1 Is the funding to Entity A 'consideration' within the meaning of section 9-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for taxable supplies it made to Entity B under section 9-5 of the GST Act?
1 Yes. the funding to Entity A is 'consideration' within the meaning of section 9-15 of the GST Act for taxable supplies it made to Entity B under section 9-5 of the GST Act Question 2 If the answer to Question 1 is 'no', is the funding to Entity A 'consideration' for the purposes of determining the application of paragraph 38-250(1)(b) of the GST Act to Entity A's supply of accommodation to Tenants? Answer 2 As the answer to Question 1 is 'yes', no answer is required for this question. Question 3 Will the supply by way of lease of affordable housing dwellings by Entity A to tenants be GST-free under subsection 38-250(1) of the GST Act? Answer 3 Yes. The supply by way of lease of affordable housing dwellings by Entity A to tenants will be GST-free under subsection 38-250(1) of the GST Act, as the rent charged will be less than 75% of the GST inclusive market value of the supply (provided there are no other payments being made under the arrangement by the tenants or any other party that could be consideration for the supply of the accommodation).
Any reference to an Appendix or an Attachment, in the following facts, is a reference to the relevant document provided in the private ruling application. Entity A is registered for goods and services tax (GST). Entity A is a registered charity and a registered community housing provider. Entity A entered into an arrangement to receive funding for building affordable housing from Entity B. Entity A will charge tenants rent that will be less than 75% of the GST inclusive market value of the supply of accommodation.
A New Tax System (Goods and Services Tax) Act 1999 section 9-5 A New Tax System (Goods and Services Tax) Act 1999 section 9-15 A New Tax System (Goods and Services Tax) Act 1999 section 9-30 A New Tax System (Goods and Services Tax) Act 1999 section 9-40 A New Tax System (Goods and Services Tax) Act 1999 section 38-250 A New Tax System (Goods and Services Tax) Act 1999 section 40-35 A New Tax System (Goods and Services Tax) Act 1999 section 195-1
Detailed reasoning Unless otherwise stated, • all legislative references are to the GST Act • all reference materials published by the ATO that are referred to are available on the ATO website ato.gov.au Question 1 'Consideration' is defined in section 195-1 to mean 'any consideration, within the meaning given by section 9-15, in connection with the supply'. Subsection 9-15(1) provides that consideration includes: (a) any payment, or any act or forbearance, in connection with a supply of anything; and (b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything. Subsection 9-15(2) provides that it does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply. Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration
(GSTR 2001/6) sets out the Commissioner's view of what constitutes non-monetary consideration for the purposes of section 9-15. Although non-monetary consideration is not an issue arising in your case, the general principles contained in GSTR 2001/6 of how the Commissioner interprets section 9-15 have application to this case. Paragraphs 49 to 51 of GSTR 2001/6 provide that there needs to be a connection between the supply and the payment for the supply to be made for consideration, and that the recipient of the supply need not be the provider of the consideration: What is 'consideration'? 49. Consideration is defined in section 195-1 to mean 'any consideration, within the meaning given by sections 9-15 and 9-17, in connection with the supply'. The meaning given to consideration in section 9-15 extends beyond payments to include such things as acts and forbearances. It may include payments made voluntarily, and payments made by persons other than the recipient of a supply.
50. Section 9-15 further provides that a payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply. Thus, there must be a sufficient nexus between a particular payment and a particular supply for the payment to be consideration for that supply. 51. It follows that there are two elements to the definition of consideration. The first is the payment by one entity to another. The second element is the nexus that must be established between the payment and a supply. Paragraphs 71 and 72 of GSTR 2001/6 provide that the test of determining a sufficient nexus between the supply and the consideration is an objective test based on the true character of the transaction: 71. In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description that parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.
72. The test as to whether there is a sufficient nexus is an objective test. The motive of the supplier and the recipient also may be relevant in determining whether the supply was made for consideration, if a reasonable assessment of the evidence supports that motive. In this case, the questions are whether Entity A makes a supply to Entity B and whether there is a nexus between that supply and the funding paid by Entity B to Entity A. Subsection 9-10(1) provides that a supply is any form of supply whatsoever. Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9) further examines the meaning of supply under section 9-10. Paragraph 22 of GSTR 2006/9 outlines 10 propositions which may be relevant to characterising and analysing 2 party transactions. Based on the facts, the most relevant of the propositions to consider in this case include: • Proposition 2: Generally, for every supply there is a recipient and an acquisition • Proposition 4: A transaction may involve two or more supplies • Proposition 5: An entity will make a supply if it provides something of value to another entity
• Proposition 6: 'Supply' usually, but not necessarily, requires something to be passed from one entity to another. The arrangement in this case also involves things being provided to entities other than Entity A and Entity B. The Commissioner refers to arrangements involving more than two entities as tripartite arrangements, and provides an overview of supplies in the context of tripartite arrangements in paragraphs 115 and 116 of GSTR 2006/9: 115. In more complex arrangements involving more than two entities, which the Commissioner refers to as tripartite arrangements, analysis may reveal: • a supply made to one entity but provided to another entity; • two or more supplies made; or • a supply made and provided to one entity and consideration paid by a third party. 116. As with two party transactions, the GST consequences of tripartite arrangements turn on identifying: • one or more supplies; • consideration (a payment, act or forbearance); • a nexus between the supply and the consideration; and • to whom the supply is made.
The propositions relevant to characterising and analysing 2 party transactions discussed above are equally applicable to tripartite arrangements. Additional propositions apply specifically to tripartite arrangements, and these are described in paragraph 117 of GSTR 2006/9. Based on the facts, the most pertinent of the propositions to consider in this case is Proposition 15 - namely, one set of activities may constitute the making of two or more supplies. Proposition 15 is discussed in more detail in paragraphs 217 and 217A of GSTR 2006/9 with reference to Federal Commissioner of Taxation v Secretary to the Department of Transport (Vic) [2010] FCAFC 84 as follows: 217. Examining the levels of contractual or reciprocal relationships between the entities in a tripartite arrangement may reveal two or more supplies being made based upon the one set of activities. 217A. This proposition is illustrated by Federal Commissioner of Taxation v. Secretary to the Department of Transport (Vic) 63A (Department of Transport ), where the activity undertaken by the taxi operator of transporting the eligible passenger resulted in two supplies being made:
(i) the supply of transport to the passenger; and (ii) the supply to the Department of the service of transporting the eligible passenger. The Department of Transport case concerned an arrangement where taxi-cab operators provided discounted trips for passengers with disabilities that were members of the Multi-Purpose Taxi Program (MPTP), and the Department of Transport (DOT) reimbursing the taxi-cab operator for the shortfall between the full-price fare and the discounted fare. The reimbursement was referred to as an 'MPTP Payment'. Kenny and Dodds-Streeton JJ observed the following GST consequences of this arrangement at paragraph 45 of the judgment:
45. ... The occasion for the MPTP Payments was not the grant of a taxi-cab licence. Indeed, a licensee could have operated a taxi-cab under a taxi-cab licence without the DOT ever having made a MPTP Payment, or having incurred any liability to make a MPTP Payment, to that licensee. The DOT made a MPTP Payment to a taxi-cab operator, or assumed the liability to make such a payment, only when the taxi-cab operator made a MPTP trip. As the DOT submitted, in the ordinary case, the trip became an MPTP trip, and the obligations under the MPTP were enlivened, when the driver inserted the Member MPTP Card into the EFTPOS terminal and received the authorisation to undertake the trip as an MPTP trip. The Arrangement and its GST consequences resemble Example 11B in paragraphs 221L to 221S of GSTR 2006/9, which are reproduced below: Example 11B: specialised equipment - two separate supplies 221L. A State government's policy provides that any eligible resident (E) of specified country areas should have access to telecommunications services that are accessible through specialised equipment, at a scheduled price . 221M.
The State government (G) enters into a contract with a retailer of specialised equipment (R) where if R sells the specialised equipment to an eligible person, R must charge the eligible person a scheduled price. The scheduled price is lower than the recommended retail price and under the agreement R is entitled to receive from G a specified amount when R sells specialised equipment to E for the scheduled price. The specified amount is calculated as the difference between the recommended retail price and the scheduled price. 221N. To assist R in identifying eligible residents, G issues an eligibility card to E that is presented to R when E purchases the specialised equipment. 221O. If R does not supply the specialised equipment to E for the scheduled price, for example, because E does not present the eligibility card, and therefore E buys the specialised equipment at the recommended retail price, E cannot seek the specified amount from G. 221P.
Each time R sells specialised equipment to E for the scheduled price, R will be entitled to claim the specified amount from G. Under the contract between R and G, R makes a supply to G because it enters into and fulfils an obligation to provide specialised equipment to E for the scheduled price. 221Q. G's payment of the specified amount to R is the contractual consideration G provides to R under the contract between them in return for R undertaking and fulfilling its contractual obligations. The specified amount received by R from G is consideration for the supply made by R to G. 221R. If R is registered or required to be registered for GST, R has made a taxable supply to G for consideration which is calculated as the difference between the recommended retail price and the scheduled price charged to E. R issues a tax invoice to G where the specified amount is the GST-inclusive price of the supply to G. R is liable to remit GST and G has made a creditable acquisition and is entitled to claim input tax credits if the requirements of section 11-5 are met. 221S.
When R supplies E with the specialised equipment R makes a taxable supply to E for consideration from E of payment of the scheduled price. This is a separate supply to the supply that R makes to G. R issues a tax invoice to E with the scheduled price paid by E as the GST-inclusive price of the supply to E. R is liable to remit GST for this taxable supply and if E is registered or required to be registered for GST then E is entitled to claim input tax credits if the requirements of section 11-5 are met . Based on the principles extracted above from GSTR 2006/9 and the Department of Transport case, the above analysis demonstrates that Entity A is making a supply to Entity B under the arrangement. Accordingly, the Commissioner considers the funding will be 'consideration', within the meaning of section 9-15, for the supply of Entity A to Entity B. Question 2 Not applicable as no answer is required for this question. Question 3
Section 40-35 provides that a supply of residential premises (other than a supply of commercial residential premises) by way of lease is input taxed. However, a supply of residential accommodation may be GST-free if the requirements of section 38-250 are satisfied. Paragraph 9-30(1)(a) provides that a supply is GST-free if it is GST-free under Division 38. Subsection 9-30(3) further provides that if a supply is both GST-free and input taxed, the supply is GST-free unless the provision under which it is input taxed requires the supplier to have chosen for its supplies of that kind to be input taxed. A Lease of residential premises does not require such a choice. Section 38-250 provides that a supply of accommodation is GST-free if the supplier is an endorsed charity, a gift-deductible entity, or a government school and the consideration for the supply (1) is less than 75% of the GST inclusive market value of the supply, or (2) is less than 75% of the cost to the supplier of providing the accommodation.
Section 195-1 relevantly defines 'GST inclusive market value' of a supply as meaning the market value of the supply of the thing in question without any discount for GST payable on the supply. As Entity A is an endorsed charity providing accommodation for which a tenant will be charged rent that is calculated at XX% of the market rent of the particular dwelling, the supply would be GST-free under subsection 38-250(1) as the consideration is less than 75% of the GST inclusive market value of the supply. (This is provided there are no other payments being made under the arrangement by the tenants or any other party that could be consideration for the supply of the accommodation). Additionally, for completeness, if the charged rent to a tenant is less than 75% of Entity A's cost of providing the accommodation, the supply would also be GST-free under subsection 38-250(2). If Entity A's supply of accommodation to a tenant satisfies either subsection 38-250(1) or (2), the supply would be GST-free.