Edited version of private advice

Authorisation Number: 1052011479037

Date of advice: 8 August 2022

Ruling

Subject: GST and appropriation arrangements

Question 1

Is Government Entity A entitled to input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for acquisitions made from Entity C (the Contractor) in the course of delivering the infrastructure project (Project) when exercising the "step in powers" provided by the project authorisation order (POA)?

Answer

Yes.

Section 11-20 of the GST Act provides that an entity is entitled to an input tax credit for any creditable acquisition that the entity makes. Section 11-5 of the GST Act provides the meaning of creditable acquisition and explains that you make a creditable acquisition if:

(a) you acquire anything solely or partly for a creditable purpose; and

(b) the supply of the thing to you is a taxable supply; and

(c) you provide, or are liable to provide, consideration for the supply; and

(d) you are registered, or required to be registered.

Section 11-15 of the GST Act sets out the meaning of creditable purpose and provides that an acquisition is not made for a creditable purpose where it relates to a supply that would be input taxed.

In this case, Government Entity A contractually engages the Contractor and makes the relevant acquisition of the taxable supplies. The acquisitions from the Contractor is made for a creditable purpose as it relates to project services provided by Government Entity A. That is, the acquisition does not relate to a supply by Government Entity A that would be input taxed. Further Government Entity A provides consideration for the supplies it acquires from the Contractor and Government Entity A is registered for GST.

Consequently, Government Entity A makes a creditable acquisition and is entitled to the relevant input tax credit.

Question 2

Is Government Entity A making a taxable supply under section 9-5 of the GST Act when it receives the project services fee from Government Entity B?

Answer

No.

Section 9-17 of the GST Act provides that certain payments and other things are not consideration. Relevantly subsection 9-17(3) of the GST Act provides that a payment is not the provision of consideration if the following conditions are met.

The payment must:

•         be made by a Government related entity (GRE) to another GRE for a supply

•         be covered either

­        by an appropriation made under an Australian law

­        under a specified intergovernmental health reform agreement

­        satisfy the non-commercial test. That is, the amount of the payment must be less than the anticipated or actual cost of making those supplies.

In this case the payment of the project service fee received by Government Entity A from Government Entity B is between two GRE. Further the payment being made is covered by an appropriation under an Australian law. Therefore, on the basis that the project service fee does not exceed Government Entity A anticipated or actual costs of making the supply of the project services to Government Entity B we consider that the payment is not consideration and consequently Government Entity A does not make a taxable supply to Government Entity B.

Question 3

If the answer is Yes for Question 2, should the GST be attributable to the tax period when the tax invoice is issued by Government Entity A or the tax period when the amounts relating to the tax invoice issued by Government Entity A are drawn down and recognised as revenue by Government Entity A (whichever occurs earliest)?

Answer

Not applicable

This ruling applies for the following period:

1 August 20XX till quarter ending 31 December 20XX

The scheme commences on:

1 November 20XX

Relevant facts and circumstances

Government Entity A is appointed pursuant to a statutory framework such that it 'steps into' and is required to carry out specified activities of Government Entity B. The specified activities (Project) are set out in an order (Order).

The statutory framework does not appoint Government Entity A to act as an agent for Government Entity B.

To carry out the Order, Government Entity A enters a contract and makes acquisitions from Entity C (the Contractor). This acquisition is a taxable supply made by the Contractor. Consequently, GST is included in the consideration paid by Governments Entity A to the Contractor.

Government Entity A recovers its costs to deliver the Project by charging a project service fee to Government Entity B. The project service fee consists of the costs incurred by Government Entity A to deliver the Project. The amount recovered from Government Entity B (the project service fee) does not exceed the anticipated or actual cost of Governments Entity A making their supply to Government Entity B.

Government Entity A and Government Entity B are both Government Related Entities and the payment between the two entities is covered by an appropriation made under an Australian law.

Government Entity A is registered for GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-17

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

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