EDITED VERSION OF GST PRIVATE RULING
Authorisation Number: 34402
SUBJECT:
GST and subsidy
QUESTIONS AT ISSUE:
Is the subsidy that you receive from a government entity consideration for a taxable supply and therefore subject to goods and services tax (GST)?
FACTS:
You are a non-profit organisation and you are registered for GST.
You receive a subsidy from the government entity in order to provide specified services. To be eligible for these services, the recipient must be assessed by the specified authority.
The funds are provided on the basis that you satisfy the terms and conditions set out in the specified agreement between you and the government entity.
You have provided a copy of this agreement.
DECISION:
Yes, the subsidy that you receive from the government entity is consideration for a taxable supply and therefore subject to GST.
REASONS FOR DECISION:
Goods and Services Tax Ruling GSTR 2000/11 provides guidance on grants of financial assistance. Paragraphs 6 and 7 of GSTR 2000/11 provide that payments of financial assistance to an entity by means of direct grants, contributions, subsidies, co-payments and similar means are all referred to as grants for GST purposes.
It therefore needs to be determined if the provision of the grant is consideration for a taxable supply. Section 9-5 of the GST Act provides that you make a taxable supply if:
• you make the supply for consideration
• the supply is made in the course or furtherance of an enterprise that you carry on
• the supply is connected with Australia, and
• you are registered, or required to be registered for GST.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
Subsection 9-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that a supply is any form of supply whatsoever. Further, paragraph 9-10(2)(g) of the GST Act provides that an entry into an obligation to do anything is a supply for GST purposes.
You have advised that the grant is made for the purpose of delivering a package of specified services to eligible recipients. Your acceptance of the obligation to fulfil such conditions will establish a supply to the government entity in connection with the grant according to paragraphs 85 and 86 of GSTR 2000/11.
Please note that your supply of the services to the eligible recipients is a separate supply.
The provision of the grant will be consideration for that supply where all of the following elements are met:
• the grant provider must engage you to make the supply to someone else (your clients)
• the grant provider, by an agreement with you, determines the nature of the supply that is required or permitted to be made to the client, and
• the agreement creates a binding obligation between you and the grant provider for the supply to be made.
The agreement between you and the government entity meets all of the above elements, that is:
• the government entity has engaged you to make the specified supply
• the government entity by an agreement with you determines the nature of the supply that is required or permitted to be made to the client, and
• the agreement creates a binding obligation between you and the government entity for the supply to be made.
Therefore, the grant (or subsidy) is consideration for that supply.
In your case, the supply is for consideration, it is made in the course or furtherance of an enterprise that you carry on, the supply is connected with Australia and you are registered for GST. Further, the supply is neither GST-free under Division 38 of the GST Act, nor input taxed under Division 40. Consequently, the supply satisfies all of the requirements for a supply to be a taxable supply under section 9-5.
Therefore, the subsidy you receive from the government entity is consideration for a taxable supply and is subject to GST. Your GST liability is calculated as 1/11th of the GST-inclusive amount of the grant.
A copy of GSTR 2000/11 is available from our website at www.ato.gov.au. By way of assistance to you, I have enclosed our fact sheet entitled Grants and GST questions and answers - Nat 7037-5.2002.
Disclaimer
The Register of Private Binding Advice is published as a public record of the binding advice issued by the ATO. Each piece of advice is based on a specific set of circumstances advised to the ATO and the law in force at the time of the advice, and is considered binding only in respect of the person/s or entity/ies on whose behalf the advice was sought. The Register is a historical record of advice provided, and is not updated to reflect changes in the law, withdrawal of advice or any other change in circumstance. Each piece of advice has been edited to avoid disclosing the identity of the person or entity on whose behalf advice was sought and published advice may therefore not disclose all the relevant facts or circumstances on which the advice was based. For these reasons, advice published in this Register cannot be relied upon as precedent for any other person or entity.