This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.
You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.
Authorisation Number: 1051262359676
Date of advice: 3 August 2017
Subject: GST and Financial Assistance
Is the payment received by Entity A (you) from entity B, (in the circumstances described) subject to goods and services tax (GST)?
Relevant facts and circumstances
● You carry on an enterprise and you are registered for GST.
● You receive money from Entity B to cover specific agreed upon expenses.
● There is no ongoing formal agreement between you and Entity B regarding the payment of money. To receive the payment, you submit to Entity B an implementation order that defines the expenditure for which the grant is requested.
● You also provide an annual budget of planned expenditure, a quarterly implementation order with detailed expenditure, and a monthly report of spending.
● The payment by Entity B is totally voluntary and is granted at the full discretion of Entity B.
● Excess money remaining from a grant is not returned to Entity B but will reduce the amount of grant in the following quarter.
Relevant legislative provisions
All legislative references are to the GST Act:
● subsection 7-1(1)
● section 9-5
● section 9-10
● section 9-15.
Reasons for decision
Subsection 7-1(1) provides that GST is payable on taxable supplies. Under section 9-5 one of the requirements for making a taxable supply is that you make a supply for consideration.
Under section 9-10 a supply is not just a supply of goods or services. Supplies can also be made in relation to rights, obligations and information for GST purposes.
Under section 9-15 the term 'consideration’ is broadly defined as including any payment, or any act or forbearance, 'in connection with’, 'in response to’ or 'for the inducement’ of a supply.
Therefore, to determine if you have made a taxable supply for which you received the payment, it is first necessary to consider whether you have made a supply for consideration.
Financial assistance payments
Goods and Services Tax Ruling GSTR 2012/2 – Goods and services tax: financial assistance payments (GSTR 2012/2) provides guidance on when a financial assistance payment is consideration for a supply. The term 'financial assistance payment’ is intended to encompass a wide range of payments and includes payments made to provide support or aid to the payee.
In your circumstances, the payment you received is considered to be a financial assistance payment.
In the context of financial assistance payments, paragraph 15 of GSTR 2012/2 explains that for a payment to be consideration for a supply there must be a sufficient nexus between the payment made by the payer and a supply made by the payee.
In establishing if there is a sufficient nexus between a payment and a supply, paragraphs 15A and 16 of GSTR 2012/2 explain that not every connection between supply and consideration meets the requirements for a taxable supply. Reference is to be made to all of the surrounding circumstances of the arrangement, in particular any written documentation. The circumstances may include the activities which are to be undertaken by the payee and any other terms and conditions attached to the payment. However, none of these factors will be determinative on their own and the arrangement must be considered as a whole.
In your circumstances, there is no ongoing formal agreement between you and Entity B regarding the payment of money. In receiving the payment, you provide an annual budget of planned expenditure, a quarterly implementation order with detailed expenditure, and a monthly report of spending. The provision of such information potentially could fall within the broad definition of supply. However, in the current case, it is considered they are merely part of the mechanism of making or accounting for the payment. As such, they are considered to form part of the circumstance in which a supply is made but are not of themselves the supplies for which the consideration is provided. Paragraphs 132 and 133 of GSTR 2012/2 provide detailed explanation on this.
There is nothing else supplied by you to Entity B for which the payment you received is in connection with, in response to or for the inducement of a supply.
As you are not making a supply for consideration, there is no supply by you that is a taxable supply under section 9-5. Therefore, the payment you received is not subject to GST.