Edited version of private advice

Authorisation Number: 1052120721195

Date of advice: 19 May 2023

Ruling

Subject: GST - government grants

Question 1

Does subsection 177-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) apply to you?

Answer

No, subsection 177-5(1) of the GST Act does not apply to you, as you are not liable to pay GST under subsection 177-1(1) of the GST Act.

Question 2

Does subsection 177-1(1) of the GST Act apply to you such that you are notionally:

(a)  liable to pay GST payable under the GST Act;

(b)  entitled to input tax credits arising under the GST Act; and

(c)   have adjustments arising under the GST Act?

Answer

Yes.

Question 3

Are you notionally entitled to an input tax credit under paragraph 177-1(1)(b) of the GST Act, in respect of the grant by you to Recipients of:

(a)  Funds pursuant to a Deed of Grant of Money (DGM); and/or

(b)  Assets pursuant to a Deed of Grant of Assets (DGA)

on the basis that the Money and Assets are consideration for a taxable supply made by the Recipients to you under section 9-5 of the GST Act?

Answer

No.

Question 4

Are you notionally liable to pay GST under paragraph 177-1(1)(a) of the GST Act, in respect of the grant by you to Recipients of Assets under a DGA on the basis that it is made for consideration?

Answer

No.

This ruling applies for the following period:

19 May 20xx to 19 May 20xx

The scheme commenced on:

1 July 20xx

Relevant facts and circumstances

You are a government statutory corporation.

You are registered for GST.

In fulfilment of your statutory purpose and functions, you enter into Deeds with Recipients for the Grant of Money (DGM) or Assets (DGA).

The DGM and DGA are made subject to terms and conditions that impose obligations on the Recipients to only appropriate the grant in an agreed way, and only for a particular purpose.

As security for the observance and performance of their obligations under the Deeds, Recipients agree to assign certain security interests over the grant assets to you.

In addition, the Deeds contain repayment clauses that require Recipients to return the grant assets in the event of a breach of their obligations under the Deeds.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

section 177-1

section 177-5

Reasons for decision

Question 1

Detailed reasoning

Subsection 177-1(1) of the GST Act clarifies that you are not liable to pay GST under the GST Act.

Accordingly, subsection 177-5(1) of the GST Act does not apply to you, as you are not subject to taxation under the GST Act.

Question 2

Detailed reasoning

Subsection 177-1(1) of the GST Act provides that while you are not liable to pay GST, it is Parliament's intention that you should:

(a)  be notionally liable to pay GST payable under this Act; and

(b)  be notionally entitled to input tax credits arising under this Act; and

(c)   notionally have adjustments arising under this Act.

Accordingly, you are:

(a)  notionally liable to pay GST payable under the GST Act; and

(b)  notionally entitled to input tax credits arising under the GST Act; and

(c)   notionally have adjustments arising under the GST Act.

Question 3

Detailed reasoning

Under paragraph 177-1(1)(b) of the GST Act, you are notionally entitled to input tax credits.

Under section 11-5 of the GST Act, you make a creditable acquisition (and thus will have a notional input tax credit entitlement) if:

(a)  you acquire anything solely or partly for a creditable purpose; and

(b)  the supply of the thing to you is a taxable supply; and

(c)   you provide, or are liable to provide, consideration for the supply; and

(d)  you are registered, or required to be registered.

'Acquisition' is defined broadly under subsection 11-10(1) of the GST Act to mean any form of acquisition whatsoever. Without limiting this definition, subsection 11-10(2) of the GST Act relevantly includes within the meaning of acquisition:

...

(c)   a receipt of advice or information;

...

(e)  an acceptance of a grant, transfer, assignment or surrender of any right;

...

(g)  an acquisition of a right to require another person:

(i)    to do anything; or

(ii)   to refrain from an act; or

(iii)  to tolerate an act or situation.

Under the terms of the DGA and DGM, you acquire several things from Recipients that fall within this meaning of 'acquisition.' These include, but are not limited to, information and rights.

As you acquire these information and rights in the performance of your public purpose, it is accepted that you acquire these things solely for a creditable purpose (paragraph 11-5(a) and paragraph 9-20(1)(g) of the GST Act).

In considering whether the supply of information and rights made to you by Recipients is a taxable supply under paragraph 11-5(b) of the GST Act (within the meaning of section 9-5 of the GST Act), it is assumed that Recipients:

• make the supply in the course or furtherance of their enterprise;
• are registered or required to be registered for GST;
• the supply is connected with Australia; and
• the supply is not GST-free or input taxed.

Consequently, all that remains to be concluded is whether the Recipients make a supply of information and rights for which the grant made under the DGA or DGM is consideration.

The Commissioner's views on when a financial assistance payment is consideration for a supply is set out in Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments (GSTR 2012/2).

The term 'financial assistance payment' as used in GSTR 2012/2 covers the monetary and non-monetary grants made by you under the DGA or DGM to provide support or aid to Recipients in the implementation of government policies and initiatives (paragraph 5 of GSTR 2012/2).

At paragraphs 15 and 15A of GSTR 2012/2, the Commissioner explains 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 and a supply made by the payee. 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. The test is an objective one.

Further, 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.

In determining whether a financial assistance payment is 'in connection with,' 'in response to,' or 'for the inducement of' a supply, the Commissioner considers that reference should be had to all the circumstances surrounding the arrangement, in particular any written documentation (paragraph 16 of GSTR 2012/2). These surrounding 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 (paragraph 16 of GSTR 2012/2).

The Commissioner considers that 'none of these factors will be determinative on their own and the arrangement must the considered as a whole' (paragraph 16 of GSTR 2012/2).

In relation to the advice and information that you receive from Recipients as to the appropriation of a grant made under the DGA or DGM, the Commissioner acknowledges at paragraph 24 of GSTR 2012/2 that this constitutes a supply.

However, the grant will only have a sufficient nexus with this supply if it is made for the purposes of obtaining that information (paragraph 24 of GSTR 2012/2).

Applying the view set out at paragraph 24 of GSTR 2012/2 (and applied at paragraph 41 to 43 of GSTR 2012/2), the grants made by you under the respective Deeds are not made for the purposes of obtaining information as to how the grants are appropriated. Accordingly, a grant made by you under a DGA or DGM is not consideration for the supply of advice and information made by Recipients to you. There is an insufficient nexus between the grant and the supply of advice and information as to how the grant assets are used or exploited.

Under the DGA and DGM, you have attached certain terms and conditions to the grant that broadly obligate Recipients to appropriate the grant assets only in an agreed way (by doing or refraining from doing certain things), and only for a particular purpose.

The Recipient's entry into these obligations constitute a supply. However, as the Commissioner comments at paragraph 40 of GSTR 2012/2:

Things are often supplied by the payee to the payer that satisfy the statutory definition of a 'supply', given the broad meaning of 'supply'. In some circumstances, things may be supplied by the payee that are merely incidental or have an insufficient nexus to the financial assistance payment...

Taken as a whole, the obligations secured from Recipients under the DGA and DGM are aimed at preventing the misappropriation of the grant assets. However, the grant is not made 'for' the Recipient's entry into these restrictive obligations to only appropriate the grant in an agreed way, and for a particular purpose. These terms and conditions are merely incidental to the grant by setting out the uses and purposes for which the grant may be appropriated.

Perhaps most importantly, the terms of the DGA and DGM do not indicate that the Recipients make a supply of an undertaking to carry out the proposed activity for which the grant is made. The inclusion of a repayment clause under the Deeds merely require that the Recipients repay the grant assets where they become in breach of their obligations under the Deeds.

It is concluded that the grant is not consideration for the supply of information and obligations made to you by Recipients under the DGA or DGM.

Accordingly, you are not making a creditable acquisition under section 11-5 of the GST Act in respect to the Deeds and are correspondingly not notionally entitled to input tax credits.

Question 4

Detailed reasoning

Under paragraph 177-1(1)(a) of the GST Act, you are notionally liable to pay GST.

Where assets are granted under a DGA, you are making a supply to Recipients of goods and/or a grant or assignment of real property (paragraphs 9-10(2)(a) and (d) of the GST Act).

Applying the reasoning set out in Question 3, this supply is not made for consideration under paragraph 9-5(a) of the GST Act. Whilst Recipients supply information and obligations under the DGA that potentially could be viewed as non-monetary consideration, this non-monetary consideration is not provided for the supply of the grant assets.

Accordingly, you are not making a taxable supply under section 9-5 of the GST Act in respect to the DGA and are correspondingly not notionally liable to pay GST.

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