Edited version of private advice

Authorisation Number: 1052227063156

Date of advice: 27 March 2024

Ruling

Subject: GST on government payments including grants

Question

Is X making a creditable acquisition pursuant to section 11-5 of the GST Act when it makes a payment to the X for the delivery of the training programs and projects?

Answer

No.

The scheme commences on:

1 July 2024

Relevant facts and circumstances

X is an entity registered for GST.

The training program is administered by X, with the delivery being outsourced.

The services include whole of community training delivery in partnership with registered training organisations.

To be eligible to participate as a recipient of services, an individual must meet certain criteria.

For the projects, to be eligible to apply for a grant an organisation must meet certain criteria.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

Reasons for decision

Section 11-20 of the GST Act provides that you are entitled to an input taxed credit for any creditable acquisition that you make.

You make a creditable acquisition (section 11-5) 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

X will satisfy the requirements in section 11-5(c) and (d) of the GST Act. However, what remains to be determined is whether there is a supply that X has "acquired" from the X and whether the relevant acquisition is a "taxable supply".

Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9) examines the meaning of "supply" in the GST Act. It discusses how to identify and characterise supplies in the context of the transactions in which they are made.

GSTR 2006/9 provides a number of propositions which focus on analysing the various arrangements in which supplies are made. The propositions are not universal as they may have exceptions or be qualified either by the operation of particular provisions of the GST Act, or by the facts and circumstance of a transaction.

Paragraph 23 of GSTR 2006/9 sets out a number of propositions in analysing more complex multi-party arrangements, commonly known as tripartite arrangements and includes propositions 13 to 15 ...:

Table 1: Paragraph 23 of GSTR 2006/9 sets out a number of propositions in analysing more complex multi-party arrangements, commonly known as tripartite arrangements and includes propositions 13 to 15.

In paragraph 115 of GSTR 2006/9, it provides that in arrangements involving more than two entities referred to as "tripartite arrangements" analysis may reveal:

•         a supply made to one entity but provided to another entity;

•         two or more supplies made; or

•         a supply made and provided to one entity and consideration paid by a third party.

Further, paragraph 116 of the GSTR 2006/9 provides that, as with two party transactions, the GST consequences of tripartite arrangements turn on identifying:

•         one or more supplies;

•         consideration (a payment, act or forbearance);

•         a nexus between the supply and the consideration; and

•         to whom the supply is made.

In paragraph 180 of the GSTR 2006/9, the Commissioner discusses the close coupling between supply and consideration in the GST Act. In determining whether a payment is consideration under section 9-15 and whether there is a 'supply for consideration' those rulings take the view that:

•         the test is whether there is a sufficient nexus between the supply and the payment made; this test is objective;

•         regard needs to be had to the true character of the transaction; and

•         an arrangement between parties will be characterised not merely by the description that the parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

Based on above, X is making a third-party payment for a supply being made by the X to the recipients. This does not satisfy the requirements in section 11-5 of the GST Act because they are not the recipients of the supply.

Project Payments

The term 'grant' is not defined and the general principles of the GST Act apply in determining whether GST is payable on a grant of financial assistance.

Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments (GSTR 2012/12) outlines the Commissioner's views on when a financial assistance payment is consideration for a supply made by the recipient of the payment.

Paragraphs 15 and 16 of GSTR 2012/2 state:

15. 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.

16. Reference to all of the surrounding circumstances of the arrangement, in particular any written documentation, determines whether a financial assistance payment is 'in connection with', 'in response to' or 'for the inducement of' a supply. The 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. However, none of these factors will be determinative on their own and the arrangement must the considered as a whole. The description the parties may give to the arrangement, whilst relevant, is not determinative.

Paragraph 55 of GSTR 2012/2 state:

55. There will be some arrangements that do not involve the making of any supply whatsoever. If no supply has been made a key element of the definition of taxable supply is not met.

GSTR 2012/2 Example 6 - insufficient nexus - provision of information to substantiate expenditure.

41. A business qualifies for a government financial assistance payment that is to promote the advancement of technology. For the purposes of the government agency's own internal assurances, the business is required to provide a report to the agency outlining how the funds were expended.

42. The payment is made to enable the business to improve its technological capability, not to obtain the report on how the financial assistance payment was expended. The financial assistance payment does not have a sufficient nexus with the supply of the report because the payment was not in connection with, in response to or for the inducement of the report.

GSTR 2012/2 Example 12 - no supply - eligibility criteria

63. A government agency offers prepared food retailers a rebate of up to $3,000 when they purchase and install a new commercial dishwasher in their kitchen. The dishwasher can be purchased from any retailer.

64. To be eligible for the rebate the dishwasher must be installed in existing premises and the dishwasher must meet a specified energy efficiency rating. To obtain the rebate the prepared food retailer must submit an application form with copies of their purchase and installation invoices.

65. The food retailer does not enter into any obligations, other than providing further evidence to support their claim in accordance with the eligibility criteria.

66. Although the application submitted by the food retailer and the agreement to provide further evidence in support of their claim may meet the statutory definition of a 'supply', these supplies are not the reason for which the payment was made. Rather the payments were made in order to encourage and facilitate the purchase of the commercial dishwasher by the food retailers. The provision of evidence in support of the claim does not have a sufficient nexus with the payment and is merely incidental to it.

67. The financial assistance payment is made once the food retailer has met the eligibility criteria. In meeting these criteria the food supplier is not supplying any good, service, or anything else to the government agency.

In applying these examples to your case, the grant payment is made to X.

The rights and obligations to make and receive the payment flow from the authority of X to implement its policies under the Program. As such, the provision of the financial assistance (grant) provided by X will not be consideration for a supply, as there isn't a sufficient nexus between the payment provided by X and a supply made by X.

As there are no GST consequences arising from the arrangement for either party, the requirements in section 11-5 are not met and you are not entitled to the input tax credits.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).