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Edited version of your private ruling
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Ruling
Subject: Funding of a government program
Question 1
Are you entitled to claim GST credits for the program?
Answer 1
Yes, you are entitled to claim GST credits for the program.
Relevant facts:
A Government Department (you) is registered for goods and services tax (GST).
The Government through you has approved an efficiency initiative.
The program will provide households with:
o A free home assessment
o Educational session and materials on how to save on household consumption
o A personalised saving plan which will identify specific changes in behaviour that will result in reduced consumption, and
o A range of low cost upgrades
You called public tenders for the program in October 2011 and an entity was appointed the successful tenderer. The entity is a not-for-profit organisation registered for GST
The cost of the assessment services is met by the program.
The entity will charge you for the services they provide to the householders and report on the number of properties attended.
There is no financial benefit to the householders for the services provided under the program.
Assumptions
Nil
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Section 9-5
A New Tax System (Goods and Services Tax) Act 1999 Section 11-5
A New Tax System (Goods and Services Tax) Act 1999 Section 11-20
Reasons For Decision
Under section 11-20 of the GST Act, an entity is entitled to the input tax credit for any creditable acquisition that it makes.
Section 11-5 of the GST Act provides:
You make a creditable acquisition 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.
(*denotes a term defined in section 195-1 of the GST Act).
Section 11-15 of the GST Act defines the meaning of 'creditable purpose'. The section provides that:
(1) You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your *enterprise.
(2) However, you do not acquire the thing for a creditable purpose to the extent that:
(a) the acquisition relates to making supplies that would be *input taxed; or
(b) the acquisition is of a private or domestic nature…
For a grant to be subject to GST, it must be consideration for a supply. Whether a grant is consideration for a supply will depend on the particular facts and circumstances of each grant program. The term supply is defined as any form of supply whatsoever. Supplies include, but are not limited to:
o the provision of advice or information;
o the creation, grant, transfer, assignment or surrender of any right; and
o the entry into, or release from, an obligation to do anything, or to refrain from an act; or to tolerate an act or situation.
A grant of money is not a supply but may be consideration for a supply. Consideration is any payment, act or forbearance in connection with, in response to, or for the inducement of a supply of anything. Consideration may be voluntarily made, and it need not be made by the recipient of the supply.
In most cases, a grantee will enter into an obligation, or make an undertaking, to do something in return for the grant. Such an obligation or undertaking is a supply for which the grant is consideration. For example, the grantee may undertake:
o to do something with the granted funds;
o to use the funds granted in a manner that will further the grantors objectives; or
o to provide specified services for or on behalf of the grantor
Notwithstanding the applicant will be a non-profit body for GST purposes, given the nature of the obligations assumed by the applicant upon entry into the Agreement, it is not considered the grant will be a "gift". The supply to the program is a grant by you as grantor to the entity as grantee as consideration for the supply of their entering into an obligation to provide services to the third parties being the householders.
Goods and Services Tax Ruling GSTR 2000/11 provides the ATO view on grants and states:
147. Where both grantor and grantee are registered, or required to be registered, a grantor will be able to claim an input tax credit for the grant if the supply is a creditable acquisition of the grantor.
148. Whether a grantor is able to obtain an input tax credit for a payment made as consideration for a supply, will primarily depend on the nature of the supply to which the grant relates, and whether the grantor and grantee are registered, or required to be registered.
149. If the grantor is neither registered, nor required to be registered, for GST it will not be entitled to claim an input tax credit. This is the case even if the grant is subject to GST in the hands of the grantee. Similarly, if the grantee is neither registered nor required to be registered, any supply made by the grantee is not a taxable supply and the grantor cannot claim an input tax credit in relation to the supply.
150. A registered grantor will be able to claim an input tax credit if the grant gives rise to a creditable acquisition of the grantor. This will occur if the supply to the grantor in exchange for the grant is a taxable supply for which the grant is consideration, and the thing supplied is acquired for a creditable purpose.
151. A taxable supply made by a grantee in return for a grant will be acquired by the grantor for a creditable purpose if the grantor acquires it in carrying on its enterprise.
152. However, a thing supplied in connection with a grant is not acquired for a creditable purpose to the extent that:
o the acquisition is of a private or domestic nature; or
o the acquisition relates to input taxed supplies, apart from some financial supplies.
In your case you and the grantee are registered for GST. The supply to you by the grantor is a taxable supply. The acquisition of rights and services from the entity is for a creditable purpose and as the grant is consideration for a taxable supply of their services provided to the householders and the provision of this service is in the course of its enterprise.
Provided you have obtained a tax invoice, you are entitled to claim the GST credits for the consideration you provide in relation to the power savings program.
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