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Edited version of your private ruling

Authorisation Number: 1012434772506

Ruling

Subject: GST and grant funding

Question

Are you liable for GST in respect of the funding that you received from a government entity?

Answer

No, you are not liable for GST in respect of the funding that you received from the government entity.

Relevant facts and circumstances

You have an Australian business number (ABN). You are not registered for GST.

You carry on an enterprise under a trust. The trust is registered for GST.

You have had an unwritten lease to carry on the enterprise on part of a family property.

The family property is owned by a company and you and other family members are directors.

You expressed an interest in a project being conducted by the government entity. In a letter, the government entity approved your application and enclosed a copy of the final agreement entered into.

This letter also provided that a single funding payment would be made upon receipt of a tax invoice. You supplied a tax invoice which included your name and ABN as the supplier.

The government entity insisted that this funding be paid into your individual bank account.

The written agreement named the company in the heading and included its ABN. You and another family member signed the agreement.

Under the agreement, the agreement must be registered as a covenant on the title of the property to ensure that activities are done. The agreement shows that it was another family member who gave the consent to register the agreement as a covenant on the title of the property.

You have advised that the activities required under the agreement will be carried out by you through your trust. The activities will be paid for from the funding received.

You have also advised that you do not have the right to bind the company in relation to any legal agreement.

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 9-40

A New Tax System (Goods and Services Tax) Act 1999 Section 153-15

Reasons for decision

Summary

You are not liable for GST in respect of the funding that you received from the government entity because you were not acting in your own right when you received the funding. That is, you received the funding as an agent for the company.

Detailed reasoning

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay GST on any taxable supply that you make.

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

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

Section 9-5 of the GST Act states that 'you' make a taxable supply if certain requirements are met. The word 'you' used in the GST legislation applies to entities (individuals, companies, partnerships, etc) generally.

In most cases, it is clear who the 'you' is when determining if a taxable supply has been made. However, in this current situation, the facts show that the funding was paid into your personal bank account but the written agreement named the company in the heading and included its ABN.

Therefore, before examining the requirements of section 9-5 of the GST Act it is necessary to determine if you received the funding in your own right or as an agent for the company.

Whilst the term 'agent' is not defined in the GST Act, Goods and Services Tax Ruling GSTR 2000/37 provides guidance on the application of GST in agency relationships. In particular, paragraph 10 of GSTR 2000/37 explains that:

Whether an agency relationship exists is a question of fact determined by, among other things, any relevant documentation about the arrangement, the description used by the parties and the conduct of the parties.

In this case, you entered into discussions with the government entity to undertake a project on land situated on a family property owned by a company.

You have advised that while you have an unwritten lease to carry on an enterprise on part of the family property you do not have the right to bind the company in relation to any legal agreement.

Therefore, on your own, you would not have been able to enter into an agreement with the government entity. This is confirmed by the fact that even though you were the contact person for the application and undertook the practical steps to obtain the funding, when it came to complying with the requirements of the approval (entering into an agreement and placing a covenant over the family property) you had to seek the assistance of another family member.

Furthermore, while the approval letter was addressed to you, the agreement enclosed with that letter was between the company and the government entity. In addition, this agreement was signed by both you and another family member and it was another family member that gave consent to register a covenant on the title of the family property.

After looking at all the facts, it is considered that you were not acting independently when you entered into the agreement with the government entity. Instead, you and the other family member entered into the agreement as directors of the company. Company directors act as agents for the company.

According to paragraph 15 of GSTR 2000/37, when an agent uses his or her authority to act for a principal, then any act done on behalf of that principal is an act of the principal.

This means that where an entity acts in the capacity of an agent, the GST consequences are determined at the level of the principal. As well, an agent is not liable for GST in respect of acts done for a principal.

In relation to the receipt of funding, you advised that, at the insistence of the government entity, this funding was paid into your individual bank account.

It is not uncommon for government entities to insist that grant funds be paid into a separate bank account to ensure that it is kept separate from working capital.

You also advised that you issued a tax invoice for the funds with your name and ABN. Section 153-15 of the GST Act allows either an agent or a principal, but not both, to issue a tax invoice for a taxable supply.

Therefore, based on the information provided, we consider that you were not acting in your own right when you received the funding from the government entity into your individual bank account. Instead, you received the funding as an agent for the company.

As stated previously, an agent is not liable for GST in respect of acts done for a principal. Consequently, you are not liable for GST in respect of the funding that you received from the government entity on behalf of the company.

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