Edited version of your written advice

Authorisation Number: 1012883522509

Date of advice: 24 September 2015

Ruling

Subject: GST and funding to schools

Questions

1. Are funds paid by the Commonwealth to a government entity consideration under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

2. Are grants paid to non-government schools by the government entity consideration for a taxable supply under section 9-5 of the GST Act where those grants are paid from funding provided to the government entity by the Commonwealth?

Advice

1. No. The funds paid by the Commonwealth to a government entity are not consideration under subsection 9-17(3) of the GST Act.

2. No. The grants paid to non-government schools by the government entity are not consideration for a taxable supply under section 9-5 of the GST Act where those grants are paid from funding provided to the government entity by the Commonwealth.

Relevant fact

You are a government entity and receive funding from the Commonwealth for both government and non-government schools. The funding is appropriated by the Commonwealth under a Commonwealth Law, and paid to you for administration.

You will allocate the relevant amount to the government and non-government schools after determining the funding amount for each school based on objective criteria. These criteria are based on the anticipated costs of the school in meeting the educational outcomes it has undertaken to achieve.

When providing funding to non-government schools, you execute a Deed of Grant with the relevant non-government school (recipient). We have received a copy of the Deed of Grant.

The Deed of Grant provides the grant is paid to support the operating costs of school education and the school is to provide you with reports that outline how the grant payments were used.

The recipient must use the Grant only for the Grant Program and only within the Grant period unless otherwise agreed in writing with you and undertake the Grant program diligently and in accordance with the Grant Statement and this Deed.

You must pay the recipient the Grant in accordance with the Grant Statement. In the event an overpayment was made to the recipient the recipient will have to repay the overpaid amount.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Section9-17

A New Tax System (Goods and Services Tax) Act 1999 Section 9-10

Reasons for decisions

Question 1

Summary

The funds paid by the Commonwealth to the government entity are not consideration under subsection 9-17(3) of the GST Act.

Detailed reasoning

Under subsection 9-17(3) of the GST Act a payment is not the provision of consideration if:

a) The payment is made by a government related entity to another government related entity for making a supply; and

b) The payment is :

i. covered by an appropriation under an Australian law; or

ii. made under the National Health Reform Agreement agreed to by the Council of Australian Governments on 2 August 2011, as amended from time to time; or

iii. made under another agreement entered into to implement the National Health Reform Agreement; and

c) the payment is calculated on the basis that the sum of :

i. the payment (including the amounts of any other such payments) relating to the supply; and

ii. anything (including any payment or forbearance) that the other government related entity receives from another entity in connection with, or in response to, or for the inducement of, the supply, or for any other related supply;

does not exceed the supplier's anticipated or actual costs of making those supplies.

From the information received, the requirements in subsection 9-17(3) of the GST Act are met as the payment:

• is made between related government entities;

• is covered under an appropriation law, and

• the amount is calculated on the basis that it does not exceed the anticipated or actual costs of making the supply.

Accordingly, the funds paid to the government entity are not consideration under subsection 9-17(3) of the GST Act.

Question 2

Summary

The grants paid to non-government schools by you are not consideration for a taxable supply under section 9-5 of the GST Act where those grants are paid from funding provided to you by the Commonwealth. This is because there is no supply made by the non-government schools when they receive the grants.

Detailed reasoning

From the information received, subsection 9-17(3) of the GST Act is not applicable to the grants given to the non-government schools because the non-government schools are not government entities.

When the non-government schools receive the grant, they will be liable for GST in respect of that payment if the payment is consideration for a supply and all the other requirements for a taxable supply are met.

For the non-government school to have a GST liability in relation to the grant payment it must be established that:

• the grant payment is consideration; and

• there is a sufficient nexus between the payment and a supply.

A grant payment is consideration for a supply if the payment is 'in connection with' with a supply. Consideration can also be 'in response to' or 'for the inducement of a supply'.

Goods and Services Tax Ruling GSTR 2012/2 provides guidance on financial assistance payments.

The following paragraphs extracted from GSTR 2012/2 state:

No supply

116. In the context of financial assistance payments where the payment is made for the purpose of support or aid, there may be circumstances where no supply is made by the payee. This may be the case where the payee has done nothing in return for or in relation to the payment.

An expectation is created between the parties and nothing more

119. A further example of where there may be no supply is where an agreement between the parties is not binding and creates expectations alone. Where the financial assistance payment is made in circumstances where a party expects that something will be done, and it does not involve a binding obligation or the supply of goods, services or some other thing, there is no supply. The mere expectation that an act or event will happen is not sufficient to establish a supply

Supplies that are part of aiming or accounting for the financial assistance payment

132. Things are often supplied by the payee to the payer that are merely part of the mechanism of making or accounting for the financial assistance payment. These things are considered to form part of the circumstance in which a supply is made but are not of themselves the supplies for which the consideration is provided.

Repayment clauses

136. Commonly a payee of a financial assistance payment will agree to carry out an activity for the payment. Where the activity does not occur there may be a provision in the agreement for the payee to repay the funds. The repayment clause is part of the circumstances in which the supply is made and should be taken into account in that broader context when determining whether the payment is consideration for the supply.

137. On other occasions the payer may make the payment in the expectation that the activity will be undertaken. Where there is no binding agreement to that effect and the activity is not carried out, absent the provision of something else such as goods, services or some other thing being provided to the payer or a third party, there is no supply for which the payment is consideration. Furthermore, though the requirement to repay the funds meets the statutory definition of a supply, the payment was not made in connection with, in response to, or for the inducement of that supply.

From the information received, the grant payments to the non-government schools are to support the operation costs of school education and the non-government schools are to supply reports that outline how the grant payments were used.

In this instance, we consider that the non-government schools have not made any supply to you as they are not supplying anything to you on receipt of the grant. Further, the grant payment does not have a sufficient nexus with the supply of reports that outline how the payments were used because the grant payment is not in connection with the report. Accordingly, there are no GST consequences for either party under this grant arrangement.

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