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Ruling

Subject: GST and financial assistance from a non-resident entity

Question

Is the financial assistance received from a non-resident entity consideration for a GST-free supply made by the Australian organisation?

Advice

From the facts given, the Australian organisation has not made any supply to the non-resident entity when they receive the financial assistance from the non-resident entity. GST is therefore not applicable to the payments they receive from the non-resident entity.

Relevant facts

You are an Australian organisation and registered for the goods and services tax (GST). You are investing in a research project to be conducted by an Australian Department. You have in place a Letter of Agreement with an overseas company where the latter agrees to co-invest in the research project to be conducted by the Australian Department.

We have received a copy of the Letter of Agreement which provides the following:

The overseas company agrees to provide funds to you for the sole purpose of you using those funds as a voluntary contribution to the research project.

Both parties agree that the overseas company is only bound by the agreement provided that:

· the Australian Department approves the project and the research utilises the overseas company's product.

· the Australian Department and the overseas company finalise an agreement on collaboration within the project.

You agree to pass on to the Australian Department the entire funds provided by the overseas company for use as a voluntary contribution in the project.

In no event shall the overseas company provide any funds pursuant to the agreement prior to the execution of the finalised agreement with the Australian Department as contemplated in the agreement.

You will invoice the overseas company in order to receive payment in Australian dollars to meet the required voluntary contribution payments to the Australian Department under the project.

The overseas company does not have any business subsidiary or representatives in Australia that will use the information on the outcome of the research. If the research is successful and the outcome is economically viable then the sales made by the overseas company of their products may increase.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-10(4).

Reasons for decision

GST is payable on a taxable supply. Section 9-5 of the GST Act provides that you make a taxable supply if:

· you make the supply for consideration; and

· the supply is made in the course or furtherance of an enterprise that you carry on; and

· 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.

All the requirements in section 9-5 of the GST Act need to be satisfied for a supply to be a taxable supply for GST purposes.

Supply for consideration

Goods and Services Tax Ruling GSTR 2012/2 (available at www.ato.gov.au) provides guidance on when a financial assistance is consideration for a supply.

Paragraphs 15, 24 and 28 of GSTR 2012/2 state the following:

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.

24. Providing advice or information is a supply. A financial assistance payment has a sufficient nexus with such a supply where the payment is made for the purpose of obtaining the information.

28. Where a supply is constituted by the payee entering into an obligation with the payer to do or refrain from doing something and the payment is made to secure that obligation, there is sufficient nexus between the payment and the obligation. This is because the financial assistance payment is made in connection with, in response to, or for the inducement of the entry into the obligation.

Under subsection 9-10(4) of the GST Act, a supply does not include a supply of money unless the money is provided as consideration for a supply that is a supply of money.

What is the supply?

From the facts received, the overseas company will provide financial assistance (payments) to the research project on condition that their products are used in the research project and they have an agreement with the Australian Department on collaboration within the project. Further the overseas company may derive a benefit because if the research is successful and it is economically viable then the sales of their products may increase. In this instance we consider that it is a supply of advice or information that the overseas company will receive from the outcome of the research project as the purpose of the overseas company's payments is to obtain information on their products when they make voluntary contributions to the project. Since the payments have sufficient nexus with the supply of information that the overseas company will receive, the payments are consideration for the supply of information.

Who is making the supply of information?

From the letter of Agreement it is the Australian Department who is conducting the project. Further you will remit the full amount of the payments to the Australian Department as a voluntary contribution to the project and will make the payment only after the Australian Department and the overseas company have finalised an agreement on collaboration within the project. In this instance, you are not the supplier of the information because as discussed above, the payments made by the overseas company are consideration for the supply of information (that is the outcome of the research made by the Australian Department).

Are you making any supply to the overseas company?

From the Letter of Agreement, the overseas company has agreed to make payments of their voluntary contribution to you on receipt of your invoice and you will remit the whole amount to the Australian Department. In this instance we consider that you have not made any supply under subsection 9-10(4) of the GST Act to the overseas company as it is just a supply of money that is being made between the two entities. You are just acting as a conduit by collecting the overseas company's agreed co-contribution for the voluntary contribution for the project and forwarding the payments to the Australian Department.

Since you are not making any supply to the non-resident company on receipt of the payments GST is not applicable when you invoice the overseas company for the payments. This is because paragraph 9-5(a) of the GST act is not satisfied.