Edited version of your written advice

Authorisation Number: 1012664163135

Ruling

Subject: GST and consideration and receipt of funds

Question 1

Is the payment by the Commonwealth to you, pursuant to an agreement, consideration for a taxable supply by you under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the payment by the Commonwealth to you is consideration for a taxable supply by you under section 9-5 of the GST Act and as such you are liable to GST in respect to the funds paid to you by the Commonwealth.

Relevant facts and circumstances

You carry on an enterprise that involves providing services. You are registered for goods and services tax (GST).

Under an Agreement (Agreement) executed between you and the Commonwealth of Australia (Commonwealth), as represented by a Commonwealth Department (Department), you were paid the funds.

The Recitals in the Agreement explains that the Commonwealth has agreed to fund you to perform the Project in support of its program on the terms and conditions of the Agreement.

The Project is defined in the Agreement to involve activities that include carrying out capital works which relate to construction and building works, fit out or refurbishment of premises.

The funds (Funds) paid to you were defined in the Agreement as the amount or part thereof payable by the Commonwealth as specified in the Agreement.

The payment schedule in the Agreement declares that subject to your compliance with the terms and conditions of the Agreement, the Funds were to be paid by the Commonwealth.

The Agreement stipulates that you must pay GST on the goods, services and other supplies that you make under the Agreement to the extent that they are taxable supplies and in relation to any GST payable, you must issue the Commonwealth with a tax invoice in accordance with the GST Act.

The Agreement provides that in consideration of the provision of the Funds, you must:

• use the Funds only for the performance of the Agreement

• perform the Project in according to the Budget, within the project period and according to the terms and conditions specified in the Agreement

• perform all aspects of the Project … as specified including purchasing the assets and provide information about the use of the assets

• deliver the Final Report, and

• endeavour in good faith to ensure that all work undertaken under the Agreement is in support of the objectives and outcomes of the program.

Your representative provided a copy of a tax invoice you issued to the Commonwealth in accordance with the terms of the Agreement. That tax invoice shows an amount of $XX (excluding GST) for a supply described as 'Capital Works and Equipment', an amount of GST of $X and a total amount paid of $XXX including GST.

Relevant legislative provisions

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 and

A New Tax System (Goods and Services Tax) Act 1999 section 195-1.

Reasons for decision

Under section 9-40 of the GST Act an entity must pay the GST payable on any taxable supply it makes.

A supply is a taxable supply if pursuant to section 9-5 of the GST Act:

(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 the context of the payment of the Funds under the Agreement the element of section 9-5 of the GST Act to be considered is the requirement in paragraph 9-5(a) of the GST Act that there is a 'supply for consideration'.

A 'supply for consideration' under paragraph 9-5(a) of the GST Act necessitates identifying:

• one or more supplies

• consideration (a payment, act or forbearance) and

• a sufficient nexus between the payment and the supply.

Is there a supply?

The definition of 'supply' provided by section 9-10 of the GST Act includes 'any form of supply whatsoever', such as the 'supply of goods', or the 'supply of services', or the 'provision of advice or information', or 'an entry into…an obligation… to do anything' or any combination of any 2 or more of the matters referred to in subsection 9-10(2) the GST Act.

Under the terms of the Agreement, you must, amongst other things:

• perform the Project according to the budget in accordance with the terms and conditions specified in the Agreement

• perform all aspects of the Project including achieving the aims and objectives of the Project, undertaking the capital works, purchasing the assets, providing the information about the use of the asset in each report, and

• deliver the Final Report.

All answer the statutory definition of a supply under section 9-10 of the GST Act.

It follows that the Agreement in this case gives rise to a number of things which satisfy the statutory definition of a supply. However, for paragraph 9-5(a) of the GST Act to apply there must be 'consideration'.

Is there consideration?

The term 'consideration' for a supply or acquisition is defined in section 195-1 to mean any consideration within the meaning given by section 9-15 in connection with the supply or acquisition.

Under subsection 9-15(1) consideration includes:

• any payment, or any act or forbearance, in connection with a supply of anything, and

• any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

Subsection 9-15(2) provides that the payment does not have to come from the recipient of the supply.

In this case the Funds paid to you by the Commonwealth under the Agreement are a payment. However, for that payment to be consideration for any supply identified under the Agreement there must be a sufficient nexus between the payment and those supplies.

The Commissioner has explored the issues of a 'nexus between supply and consideration' in relation to financial assistance payments (FAP) in Goods and Services Tax Ruling GSTR 2012/2.

Paragraph 15 of GSTR 2012/2 explains that for an FAP to be consideration for a supply there must be a sufficient nexus between the FAP made by the payer and a supply made by the payee. The FAP is consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement of' a supply of anything. The test is an objective one.

The terms of the Agreement, make it clear that the Funds paid by the Commonwealth as specified in the payment schedule are 'in consideration with', 'in response to' or 'for the inducement of' your supply of performing the Project. There is a sufficient nexus between the payments of the Funds and the performance of the Project by you for those payments to constitute consideration for the purposes of subsection 9-15(1) of the GST Act.

Under the terms of the Agreement, not only is there a connection between the payment of the Funds and the supply of the Project, but the supply of the Project is made for the payment of the Funds such that paragraph 9-5(a) of the GST Act is satisfied.

In regards to section 9-5 the GST Act, you are registered for GST, the supply of the Project is for consideration, the supply of the Project is connected with Australia, the supply of the Project is made in the course of an enterprise you carry on and the supply contemplated by the Agreement is not input taxed or GST-free. It follows, that as all the requirements for a taxable supply are satisfied GST is payable by you in respect of the Funds paid by the Commonwealth for the supply of performing the Project.