1 Is the Trustee the recipient of a taxable supply made by the financial advisers and entitled to a reduced input tax credit (RITC) under section 11-5 and Division 70 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to the Adviser Services Fees (ASF)?
No, the Trustee is not entitled to a RITC because it is not making a creditable acquisition of a taxable supply made by the financial advisers for which the ASF is consideration. Question 2 If the response to Question 1 is 'yes', is the Trustee entitled to claim a RITC of 75% for GST paid on the ASF pursuant to section 70-5 of the GST Act and items 23(a) and (e), items 24 (d) and (e) of subsection 70-5.02(1) of the GST Regulations? Answer No, as the Trustee is not entitled to claim any RITCs in respect of the ASF. This ruling applies for the following period : XX XXX 20XX to XX XXX 20XX
Entity A (the Fund) is a trust entity carrying on an enterprise and is registered for GST. Entity B (the Trustee) acts as trustee for the Fund and is registered for GST. The Fund is a recognised trust scheme, as defined in section 196-1.01 of the GST Regulations, because it meets the requirements of being a regulated superannuation fund within the meaning of the Superannuation Industry (Supervision) Act 1993 (SISA), and the Trustee is carrying on an enterprise in its own right and makes taxable supplies to the Fund. The Fund makes input taxed financial supplies and has exceeded the financial acquisitions threshold. The Trustee has not claimed RITCS for the ASFs. Broadly, the ASF arise under the following arrangements: • An individual who is (or will become) a Fund member (the member) engages a financial adviser and obtains a Statement of Advice (SOA). The Trustee is not party to this engagement. • After obtaining the SOA the member would like the Trustee to pay the ASF payable for that advice by deducting the amount from their superannuation interest.
• The financial adviser registers with the Fund (or may already be registered) and in doing so agrees to conditions, including self-assessment about the subject matter of the adviser services. • The financial adviser submits an Advice Fee Request to the Trustee to pay the ASF, authorised (and signed) by the member and the relevant adviser. The Advice Fee Request may also include ASF payable for ongoing adviser services. • The Trustee decides in its absolute discretion whether or not to pay the ASF. • The Trustee and each financial adviser's licensee enter into a Recipient Created Tax Invoice (RCTI) and Agreement, nominating the account for payment of the ASF and agreeing that the Trustee will issue a RCTI for GST purposes. • If the Trustee chooses not to pay the ASF, the individual member remains liable to the financial adviser to pay the ASF.
A New Tax System (Goods and Service Tax) Act 1999 section 9-5 A New Tax System (Goods and Service Tax) Act 1999 section 9-10 A New Tax System (Goods and Service Tax) Act 1999 section 9-15 A New Tax System (Goods and Service Tax) Act 1999 subsection 9-20(1) A New Tax System (Goods and Service Tax) Act 1999 section 11-5 A New Tax System (Goods and Service Tax) Act 1999 section 11-10 A New Tax System (Goods and Service Tax) Act 1999 section 11-20 A New Tax System (Goods and Service Tax) Act 1999 Division 40 A New Tax System (Goods and Service Tax) Act 1999 section 40-5 A New Tax System (Goods and Service Tax) Act 1999 section 70-5 A New Tax System (Goods and Service Tax) Act 1999 section 189-5 A New Tax System (Goods and Service Tax) Act 1999 section 189-10 A New Tax System (Goods and Service
Question 1 The terms 'supply' under sections 9-5 and 9-10 and 'acquisition' under sections 11-5 and 11-10 of the GST Act are broad and encompass tangible and intangible supplies: You make a taxable supply if: (a) you make the supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply is connected with the indirect tax zone; and (d) you are registered, or required to be registered for GST However, a supply is not taxable to the extent it is GST-free or input taxed. [1] A supply is any form of supply whatsoever and the definition under section 9-10 of the GST Act relevantly includes a supply of services, provision of advice or information, a financial supply, an entry into, or a release from an obligation to do anything or refrain from an act, or to tolerate a situation or act. An acquisition is any form of acquisition whatsoever, with the definition under section 11-10 of the GST Act including things that correspond with those things included in the broad definition of supply. As such, for every supply there is a recipient and an acquisition. [2]
The Trustee will be entitled to input tax credits for any creditable acquisitions it makes: 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 for GST. [3] Given that the Fund itself makes input taxed financial supplies and has exceeded the Financial Acquisitions Threshold, [4] section 11-15(2)(a) of the GST Act applies such that its acquisitions will not be for a creditable purpose. However, the Trustee may be entitled to a RITC in accordance with Division 70 of the GST Act. [5] For the Trustee to be entitled to a RITC in relation to the ASF, there must be a supply made by the financial advisers to the Fund for which the ASF is consideration.
An entity can only make a creditable acquisition, as defined under section 11-5 of the GST Act, if there is a corresponding supply made to it which is a taxable supply, and a supply can only be taxable under section 9-5 of the GST Act if the supply is made 'for consideration'. Consideration is defined under section 9-15 of the GST Act to include any payment in connection with a supply, or a payment in response to or for the inducement of a supply (even if the payment is provided by a third party). Nature of any supply to the Trustee The definition of supply under section 9-5 of the GST Act is broad. [6] Under the arrangement, there is clearly a supply of adviser services by the financial advisers to the relevant individuals (who may or may not be members of the Fund at the time of that supply). However, given the tri-partite nature of the arrangement, it is also necessary to consider whether the one set of acts or one transaction gives rise to two supplies to two different entities. That is, having regard to the decision in Federal Commissioner of Taxation v Secretary to the Department of Transport (Victoria ) 2010 FCAFC 84 ( Department of Transport
) and the factors set out at paragraph 221B of GSTR 2006/9, we must consider whether the provision of adviser services to the individual result in the adviser making a supply to each of the individual and the Fund at the same time.
Under the arrangement, the Trustee has no obligation to provide adviser services to the member, nor does the Trustee otherwise agree to provide or procure adviser services for the member. Further, there is no contract between the Trustee and the financial adviser that requires the financial adviser to supply adviser services to any particular member, or otherwise give the Trustee the right to request that adviser services be provided to the member, nor is there any obligation imposed by the Trustee on the adviser to provide the adviser services in any particular manner. The Trustee is not involved in requesting the provision of adviser services and is not a party to any agreement between the member and the adviser for the provision of adviser services to the member. The obligation on the adviser to provide adviser services is owed directly and solely to the member. The adviser can also provide adviser services to the individual before they are a member of the Fund and/or before the adviser is registered with the Fund. It is acknowledged that there may be a 'pre-existing framework or arrangement' [7]
in place between the Trustee as payer and the financial advisers as supplier of adviser services to members. In the present arrangement, the adviser must register with the Fund and agree to certain terms and conditions in order to be paid the ASF by the Trustee (such as providing necessary information or documentation to confirm that the adviser services have been provided and that they meet certain criteria, which broadly align with the Fund's superannuation regulatory obligations). However, in the documentation reviewed, this framework only relates to whether and how the Trustee will pay the ASF to the adviser, and not to the provision of the adviser services themselves. The only consequence of not registering with the Fund or the adviser services not complying with the stated criteria is that the adviser will not be eligible for payment of the ASF by the Trustee. We consider that the arrangements are best described as an administrative arrangement to provide payment. [8]
The payment of the ASF by the Trustee under authorisation of the individual member is in satisfaction of the member's liability to pay the ASF. The payment of the ASF by the Trustee also remains at the absolute discretion of the Trustee, with the individual remaining liable to pay the financial adviser in the event the Trustee does not pay the ASF. Any agreement between the Fund and the adviser relates to the requirements and process for payment of the ASF by the Fund, rather than relating to the provision of adviser services themselves. Having regard to the arrangements, we consider that the provision of adviser services to an individual does not result in a simultaneous supply by the financial advisers to the Fund as a result of the tri-partite arrangement. The arrangement contrasts with the circumstances in Department of Transport
, where the Court stated that the supply of taxi travel by the taxi-cab operator was in effect what the Department of Transport had asked the taxi-cab operator to do, and the supply of the taxi transport enabled the Department to fulfil its statutory objects and perform its functions. Here the Trustee is neither liable to make payments to the financial advisers, nor does the Trustee acquire any right to require the advisers to provide services to the members or in any way engage with the advisers in relation to the provision of adviser services to members .
We also considered whether there was a supply relating to some involvement of the adviser in the operation of the Fund. There is no evidence that the adviser provides any administrative services to the Fund or is otherwise involved in the operation in the Fund, nor is there an agreement between the Fund and advisers to provide any additional services to the Fund. Based on the information provided, any actions undertaken by the merely enable the adviser to give effect to the instructions of their clients by communicating those instructions to the Fund on the client's behalf, and/or to access information about their client's investment in the Fund to enable them to provide advice and updates to the client. Any supply to the Fund goes no further than a supply of information, similar to what the member could themselves provide to the Fund.
For completeness, we also considered whether there was a supply in a broader sense to the Fund as a result of the provision of adviser services to members, such as a supply arising because the engagement of an adviser potentially increases the amount invested in the Fund, the number of members and/or the period of time a member remains with the Fund. While these may be of benefit to the Fund, we consider that they are a consequence of the supply of adviser services to the member, and something that is merely a consequential benefit or an expectation, and alone not sufficient to constitute a supply to the Fund as defined in the GST Act. However, it is acknowledged that the definition of supply in section 9-5 of the GST Act is broad and as such the financial advisers may arguably make one or more supplies to the Fund on the entry into and/or performance of one or more obligations. However, even if there is a supply of this kind, the ASF must be consideration for any such supplies to the Fund for any eligibility to a RITC for the ASF to arise. Is the ASF consideration for a supply made to the Fund?
An entity can only make a creditable acquisition under section 11-5 of the GST Act if the corresponding supply made to it is taxable, [9] and a supply can only be taxable under section 9-5 of the GST Act if the supply is made 'for consideration'. Similarly, for there to be a creditable acquisition, the entity must also provide, or be liable to provide 'consideration for the supply'. [10] Consideration is defined under section 9-15 to include any payment in connection with a supply, or a payment in response to or for the inducement of a supply (even if the payment is provided by a third party). The requisite connection between a payment and a supply was considered in AP Group Limited v Federal Commissioner of Taxation [2013] FCAFC 105 ( AP Group ). For a payment to be consideration 'for' a supply there must be a sufficient nexus between the payment and the supply. The word 'for' ensures that not every connection between supply and consideration meets the requirements for a taxable supply. That is, merely having any form of connection of any character between a supply and payment of consideration is insufficient to constitute a taxable supply. [11]
In the present circumstances, the consideration in the form of the ASF is provided only for the supply of personal financial advice to the member, it is agreed between the member and the adviser (and the amount does not change where the ASF is paid by the Trustee), and the liability to meet the ASF always remains with the member. The consent to payment by the Fund by deduction from the member's account are solely to pay for adviser services related to the member's interest in the Fund and consents for the Fund to obtain, on request, a copy of that advice document.
Even if the financial adviser makes a supply to the Fund by entering into or performing certain obligations as part of their registration with the Fund, the payment of the ASF is not made to secure those obligations or to obtain the information the adviser provides in performance of those obligations. An adviser may be registered and subject to certain conditions without receiving an ASF. Providing any requested information to the Fund is merely part of the payment arrangement, enabling the Trustee to satisfy itself that it will not be in breach of any regulatory requirements (such as the sole purpose test) in paying the ASF. [12] As such, we consider the obligations under the registration terms and conditions operate more as conditions for payment, or eligibility criteria, [13] in order for the financial adviser to be paid by the Trustee, rather than being supplies for which the Trustee provides consideration in the form of the ASF. The ASF is not commensurate with any supply to the Fund, and there is an insufficient nexus between the payment and any supply to the Fund in these circumstances.
Consequently, no taxable supply is made to the Fund and the Fund does not make a creditable acquisition because the ASF is not consideration for any supply to the Fund. Accordingly, the Trustee is not entitled to a RITC under section 11-5 and Division 70 of the GST Act in relation to the ASF. Question 2 As there is no creditable acquisition by the Fund in relation to the ASF, as discussed in the reasons under question 1, there is no need to consider the extent of RITCs available. > [1] GST Act section 9-5. [2] Proposition 2 at paragraph 53 of Goods and services tax ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9). [3] GST Act section 11-5. [4] GST Act section 189-5 and 189-10. [5] Subsection 70-5.02(1) of the GST Regulations provides for certain types of acquisitions that can give rise to an entitlement to a reduced input tax credit. [6] GST Act section 9-10. [7] Refer paragraphs 221B-221G of GSTR 2006/9. [8] Refer paragraphs 221B, 221F and 221G of GSTR 2006/9. [9] The supply of financial advice is taxable under section 9-5 and GST is payable under subsection 7-1(1) of the GST Act. It is not input taxed under Division 40 of the GST Act. [10]
GST Act section 11-5(c). [11] Refer AP Group at [33]. See also paragraphs 15-15A and 121-137 of Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payment ( GSTR 2012/2 ). [12] See also paragraphs 132-133 of GSTR 2012/2. [13] It is also arguable that there is no supply where the provision of this information is merely to establish that the adviser has satisfied the conditions for payment of the ASF from the Fund. Refer to paragraphs 63-68 of GSTR 2012/2.