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Edited version of your written advice

Authorisation Number: 1012972304133

Date of advice: 19 February 2016

Ruling

Subject: Grants and GST

Question

Is Entity A liable to pay Goods and Services Tax (GST) on the payment that it has received from Entity B?

Answer

No

Relevant facts and circumstances

Background

Entity A is a not-for-profit incorporated community association committed to providing services for young people and their families.

Entity A is a deductible gift recipient (DGR) and is registered for GST.

The grant from Entity B

Entity A submitted an application to Entity B seeking financial assistance to support the establishment of a project. The application was successful and Entity A received a payment from Entity B.

The grant from Entity B was however subject to the following conditions:

1. The Grantee will use the whole of the Grant exclusively for the Project as described in the application for the grant and not for any other purpose.

2. The Grantee will use its best endeavour to complete the Project within 12 months from the date of receipt of the Grant (the 'Specified Period').

3. The Grantee will promptly advise the Grantor of any material change which may affect the Grantee's ability to undertake or complete the Project within the Specified Period.

4. The Grantee will expend the Grant only within Australia and where specified within the particular State or Territory.

5. The Grantee will show the Grant separately in its books of account and keep records adequate to enable the use of grant funds to be checked readily.

6. The Grantee may acknowledge the assistance of the Grantor in any published or display material.

7. The Grantee will give the Grantor a final report at the end of the Specified Period and, if the Project is completed after the Specified Period, within two months of the completion of the Project. The Report will include:

Relevant legislative provisions

A New Tax System (GST) Act 1999 section 9-5

A New Tax System (GST) Act 1999 section 9-10

A New Tax System (GST) Act 1999 subsection 9-15(1)

A New Tax System (GST) Act 1999 section 9-17

A New Tax System (GST) Act 1999 section 9-40

Reasons for decision

Summary

Entity A is not liable to pay GST on the grant from Entity B because it has not made a taxable supply in connection with the receipt of the payment.

Detailed reasoning

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

Taxable Supply

Under section 9-5 of the GST Act, you make a 'taxable supply' if all of the following conditions are satisfied:

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

You make the supply for consideration

The first condition that must be satisfied under section 9-5 of the GST Act is that 'you make the supply for consideration'.

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'.

In accordance with the conditions imposed in return for the grant from Entity B, Entity A is required, amongst other things, to prepare separate books of account documenting the usage of funds and provide Entity B with a report detailing the project outcomes.

Given the broad definition of 'supply', the acts or things required to be undertaken by Entity A as part of the grant conditions are likely to satisfy the statutory definition of a supply.

Consideration

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 face value, but without further consideration of any specific exceptions (such as those contained in section 9-17 of the GST Act), the grant from Entity B would fall within the definition of 'consideration'.

Sufficient nexus

However, for a grant to be consideration for a supply, it is not sufficient for there to be a supply and a payment. The grant must be consideration 'for' that supply. There must be a sufficient nexus between the grant made by the payer and a supply made by the payee. A grant is consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement of' a supply. This test is an objective one.

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. That is, merely having any form of connection of any character between a supply and payment of consideration is insufficient to constitute a taxable supply.

Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments (GSTR 2012/2), outlines the Commissioner's view on when a grant is consideration for a supply.

Taking into consideration the key conditions attaching to the grant from Entity B, the following parts of GSTR 2012/2 are considered relevant in the current circumstances:

Application to your agreement with Entity B

Applying the guidance provided by GSTR 2012/2 to the current circumstances, it is considered that the conditions imposed on Entity A as part of the agreement with Entity B (and in particular those restricting the use of funds provided, acknowledging the grant and the requirement to prepare and provide a final report primarily accounting for the use of the funds) are not supplies that are made 'for' the grant. Viewing the arrangement as a whole, it is considered that there is an insufficient nexus between the grant provided and any supply made by Entity A 'for' that grant.

As the first condition in section 9-5 of the GST Act i.e. that you make the supply for consideration is not satisfied, Entity A is not making a taxable supply and consequently is not liable to pay GST on the grant from Entity B.


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