Grants and sponsorship
If your not-for-profit (NFP) organisation receives grants or sponsorships, it may need to pay GST on the amount received.
Often organisations secure funding from government bodies, foundations and private purpose funds.
If your organisation is registered (or required to be registered) for GST, it may have to pay GST on the funding payment it receives if it makes a supply in return for that funding.
Example – Payment for services
A government department grants funds to an NFP organisation that operates a counselling centre. The organisation is registered for GST. There is a binding agreement between the department and the organisation that requires the organisation to provide daily counselling services to the general public, using fully qualified counsellors. The organisation must use the funds to provide the services, otherwise it must repay the funds to the department. The organisation must also repay any unspent funds at the end of the period covered by the agreement.
The NFP organisation makes a supply of an obligation to provide counselling services, and the funding is payment for the supply. The organisation is required to pay GST on the amount of funding received.
End of example
The organisation is not required to pay GST on a funding payment if it does not make a supply in return for the funding.
Example – Not payment for services
A foundation provides financial support to various organisations that provide developmental opportunities for disadvantaged young people through sports. One such organisation is the Southside Youth Centre. The centre is registered for GST. The foundation admires the work of the centre and wants to help. After discussions with the centre about its financial needs, the foundation agrees to make a payment to the centre. Although the foundation expects the centre to use the money to further its activities, the centre is under no obligation to use the money for any particular purpose.
In this case the organisation is not making a supply to the foundation because it has not entered into a binding obligation to do anything, nor provide anything else in exchange for the payment. The foundation has only a mere expectation that the organisation will use the money to further its activities. An expectation is not enough to create a supply by the organisation to the foundation. The organisation is not required to pay GST on the payment received.
End of example
Under a sponsorship arrangement, when an organisation undertakes a fundraising activity it often receives support in the form of money. In return, it may provide such things as advertising, signage or naming rights or some other type of benefit of value.
This means that the sponsor receives something of value in return for the sponsorship, so the sponsorship payment is not a gift. If the organisation is registered for GST, it has to pay GST on the sponsorship it receives.
Example – Advertising services
A GST-registered charity holds a car rally for fundraising purposes. A business agrees to pay money to sponsor the rally, provided the charity acknowledges the business's support by erecting advertising banners along the rally course.
The charity is providing advertising services in return for the sponsorship payment. As the charity is registered for GST, it is required to pay GST on the amount of sponsorship received from the business.
End of example
A contra sponsorship arrangement occurs when goods or services (not money) are provided in return for other goods or services. If both parties are registered for GST they will be making taxable sales to one another. Each will have a GST liability for the sale they have made, and an entitlement to a GST credit for their respective purchases. Each party must report amounts for both the sale and the purchase on their respective activity statements.
If your organisation receives grants or sponsorships, it may need to pay GST on the amount received.
Example – Advertising and sales
A GST-registered NFP organisation is raising funds by holding a netball competition. A business that sells sports clothing sponsors the event by providing all the competitors with netball uniforms, on the understanding that the business's logo is displayed prominently on the uniform. The business is also registered for GST.
The NFP organisation is providing advertising services to the business and the business is selling the netball uniforms to the organisation. As each entity is registered for GST, each must pay GST on the supply they make.
Likewise, the NFP organisation purchases netball uniforms from the business and the business purchases advertising services from the organisation. Each entity claims a GST credit for the purchase they make.
End of example