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Ruling

Subject: GST and scholarship funding

Question

Is the payment of funds from external organisations for scholarships consideration for a taxable supply?

Answers

No

Relevant facts

You are a teaching institution registered for GST.

You are an endorsed tax concession charity (TCC) and gift deductible gift recipient (DGR).

You receive funding from external organisations for the purpose of providing scholarships to your students. These are generally categorised into four types.

Type 1

These provide financial assistance to students who have demonstrated a commitment to community involvement and meet an agreed set of criteria. They are designed to align with the values of the sponsoring organisation. These scholarships are often granted by community, government and service organisations.

Type 2

These are awarded to students who are Indigenous, from a family with a low income, speak English as a second language, have a disability, cares for someone with a disability, or are from a rural or isolated area. These scholarships may also consider community involvement. These scholarships are often supported by the same groups as regular community scholarships.

Type 3

These are named industry specific scholarships. They are awarded to encourage students to study, or continue to study, in a particular field or industry. Work experience is not a component of this scholarship.

Type 4

These provide financial assistance and real world experience for students. Students participate in an experiential work placement with the sponsoring organisation for up to 12 weeks per year. Work experience can be organised in two ways:

· as an ongoing placement over summer or winter break

· as a placement for one to three days a week during academic session

These provide organisations with access to motivated students from their first year of University right through their degree. They can allow supporting organisations to identify students whose goals and personal qualities fit with the organisation and can also allow fast tracking into graduate programs.

Organisations provide financial support and encouragement to students undertaking a degree relevant to their industry. Offering a scholarship demonstrates an organisations commitment to education and introduces the organisation to potential future employees.

Sponsors may be corporate and government organisations, community groups, volunteer groups or individuals.

General conditions for scholarships

· The student understands that the University reserves the right to withhold payment where conditions have not been met.

· The student understands that failure to meet any of these conditions may result in the student being responsible to repay the University monies received by them in relation to this scholarship.

· The student understands that where failure to meet conditions has occurred and scholarship monies are required to be repaid, that the University reserves the right to withhold the student's academic results until this payment is received.

· The student understands they will receive two equal instalments per annum, unless other arrangements have been made. Payments for Scholarships are scheduled for the week following the census dates for autumn session and spring session, unless otherwise detailed below.

· The student understands that this scholarship is funded by an external funder, and in the event that external funder ceases to provide the scholarship funds to the University, the University can terminate this Scholarship Agreement by providing the student with three months written notice.

· If a scholarship is terminated due to the criteria not being met, the funds will be held by you. You then work with the sponsoring organisation to appoint another scholar as soon as possible, to whom the funds are then allocated.

Allocation of Scholarship Funds

Funds received are paid to the student. All monies received are allocated to scholars. You do not retain any portion for administration fees.

For scholarships over multiple years, students are paid biannually in equal instalments following the HECS Census Dates during each year of the scholarship after verification that the student has met the criteria.

Selection process

The selection of students in most cases is based on criteria set by the sponsoring organisation and you, For example, a regional council may want to sponsor a student from their area. This will be used in conjunction with academic criteria in selecting the student. You and the sponsoring organisation in most cases will jointly select the student.

The selection panel consists of 2 x University representatives and 1 x sponsor representative in most cases however at times the panel consists of University staff only, and no sponsor representative is present. In all cases, one of the University representatives will be assigned as the Chair. The panel must collaborate to come up with a justifiable selection of the successful applicant, with the Chairperson adjudicating to ensure a fair and equitable process. It is expected that the final selection will be agreed by the majority of the panel, however the Chairperson is responsible for ensuring that the selected recipient is the most deserving and suitable applicant.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 9-5

Section 9-10

Section 9-15

Section 9-20

Section 23-5

Reasons for decision

Issue 1

Question 1

Summary

The scholarship funding is not consideration for a taxable supply

Detailed reasoning

GST is payable on a supply if you make a taxable supply. Section 9-5 of the GST Act states that:

You make a taxable supply if:

(a) you make a supply for *consideration; and

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

(c) the supply is *connected with Australia; and

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

However, the supply is not a *taxable supply to the extent that it *GST-free or *input taxed.

Note: The asterisks in this ruling indicate terms defined under section 195-1 of the GST Act.

In this instance, it is necessary to consider whether there is a supply for consideration as per the requirement in paragraph 9-5(a) of the GST Act.

'Supply is defined under section 9-10 of the GST Act.

Subsection 9-10(1) of the GST Act states supply is any form of supply whatsoever. Furthermore, subsection 9-10(2) of the GST Act states:

(2) Without limiting subsection (1), supply includes any of these:

(a) a supply of goods;

(b) a supply of services;

(c) a provision of advice or information;

(d) a grant, assignment or surrender or *real property;

(e) a creation, grant, transfer, assignment or surrender of any right;

(f) a *financial supply;

(g) an entry into, or release from, an obligation;

(i) to do anything; or

(ii) to refrain from an act; or

(iii) to tolerate an act or situation;

(h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

'Consideration' is defined under section 9-15 of the GST Act to include any payment in connection with, in response to, for any act or forbearance or for the inducement of a supply of anything.

Who is the recipient of the funding?

The funding of scholarships to students is made from the external organisations to you to support the grant of scholarships to your students. You grant the scholarships to the selected students, you are not responsible for funding a scholarship established by a donor as established in a clause in each scholarship agreements for the 4 types of scholarships.

The University will not be responsible for funding a scholarship established by a donor.

The selection of students is based on criteria set by the sponsoring organisation and you. You advertise for the scholarship and the applications will be reviewed by the Campus director/ Faculty representative and a shortlist will be sent to the sponsor.

At least two of your staff representatives must be part of the selection/interview process and one sponsor representative in most cases. However, at times, the panels consist of your staff only and no sponsor representative is present. In all cases, one of your representatives will be assigned as the Chairperson. The panel must collaborate to come up with a justifiable selection of the successful applicants with the Chairperson adjudicating to ensure a fair and equitable process. It is expected the final selection will be agreed by the majority of the panel. However, the Chairperson is responsible for ensuring that the selected recipient is the most deserving and suitable applicant.

The student is not a party to the agreement between you and the sponsor(s). The student is the recipient of the scholarship granted by you. There is no reciprocal relationship between the selected student and the sponsor.

Is there a supply made in return for the payment

Where there is an identifiable supply of goods and/or services by you as the recipient of the funding from the sponsors in return for the payment of a grant, there is a supply made by you. In the absence of a supply and/or services, there may still be a supply when, for example, the student enters into an obligation under an agreement.

Goods and Services Tax Ruling GSTR 2012/2 is about grants of financial assistance. Paragraphs 15 and 28 of the Ruling state:

15. 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 financial assistance payment is consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement of' a supply. The test is an objective one.

28. Where a supply is constituted by the payee entering into an obligation with the payer to do or refrain from doing something and the payment is made to secure that obligation, there is a sufficient nexus between the payment and the obligation. This is because the financial assistance payment is made in connection with, in response to, or for the inducement of the entry into the obligation.

Where the purpose of the payment of the scholarship money is to require you to do something, you may in fact be making a supply to the external organisation where you have entered into an obligation to do something which is binding on them. This principle is discussed at paragraph 56 of GSTR 2012/2, which states that:

56. In particular, there is no supply where the agreement between the parties is not binding and creates expectations alone. However, the payee may still make a supply in the absence of enforceable obligations. Where there is an agreement that does not bind the parties in some way there may still be a supply where there is something else, such as goods or some other benefit, passing between the parties.

Therefore, in respect of entering into obligations, the entry into an obligation whether binding or not may result in a supply being made by you.

Is there an obligation?

Under the terms and conditions of the scholarship agreement, the sponsor has not received anything in return for the payment.

As discussed above, the sponsors have no sole right to determine who will be selected. The presence of the sponsor in the panel is to ensure the transparency and fairness of the process. It should be noted where the student ceased to meet the requirements of the scholarship the agreement will be terminated, nothing will occur further.

You are under no obligation to provide any goods or services or do anything in return for the payment.

The following requirements are the criteria and conditions for the student for the grant of the scholarship, there is not anything to be done by you in return for the scholarship.

The followings are the conditions of the scholarship, not a supply made by the student to you or the sponsors:

· The student agrees to remain enrolled as a (full-time/Part time) student at the University of Wollongong for the duration of this scholarship unless specified below.

· The student understands that they must maintain enrolment in (insert year of study / degree / campus of enrolment).

· The student understands that they must maintain a credit average (Weighted Average Mark 65+) without any Fail grades throughout the duration of the scholarship.

· The student understands that should they be successful in gaining the scholarship, a Letter of Offer and associated documentation will be sent to them by post for signing and returned to the Scholarships Office. The official relationship between the student and Sponsor name) will not officially commence until this paperwork has been signed and returned to the Scholarships Office. The student will not receive payments if this documentation is not returned to the Scholarships Office.

Therefore, the requirement under paragraph 9-5(a) of the GST Act is not satisfied as the payment is made for no supply in return. It follows that the payment is out of scope of the GST Act. The will be no GST implications on the payment.

Other relevant comments

Type 4 Scholarships

Under the Type 4 scholarship students participate in an experiential work placement with the sponsoring organisation for up to 12 weeks per year. Work experience can be organised in two ways:

· as an ongoing placement over summer or winter break

· as a placement for one to three days a week during academic session

Other students who are not the recipients of scholarships may also undertake similar work experience as part of their curriculum that may be a mandatory or voluntary requirement of an education or training course.

In this case we consider that the work placement with the sponsoring organisation is only incidental for the payment of the scholarship funding to you and does not change the GST status of the payment. There is still not a taxable supply hence there are no GST consequences.

Administrative service

As mentioned previously 'supply' is defined under section 9-10 of the GST Act as any form of supply whatsoever, and includes under paragraph 9-10(2)(b) a supply of services. It may argued that where you administer the scholarship and receive an amount from the external organisation you receive consideration for a supply of administration services

However, in this case you have advised that all monies received from the external organisation for the scholarships are allocated to scholars and you do not retain any portion for administration. There is no consideration for the administrative service (if any). The administrative service is a part of the process and is not a separate, independent and identifiable supply in it own right.

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