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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1012789747879

Ruling

Subject: Goods and services tax (GST) and funding received under a Memorandum of Understanding.

Question

Are the payments received by Entity A (you) from a government entity (Entity B) under the Memorandum of Understanding between you and Entity B, subject to GST?

Answer

Yes, part of each of the annual payments received is subject to GST.

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), one of the requirements for making a taxable supply is that you make a supply for consideration.

Under section 9-10 of the GST Act, a supply is not just a supply of goods or services. Supplies can also be made in relation to rights, obligations and information for GST purposes. Under section 9-15 of the GST Act, the term 'consideration' is broadly defined as including any payment, or any act or forbearance, 'in connection with', 'in response to' or 'for the inducement' of a supply.

In your case, under the Memorandum of Understanding between you and Entity B (Memorandum), the services you supply include distributing funds provided under the Memorandum through a grants program.

The Memorandum provides for an amount to be paid to you annually over a period of years. However, the Memorandum specifies certain amounts of each of these annual payments are to be used by you for particular purposes.

Certain amounts of each of the annual payments are consideration for supplies you make to Entity B of entering into obligations to use the funds for the following purposes:

    • administering the funds and to support the grants program

    • in the last year, undertaking an evaluation of the grants program.

Therefore, as part of each of the annual payments is consideration for a supply, you are liable to remit GST in relation to those parts of the payments if all the other requirements for a taxable supply under section 9-5 of the GST Act are met. In relation to the other requirements, the supply made by you is made in the course or furtherance of your enterprise, the supply is connected with Australia and you are registered for GST. In addition, there are no provisions of the GST Act that apply to make the supply GST-free or input taxed.

Accordingly, you are making a taxable supply for which part of each of the annual payments you receive from Entity B is consideration and is subject to GST. You are liable to remit GST in relation to those parts of the payments.

Relevant facts and circumstances

You carry on an enterprise and are registered for GST.

You receive funding under the Memorandum.

The Memorandum contains the following relevant information:

      • the services you are to provide include distributing funds provided under the Memorandum through a grants program

      • an annual amount is to be paid to you over a period of years by Entity B in relation to which

        • a certain amount of the annual amount is to be used by you to administer the funds and to support the grants program

        • in the last year, a certain amount of the annual amount is to be used by you to undertake a written evaluation of the grants program.

You have provided an unsigned and undated copy of the Memorandum.

Relevant legislative provisions

All legislative references are to the GST Act:

• Section 9-5

• Section 9-10

• Section 9-15.


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