Edited version of your written advice

Authorisation Number: 1012663266480

Ruling

Subject: GST and donation

Question 1

Are you required to include goods and services tax (GST) in the invoice you provide to XXX for the donation you receive?

Answer

No

Relevant facts and circumstances

• You are an Australian non-profit organisation which has been endorsed as a deductible gift recipient by the Australian Taxation Office (ATO). 

• You have been approached by XXX to employ a person

• You and XXX have entered into a Memorandum of Understanding (MOU) regarding the employment of a person by way of a donation to you by XXX.

• As part of the MOU XXX commits to:

• Donate a certain amount of money to fund the employment of a person.

• The MOU is for a specified period, after which time XXX will review the arrangement with consideration for ongoing funding, subject to certain expectations.

• The agreement takes effect from the date of signing by representatives of both parties.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 9-10

Section 9-15

Reasons for decision

Issue 1

Question

Summary

Section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) is not satisfied and therefore section 9-5 of the GST Act cannot apply. Accordingly, the payment made to you by XXX is not subject to GST

Detailed reasoning

GST is payable on taxable supplies. Under section 9-5 of the GST Act a taxable supply is a supply:

• for consideration

• in the course or furtherance of an enterprise

• connected with Australia, and

• 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.

In your situation, what needs to be considered is whether the donation made by XXX is consideration for a taxable supply.

Paragraph 9-15(3)(b) of the GST Act specifically excludes a gift made to a non-profit body (including charities) from being provision of consideration. For a payment to be considered a gift, it must be unfettered, meaning that there is no obligation to do anything in recognition of the gift and no expectation on the part of the donor to receive anything in return.

There is no definition for gift in the GST Act, and therefore it takes on its ordinary meaning. For the donations to be considered gifts, the donations must be given voluntarily with the donors not receiving a material benefit in return. This means that provided that the donor is not receiving a material benefit, that is, any item received by the donor is of insubstantial value, and the donation is unconditional, there are no GST consequences.

A payment made in return for a material benefit or an enforceable obligation to use the funds for a specified purpose is consideration for a supply. The organisation receiving the payment has supplied something in return for the payment.

Charities Consultative Committee resolved issues document which is available on the internet at www.ato.gov.au under Issue 2 provides the following:

How will gifts and donations be treated under GST?

Question 1. In what circumstances will a grant made to a non-profit organisation by a philanthropic trust be considered to be a gift rather than a grant of financial assistance? What type of conditions will and will not make it a taxable supply?

A gift to a non-profit body is specifically excluded as consideration for a supply. A grant by a philanthropic trust will be considered to be a gift where:

• the payment is made voluntarily, and not as a result of a prior contractual obligation

• the payer does not receive an advantage of a material character by way of return for making the payment, and

• the payment essentially arises from benefaction.

The fact that the grant has conditions attached which establish the terms on which the grant is made will not, by itself, preclude the grant from being a gift. For example, if the grant conditions:

• stipulate the project for which the funds are to be used

• establish a date of completion for the project

• require the grantee to maintain separately in its books of account, records on how the grant has been used, and

• require that the grantee acknowledge the assistance of the grantor in any published or display material.

the grant may still be a gift.

If, however, the grant conditions provide the grantor with material benefits or impose a binding obligation on the grantee, the grant would not be considered to be a gift. The following are examples of such conditions:

• the grantor is given an interest in any resultant intellectual property that is generated from the research

• the grantor is provided with a share in the income from the commercial exploitation of the research results

• the grantor is allowed to determine how the grantee should acknowledge their assistance (which may extend beyond mere acknowledgment), or

• the grantee must repay the grant if the conditions of the grant are not satisfied.

In these cases, the grant would represent consideration for a supply by the grantee.

Supply

Goods and Services Tax Ruling GSTR 2000/11 discusses further the ATO view on supply and provides at paragraph 33 that for there to be a supply of rights or obligations, such rights or obligations must be binding on the parties. The creation of expectations among the parties does not establish a supply. An agreement that does not bind the parties in some way would not be sufficient to establish a supply by one party to the other unless there is something else, such as goods or some other benefit, passing between the parties.

Payment for employment of a person

From the information you have provided, the payment received by you from XXX is part of a commercial transaction between you and XXX. There is an MOU in place between you and XXX which places certain expectations that you and XXX commit to. However it is our view that the expectations that the MOU places on you and XXX to do or receive anything in return for the payment of the monies are minimal.

While the funding is provided for a specific purpose, being the employment of a person, there are no goods, services or property rights flowing back to you other than the carrying out of this specific purpose. As such, you are not making a supply in return for the payment of the monies.

As there is no supply, section 9-10 of the GST Act is not satisfied and therefore section 9-5 of the GST Act cannot apply. Accordingly, the payment made to you by XXX is not subject to GST.