• Example 4: Subsidy arrangement with supplies made to both the GRE payer and third parties

    A state GRE (the transport supplier) supplies transport services to the general public. The state government has a policy of subsidising the fares for pensioners who reside in that state (eligible customers). A state department (Department A) has established a program to deliver this policy objective and enters into an agreement with the transport supplier that requires the transport supplier to charge a lower amount to eligible customers.

    The diagram below illustrates a subsidy arrangement with supplies made to both the GRE payer and third parties.

    diagram illustrating a subsidy arrangement with supplies made to both the GRE payer and third parties

    Under the program, an eligible customer pays only half of the unsubsidised fare to the supplier with Department A paying an amount (subsidy) equivalent to the other half of the fare. The payments by Department A are made pursuant to an appropriation under a state appropriation Act.

    The transport supplier makes a supply (Supply 1) to Department A and receives the subsidy payment ($D) in return. However, the payment from Department A to the transport supplier is conditional on the transport supplier making a related supply (Supply 2) to the eligible customer.

    The sum of the subsidy payment ($D) and the subsidised fare paid by the eligible customer ($EC) is equal to the fare the supplier would normally charge when the subsidy is not applicable. The normal charge (unsubsidised fare) is determined by the transport supplier on the basis that it exceeds the anticipated costs of supplying the transport.

    The subsidy payment ($D) is:

    • made by a GRE (Department A) to another GRE (the transport supplier) for making a supply
    • covered by an appropriation under an Australian law.

    However, as the payment has been calculated on the basis that the sum of the subsidy payment ($D) and the subsidised fare ($EC) exceeds the anticipated costs of making the supplies (Supply 1 and Supply 2), it will not satisfy the non-commercial test and therefore will be subject to GST if the basic GST rules are met.

    Attention

    If the payment from Department A to the transport supplier was calculated on the basis that all amounts received by the transport supplier for making both supplies will not exceed the transport supplier's anticipated costs of making those supplies, then the subsidy payment from the Department will not be subject to GST because all of the requirements are satisfied.

    End of attention

    Example 5: Subsidy arrangement with supplies made to third parties only

    In some subsidy arrangements there may not be a supply to the GRE making the payment. Instead, the subsidy payment may be for the supply made to a third party.

    The diagram below illustrates a subsidy arrangement similar to example 4 except there is no supply made to Department A by the transport supplier.

    diagram illustrating a subsidy arrangement similar to example 4 except there is no supply made to Department A by the transport supplierIn this situation the subsidy payment by Department A ($D) and the payment from the eligible customer ($EC) are both payments for the supply of transport to the eligible customer.

    The subsidy payment ($D) is:

    • made by a GRE (Department A) to another GRE (the transport supplier) for making the supply to the eligible customer
    • covered by an appropriation under an Australian law.

    However, as the payment has been calculated on the basis that the sum of the subsidy payment ($D) and the subsidised fare ($EC) exceeds the anticipated costs of making the supply, it will not satisfy the non-commercial test and therefore will be subject to GST if the basic GST rules are met.

      Last modified: 27 Oct 2014QC 25884