which may include the removal and replacement of the cladding, or other 'performance solution' treatments to reduce the risk, such as adding additional external sprinklers and/or partial removal to reduce overall fire risk. 23. The Project funding will be granted to an OC in two stages: Eeach of Funding Agreement 1 and Funding Agreement 2 are a Funding Agreement. 24. The rectification works will be undertaken on the property that is the responsibility of the OC, being the external cladding to the qualifying buildings. On this basis, each funding agreement will be entered into between the relevant OC and CSV. 25. Funding Agreement 1 and Substage 1 of Funding Agreement 2 will involve the recipient of the funding (being the relevant building OC) carrying out pre-construction identification works and preliminary design works required to develop the scope of the Rectification Solution for the building (including the engagement of a project manager, consultant, and fire engineer) in accordance with the project plan (Project Plan). Not all affected buildings may require a Funding Agreement 1, as Funding Agreement 1 will only be entered into if a submission to the BAB is required. Where a submission to the BAB is not required, an OC will proceed directly to entering into a Funding Agreement 2. 26. Subject to the CSV approving the OC to proceed to Substage 2, the OC will procure the detailed design of the Rectification Solution for the building and all necessary approvals in accordance with the Project Plan. 27. Per item 8 of the Project Details in Funding Agreement 2, the OCs must meet certain deliverables throughout the funding process, called 'Project Milestones'. 28. Per clause 4.1 of both Funding Agreements, the funding for the Project will be paid in instalments as set out in these Project Milestones, within 10 business days of the acceptance by CSV of the requisite deliverables set out in the Project Milestones. 29. Each payment under the Funding Agreements is conditional upon certain conditions set out in clause 4.2 of the Funding Agreements, including: 30. Unless otherwise agreed, any unused funding must be returned to CSV per clause 4.3 of the Funding Agreements. 31. Per clause 4.5 of the Funding Agreements, where any amounts are received by or on behalf of the OCs as a result of an insurance claim or litigation proceedings related to the external cladding on its relevant building having combustible cladding (recouped amounts), the OC must reimburse to CSV the recouped amounts, allowing for third-party costs. 32. Per clause 5.1(a) of the Funding Agreements, in consideration of the payment of the Grant, the OCs must: 33. Per clauses 5.4 and 5.5 of Funding Agreements 1 and 2 respectively, the OCs must, as reasonably required by CSV, participate in meetings, conferences, seminars, workshops, surveys and interviews, and provide briefing to CSV representatives on project progress and achievement of the project objectives. 34. Clause 6 of the Funding Agreements - Engagement of Consultants - sets out specific requirements that must be adhered to by the OCs in respect of engaging consultants to carry out services. 35. Clause 6.2 of the Funding Agreements - Approval by the Department - sets out that the OCs must remain fully responsible for the performance of all of its obligations under the Funding Agreement and for all costs incurred with respect to its consultants and is liable for acts and omissions of its consultants as though they were actions of the OCs themselves. 36. Clause 9 of the Funding Agreements - Written Reports - sets out that the OCs must provide Progress Reports to the DELWP in accordance with the timeframes set out in the Milestone Schedule. Each Progress Report must provide a record of Grant funds expended for the Project and must include evidence that can be used to independently verify expenditure of the Grant funds, as well as details of: 37. Under clause 19.1 of the Funding Agreements, if the OCs fail to comply with any of the material obligations in the Funding Agreements, CSV is able to withhold, suspend, cancel or terminate any payment or payments of the Grant, require the OCs to refund such amount of the Grant previously paid (together with interest), and/or immediately terminate the Funding Agreement by giving written notice. Commissioner of Taxation 3 February 2021 Making a taxable supply 38. If all the elements of section 9-5 are satisfied, an entity will be making a taxable supply. 39. Section 9-5 states: 40. To satisfy paragraph 9-5(a), there are three questions that are relevant to determining whether there is a supply for consideration: Is there a supply? 41. The meaning of 'supply' is very broad and is defined in section 9-10 as: 42. Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies examines the meaning of supply for the purposes of the GST Act. Paragraph 22 of GSTR 2006/9 outlines 10 propositions which the Commissioner considers to be relevant to characterising and analysing supplies. 43. Of relevance to the scheme is Proposition 9 which provides that the 'creation of expectations alone does not establish a supply'. As explained in paragraph 102 of GSTR 2006/9, the Commissioner considered that an agreement that does not bind the parties in some way is not sufficient to establish a supply by one party to the other. 44. In light of this, we consider that by entering into the Funding Agreements, an OC makes a supply to CSV of entering into obligations which is to undertake cladding rectification works and meeting specified criteria in order to qualify for funding. 45. The evidence of the entry into obligations is demonstrated in different clauses in the Funding Agreements. For example: 46. It is noted that under the terms of the Funding Agreements, there are particular binding obligations which an OC is required to undertake - for example, cladding rectification works and meeting specified criteria in order to qualify for the Grant payment. This demonstrates that these obligations are prescriptive, clearly identifiable, specific and enforceable in nature. If they are not complied with, CSV has the right to withhold, suspend, cancel or terminate these payments and require an OC to refund these amounts. 47. Further to this, Funding Agreements also contain additional express and enforceable obligations that an OC will have to enter into in order to receive the further funding specifically for the construction phase of the Rectification Project. 48. Therefore, we consider that by entering into the obligations under Funding Agreements, an OC makes a supply. Is there consideration? 49. The term 'consideration' is broadly defined in section 9-15, as follows: 50. As it is considered that an OC makes a supply by entering into the obligations under the Funding Agreements, what then needs to be considered is whether the funding is consideration for the supply made by the OC. 51. Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration discusses how to determine whether a payment is consideration and whether there is 'supply for consideration'. GSTR 2001/6 outlines that: 52. In respect of financial assistance payments, paragraphs 15 and 28 of Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments states (excluding footnotes): 53. To further demonstrate in what circumstances the Commissioner may consider sufficient nexus exists between the financial assistance payment and the entry into obligation, Example 3 of GSTR 2012/2 states: 54. Having regard to the circumstances of the scheme and the view expressed by the Commissioner in GSTR 2012/2, we consider there is sufficient nexus between the funding and the OC's supply of an entry into obligations under the terms of the Funding Agreements. The Grant payment is for the OC's entry into these obligations and is further supported by the following clauses in the Funding Agreements: 55. In that regard, funding under the Funding Agreements is conditional on the OC's entry into and performance of the obligations set out in the Funding Agreements. This establishes sufficient nexus between the Grant payment and the OC's supply. 56. We therefore consider that an OC makes a supply of an entry into obligations to undertake cladding rectification works under the Funding Agreements for which the funding is consideration. Such supply by the OC will be a taxable supply under the scheme on the basis that: Requirement to register for goods and services tax 57. Section 25-1 notes that an entity must apply in the approved form to be registered under the GST Act if it is: 58. The entity must make the application within 21 days after becoming required to be registered. 59. Section 23-5 provides that: 60. You are required to be registered where both these requirements are met. 61. Under the scheme, an OC satisfies the first requirement as OCs under the scheme carry on an enterprise of managing and administering properties. Therefore, it is necessary to consider the second requirement. 62. As OCs are considered to be a not-for-profit body for GST purposes, the registration turnover threshold is $150,000. 63. Subsection 188-10(1) provides that: 64. Subject to some exclusions, an entity's current GST turnover at a time during a particular month is generally the sum of the values of all the supplies that it has made, or are likely to make, during the 12 months ending at the end of that month. 65. Subject to some exclusions, an entity's projected GST turnover at a time during a particular month is generally the sum of the values of all the supplies that it has made, or is likely to make, during that month and the next 11 months. 66. Consequently, an OC will be required to register for GST if the amount of the funding it receives results in the OC meeting the GST registration turnover threshold of $150,000 for the values of all supplies it makes under the respective current and projected turnover tests. 67. An OC would need to make an objective assessment of its projected GST turnover and current GST turnover to determine if it is required to be registered for GST. If an entity chooses to register, it must generally stay registered for at least 12 months. When the Commissioner may cancel your goods and services tax registration 68. Section 25-57 states that: 69. Paragraph 16 of Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover states: 70. In determining both current GST turnover and projected GST turnover in sections 188-15 and 188-20 respectively, regard is had to the value of supplies 'you are likely to make'. The GST Act does not define the phrase 'you are likely to make' and therefore the words retain their ordinary meaning in the context of the legislation. 71. In paragraph 23 of GSTR 2001/7, the Commissioner sets out that: 72. Therefore, with regard to whether the Commissioner will allow an OC to cancel its GST registration within 12 months of the registration date following the completion of the particular rectification plan, the Commissioner may cancel an entity's registration if, less than 12 months after being registered, the 73. An OC would need to make an objective assessment of its projected GST turnover and current GST turnover to determine if it is still required to be registered for GST at that point. In considering the entity's application, the Commissioner may have regard to how long the entity has been registered, whether it has previously been registered, and any other relevant matters. 74. Under the scheme, the following are therefore some possible circumstances and outcomes relating to GST registration after the completion of a particular rectification plan: © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft

Class of entities or scheme: 22. Each OC will be responsible for the rectification works, which may include the removal and replacement of the cladding, or other 'performance solution' treatments to reduce the risk, such as adding additional external sprinklers and/or partial removal to reduce overall fire risk. 23. The Project funding will be granted to an OC in two stages: Eeach of Funding Agreement 1 and Funding Agreement 2 are a Funding Agreement. 24. The rectification works will be undertaken on the property that is the responsibility of the OC, being the external cladding to the qualifying buildings. On this basis, each funding agreement will be entered into between the relevant OC and CSV. 25. Funding Agreement 1 and Substage 1 of Funding Agreement 2 will involve the recipient of the funding (being the relevant building OC) carrying out pre-construction identification works and preliminary design works required to develop the scope of the Rectification Solution for the building (including the engagement of a project manager, consultant, and fire engineer) in accordance with the project plan (Project Plan). Not all affected buildings may require a Funding Agreement 1, as Funding Agreement 1 will only be entered into if a submission to the BAB is required. Where a submission to the BAB is not required, an OC will proceed directly to entering into a Funding Agreement 2. 26. Subject to the CSV approving the OC to proceed to Substage 2, the OC will procure the detailed design of the Rectification Solution for the building and all necessary approvals in accordance with the Project Plan. 27. Per item 8 of the Project Details in Funding Agreement 2, the OCs must meet certain deliverables throughout the funding process, called 'Project Milestones'. 28. Per clause 4.1 of both Funding Agreements, the funding for the Project will be paid in instalments as set out in these Project Milestones, within 10 business days of the acceptance by CSV of the requisite deliverables set out in the Project Milestones. 29. Each payment under the Funding Agreements is conditional upon certain conditions set out in clause 4.2 of the Funding Agreements, including: 30. Unless otherwise agreed, any unused funding must be returned to CSV per clause 4.3 of the Funding Agreements. 31. Per clause 4.5 of the Funding Agreements, where any amounts are received by or on behalf of the OCs as a result of an insurance claim or litigation proceedings related to the external cladding on its relevant building having combustible cladding (recouped amounts), the OC must reimburse to CSV the recouped amounts, allowing for third-party costs. 32. Per clause 5.1(a) of the Funding Agreements, in consideration of the payment of the Grant, the OCs must: 33. Per clauses 5.4 and 5.5 of Funding Agreements 1 and 2 respectively, the OCs must, as reasonably required by CSV, participate in meetings, conferences, seminars, workshops, surveys and interviews, and provide briefing to CSV representatives on project progress and achievement of the project objectives. 34. Clause 6 of the Funding Agreements - Engagement of Consultants - sets out specific requirements that must be adhered to by the OCs in respect of engaging consultants to carry out services. 35. Clause 6.2 of the Funding Agreements - Approval by the Department - sets out that the OCs must remain fully responsible for the performance of all of its obligations under the Funding Agreement and for all costs incurred with respect to its consultants and is liable for acts and omissions of its consultants as though they were actions of the OCs themselves. 36. Clause 9 of the Funding Agreements - Written Reports - sets out that the OCs must provide Progress Reports to the DELWP in accordance with the timeframes set out in the Milestone Schedule. Each Progress Report must provide a record of Grant funds expended for the Project and must include evidence that can be used to independently verify expenditure of the Grant funds, as well as details of: 37. Under clause 19.1 of the Funding Agreements, if the OCs fail to comply with any of the material obligations in the Funding Agreements, CSV is able to withhold, suspend, cancel or terminate any payment or payments of the Grant, require the OCs to refund such amount of the Grant previously paid (together with interest), and/or immediately terminate the Funding Agreement by giving written notice. Commissioner of Taxation 3 February 2021 | Making a taxable supply: 38. If all the elements of section 9-5 are satisfied, an entity will be making a taxable supply. 39. Section 9-5 states: 40. To satisfy paragraph 9-5(a), there are three questions that are relevant to determining whether there is a supply for consideration: | Is there a supply?: 41. The meaning of 'supply' is very broad and is defined in section 9-10 as: 42. Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies examines the meaning of supply for the purposes of the GST Act. Paragraph 22 of GSTR 2006/9 outlines 10 propositions which the Commissioner considers to be relevant to characterising and analysing supplies. 43. Of relevance to the scheme is Proposition 9 which provides that the 'creation of expectations alone does not establish a supply'. As explained in paragraph 102 of GSTR 2006/9, the Commissioner considered that an agreement that does not bind the parties in some way is not sufficient to establish a supply by one party to the other. 44. In light of this, we consider that by entering into the Funding Agreements, an OC makes a supply to CSV of entering into obligations which is to undertake cladding rectification works and meeting specified criteria in order to qualify for funding. 45. The evidence of the entry into obligations is demonstrated in different clauses in the Funding Agreements. For example: 46. It is noted that under the terms of the Funding Agreements, there are particular binding obligations which an OC is required to undertake - for example, cladding rectification works and meeting specified criteria in order to qualify for the Grant payment. This demonstrates that these obligations are prescriptive, clearly identifiable, specific and enforceable in nature. If they are not complied with, CSV has the right to withhold, suspend, cancel or terminate these payments and require an OC to refund these amounts. 47. Further to this, Funding Agreements also contain additional express and enforceable obligations that an OC will have to enter into in order to receive the further funding specifically for the construction phase of the Rectification Project. 48. Therefore, we consider that by entering into the obligations under Funding Agreements, an OC makes a supply. | Is there consideration?: 49. The term 'consideration' is broadly defined in section 9-15, as follows: 50. As it is considered that an OC makes a supply by entering into the obligations under the Funding Agreements, what then needs to be considered is whether the funding is consideration for the supply made by the OC. 51. Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration discusses how to determine whether a payment is consideration and whether there is 'supply for consideration'. GSTR 2001/6 outlines that: 52. In respect of financial assistance payments, paragraphs 15 and 28 of Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments states (excluding footnotes): 53. To further demonstrate in what circumstances the Commissioner may consider sufficient nexus exists between the financial assistance payment and the entry into obligation, Example 3 of GSTR 2012/2 states: 54. Having regard to the circumstances of the scheme and the view expressed by the Commissioner in GSTR 2012/2, we consider there is sufficient nexus between the funding and the OC's supply of an entry into obligations under the terms of the Funding Agreements. The Grant payment is for the OC's entry into these obligations and is further supported by the following clauses in the Funding Agreements: 55. In that regard, funding under the Funding Agreements is conditional on the OC's entry into and performance of the obligations set out in the Funding Agreements. This establishes sufficient nexus between the Grant payment and the OC's supply. 56. We therefore consider that an OC makes a supply of an entry into obligations to undertake cladding rectification works under the Funding Agreements for which the funding is consideration. Such supply by the OC will be a taxable supply under the scheme on the basis that: | Requirement to register for goods and services tax: 57. Section 25-1 notes that an entity must apply in the approved form to be registered under the GST Act if it is: 58. The entity must make the application within 21 days after becoming required to be registered. 59. Section 23-5 provides that: 60. You are required to be registered where both these requirements are met. 61. Under the scheme, an OC satisfies the first requirement as OCs under the scheme carry on an enterprise of managing and administering properties. Therefore, it is necessary to consider the second requirement. 62. As OCs are considered to be a not-for-profit body for GST purposes, the registration turnover threshold is $150,000. 63. Subsection 188-10(1) provides that: 64. Subject to some exclusions, an entity's current GST turnover at a time during a particular month is generally the sum of the values of all the supplies that it has made, or are likely to make, during the 12 months ending at the end of that month. 65. Subject to some exclusions, an entity's projected GST turnover at a time during a particular month is generally the sum of the values of all the supplies that it has made, or is likely to make, during that month and the next 11 months. 66. Consequently, an OC will be required to register for GST if the amount of the funding it receives results in the OC meeting the GST registration turnover threshold of $150,000 for the values of all supplies it makes under the respective current and projected turnover tests. 67. An OC would need to make an objective assessment of its projected GST turnover and current GST turnover to determine if it is required to be registered for GST. If an entity chooses to register, it must generally stay registered for at least 12 months. | When the Commissioner may cancel your goods and services tax registration: 68. Section 25-57 states that: 69. Paragraph 16 of Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover states: 70. In determining both current GST turnover and projected GST turnover in sections 188-15 and 188-20 respectively, regard is had to the value of supplies 'you are likely to make'. The GST Act does not define the phrase 'you are likely to make' and therefore the words retain their ordinary meaning in the context of the legislation. 71. In paragraph 23 of GSTR 2001/7, the Commissioner sets out that: 72. Therefore, with regard to whether the Commissioner will allow an OC to cancel its GST registration within 12 months of the registration date following the completion of the particular rectification plan, the Commissioner may cancel an entity's registration if, less than 12 months after being registered, the 73. An OC would need to make an objective assessment of its projected GST turnover and current GST turnover to determine if it is still required to be registered for GST at that point. In considering the entity's application, the Commissioner may have regard to how long the entity has been registered, whether it has previously been registered, and any other relevant matters. 74. Under the scheme, the following are therefore some possible circumstances and outcomes relating to GST registration after the completion of a particular rectification plan: © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft

Ruling: 1. This Ruling sets out the goods and services tax (GST) consequences of funding made to an owners' corporation (OC) by the Victorian Building Authority (VBA) (of which Cladding Safety Victoria (CSV) is a division) on behalf of the Victorian Government for the remedy of external wall cladding on residential buildings ('the funding'), pursuant to the A New Tax System (Goods and Services Tax) 1999 (GST Act). 2. Full details of this scheme are set out in paragraphs 9 to 37 of this Ruling. 3. All legislative references in this Ruling are to the GST Act unless otherwise indicated. | Who this Ruling applies to: 4. The class of entities to which this scheme applies are OCs established by the Subdivision Act 1988 (Vic) and the Owners Corporations Act 2006 (Vic) who enter into a funding agreement in respect of the scheme with the Department of Environment, Land, Water and Planning (DELWP), the VBA, or CSV (as and when CSV becomes established as a separate legal entity) on behalf of the Victorian Government. | When this Ruling applies: 5. The Ruling applies from 19 November 2019 to 30 June 2025. 6. An OC makes a supply of an entry into obligations to undertake cladding rectification works under the funding agreements for which the funding is consideration. Such supply by the OC will be a taxable supply under the scheme on the basis that: 7. OCs that are not already registered will be required to register for GST if the amount of the funding it receives results in the OC meeting the GST registration turnover threshold of $150,000 for the value of all supplies it makes under the respective current and projected turnover tests. 8. The Commissioner may allow an OC to cancel its GST registration within 12 months of the registration date following the completion of the particular rectification plan if, less than 12 months after being registered, the entity applies for cancellation of the registration in the approved form and the Commissioner is satisfied that the entity is not required to be registered. An OC would need to make an objective assessment of its projected GST turnover and current GST turnover to determine if it is still required to be registered for GST at that point. In considering the entity's application, the Commissioner may have regard to how long the entity has been registered, whether it has previously been registered, and any other relevant matters. 9. The following description of the scheme is based on information provided by the applicant. If the scheme is not carried out as described, this Ruling cannot be relied upon. 10. The Victorian Cladding Taskforce (VCT) was established by the Victorian Government in July 2017 to oversee a comprehensive audit of Victorian buildings to identify instances of inappropriate cladding that pose an unacceptable risk to human life. 11. VCT identified at least two classes of aluminium external wall (façade) cladding, being aluminium composite panel and expanded polystyrene panel with a polyethylene core, which pose a fire risk to people and property if not rectified. 12. A report by the co-chairs of the VCT recommended the development of Rectification Guidelines by the VCT. The Rectification Guidelines are currently awaiting approval by the VBA. The VBA is a Victorian Government regulatory body within the DELWP that regulates Victoria's building and plumbing practitioners. 13. In response to the recommendations of the report, the Victorian Government announced a grant-based funding project (the Project) to assist with the remedy of external wall cladding on Class 2 residential apartment buildings which pose a fire risk to people and property and which do not comply with the proposed rectification standards. 14. To administer and implement the Project, the Victorian Government initially established CSV as a division of the VBA. 15. CSV will manage funding of the Project and provide support and guidance to OCs of buildings with combustible cladding determined to be 'higher risk' where rectification work is required to reduce risks to an acceptable level. 16. OCs under the scheme carry on an enterprise of managing and administering properties. 17. OCs under the scheme are not-for-profit bodies for GST purposes. | Legislation: 18. On 1 December 2020, CSV was established as a standalone entity under the Cladding Safety Victoria Act 2020. Administration of the Project and funding granted to the OCs is to be at the complete discretion of CSV. The Project does not create an entitlement in any OC or any other third party affected by the issue of hazardous cladding to receive any funding from CSV. In particular, the legislation does not create a right in any OC or third party to receive any of the funds from the Project from CSV. | Proposed funding mechanism: 19. The precise mechanism for providing the funding and the terms of the funding agreement are being finalised by the Victorian Government. In broad terms, it is intended that the VBA through CSV (refer to paragraph 20 of this Ruling) will work with the relevant OC for the affected buildings to develop a rectification plan and the OC will engage the necessary building practitioners to execute the plan. 20. Legislation [1] that received Royal Assent on 19 November 2019 permitted the VBA through CSV to act as the authorising body entering into the funding arrangements. Any further references to CSV in this Ruling are therefore to both CSV as a standalone entity, and to the VBA who carried out actions through CSV (for the time period prior to the establishment of CSV as a standalone entity). 21. CSV will provide agreed funding to each affected OC it chooses to enter into a funding agreement with on a reimbursement basis for agreed rectification works, subject to certain milestones or phases of the approved rectification plan. Funding under the scheme is not in the nature of compensation or reimbursement of actual costs incurred by OCs. Rather, the quantum of funding is determined by reference to actual costs incurred by the OCs, and the maximum instalment amount funded pursuant to a funding agreement can be less than actual costs incurred by an OC. | Proposed funding arrangements: 22. Each OC will be responsible for the rectification works, which may include the removal and replacement of the cladding, or other 'performance solution' treatments to reduce the risk, such as adding additional external sprinklers and/or partial removal to reduce overall fire risk. 23. The Project funding will be granted to an OC in two stages: Eeach of Funding Agreement 1 and Funding Agreement 2 are a Funding Agreement. 24. The rectification works will be undertaken on the property that is the responsibility of the OC, being the external cladding to the qualifying buildings. On this basis, each funding agreement will be entered into between the relevant OC and CSV. 25. Funding Agreement 1 and Substage 1 of Funding Agreement 2 will involve the recipient of the funding (being the relevant building OC) carrying out pre-construction identification works and preliminary design works required to develop the scope of the Rectification Solution for the building (including the engagement of a project manager, consultant, and fire engineer) in accordance with the project plan (Project Plan). Not all affected buildings may require a Funding Agreement 1, as Funding Agreement 1 will only be entered into if a submission to the BAB is required. Where a submission to the BAB is not required, an OC will proceed directly to entering into a Funding Agreement 2. 26. Subject to the CSV approving the OC to proceed to Substage 2, the OC will procure the detailed design of the Rectification Solution for the building and all necessary approvals in accordance with the Project Plan. 27. Per item 8 of the Project Details in Funding Agreement 2, the OCs must meet certain deliverables throughout the funding process, called 'Project Milestones'. 28. Per clause 4.1 of both Funding Agreements, the funding for the Project will be paid in instalments as set out in these Project Milestones, within 10 business days of the acceptance by CSV of the requisite deliverables set out in the Project Milestones. 29. Each payment under the Funding Agreements is conditional upon certain conditions set out in clause 4.2 of the Funding Agreements, including: 30. Unless otherwise agreed, any unused funding must be returned to CSV per clause 4.3 of the Funding Agreements. 31. Per clause 4.5 of the Funding Agreements, where any amounts are received by or on behalf of the OCs as a result of an insurance claim or litigation proceedings related to the external cladding on its relevant building having combustible cladding (recouped amounts), the OC must reimburse to CSV the recouped amounts, allowing for third-party costs. 32. Per clause 5.1(a) of the Funding Agreements, in consideration of the payment of the Grant, the OCs must: 33. Per clauses 5.4 and 5.5 of Funding Agreements 1 and 2 respectively, the OCs must, as reasonably required by CSV, participate in meetings, conferences, seminars, workshops, surveys and interviews, and provide briefing to CSV representatives on project progress and achievement of the project objectives. 34. Clause 6 of the Funding Agreements - Engagement of Consultants - sets out specific requirements that must be adhered to by the OCs in respect of engaging consultants to carry out services. 35. Clause 6.2 of the Funding Agreements - Approval by the Department - sets out that the OCs must remain fully responsible for the performance of all of its obligations under the Funding Agreement and for all costs incurred with respect to its consultants and is liable for acts and omissions of its consultants as though they were actions of the OCs themselves. 36. Clause 9 of the Funding Agreements - Written Reports - sets out that the OCs must provide Progress Reports to the DELWP in accordance with the timeframes set out in the Milestone Schedule. Each Progress Report must provide a record of Grant funds expended for the Project and must include evidence that can be used to independently verify expenditure of the Grant funds, as well as details of: 37. Under clause 19.1 of the Funding Agreements, if the OCs fail to comply with any of the material obligations in the Funding Agreements, CSV is able to withhold, suspend, cancel or terminate any payment or payments of the Grant, require the OCs to refund such amount of the Grant previously paid (together with interest), and/or immediately terminate the Funding Agreement by giving written notice. Commissioner of Taxation 3 February 2021 | Making a taxable supply: 38. If all the elements of section 9-5 are satisfied, an entity will be making a taxable supply. 39. Section 9-5 states: 40. To satisfy paragraph 9-5(a), there are three questions that are relevant to determining whether there is a supply for consideration: | Is there a supply?: 41. The meaning of 'supply' is very broad and is defined in section 9-10 as: 42. Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies examines the meaning of supply for the purposes of the GST Act. Paragraph 22 of GSTR 2006/9 outlines 10 propositions which the Commissioner considers to be relevant to characterising and analysing supplies. 43. Of relevance to the scheme is Proposition 9 which provides that the 'creation of expectations alone does not establish a supply'. As explained in paragraph 102 of GSTR 2006/9, the Commissioner considered that an agreement that does not bind the parties in some way is not sufficient to establish a supply by one party to the other. 44. In light of this, we consider that by entering into the Funding Agreements, an OC makes a supply to CSV of entering into obligations which is to undertake cladding rectification works and meeting specified criteria in order to qualify for funding. 45. The evidence of the entry into obligations is demonstrated in different clauses in the Funding Agreements. For example: 46. It is noted that under the terms of the Funding Agreements, there are particular binding obligations which an OC is required to undertake - for example, cladding rectification works and meeting specified criteria in order to qualify for the Grant payment. This demonstrates that these obligations are prescriptive, clearly identifiable, specific and enforceable in nature. If they are not complied with, CSV has the right to withhold, suspend, cancel or terminate these payments and require an OC to refund these amounts. 47. Further to this, Funding Agreements also contain additional express and enforceable obligations that an OC will have to enter into in order to receive the further funding specifically for the construction phase of the Rectification Project. 48. Therefore, we consider that by entering into the obligations under Funding Agreements, an OC makes a supply. | Is there consideration?: 49. The term 'consideration' is broadly defined in section 9-15, as follows: 50. As it is considered that an OC makes a supply by entering into the obligations under the Funding Agreements, what then needs to be considered is whether the funding is consideration for the supply made by the OC. 51. Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration discusses how to determine whether a payment is consideration and whether there is 'supply for consideration'. GSTR 2001/6 outlines that: 52. In respect of financial assistance payments, paragraphs 15 and 28 of Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments states (excluding footnotes): 53. To further demonstrate in what circumstances the Commissioner may consider sufficient nexus exists between the financial assistance payment and the entry into obligation, Example 3 of GSTR 2012/2 states: 54. Having regard to the circumstances of the scheme and the view expressed by the Commissioner in GSTR 2012/2, we consider there is sufficient nexus between the funding and the OC's supply of an entry into obligations under the terms of the Funding Agreements. The Grant payment is for the OC's entry into these obligations and is further supported by the following clauses in the Funding Agreements: 55. In that regard, funding under the Funding Agreements is conditional on the OC's entry into and performance of the obligations set out in the Funding Agreements. This establishes sufficient nexus between the Grant payment and the OC's supply. 56. We therefore consider that an OC makes a supply of an entry into obligations to undertake cladding rectification works under the Funding Agreements for which the funding is consideration. Such supply by the OC will be a taxable supply under the scheme on the basis that: | Requirement to register for goods and services tax: 57. Section 25-1 notes that an entity must apply in the approved form to be registered under the GST Act if it is: 58. The entity must make the application within 21 days after becoming required to be registered. 59. Section 23-5 provides that: 60. You are required to be registered where both these requirements are met. 61. Under the scheme, an OC satisfies the first requirement as OCs under the scheme carry on an enterprise of managing and administering properties. Therefore, it is necessary to consider the second requirement. 62. As OCs are considered to be a not-for-profit body for GST purposes, the registration turnover threshold is $150,000. 63. Subsection 188-10(1) provides that: 64. Subject to some exclusions, an entity's current GST turnover at a time during a particular month is generally the sum of the values of all the supplies that it has made, or are likely to make, during the 12 months ending at the end of that month. 65. Subject to some exclusions, an entity's projected GST turnover at a time during a particular month is generally the sum of the values of all the supplies that it has made, or is likely to make, during that month and the next 11 months. 66. Consequently, an OC will be required to register for GST if the amount of the funding it receives results in the OC meeting the GST registration turnover threshold of $150,000 for the values of all supplies it makes under the respective current and projected turnover tests. 67. An OC would need to make an objective assessment of its projected GST turnover and current GST turnover to determine if it is required to be registered for GST. If an entity chooses to register, it must generally stay registered for at least 12 months. | When the Commissioner may cancel your goods and services tax registration: 68. Section 25-57 states that: 69. Paragraph 16 of Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover states: 70. In determining both current GST turnover and projected GST turnover in sections 188-15 and 188-20 respectively, regard is had to the value of supplies 'you are likely to make'. The GST Act does not define the phrase 'you are likely to make' and therefore the words retain their ordinary meaning in the context of the legislation. 71. In paragraph 23 of GSTR 2001/7, the Commissioner sets out that: 72. Therefore, with regard to whether the Commissioner will allow an OC to cancel its GST registration within 12 months of the registration date following the completion of the particular rectification plan, the Commissioner may cancel an entity's registration if, less than 12 months after being registered, the 73. An OC would need to make an objective assessment of its projected GST turnover and current GST turnover to determine if it is still required to be registered for GST at that point. In considering the entity's application, the Commissioner may have regard to how long the entity has been registered, whether it has previously been registered, and any other relevant matters. 74. Under the scheme, the following are therefore some possible circumstances and outcomes relating to GST registration after the completion of a particular rectification plan: © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft


Appendix: Making a taxable supply: 38. If all the elements of section 9-5 are satisfied, an entity will be making a taxable supply. 39. Section 9-5 states: 40. To satisfy paragraph 9-5(a), there are three questions that are relevant to determining whether there is a supply for consideration: | Is there a supply?: 41. The meaning of 'supply' is very broad and is defined in section 9-10 as: 42. Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies examines the meaning of supply for the purposes of the GST Act. Paragraph 22 of GSTR 2006/9 outlines 10 propositions which the Commissioner considers to be relevant to characterising and analysing supplies. 43. Of relevance to the scheme is Proposition 9 which provides that the 'creation of expectations alone does not establish a supply'. As explained in paragraph 102 of GSTR 2006/9, the Commissioner considered that an agreement that does not bind the parties in some way is not sufficient to establish a supply by one party to the other. 44. In light of this, we consider that by entering into the Funding Agreements, an OC makes a supply to CSV of entering into obligations which is to undertake cladding rectification works and meeting specified criteria in order to qualify for funding. 45. The evidence of the entry into obligations is demonstrated in different clauses in the Funding Agreements. For example: 46. It is noted that under the terms of the Funding Agreements, there are particular binding obligations which an OC is required to undertake - for example, cladding rectification works and meeting specified criteria in order to qualify for the Grant payment. This demonstrates that these obligations are prescriptive, clearly identifiable, specific and enforceable in nature. If they are not complied with, CSV has the right to withhold, suspend, cancel or terminate these payments and require an OC to refund these amounts. 47. Further to this, Funding Agreements also contain additional express and enforceable obligations that an OC will have to enter into in order to receive the further funding specifically for the construction phase of the Rectification Project. 48. Therefore, we consider that by entering into the obligations under Funding Agreements, an OC makes a supply. | Is there consideration?: 49. The term 'consideration' is broadly defined in section 9-15, as follows: 50. As it is considered that an OC makes a supply by entering into the obligations under the Funding Agreements, what then needs to be considered is whether the funding is consideration for the supply made by the OC. 51. Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration discusses how to determine whether a payment is consideration and whether there is 'supply for consideration'. GSTR 2001/6 outlines that: 52. In respect of financial assistance payments, paragraphs 15 and 28 of Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments states (excluding footnotes): 53. To further demonstrate in what circumstances the Commissioner may consider sufficient nexus exists between the financial assistance payment and the entry into obligation, Example 3 of GSTR 2012/2 states: 54. Having regard to the circumstances of the scheme and the view expressed by the Commissioner in GSTR 2012/2, we consider there is sufficient nexus between the funding and the OC's supply of an entry into obligations under the terms of the Funding Agreements. The Grant payment is for the OC's entry into these obligations and is further supported by the following clauses in the Funding Agreements: 55. In that regard, funding under the Funding Agreements is conditional on the OC's entry into and performance of the obligations set out in the Funding Agreements. This establishes sufficient nexus between the Grant payment and the OC's supply. 56. We therefore consider that an OC makes a supply of an entry into obligations to undertake cladding rectification works under the Funding Agreements for which the funding is consideration. Such supply by the OC will be a taxable supply under the scheme on the basis that: | Requirement to register for goods and services tax: 57. Section 25-1 notes that an entity must apply in the approved form to be registered under the GST Act if it is: 58. The entity must make the application within 21 days after becoming required to be registered. 59. Section 23-5 provides that: 60. You are required to be registered where both these requirements are met. 61. Under the scheme, an OC satisfies the first requirement as OCs under the scheme carry on an enterprise of managing and administering properties. Therefore, it is necessary to consider the second requirement. 62. As OCs are considered to be a not-for-profit body for GST purposes, the registration turnover threshold is $150,000. 63. Subsection 188-10(1) provides that: 64. Subject to some exclusions, an entity's current GST turnover at a time during a particular month is generally the sum of the values of all the supplies that it has made, or are likely to make, during the 12 months ending at the end of that month. 65. Subject to some exclusions, an entity's projected GST turnover at a time during a particular month is generally the sum of the values of all the supplies that it has made, or is likely to make, during that month and the next 11 months. 66. Consequently, an OC will be required to register for GST if the amount of the funding it receives results in the OC meeting the GST registration turnover threshold of $150,000 for the values of all supplies it makes under the respective current and projected turnover tests. 67. An OC would need to make an objective assessment of its projected GST turnover and current GST turnover to determine if it is required to be registered for GST. If an entity chooses to register, it must generally stay registered for at least 12 months. | When the Commissioner may cancel your goods and services tax registration: 68. Section 25-57 states that: 69. Paragraph 16 of Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover states: 70. In determining both current GST turnover and projected GST turnover in sections 188-15 and 188-20 respectively, regard is had to the value of supplies 'you are likely to make'. The GST Act does not define the phrase 'you are likely to make' and therefore the words retain their ordinary meaning in the context of the legislation. 71. In paragraph 23 of GSTR 2001/7, the Commissioner sets out that: 72. Therefore, with regard to whether the Commissioner will allow an OC to cancel its GST registration within 12 months of the registration date following the completion of the particular rectification plan, the Commissioner may cancel an entity's registration if, less than 12 months after being registered, the 73. An OC would need to make an objective assessment of its projected GST turnover and current GST turnover to determine if it is still required to be registered for GST at that point. In considering the entity's application, the Commissioner may have regard to how long the entity has been registered, whether it has previously been registered, and any other relevant matters. 74. Under the scheme, the following are therefore some possible circumstances and outcomes relating to GST registration after the completion of a particular rectification plan: © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft


What this Ruling is about | If this Ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Ruling. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this Ruling. | Requirements to register for goods and services tax | However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. | (1) A supply is any form of supply whatsoever. | 15. For a financial assistance payment to be consideration for a supply there must be a sufficient nexus between the financial assistance payment made by the payer and a supply made by the payee. A financial assistance payment is consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement of' a supply. The test is an objective one. | 28. Where a supply is constituted by the payee entering into an obligation with the payer to do or refrain from doing something and the payment is made to secure that obligation, there is a sufficient nexus between the payment and the obligation. This is because the financial assistance payment is made in connection with, in response to, or for the inducement of the entry into the obligation. | 29. Snake Glass Jugglers is a commercial dance troupe that develops and presents performance art in South Australia. It enters into an arrangement with Gooseville Arts Foundation, a body that is established for the purpose of fostering the arts. Under that arrangement, in return for a financial assistance payment from the Foundation, the troupe enters into a binding agreement under which it is obligated to expand its activities - by presenting three performances outside South Australia during the following year. | 30. By entering into this obligation to present three performances outside South Australia, the troupe has made a supply to the Foundation. The payment by the Foundation has been made in connection with, in response to, or for the inducement of this supply. Therefore, there is a sufficient nexus between the entry into the obligation and the financial assistance payment such that the financial assistance payment is consideration for that supply. | 31. Snake Glass Jugglers is liable for GST on the supply of the entry into the obligation. The Gooseville Arts Foundation is entitled to an input tax credit on their acquisition of the right to require Snake Glass jugglers to present the performances. | Whether you have a GST turnover that meets or does not exceed a particular turnover threshold depends on an objective assessment of your projected GST turnover and current GST turnover. An 'objective assessment' is one that a reasonable person could be expected to arrive at having regard to the facts and circumstances which apply to your enterprise at the relevant time. The Commissioner will accept your assessment of these turnovers unless he has reason to believe that your assessment was not reasonable. | For the purposes of sections 188-15, 188-20 and 188-25, the expressions, 'likely to make', and 'likely to be made', mean that on the balance of probabilities, it can be predicted that the supply is more likely than not to be made.


Related rulings: GSTR 2001/6 GSTR 2001/7 GSTR 2006/9 GSTR 2012/2
Legislative references: ANTS(GST)A 1999 9-5 ANTS(GST)A 1999 9-5(a) ANTS(GST)A 1999 9-10 ANTS(GST)A 1999 9-15 ANTS(GST)A 1999 23-5 ANTS(GST)A 1999 25-1 ANTS(GST)A 1999 25-57 ANTS(GST)A 1999 188-10(1) ANTS(GST)A 1999 188-15 ANTS(GST)A 1999 188-20 ANTS(GST)A 1999 188-20 ANTS(GST)A 1999 188-25 Building Amendment (Cladding Rectification) Act 2019 No. 43 of 2019 Cladding Safety Victoria Act 2020 Local Jobs First Act 2003 (Vic) Owners Corporations Act 2006 (VIC) Subdivision Act 1988 (Vic)
Other references: Draft Funding Agreement 1 - dated 14 November 2019 Draft Funding Agreement 2 - dated 20 December 2019 Draft Cladding Rectification Funding Guidelines - submitted to the ATO on 21 January 2020