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Edited version of private ruling

Authorisation Number: 1011494474628

Ruling

Subject: GST and grants

Question

What are the Goods and Services Tax (GST) consequences on a grant that you received?

Answer:

Generally, if there is GST payable on a grant, the recipient of the grant is liable to remit the GST amount to the Taxation Office.

We have not considered the issue of whether or not GST is payable on the grant in the current case as we do not have sufficient information to be able to do so.

Relevant facts and circumstances

You provided the following information:

You were formed to assist in refurbishment of the building.

Grant applications were carried out by you until many years later, the organisation accepted the challenge and applied for grants towards having funding available to carry out the refurbishment.

You gave the organisation an amount to cover the cost of the work that you have completed from the small reserves that you had collected.

You received an account from the organisation for GST.

You believe that you should not have received that account from the organisation.

Your funds are limited and if you did collect the amount that the organisation says is your share of the cost for refurbishing would that attract GST as well.

You requested that you be provided with general advice as you are not able to produce the correct documentation relating to the grant.

Reasons for decision

Where a GST-registered organisation supplies a binding undertaking, obligation or promise to do something, such as provide a range of services, in return for grant monies, it is making a taxable supply for which the grant is consideration. The organisation that received the grant will be required to remit 1/11th of the grant monies to the Taxation Office. The payer of the grant (if registered for GST) is making a creditable acquisition, and may be entitled to claim an input tax credit for the same amount.

The GST treatment of grants depends primarily on whether the grant represents consideration that has relevant connection with a supply. This will depend on the particular facts and circumstances of each grant. (These circumstances will include any conditions imposed upon the recipient of a grant by the entity making the grant, and which may be specified in any written documentation pertaining to the grant.)

It is common for a grantor and grantee to enter into a grant agreement which establishes rights and obligations between the parties. Often the grant agreement will provide for the grantee to be obliged to make supplies to a third party, rather than the grantor. That obligation to make supplies to others may itself be a supply to the grantor.

For there to be a supply of rights or obligations, such rights or obligations must be binding on both parties. An agreement that does not bind the parties in some way would not be sufficient to establish a supply by one party to the other unless there is something else, such as goods, passing between the parties.

Many grants are paid in exchange for the grantee's entry into an obligation to do something with the grant. The grant is sufficiently connected with the supply of the obligation if the obligation is something which goes to the purpose for which the grant is made. Conditions that a grantee may enter into include the requirement to use the granted funds in a particular manner. Where this occurs the provision of the services, goods or activities establishes a substantial nexus with the grant as the supply goes to the purpose of the grant program. As such, the grant monies form the consideration for the supply of the services, goods or activities.

Taxable Supplies

GST is payable in respect of taxable supplies. Supplies made in connection with the receipt of a grant will be subject to GST where the grant represents consideration for a supply which is a taxable supply.

Under section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) you make a taxable supply if:

In determining whether a taxable supply is made all of the above elements need to be satisfied.

Additional Information:

Further information can be obtained from the Taxation Office's website at www.ato.gov.au. Prompts can be followed from the heading business type, for example:

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