Edited version of private advice

Authorisation Number: 1051659814684

Date of advice: 17 April 2020

Ruling

Subject: GST and grants

Question

For the purposes of determining whether you exceed the GST turnover threshold in accordance with section 188-10 of the A New Tax Systems (Goods and Services Tax) Act 1999 (GST Act), should the grants you have received be included in calculating your GST turnover?

Answer

No.

This ruling applies for the following period:

Period ended 30 September 2019

The scheme commences on:

XX XXXX 2019

Relevant facts and circumstances

You are a not-for-profit society run entirely by volunteers.

You have applied for and received a few types of grants from your local City Council.

As part of the Funding Agreements for the grants from the City Council successful applicants are required to comply with the following standard conditions:

·        Using the grant for the specified purpose

·        Requirement to report on how the grant money was used

·        Acknowledgment of grant

·        Repayment of funding in certain circumstances

You have also received a Commonwealth Government grant. For this grant you were required to:

·        undertake the project in line with the agreement that you had with the Commonwealth.

·        only spend the grant on the project or on eligible activities to undertake the project

·        complete the project by the project end date

·        repay any amount of the grant spent on activities not identified in the project, or if you had any amount unspent at the project end date,

·        provide a final report, including a statement that you spend the grant in accordance with the agreement by the due date

·        acknowledge the funding you received from the grant if you made a public statement or published nay material about your project

·        notify the Commonwealth of any events relating to the project and provide an opportunity for the Minister or their representative to attend, and

·        include an acknowledgement of the grant.in any signage you erected in relation to the project.

Relevant legislative provisions

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

A New Tax Systems (Goods and Services Tax) Act 1999, subsection 23-5(b)

A New Tax Systems (Goods and Services Tax) Act 1999, section 188-10

A New Tax Systems (Goods and Services Tax) Act 1999, subsection 188-20(1)

A New Tax System (Goods and Services Tax) Regulations 2019, section 23-15.02

Reasons for decision

Under subsection 23-5(b) a requirement for GST registration is that your GST turnover meets the registration threshold turnover.

The registration threshold for not-for-profit organisations is $150,000 or more (Section 23-15.02 of A New Tax System (Goods and Services Tax) Regulations 2019).

Based on subsection 188-10(2) and paragraph 188-10(3)(b) your GST turnover will not exceed the registration turnover threshold if your current GST turnover is at or below that threshold and the Commissioner is not satisfied that your projected GST turnover is above that threshold.

Your current GST turnover is the sum of supplies made or likely to be made, in the current month and the previous eleven months less excluded supplies. Your projected GST turnover is the sum of supplies made or likely to be made, in the current month and the next eleven months less excluded supplies.

A supply is not just a supply of goods or services. Supplies can also be made in relation to rights, obligations and information for GST purposes.

Under subsection 188-20(1) supplies that are excluded from the calculation of your current and projected GST turnovers are supplies that are:

·        input taxed

·        for no consideration; or

·        not made in the course of your enterprise.

It follows that the grants you received should be excluded from your GST turnover calculation if either

·        you have not made a supply to the payer of the grant; or

·        you have made a supply but the grant is not consideration for that supply.

Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments (GSTR 2012/2), provides guidance on when a financial assistance payment, such as a grant, is consideration for a supply.

Paragraph 15 of GSTR 2012/2 explains that for a financial assistance payment to be consideration for a supply there must be a sufficient nexus between the payment made by the payer and a supply (if any) 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.

All of the surrounding circumstances of the arrangement, in particular any written documentation is taken into account. The circumstances may include the statutory purpose of the payer in providing the financial assistance, the activities which are to be undertaken by the payee and any other terms and conditions attached to the payment. However, none of these factors will be determinative on their own and the arrangement must be considered as a whole.

Taking into consideration the key conditions attaching to the grants, the following parts of GSTR 2012/2 are considered relevant in your circumstances:

·        Using the grant for the specified purpose

Whether using grant money for a specific purpose will amount to a supply will depend on whether there is a binding obligation created or only a mere expectation. In this regard, paragraph 119 of GSTR 2012/2 notes:

...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.

·        Requirement to report on how the grant money was used

Paragraph 132 of GSTR 2012/2 states:

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.

·        Acknowledgment of grant

Paragraph 38 of GSTR 2012/2 notes that

'the mere acknowledgement of the financial assistance payment is not an act which has the character of advertising, or promoting the company'.

·        Repayment of funding

Although the obligation to repay funding in certain circumstances meets the statutory definition of supply, paragraphs 134 and 135 GSTR 2012/2 state that

... The existence of a repayment clause is not determinative in establishing whether a financial assistance payment is consideration for a supply. This is because it cannot be said in such circumstances that the payment was made in connection with, in response to or for the inducement of the entry into the repayment obligation.

However, the repayment obligation is to be taken into account in the broader context of the arrangement as a whole and may be relevant in determining whether the financial assistance payment is consideration for a supply made by the payee.

Applying the guidance provided by GSTR 2012/2 to your circumstances, any conditions imposed on you as part of the receiving the grants 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

do not amount to a supply that you made for the receipt of the grants, therefore the grants received by you are not consideration for any supply you made.

As the grants are not consideration for a supply, they are excluded from the calculation of your current and projected GST turnovers because of paragraph 188-20(1)(b). Therefore you do not need to include them when determining whether you meet the registration threshold in accordance with section 188-10.

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