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Authorisation Number: 1051265891297
Date of advice: 24 August 2017
Subject: GST and long term solar price guarantee arrangement
Are project support payments you received consideration for a supply for GST purposes?
No, the project support payments you received are not consideration for a supply because the payments have no sufficient nexus with any supply you make.
Relevant facts and circumstances
You are registered for GST.
You receive project support payments as a financial assistance payment to help you with a project.
You signed a deed with the payer of the support payments to formalise the arrangement.
The deed lists all the obligations that you must perform to be able to receive the support payments.
The calculation of the payments is covered under the deed.
The payer does not receive additional benefit from the arrangement.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-40
A New Tax System (Goods and Services Tax) Act 1999 section 9-5
Reasons for decision
Section 9-40 of A New Tax (Goods and Services Tax) Act 1999 (GST Act) provides that an entity must pay GST on any taxable supply that it makes.
This means that where it is established that you are making a taxable supply to the payer, then you are liable to pay GST on the support payments you receive.
Under section 9-5 of the GST Act, an entity makes a taxable supply if:
● the entity makes the supply for consideration
● the supply is made in the course or furtherance of an enterprise that the entity carries on
● the supply is connected with Australia, and
● the entity is registered or required to be registered for GST.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
The first requirement for an entity to make a taxable supply under section 9-5 is that its supply is made for consideration.
Goods and Services Tax Ruling 2012/2 Goods and services tax: financial assistance payments (GSTR 2012/2) explains the Commissioner’s view on when a financial assistance payment is consideration for a supply.
Paragraph 15 of GSTR 2012/2 provides that for a financial assistance payment to be consideration for a supply there must be a sufficient nexus between the financial assistance payment made by the payer and a supply made by the payee. A sufficient nexus exists if the financial assistance payment is made 'in connection with’, 'in response to’ or 'for the inducement of’ a supply.
As explained in paragraph 99 of GSTR 2012/2, for a payee to have a GST liability in relation to a financial assistance payment and for a payer to be entitled to an input tax credit, it must be established that:
● the financial assistance payment is consideration, and
● there is a sufficient nexus or connection between the payment and a supply.
This means that the GST treatment of a financial assistance payment depends primarily on whether the payment represents consideration that has the relevant connection with a supply and all of the other requirements of section 9-5 for a taxable supply are met.
GSTR 2012/2 provides the following guidance:
● a sufficient nexus exists where, upon an objective assessment having regard to the true nature of the transaction, the financial assistance payment is found to be made 'in connection with’, 'in response to’ or 'for the inducement of’ a supply;
● in identifying the character of the nexus required, the word 'for’ ensures that not every connection between a supply and consideration meets the requirements for a taxable or input taxed supply;
● reference to all of the surrounding circumstances of the arrangement supporting the payment of financial assistance (considered as a whole) determines whether there is a sufficient nexus. The surrounding circumstances may include the statutory purpose of the payer in providing the financial assistance, the activities which are to be undertaken by the payee and any other terms and conditions attached to the payment; and
● provided that there is a sufficient nexus, a voluntary payment can be consideration for a supply (that is the payer in such a case does not have to be the recipient of the supply).
The obligations you need to perform as stipulated in the deed do not give rise to them having a sufficient nexus with the support payments received.
From the facts provided, the receipt of support payments does not have a sufficient nexus with any supply that you make to the payer. As there is no sufficient nexus then the receipt of the project support payments under the deed does not constitute the provision of consideration for a supply or supplies that are made by entering into the obligations under the deed.
Accordingly, any support payments you receive under the deed are not consideration for a supply. As there is no taxable supply, the support payments are not subject to GST.