Grant funding
Often organisations secure funding from:
- government bodies
- foundations
- ancillary funds
- private purpose funds.
You don’t have any GST implications if the funding or grant is not for a supply. However, if you provide something of value in return for the grant, then this means it can be a supply and you may have to pay GST if your organisation is already registered or otherwise required to be registered for GST.
When you are not required to pay for GST
Generally, a grant is not considered a payment for a supply if you are only required to meet eligibility criteria to receive the grant.
Eligibility criteria you may need to satisfy to receive a grant can include:
- undertaking activities in specific areas of impact, for example, homelessness and affordable housing
- operating in a specific location
- deductible gift recipient (DGR) status
- acquittal reporting.
Example: No 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 an 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
Example: No payment for services
Sunnyville Men’s Shed is an organisation that provides a space for men in the local community to come together to work on wood-working projects. The organisation applied for a state government grant which was advertised to help Men’s Sheds purchase equipment and maintain their buildings.
Sunnyville met the eligibility requirements in the funding application and was awarded the grant which they will use to purchase new wood-working equipment for the shed. They have agreed to lodge an acquittal and provide proof of purchases once the funding has been spent.
Sunnyville does not have any binding obligations in return for the provision of the payment. The payment is not for any supply provided by the organisation to the state government.
Sunnyville Men’s Shed does not have to pay GST on the grant received.
End of exampleWhen you are required to pay for GST
Providing something of value for the payment will require you to do something more than just meet the eligibility criteria.
You will be making a supply for the payment if you:
- enter into a binding legal obligation to do something
- enter into a binding legal obligation to refrain from doing something
- provide goods and services.
If the grant is for a supply that is a taxable supply, you will be required to remit 1/11th of the grant as GST.
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 deliver programs that support government initiatives. The agreement requires the organisation to provide 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 exampleGrant funding provided by ancillary funds
Ancillary funds are a type of trust (public or private) that provide money, property or benefits to deductible gift recipients (DGRs). Ancillary funds may choose to focus their funding or grants in specific areas, for example the arts, benevolent relief or medical research. They may approach a DGR directly to offer funding or a grant or they may invite DGRs to apply for a grant if they meet certain eligibility criteria.
Generally, ancillary funds enter into funding agreements with DGRs when they provide a grant. Funding agreements generally do not create a binding contract, they merely express an expectation that the DGR will use the grant to further its activities. An agreement may set out how a grant needs to be spent, whether progress and acquittal reports are required, and whether funds need to be returned if they are not spent within a defined time frame.
In most cases, funds are used by DGRs to further their own purposes and they do not make a supply to the ancillary fund. While a funding agreement may create an expectation to do something, it generally does not create a supply. Where a DGR has not made a supply to the ancillary fund, they are not required to pay GST on the payment received.
Example: Ancillary fund grant no supply
Better Community Foundation is a public ancillary fund offering funding to DGRs providing homelessness services and affordable housing. Homes for Humans is a DGR and successfully applied for funding. They will use the funding to provide temporary accommodation and essential services for people experiencing homelessness.
Homes for Humans was required to sign a funding agreement that outlined how money would be spent and an acquittal process.
While there is a funding agreement in place, it is not legally binding on the parties and only creates an expectation that the funding will be used to further Homes for Humans activities. There is no supply made to Better Community Foundation, therefore Homes for Humans is not required to pay GST on the payment received.
End of example
Example: Ancillary fund grant taxable supply
Better Community Foundation is focussed on increasing the impact of its funding and decides to commission research on the causes and impacts of homelessness on people living in regional areas.
The Foundation enters into an agreement with a university to provide funding for research. The university will conduct the research within a set time frame and have agreed to provide a report on their findings. The report will be used by the Foundation to target their future grant making to DGRs to achieve better social outcomes.
The university has made a supply to the Foundation in return for the funding. It is required to pay GST on the amount of funding received.
End of exampleSponsorship
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:
- advertising
- signage
- naming rights
- 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 exampleA 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.
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