The Australian Taxation Office (ATO) issued a Decision Impact Statement (DIS) on the decision of the Full Federal Court in Commissioner of Taxation v Secretary to the Department of Transport (Victoria)  FCAFC 84 (DOT case), regarding government entities' entitlement to input tax credits under tripartite arrangements.
The DIS confirms the ATO now accepts government entities can claim refunds for GST payable where subsidy and rebate payments are made to third party suppliers.
Also, both Commonwealth and state government entities now have the opportunity to claim these GST refunds respectively.
Claiming input tax credits under rebate or subsidy arrangements
In the DOT case, it was held the Victorian Department of Transport was entitled to input tax credits for subsidy payments to taxi-cab operators for services to severely disabled passengers under the Multi Purpose Taxi Program (MPTP).
The majority of the Full Federal Court held that a taxi-cab operator made two supplies:
- the supply of transport to the passenger, and
- the supply to the DOT of the service of transporting the MPTP member.
It was found the subsidy payment was consideration for the supply to the Department and therefore the Department was entitled to an input tax credit (ie refund) for GST payable on its share of the taxi fares.
In the DIS, the ATO states that 'The Commissioner considers that, as a result of the decision, a broader approach than that taken by the ATO to date when analysing subsidy arrangements of this kind is required'.
In our view, because of the previous ATO position on this issue, a number of Commonwealth and state government entities have not claimed input tax credits for these payments.
Potential GST savings for government agencies
The DIS will generate significant GST savings for government agencies making subsidy or rebate payments but not currently claiming input tax credits.
The potential savings would be equal to 1/11th of the GST inclusive consideration paid by the government agency to a third party supplier.
However, the drafting of the relevant documentation will affect the entitlement to claim credits, and to whom those credits accrue. Before a claim is lodged, the department or agency will need to review its contractual arrangements to ensure entitlement to claim the credit.
Minter Ellison's GST team is already assisting some of its government clients undertake this review and, where appropriate, confirm the entitlement to credits through the binding ruling process.
Refunds may be claimed retrospectively
The ATO has confirmed that, where available, input tax credits for subsidy or rebate payments to third party suppliers may be claimed retrospectively. Government agencies could claim input tax credits for rebates or subsidies paid under similar programs over the last four years. Any successful claims could result in additional GST refunds to the client.