Edited version of your written advice

Authorisation Number: 1013031706490

Date of advice: 9 June 2016

Ruling

Subject: Funding grant from Australian Government

Question 1

With regard to the Australian Government grant, did the Company merely act as agent for the superannuation fund, the partnership and the property unit trust ('the Property Owners') being the actual beneficial recipient of the funding for taxation purposes?

No. The funding receipt was paid to the Company as the business operator. The Company was not acting as agent and the Property Owners were not the beneficial recipient of the funding for taxation purposes.

This ruling applies for the following periods:

01/07/20ww to 30/06/20zz

The scheme commences on:

24/03/20xx

Relevant facts and circumstances

The Company entered into a funding agreement ('the agreement') with the Commonwealth of Australia to expand the production capacity of the Company's business.

The project that provides the grant supports new projects that create sustainable business growth and job opportunities that contribute to the strengthening of the local economy by encouraging applications from projects that generate new, sustainable business growth and jobs.

Funding will be received over the years ending 30 June 20xx, 20yy and 20zz. Each instalment is dependent on the Company providing a progress report to the satisfaction of the Commonwealth.

Each of the facilities is leased to the Company, from which it operates a business.

The Property Owners' own the property where the business is operated from and their only activity in relation to the property is to act as lessor.

The Property Owners derive passive rental income from the properties and do not derive any business income.

The grant monies were deposited into the Company's bank account.

Each respective legal owner of the properties intends to remit the GST on the grant monies and claim the GST on the building costs incurred.

The Property Owners intend to claim any capital allowances and capital works deductions in relation to the building extensions and equipment purchases.

The Program

Section 2 of the Customer Information Guide ('Customer guide') to the grant states, 'The Fund will support new projects that create sustainable business growth and job opportunities that will contribute to the strengthening of the local economy. The Fund will encourage applications from projects that generate new, sustainable business growth and jobs'.

The Ministerial Guidelines ('Ministerial guidelines') to the grant states, 'The Fund will support new projects that create sustainable business growth and job opportunities that will contribute to the strengthening of the local economy'. It further states, 'The Fund will encourage applications from projects that generate new, sustainable business growth and jobs'.

Who can apply

The Customer guide sets out who may apply. It states, 'Applicants must be incorporated in Australia under a law of the Commonwealth or of a State or Territory, and must engage in trading or financial activities that form a substantial or significant portion of their overall current activities'. It further states that, 'All applicants are required to have an Australian Business Number and be registered for the GST'.

The Customer guide also states, '(Applicants) Commit to contributing a minimum of 50 per cent of the overall eligible project cost (exclusive of in-kind contributions) from non-Government funding.

Certain entities are not eligible to apply, according to the Customer guide. These include individuals and partnerships and trusts. However, an incorporated trustee can apply on behalf of a trust provided that the Commonwealth is satisfied that the incorporated trustee will remain sufficiently liable for the performance of any agreement it signs.

Eligible expenditure

Section 5 of the Customer guide sets out what constitutes eligible expenditure. It states:

Eligible expenditure is defined as the direct project costs incurred in undertaking the project and may include:

• acquisition of new equipment or machinery that can be capitalised in the applicant's accounts

• construction or fit-out of a new building or extension to premises; and

• costs incurred undertaking an independent project audit certificate

Treatment of income

The Customer guide, under the section 'What funding is available?' states, 'For grant payments that attract the GST, AusIndustry will increase your grant payments to compensate for the level of that tax. Grant funds should be included in assessable income unless the entity receiving the grant is exempted under the income tax law'.

This is reinforced by the Ministerial guidelines, under the heading 'Conditions of funding'. It states, '…While grants are typically treated as assessable income for taxation purposes, how they are treated will depend on the grantee's particular circumstances. Grantees must seek their own independent professional advice on their taxation obligations'.

Under the Grant agreement, it states the grant must be paid to the grantee. It states, 'The Grantee must ensure that the Grant is held in an account in the Grantee's name and which the Grantee controls, with an authorised deposit-taking institution…'.

Project merit criteria

The project merit criteria are set out in the Customer guide. The criteria to be met when applying for the grant are:

• The level of net economic benefit the proposed project will bring to the local area, including:

• the contribution of the project towards the business's growth; and

• the number of, and sustainability of, new jobs generated through the project

• The demonstrated capacity of the applicant to successfully undertake the project outlining the skills, experience and resources to which they will have access

• The demonstrated capacity of the applicant to provide matching funding for the project

• The value for public money offered by the project as measured by the extent to which the project will be unlikely to proceed without funding support

The agreement and conditions of funding

The Customer guide at the section titled 'What if I am successful?' states, 'Successful applicants will need to enter into a Grant agreement with the Commonwealth. This agreement is a legal contract between the grantee and the Commonwealth. It provides details of the rights and obligations of both the grantee and the Commonwealth, including the agreed proposal, grant funding to be provided, power to recover grant funds in circumstances where grantees do not meet their obligations, the ability to inspect premises and records relating to the project, provisions for variation and termination of the agreement and the grantee's compliance and reporting obligations.'

The Ministerial guidelines also state, 'Successful Applicants are required to enter into a Grant agreement with AusIndustry, representing the Department, acting on behalf of the Commonwealth, on acceptable terms to the Commonwealth…'. Further, it states, 'Grant funds will not be provided to an Applicant until and unless that Applicant is selected as a successful grant applicant and has executed a legally binding Grant Agreement'.

In relation to recovery of grant monies, the Ministerial guidelines refer to this specifically. It states, 'Among other things, a Grant Agreement with a successful Applicant must:

(a) ensure that AusIndustry is empowered to recover Grant Funds in circumstances where the Applicant has acted in a manner to reduce the benefits that were expected to be generated by the Project;

(b) specify the amount of grant funding for the Project to which the application relates and the timing and method of delivery of the grant;

(c) require that the Project be conducted with the aim at all times of achieving the planned Project outcomes described in the application

(d) ensure the complete and accurate records relating to the conduct and management of the Project are maintained;

(e) provide AusIndustry with the ability to inspect the premises where the Project is undertaken and records relating to the conduct and management of the Project;

(f) ensure that AusIndustry is provided with all relevant information concerning the conduct and management of the Project;

(g) provide for variation and termination of the agreement;

(h) ensure the Project complies with all applicable Commonwealth, State and Territory laws and these Guidelines; and

(i) may include any other terms that the Programme Delegate considers to be necessary to protect the Commonwealth's interests in securing the achievement of the Project, relevant Commonwealth policies, the programme policy objectives set out in these Guidelines and making appropriate use of public monies'

Commonwealth Grant Agreement between the Commonwealth and the Company

A Commonwealth Grant Agreement ('Grant agreement') between the Commonwealth the company was signed in 20xx.

Repayment of grant

The Grant agreement states, 'If any of the Grant has been spent other than in accordance with this Agreement or any amount of the Grant is additional to the requirements of the Activity, the Grantee agrees to repay that amount to the Commonwealth unless agreed otherwise'.

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