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Edited version of your private ruling
Authorisation Number: 1012596620761
Ruling
Subject: GST and donations
Question 1
Are you required to add GST to the donated funding amount you have provided to a company?
Answer
No
• You are a non-profit body which has been endorsed as a charitable institution by the Australian Tax Office (ATO) and is registered for goods and services tax (GST).
• You received a letter from your State president encouraging branches to donate funds to a project.
• You received a letter from Entity A seeking a donation from you to assist with their project.
• You members approved a donation and a cheque was subsequently issued to Entity A.
• You received a letter some months later from Entity A advising they had registered a company Entity B and as a result they now required you to pay an additional amount of GST resulting from the donation.
• You do not have any contractual relationship with either Entity A or Entity B.
• You are not receiving any goods or services from either Entity A or Entity B.
• The State Branch has advised through the State Secretary's Report that any profits from the project would be donated to your Charity and they would also receive a copy of the product for non-commercial and charitable purposes.
• You further contend that any contractual arrangement is between the State Branch and Entity A.
• You advise that the donation was unfettered, there were no obligations required by you for Entity A to do anything in recognition of the gift and there was no expectation on your part that you would receive anything in return for the donation.
• The donation was made to Entity A and not to Entity B.
• At the time of giving the donation Entity A was not registered for GST.
Reasons for decision
Summary
As the donation was made to Entity A that was not registered for GST even if the donation were not a 'gift' Entity A would not be able to include GST in the supply of their goods and services.
Detailed reasoning
Taxable Supply
Section 9-5 of the GST Act provides the requirements for a taxable supply:
This section provides that you make a taxable supply if:
(a) you make the supply for consideration
(b) the supply is made in the course or furtherance of an enterprise that you carry on
(c) the supply is connected with Australia and
(d) 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.
In this case, if there was a supply, it was be made for consideration being the cheque, the supply was being made in the furtherance of the Entity A's enterprise and the project was happening in Australia, however, at the time of both the request to you for a donation and you issuing the cheque to Entity A, Entity A was not registered for GST.
Therefore, as not all the requirements of section 9-5 of the GST Act have been satisfied the supply is not a taxable supply and as a consequence GST should not be included in the price of the supply.
Value of Taxable Supply
If Entity A was registered or required to be registered for GST at the time of the request and receipt of the 'donation' then section 9-70 of the GST Act provides that the amount of GST payable on a taxable supply is 10% of the value of the taxable supply.
Under section 9-75(1) of the GST Act the value of a taxable supply is as follows:
10
Price x ----
11
where:
price is the sum of:
(a) so far as the consideration for the supply is consideration expressed as an amount of money - the amount (without any discount for the amount of GST (if any) payable on the supply); and
(b) so far as the consideration is not consideration expressed as an amount of money - the GST inclusive market value of that consideration.
Sections 9-70 and 9-75 of the GST Act require the GST payable to be calculated from the price that the supplier receives for a supply, regardless of whether or not that amount includes a GST component.
Therefore in this case the value of the taxable supply would be $(Price) x 10/11.
Whether or not a supplier can recover the GST payable from the recipient, where the price did not include a GST component, is a contractual matter between the supplier and recipient. The ATO cannot require the price received for a supply to include a GST component or for the recipient to reimburse the supplier for the GST payable.