Edited version of private ruling

Authorisation Number: 1011513631936

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Ruling

Subject: GST and creditable acquisitions

Question 1

Referring to the Student Agreements (Option X to Z), where a Scholarship Stipend payment has been made has the Australian entity made a creditable acquisition?

Answer 1

No, referring to the Student Agreements (Option X to Z), where a Scholarship Stipend payment has been made, the Australian entity has not made a creditable acquisition.

Question 2

Where the Australian entity has agreed to pay a level of additional expenses under their scholarship program (for example travel expenses, conferences, field trips, air fares, workshop consumables) on behalf of the student and these expenses are reimbursed to them or paid out from the additional expenses account (which is part of the scholarship program), has the Australian entity made a creditable acquisition?

Answer 2

No, where the Australian entity has agreed to pay a level of additional expenses under their scholarship program (for example travel expenses, conferences, field trips, air fares, workshop consumables) on behalf of the student and these expenses are reimbursed to them or paid out from the additional expenses account (which is part of the scholarship program), the Australian entity has not made a creditable acquisition and therefore cannot claim the GST paid on these acquisitions.

Question 3

Where the University assists the Australian entity with the co-supervision of the students under student Agreements options X, Y and Z, has the Australian entity made a creditable acquisition from the University?

Answer 3

Yes, where the University assists the Australian entity with the co-supervision of the students under student Agreements (Options X,Y and Z), the Australian entity has made a creditable acquisition.

Relevant facts and circumstances

You are an Australian entity and registered for GST. You provide scholarship funding opportunities (stipends and additional expenses). These scholarships are to be used purely for education purposes and allow the scholarship holder to be able to continue to expose and develop their skills through the opportunity of further learning.

The scholarship funding that is available to the student falls into two main categories:

· the scholarship or studentship payment which you call the stipend. The stipend is to assist the student in covering expenses to further their education; and

· additional approved expenses (on payment) to cover items that pertain to the further education of the student. These expenses can include payment of conference fee attendance, travel to conference and funds to cover the purchase of workshopworkshop consumables for the duration of the scholarships.

The successful scholarship student is allocated to an identified researcher who will act as a supervisor for the duration of the scholarship.

Both you and the student then engage with the University of choice and engage with the University to provide a co-supervisor, who will also provide the student with appropriate input and direction to assist the student to attain the appropriate qualification. How much the University's supervisor will be assisting the student depends on the student's project. You advised that you or the student do not pay the University for the engagement of the University's supervisor; rather it is considered an academic co-operation by you and the University for the benefit of the student.

The selected student will be asked to sign a Student Agreement (agreement) and the parties to the agreement are you, the University and the student. The main aim of the agreement is to demonstrate what each party will bring to the project including detailing of the student's obligations.

There are different types of Student Agreement that have been developed among you, the University and the student. Depending on the level of project involvement by you and the University the student will be asked to complete the relevant agreement. Details of the types of Student Agreement are as follows:

Student Agreement Option X

Option X is where the student is working on your project.

You fund the scholarship.

You will own all Project IP.

You will distribute to the University its benefit share of commercialisation revenue from commercialisation of the project intellectual property (IP).

The agreement does not create the relationship of employee and employer between any of the parties; or create the relationship of partnership or agency between any of the parties.

Under this option, there is a more active co-supervision of the project from the University with the use of workshop resources and research facilities provided by you and to a lesser extent the University.

The percentage amount for commercialisation revenue that the University is to receive from you is decided at the time the option form is signed by you, the University and the student. The level of the ownership of the intellectual property between you and the University is determined by the level of Intellectual and Financial Contributions you and the University will be making to the student under the Agreement.

Student Agreement Option Y

Option Y is where student is working on a collaborative project agreed between you and the University.

You fund the scholarship.

You and the University share the ownership of the project IP. The relative share by each party will be agreed and based upon the financial and intellectual input made under the agreement to the student.

The agreement does not create the relationship of employee and employer between any of the parties; or create the relationship of partnership or agency between any of the parties.

You and the University equally contribute to the co-supervision of the student's project along with the provision of workshop resources and research facilities by both you and the University.

The idea of joint owning the Project IP is agreed to, between the supervisors prior to the commencement of the project and is included at the time the form is to be signed by all parties.

Student Agreement Option Z

Student is working on a University project agreed between you and the University.

You fund the scholarship.

The University will own all Project IP.

The agreement does not create the relationship of employee and employer between any of the parties; or create the relationship of partnership or agency between any of the parties.

Under this option, the use of the workshop resources and research facilities will be provided by the University and you provide active co-supervision of the Student.

The idea of the University owning the Project IP is agreed to between the supervisors prior to the commencement of the project and the ownership is formalised in the agreement before it is signed.

Stipend

In all types of agreement, the student has the choice to have the stipend either paid directly to them or through the University. In general, the University will invoice you in advance for the stipend of the student. The University does not charge any fee to you or the student when you make these payments to the University, which in turn makes the payments to the student. You expect that the University remits the full amount of the stipend to the students in this case.

Additional expenses (On payments)

Where you have agreed to pay the student any additional expenses then you will reimburse the student or make payment on behalf of the student for those additional expenses. Tax invoices and receipts must be submitted to you for those additional expenses to be reimbursed. You will make payment upon receipt of the tax invoice and supporting receipts. Examples of additional expenses are travel expenses, conferences, field trips, air fares, workshop consumables.

Depending on where the student is based, the claims for the on payments can be done in two ways. If the student studies for the majority of their time at your site, a claim is made to the supervisor for the on payments and these are claimed against the project. For example, you may provide workshop consumables to the student (working at your site) from your existing consumable stock or purchased them through your preferred supplier and received a tax invoice for this purchase. The provision of these workshop consumables will be paid out from the additional expenses account which is part of the scholarship program. Similarly, if you have paid any air fare on behalf of the student, you will receive reimbursement of this payment from the funding of the additional expenses account allocated to the student as part of the scholarship program and managed by you.

If arrangement is for the University to make the claim for the on payments, the University will act as paying agent for you and pays the additional expenses incurred by the student and then claims back the amount from you by providing a tax invoice. There is no fee to be paid by you when the University seeks the reimbursement of the additional expenses they paid for the student while acting as their paying agent. The reimbursement of the expenses incurred by the University on behalf of the student will be paid out from the funding of the additional expenses account allocated to the student as part of the scholarship program and managed by you.

The University is registered for GST. The student is not registered for GST.

Reasons for decision

Question 1

Before we consider whether you have made a creditable acquisition, we first need to determine whether you have acquired a supply from the student when you give the student the Scholarship which is made up of the stipend and on payment.

Have you received a supply from the student?

Goods and Services Tax Ruling GSTR 2000/11 (available at www.ato.gov.au) provides guidelines for working out when grants of financial assistance and funding constitute consideration for a supply.

Paragraphs 44 to 46 of GSTR 2000/11 provide:

44. A supply is a taxable supply, if among other things, the supply is made for consideration. Thus, there must be some nexus or connection between a particular supply and particular consideration which is provided for that supply.

45. The definition of consideration in section 9-15 of the GST Act extends beyond payments to include such things as acts and forbearances to act. It may include voluntarily made payments, and payments made by persons other than the recipient of a supply

46. A payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply.

Paragraph 83 of GSTR 2000/11 further provides:

83. In many cases, the grantor will derive a direct and specific benefit in the form of a right from the making of the grant. Examples of such situations include:

· the grantor's right to use the results of a project that is funded by the grant; and

· the right to income from the sale of results of the project. For example, the grantee may agree to pay the grantor a certain portion or percentage of income.

From the facts received, the successful student receives a scholarship (which is made up of stipend and on payments) from you in return they have to do research for a specific project which you and/or the University will derive a direct and specific benefit since you and/or the University will own the Project IP (depending on the type of project and agreement signed by the parties). In this case we consider you and/or the University (depending on the type of the project and agreement signed by all parties) has acquired a supply of right from the student for GST purposes. The next step is to determine whether this acquisition is a creditable acquisition for you.

Creditable acquisition

Under section 11-20 of the GST Act you are entitled to claim GST paid on any creditable acquisition you made.

You make a creditable acquisition under section 11-5 of the GST Act if:

(a) you acquire anything solely or partly for a creditable purpose; and

(b) the supply of the thing to you is a taxable supply; and

(c) you provide or are liable to provide consideration for the supply; and

(d) you are registered or required to be registered.

You acquire a thing for a creditable purpose to the extent that you acquire it in carrying your enterprise.

However, under subsection 11-5(2) of the GST Act, you do not acquire the thing for a creditable purpose to the extent that:

· the acquisition relates to making supplies that would be input taxed (for example financial supplies and supplies of residential premises); or

· the acquisition is of a private or domestic nature.

From the information received, paragraphs 11-5(a), (c) and (d) of the GST Act are satisfied since you acquire the supply of right for a creditable purpose as you acquire them in carrying on your enterprise. You provide consideration (stipend and on payments) for the supply and you are registered for GST.

Accordingly where the supply of the right to you is a taxable supply (paragraph 11-5(b) of the GST Act), your acquisition will be a creditable acquisition under section 11-5 of the GST Act.

The next step is to determine whether the supply of the right made to you is a taxable supply.

GST status of the supply of the right

GST is payable on taxable supply. Under section 9-5 of the GST Act you make a taxable supply if:

(a) you make the supply for consideration;

(b) the supply is made in the course or furtherance of an enterprise that you carry on;

(c) the supply is connected with Australia; and

(d) you are 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.

All the requirements in section 9-5 of the GST Act need to be satisfied for the supply to be a taxable supply.

Applying section 9-5 of the GST Act to the facts

Paragraph 9-5(a) of the GST Act

Paragraph 9-5(a) of the GST Act is satisfied because, as discussed above, the student is making a supply of right and the consideration for the supply is the stipends and on payments.

Paragraph 9-5(b) of the GST Act

An enterprise is defined in subsection 9-20(1) of the GST Act as an activity or a series of activities done in a certain manner or by certain entities. The activities covered include those done in the form of a business or an adventure or concern in the nature of trade, or on a regular or continuous basis, in the form of a lease, licence.

However, there are certain activities that are excluded from the 'enterprise' definition under subsection 9-20(2) of the GST Act. These activities include activities done as an employee, as a private recreational pursuit or hobby, or by individuals or partnership (all or most of the members of which are individuals) without a reasonable expectation of profit or gain.

In this case the student is a full time student and will not own the Project IP. Accordingly, we do not consider that the student is carrying an enterprise as they are not making the supply with an expectation of profit or gain. Paragraph 9-5(b) of the GST Act is therefore not satisfied.

Paragraph 9-5(c) of the GST Act

Under subsection 9-25(5) of the GST Act, a supply of anything other than goods or real property is connected with Australia if:

· the thing is done in Australia, or

· the supplier makes the supply through an enterprise that the supplier carries on in Australia; or

· the thing is neither done in Australia nor supplied through a permanent establishment in Australia and is a supply of a right or option to acquire another thing and the supply of the other thing would be connected with Australia.

Only one of the above requirements needs to be satisfied for the supply of the right to be connected with Australia.

Goods and Services Tax Ruling GSTR 2000/31 provides guidance when a supply is connected with Australia. According to paragraph 76 of GSTR 2000/31, if a right is granted under an agreement to another to use certain intellectual property, the granting of that right to another is done where the agreement is made. If the agreement is made in Australia, the supply of that right is connected with Australia.

In this case, the student has the agreement with you and the University in Australia. As the provision of the right made by the student to you is in this agreement, the supply of the right made by the student is connected with Australia. Paragraph 9-5 (c) of the GST Act is therefore satisfied.

Paragraph 9-5(d) of the GST Act

Under section 23-5 of the GST Act you are required to be registered for GST if:

· you are carrying on an enterprise; and

· your GST turnover meets the registration turnover threshold which is currently $75,000.

As determined above, the student is not carrying an enterprise when they make their supply to you. The student is therefore not required to be registered for GST. Paragraph 9-5(d) of the GST Act is not satisfied.

Summary of section 9-5 of the GST Act

As all the requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act are not satisfied, the supply made by the student to you will not be a taxable supply. GST will therefore not be applicable to the supply.

Summary of question 1

Referring to the particular options in the Student Agreements you have not made a creditable acquisition under section 11-5 of the GST Act where you have made a Scholarship Stipend payment to the student as all the requirements in that section are not met.

Question 2

Under section 11-20 of the GST Act you are entitled to claim GST paid on any creditable acquisition you made.

You make a creditable acquisition if all the requirements in section 11-5 of the GST Act are met.

One of the requirement in section 11-5 of the GST Act is you acquire the thing solely or partly for a creditable purpose (paragraph 11-5(a) of the GST Act). You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

Goods and Services Tax Ruling GSTR 2008/1 provides guidance on when you acquire anything or import goods solely or partly for a creditable purpose.

Paragraph 64 of GSTR 2008/1 provides that where something is acquired in carrying on an enterprise, a connection or link is required between the thing acquired and the enterprise.

Paragraph 69 of GSTR 2008/1 provides that in the GST context it is necessary to make an objective assessment as to whether there is a connection between the thing acquired and the enterprise based on all the facts and circumstances. Paragraph 70 of GSTR 2008/1 further provides that whether an acquisition is acquired in carrying on an enterprise is a question of fact and degree. Some factors that would suggest that an acquisition is made in carrying on an enterprise include that the thing acquired is used by the enterprise in making the supplies.

For whom are the expenses that you have paid?

From the information received, the scholarship funding that is available to the student falls into two main categories:

· the scholarship or studentship payment which you call the stipend; and

· additional approved expenses (on payment) to cover items that pertain to the further education of the student. These expenses can include payment of conference fee attendance, travel to conference and funds to cover the purchase of workshop consumables for the duration of the scholarships.

In this case, the additional approved expenses are part of the Scholarship that the student receives from you and therefore form part of the consideration which the student receives for their supply of the Project IP. Accordingly, any expenses paid out from the additional approved expenses are acquisitions incurred by the student as it is the student who is receiving and utilising these acquisitions. The fact that you are managing the additional expenses account, makes the payments on the student's behalf and have the tax invoices for these acquisitions under your name does not alter the fact that these acquisitions are for the purposes of the student. This is because you are holding this consideration (additional approved expenses) on behalf of the student in order to ensure that the student does not overspend the agreed amount in regard to the additional expenses.

Reimbursement of payments made on behalf of student

Under subsection 9-10(4) of the GST Act, a supply does not include a supply of money unless the money is provided as consideration for a supply that is a supply of money

Where you have paid for the expenses on behalf of the student and these expenses are reimbursed to them (paid out from the additional expenses account), there is no supply being made from you to the student as you do not receive any fee from the student when acting on their behalf to acquire these expenses on the student's behalf. It is just a supply of money that is being made between you and the student when the additional expenses account is debited to repay the expenses that you have already incurred on behalf of the student.

Further, these acquisitions are for the purposes of the student and not for the purposes of your business. You therefore do not satisfy paragraph 11-5(a) of the GST Act. Accordingly, you cannot claim the GST paid on the acquisitions you made on behalf of the students as you have not made a creditable acquisition under section 11-5 of the GST Act.

Section 111-5 of the GST Act provides that you may be entitled to GST credits for payments that you make to reimburse your employees (and their associates) for their expenses. In this case this section is not applicable as the student is not your employee and therefore the expenses they incurred are not directly related to their activities as your officer.

Payments directly from the additional expenses account on behalf of the student

Where you have paid for the ordered expenses directly from the additional expenses account, these acquisitions are for the purposes of the student and not for the purposes of your business. You therefore do not satisfy paragraph 11-5(a) of the GST Act and therefore have not made a creditable acquisition under section 11-5 of the GST Act.

Summary

You have not made a creditable acquisition where you have agreed to pay a level of additional expenses under the scholarship program (for example travel expenses, conferences, field trips, air fares, workshop consumables) on behalf of the student and these expenses are reimbursed to you or paid out from the additional expenses account (which is part of the scholarship program).

Question 3

Under section 11-20 of the GST Act you are entitled to claim GST paid on any creditable acquisition you made.

You make a creditable acquisition if all the requirements in section 11-5 of the GST Act are met.

You make a creditable acquisition under section 11-5 of the GST Act if:

(a) you acquire anything solely or partly for a creditable purpose; and

(b) the supply of the thing to you is a taxable supply; and

(c) you provide or are liable to provide consideration for the supply; and

(d) you are registered or required to be registered.

When the University's supervisor assists you with the co-supervision of the student under the Student Agreement option X, Y and Z, you satisfy paragraphs 11-5(a) and 11-5(d) of the GST Act as you acquire the services of the University's supervisor for a creditable purpose since you acquire them in carrying on your enterprise and you are registered for GST.

The next step is to determine whether paragraphs 11-5 (b) and (c) of the GST Act are satisfied. Where paragraph 11-5(b) of the GST Act is satisfied, paragraph 11-5(c) of the GST Act will also be satisfied since the recipient will be liable to provide consideration for the supply.

Paragraph 11-5(b) of the GST Act

The supply to you is a taxable supply where all the requirements in section 9-5 of the GST Act are satisfied.

Under section 9-5 of the GST Act you make a taxable supply if:

(a) you make the supply for consideration;

(b) the supply is made in the course or furtherance of an enterprise that you carry on;

(c) the supply is connected with Australia; and

(d) you are 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.

From the information received, the University will satisfy paragraphs 9-5 (b) to (d) of the GST Act as the supply is made in the course of an enterprise that the University carries on in Australia; the supply is connected with Australia as the services are done in Australia and the University is registered for GST. Further the services made by the supervisors in this case are not GST-free or input taxed under the GST Act.

What is left to be determined is whether the supply under Agreements Option X, Y and Z is made for consideration.

The supply is made for consideration.

The term consideration is defined in section 9-15 of the GST Act to include:

· any payment, or any act or forbearance in connection with a supply; and

· any payment, or any act or forbearance, in response to or for the inducement of the supply of anything, in response to or for the inducement of a supply of anything.

Consideration may include payments made voluntarily, and payments made by persons other than the recipient of the supply.

Whether a payment is consideration under subsection 9-15(1) of the GST Act, the test is whether there is sufficient nexus between the supply and the payment made.

Goods and Services Tax Ruling GSTR 2001/6 provides guidance on non-monetary consideration. Paragraph 12 of Goods and Services Tax Ruling GSTR 2001/6 provides that a payment is not limited to a payment of money. It includes a payment in a non-monetary or in an 'in kind' form, such as:

· providing goods;

· granting a right or performing a service (an act); and

· entering into an obligation, for example to refrain from selling a particular product forbearance).

Paragraph 16 of GSTR 2001/6 provides the Commissioner's view where the recipient provides consideration in a non-monetary form and states:

16. By providing non-monetary consideration for a supply, you are in turn making a supply. Where this happens, you need to determine the GST consequences of the supply you make. If it is a taxable supply, you need to determine the GST inclusive market value of the consideration you receive for this supply to account for the GST payable. You may also be entitled to claim input tax credits for the supply made to you.

For a thing to be treated as a payment for a supply, it must have economic value and independent identity provided as compensation for the making of the supply. That is, it must be capable of being valued and be a thing that an acquirer would usually or commercially pay money to acquire. Whether this requirement is satisfied will usually be demonstrated by the parties to an arrangement assigning a specific or separate value to the thing. However, the assigning of a value by the parties is not necessary for a thing to have economic value.

Whether a payment is consideration for a supply depends on the true character of the transaction. Consideration for a supply is something the supplier receives for making the supply. Although a non-monetary payment (and acts or forbearances) can form consideration, the character of the transaction will determine whether it forms part of the consideration received by the supplier for making the supply. Non-monetary consideration needs to have a clearly independent identity

For the purposes of identifying whether a payment is consideration for a supply, the actual character of the transaction that occurred must be analysed, not a transaction that might have been.

Many transactions involve exchanging various rights and obligations between the parties to the transaction. In particular the true character of the transaction may characterise the payments as a condition of the contract rather than the provision of non-monetary consideration. Where a transaction in substances involves a supply made for a thing that is non-monetary consideration, the obligations to provide that thing will not constitute separate parts of the consideration.

Agreement Option X

After considering all the information received, we consider the University is receiving monetary consideration, in the absence of the transfer of money when the services are performed, to an agreed value from you (benefit share of the commercialisation of the revenue) as at the time the option form is signed:

· you have agreed to fund the scholarship and the University will assist you with the provision of a supervisor during the project;

· both parties have mutually agreed that you will distribute to the University a benefit share of the commercialisation revenue from the commercialisation of the Project IP; and

· the level of the ownership of the intellectual property between you and the University is determined by the level of intellectual and financial contributions you and the University will be making to the student under the agreement.

Accordingly, the University's obligation to provide the services under the agreement has the relevant nexus with their acquisition of the share of the commercialisation revenue from you.

The University is therefore receiving consideration (benefit share of commercialisation revenue) when they assist you with the co-supervision of the student. Section 9-5(a) of the GST Act is satisfied.

Since all the requirements in section 9-5 of the GST Act are satisfied, the supply made by the University to you is a taxable supply. Paragraph 11-5(b) of the GST Act is also satisfied.

As paragraph 11-5 (b) of the GST Act is satisfied, paragraph 11-5 (c) of the GST Act is also satisfied as you are required to provide consideration (benefit share of the commercialisation revenue) to the University for their supply.

You have therefore made a creditable acquisition under section 11-5 of the GST Act where the University assists you with the co-supervision of the student Agreement Option .

Agreement Option Y

In this case, we consider that the University is receiving monetary consideration, in the absence of the transfer of money when the services are performed, to an agreed value from you (share ownership of the Project IP) for the supply of services made by the University's supervisor as at the time the option form is signed:

· you have agreed to fund the scholarship and the University will assist you with the provision of a supervisor during the project;

· both parties have mutually agreed that they will share ownership of the Project IP; and

· the level of the ownership of the intellectual property between you and the University is determined by the level of intellectual and financial contributions you and the University will be making to the student under the agreement;

Accordingly, the University's obligation to provide the services under the agreement has a relevant nexus with their acquisition of their share of the project IP from you through the student.

The University is therefore receiving non-monetary consideration (share ownership of the Project IP) when they assist you with the co-supervision of the student. Section 9-5(a) of the GST Act is satisfied.

Since all the requirements in section 9-5 of the GST Act are satisfied, the supply made by the University to you is a taxable supply. Paragraph 11-5(b) of the GST Act is also satisfied.

As paragraph 11-5 (b) of the GST Act is satisfied, paragraph 11-5 (c) of the GST Act is also satisfied as you are required to provide consideration (share of the Project IP) to the University for their supply

You have therefore made a creditable acquisition under section 11-5 of the GST Act where the University assists you with the co-supervision of the student Agreement Option C.

Agreement Option Z

In this case, we consider that the University is receiving monetary consideration, in the absence of the transfer of money when the services are performed, to an agreed value from you for the supply of services made by their supervisor as at the time the option form is signed:

· you have agreed to fund the scholarship and the University will assist you with the provision of a supervisor during the project ;

· both parties have mutually agreed that the University will own the Project IP; and

· the level of the ownership of the intellectual property between you and the University is determined by the level of Intellectual and Financial Contributions you and the University will be making to the student under the agreement;

Accordingly, the University's obligation to provide the services under the agreement has a relevant nexus with their acquisition of the project IP from you through the student.

The University is therefore receiving non monetary consideration (acquisition of the project IP) when they assist you with the co-supervision of the student. Section 9-5(a) of the GST Act is satisfied.

Since all the requirements in section 9-5 of the GST Act are satisfied, the supply made by the University to you is a taxable supply. Paragraph 11-5(b) of the GST Act is also satisfied.

As paragraph 11-5 (b) of the GST Act is satisfied, paragraph 11-5 (c) of the GST Act is also satisfied as you are required to provide consideration (Project IP) to the University for their supply.

You have therefore made a creditable acquisition under section 11-5 of the GST Act where the University assists you with the co-supervision of the student Agreement Option D.

Summary

Where the University assists you with the co-supervision of the students under student Agreements option X, Y and Z, you have made a creditable acquisition.

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