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Ruling

Subject: Application of GST to subsidy payments, reimbursements and administration fees

Question 1

Is the goods and services tax (GST) applicable to subsidy payments (financial assistance) made by Entity A, a government agency, to eligible applicants under a Commonwealth government scheme (the Scheme)?

Answer

No, GST is not applicable to the subsidy payments that Entity A makes to eligible applicants under the Scheme.

Question 2

Is GST applicable to reimbursements made by Entity B, a Commonwealth government agency, to Entity A for the subsidy payments that Entity A makes to eligible applicants?

Answer

No, GST is not applicable to reimbursements made by Entity B to Entity A for the subsidy payments that Entity A makes to eligible applicants.

Question 3

Is GST applicable to the administration fees that Entity B pays to Entity A for processing the applications in relation to the subsidy payments?

Answer

Yes, GST is applicable to the administration fees that Entity B pays to Entity A for processing the applications in relation to the subsidy payments.

Relevant facts and circumstances

Entity B, a Commonwealth government agency, entered into an arrangement with Entity A, a State government agency, for the delivery of subsidies to eligible applicants under the Scheme.

The Scheme is to assist eligible applicants in a particular Industry. Under the arrangement, Entity A delivers the subsidies on behalf of Entity B.

The arrangement is voluntary and non-binding. The parties to the arrangement do not intend it to be legally enforceable.

Applications to access the Scheme will end on a particular date.

There are no formal agreements between Entity A and the recipients of the subsidy payment. Applicants for the subsidy payments complete a standard application form designed for this Scheme and provide all the required information with that form.

The Commonwealth has allocated a total of $x million to the Scheme.

Under the arrangement, Entity A will make the subsidy payments from its own reserves first, on the basis that it will be reimbursed by Entity B.

Entity A will provide a monthly detailed invoice to Entity B with supporting documentation for the reimbursement of the delivery costs (ie the subsidies) paid by Entity A to the successful applicants.

In addition to the money paid to Entity A for reimbursement of delivery costs, Entity B will make a monthly payment of $x to Entity A for each application processed whether or not the application is successful.

Entity A is registered for GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 184-1

Reasons for decisions

Question 1

Detailed reasoning

Under subsection 7-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), GST is payable on taxable supplies and taxable importations.

Section 9-40 of the GST Act provides that you must pay the GST payable on any taxable supply that you make.

Under section 9-5 of the GST Act, 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.

The word 'you' used in the GST Act applies to entities (individuals, companies, partnerships, etc) generally.

However, in some cases, a government entity will not meet the definition of 'entity' in section 184-1 of the GST Act but special rules apply to enable government entities, that are technically not entities, to register for GST.

Once registered for GST, a government entity, like all other GST registered entities, will be liable for GST on taxable supplies that it makes and entitled to input tax credits for its creditable acquisitions.

In this case, Entity A is registered for GST. It administers the Scheme on behalf of Entity B.

Goods and Services Tax Ruling GSTR 2000/11 provides guidance on the application of GST to grants of financial assistance.

As explained in paragraph 6 of GSTR 2000/11, one entity may provide financial assistance to another by means of direct grants, contributions, subsidies, co-payments and similar means.

Following on from this, paragraph 9 of GSTR 2000/11 provides that the GST treatment of grants depends primarily on whether the grant represents consideration that has relevant connection with a taxable supply. This will depend on the particular facts and circumstances of each grant program.

The entity that makes the grant is referred to as the 'grantor' and the entity that receives the grant is the 'grantee' (paragraph 8 of GSTR 2000/11).

On the information provided in this case, the grantor is Entity B and the grantees are the eligible recipients of the subsidy payments. Entity A is merely acting as the paying agent on behalf of Entity B. As a paying agent, Entity A is not making any acquisitions from the eligible recipients when it makes the subsidy payments under the Scheme.

Consequently, GST is not applicable to the subsidy payments that Entity A makes to eligible applicants under the Scheme.

Question 2

Detailed reasoning

The issue that arises is whether Entity A is making any supply to Entity B for the reimbursement of the costs that it incurs in making the subsidy payments.

In the present case, under the arrangement, Entity A has agreed to administer the Scheme on behalf of Entity B (the grantor of the subsidy payments). Entity A will meet the initial costs of the subsidy payments to eligible applicants from its own reserves on the basis that it will be reimbursed by Entity B.

Entity A will issue a monthly detailed invoice to Entity A with supporting documentation for the reimbursement of the costs.

As explained in Question 1 above, Entity A is a paying agent for Entity B. It merely makes the subsidy payments on behalf of Entity B initially from its own reserves for which it is later reimbursed by Entity B who is the grantor of the subsidy payments. Entity A is not making a supply to Entity B for the subsidy payments.

Consequently, GST is not applicable to the reimbursements that Entity B makes to Entity A for the subsidy payments that Entity A makes to eligible applicants.

Question 3

Detailed reasoning

As explained in question 1 above, where a supply meets all the elements of section 9-5 of the GST Act, it will be a taxable supply unless the supply is GST-free or input taxed.

In the present case, Entity B will pay an amount monthly to Entity A for the administrative services that Entity A provides in processing the applications in relation to the subsidy payments. Entity A will be paid $x for each application that it processes whether or not the application is successful.

Entity A is registered for GST and receives consideration for its supply of administrative services. When Entity A administers the Scheme, it is doing so in the course or furtherance of the enterprise that it carries on in Australia as it is responsible for administering Commonwealth and State financial assistance programs. As such, the positive elements of section 9-5 of the GST Act are satisfied.

The GST-free or input taxed provisions in the GST Act do not apply to administrative services and as such, Entity A will be making a taxable supply to Entity B when it processes the applications in relation to the subsidy payments. Therefore, GST is applicable to the administration fees that Entity B pays to Entity A.

Consequently, as provided for in section 9-40 of the GST Act, Entity A must pay the GST payable on the taxable supply that it makes to Entity B.