Edited version of your written advice

Authorisation Number: 1012819588797

Date of advice: 25 June 2015

Ruling

Subject: GST and grants

Question 1

Is the grant of funds made to you by entity A consideration for a taxable supply made by you under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No

Question 2

Is the grant of funds made to you by entity B consideration for a taxable supply made by you under section 9-5 of the (GST Act)?

Answer

No

Relevant facts and circumstances

You are a non-profit body and are registered for goods and services tax (GST).

You receive funds from two non-profit bodies namely entity A and B, both of which are registered for GST.

The funding is used by you to engage consultants and various other parties to provide education and training to various participants.

Once funds have been expended by you, entity A and B require a report to be submitted to them on the project for which the funds were expended.

You executed an agreement between entity A and yourself (as the grantee).

Under the terms of that Agreement, entity A offered to make what is referred to in the Agreement as a 'grant' of funds exclusive of GST. You accepted the offer and agreed to be bound by the conditions which include using the grant exclusively for the Specified Purposes, providing progress reports and a final report and acknowledging the support of entity A.

No formal written application was submitted by you in relation to the grant of funds by entity B.

Your arrangement with entity B is evidenced by a one page document nominating the amount of the grant and sets out a requirement to provide a brief acquittal report provided to entity B by a certain date and to acknowledge entity B's contribution in all supporting material required.

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 9-10

A New Tax System (Goods and Services Tax) Act 1999 section 9-15

Reasons for decision

Question 1

Summary

Having regards to the Agreement and the surrounding circumstances the entity A funds do not have a sufficient connection with the supplies identified under the Agreement to constitute consideration for those supplies. It follows that the essential requirement for a taxable supply that there is a 'supply for consideration' is not satisfied. On that basis no GST is payable by you and no entitlement to input tax credits arise for the payer.

Detailed reasoning

Under section 9-40 of the GST Act an entity must pay the GST payable on any taxable supply it makes. Section 9-5 of the GST Act relevantly provides that, you make a taxable supply, if amongst other things 'you make the supply for consideration'.

The Commissioner has considered when a financial assistance payment is consideration for a supply in Goods and Services Tax Ruling GSTR 2012/2: financial assistance payments.

In GSTR 2012/2 the term 'financial assistance payment' is intended to encompass a wide range of payments including those made to provide support or aid to the payee. Paragraphs 15 and 16 of GSTR 2012/15 explain that 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 (entity A and B) and a supply made by the payee (you).

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'. In identifying the character of the connection, the word 'for' ensures that not every connection between supply and consideration meets the requirements for a taxable supply. The Commissioner considers that this is an objective test.

On the facts provided you have entered into arrangements with entity A and B where funds are made available to you to use in various projects you are undertaking that will benefit participants in your area. A GST liability in relation to such payments turns on identifying:

• one or more supplies made by the entity receiving the funds

• establishing that the payment was consideration (a payment, act or forbearance), and

• a sufficient nexus between the payment and the supply.

The definition of 'supply' provided by section 9-10 of the GST Act includes 'any form of supply whatsoever', such as the 'supply of goods', or the 'supply of services', or 'a provision of advice or information', or 'an entry into…an obligation… to do anything'.

The arrangement contemplated by the entity A Agreement requires reports and final reports to be provided by you to entity A and you are required to acknowledge entity A's support in connection with the Specified Purposes.

A provision of information in the form of a report or an obligation to do something satisfies the definition of a supply under subsection 9-10(2) of the GST Act.

An arrangement can give rise to many acts or things which satisfy the statutory definition of a supply. However, unless there is a sufficient nexus between a financial assistance payment and the supply, absent any other supplies for which the financial assistance payment can be said to be consideration, there is no taxable supply under the arrangement.

The term 'consideration' is defined in subsection 9-15(1) of the GST Act and includes any payment, or any act or forbearance, in connection with a supply of anything. On the facts provided the funds are a payment for GST purposes.

Therefore it is necessary to determine whether the payment of funds have a sufficient nexus to any of the supplies identified above to constitute consideration for those supplies.

Although the reports submitted by you involve the provision of information which meets the statutory definition of a supply these supplies are not the reason for which the funds are provided as is the case in example 2 of GSTR 2012/2 set out in paragraphs 25 to 27. The funds are not made to obtain or use the information contained in the reports but are merely part of the mechanism of making or accounting for the financial assistance payment.

Having regards to the entity A Agreement and the surrounding circumstances the funds do not have a sufficient nexus with the supply of information to constitute consideration for the supply such that the essential requirement for a taxable supply is satisfied.

Merely acknowledging entity A's support falls short of an act which has the character of advertising or promoting entity A. The funds are not made for a supply of advertising and promotion. The circumstances set out in paragraphs 37 to 39 of GSTR 2012/2 give an example of a mere acknowledgement of a payment having an insufficient nexus with a payment.

The table in paragraph 144 of GSTR 2012/2 explains that no GST is payable by the payee (you) and the payer (entity A) is not entitled to input tax credits in circumstances where the only supply the you make is acknowledging the payment received, submitting an application for the payment, agreeing to repay an amount not spent and/or giving a report to the payer about how the monies were spent.

The entity A Agreement does not indicate the supply of any other goods, services or acts for which the funds could be consideration. It follows that notwithstanding that the arrangement contemplated by the entity A Agreement may give rise to supplies, the funds provided by entity A have an insufficient nexus with those supplies to constitute consideration for those supplies. As an essential requirement for a taxable supply that there is a 'supply for consideration' is not satisfied there is no taxable supply made by you to entity A on which GST is payable.

Question 2

Summary

Having regards to the entity B arrangement and the surrounding circumstances the funds do not have a sufficient nexus with the supplies identified to constitute consideration for those supplies. It follows that the essential requirement for a taxable supply that there is a 'supply for consideration' is not satisfied. On that basis no GST is payable by you and no entitlement to input tax credits arise for the payer.

Detailed reasoning

Under the entity B arrangement you are required to provide a brief acquittal report and to acknowledge entity B's contribution.

The provision of information in the form of a report or a requirement to do something such as acknowledging support satisfies the definition of a 'supply' under subsection 9-10(2) of the GST Act.

As summarised in the GST outcomes in the table in paragraph 144 of GSTR 2012/2, no GST is payable where the only supplies made under the arrangement is acknowledging the payment received, giving a report about how the monies were spent and selecting a project on which to expend the funds.

That is, these supplies are not the reason for which the funds were paid. Rather, the payments were made in order to support you in undertaking a project. Although there is a connection between the funds and the supplies made by you under the entity B arrangement the nature of that connection is insufficient to constitute consideration for those supplies.

In addition, the entity B arrangement does not indicate the supply of any other goods, services or acts for which the funds could be consideration. It follows that notwithstanding that the entity B arrangement may give rise to supplies, the funds provided by entity B have an insufficient nexus with those supplies to constitute consideration. As an essential requirement for a taxable supply that there is a 'supply for consideration' is not satisfied there is no taxable supply under section 9-5 of the GST Act made by you to entity B on which GST is payable.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).