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Ruling

Subject: GST and Grants of Financial Assistance

Question

Does the grant of financial assistance for the approved purpose, in accordance with the Grant Deed, constitute consideration for a taxable supply for purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Relevant facts and circumstances

You are registered for goods and services tax (GST).

Under the terms of the Deed (a copy of which you have provided), the State made a grant to you for the approved purpose.

The Deed provides the conditions for the grant whereby you agree, among other things, to use the grant only for the approved purpose.

At the option of the State, if you fail to apply the grant for approved purposes, you may be required to repay the grant.

The Deed deals with the GST. It is noted that the grant does not include GST. You and the State agree that, should the GST be payable, the State will pay the additional amount of GST when you provide a tax invoice for the amount.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 9

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-10

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

Reasons for decision

Summary

The grant of financial assistance for the approved purpose, in accordance with the Deed, does constitute consideration for a taxable supply for purposes of the GST Act.

Detailed reasoning

The basic rules

Under the basic rules, Division 9 of the GST Act defines taxable supplies, states who is liable for the GST, and describes how to work out the GST on supplies.

Under section 9-5 of the GST Act you make a taxable supply if:

(a) you make a supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you carry on; and

(c) the supply is *connected with Australia; and

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

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed under the exemptions.

Note: Definitions of asterisked terms are provided in the Dictionary under section 195-1 of the GST Act.

The question at issue is whether the grant of financial assistance provided under the Deed constitutes consideration for a supply that you have made or will make.

Goods and Services Tax Ruling GSTR 2000/11 - Goods and services tax: grants of financial assistance and Draft Goods and Services Tax ruling GSTR 2011/D4 - Goods and services tax: financial assistance payments, both deal with the application of the GST to financial assistance payments.

The draft ruling represents a review of the earlier ruling and follows a number of decisions that have assisted the Commissioner's interpretation of the GST law. The draft ruling provides further explanation and clarification of the GST law in relation to financial assistance payments.

Paragraph 14 of GSTR 2000/11 explains that a taxable supply cannot exist unless there is a supply for consideration. This raises three relevant questions, namely:

· is there a supply

· is there consideration, and

· does the necessary relationship exist between supply and consideration?

Is there a supply?

Section 9-10 of the GST Act defines a supply as any form of supply whatsoever and includes:

· a supply of goods

· a supply of services, and

· an entry into, or release from, an obligation to do anything

Paragraph 19 of GSTR 2000/11 notes that subsection 9-10(2) of the GST Act makes it clear that things supplied need not only be goods and services, which are included as examples of the things that can be supplied. Rights, obligations and information may also be supplied.

Paragraphs 33 and 34 of GSTR 2000/11 deal with supplies of rights and obligations. The ruling provides that, for there to be a supply of rights or obligations, such rights or obligations must be binding on the parties. The ruling gives examples of arrangements that will indicate that an agreement binds the parties. These include:

· a contract, such as a purchaser-provider agreement

· a provision providing that the money granted must be repaid in specified circumstances, or

· an agreement such as a deed that is enforceable on its own terms even without specific remedies being provided for in the event of a breach.

In agreeing to the Deed you agreed to a number of conditions and using the grant only for the approved purpose. You entered into an obligation to do those things detailed in the Deed. In doing so, you made a supply as defined under section 9-10 of the GST Act.

Is there consideration?

Consideration is broadly defined under section 9-15 of the GST Act and includes any payment, or any act or forbearance, in connection with a supply of anything. In our view the grant payable on execution of the Deed is consideration as defined.

Does the necessary relationship exist between supply and consideration?

Paragraphs 23 and 24 of GSTR 2011/D4 state:

Sufficient nexus and certain financial assistance payment arrangements

Payment for a right

23. In some arrangements the payer will derive a direct and specific benefit in the form of a right in return for the financial assistance payment. In these circumstances, the payment has a sufficient nexus with the supply of the right because of the connection between the payment and the supply of the right. …

Payment for the entry into an obligation to do or not do something

24. Some financial assistance payments are made for the payee entering into an obligation with the payer to do or not do something. The payment has a sufficient nexus with the supply of the entry into the obligation where the payee is obligated to do or not do something, and taking into account the terms of the agreement and the surrounding circumstances, it is the obligation for which the financial assistance payment is made.

The Deed provides that the grant is provided for the approved purpose. The Deed details the conditions under which the grant is repayable for failure to apply the grant or any part of it for the approved purpose.

By agreeing to the Deed you have entered into an obligation to make a supply for which the payment is consideration. The financial assistance payment is consideration for the approved purpose. The financial assistance payment has a sufficient nexus with the obligations you have entered into. Therefore, the grant is consideration for the supply of the goods and services identified as the approved purpose.

Conclusion

The Deed details your agreement to make a 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 because the goods and services will be supplied in Australia, and you are registered for GST. The supply is not GST-free or input taxed under the exemptions of Part 3-1 of the GST Act. Therefore, you are making a taxable supply for consideration under the terms of the Deed.