Edited version of your written advice

Authorisation Number: 1012907343166

Date of advice: 5 November 2015

Ruling

Subject: GST and receipt of funding

Question

Are the funds paid to you by the Payer under the written Funding Agreement (Agreement) consideration for a taxable supply made by you under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the funds paid to you by the Payer under the Agreement are not consideration for a taxable supply made by you under section 9-5 of the GST Act. As such, no goods and services tax (GST) is payable by you in relation to the funds paid to you under the Agreement. This is because there is an insufficient nexus between the things supplied by you under the Agreement and the funds paid to you.

Relevant facts and circumstances

You are registered for GST.

The Payer appointed you to act on its behalf to expend the monies raised by it from third parties for the purposes specified in the Agreement and approved by the Payer in accordance with the Agreement.

You have provided an executed copy of that Agreement which sets out the obligations of both parties.

Under terms of the Agreement you must administer the expenditure of the funds in the manner prescribed in the Agreement and as described in your business plan.

Under the term of the Agreement you must also:

• keep and maintain proper accounting records. These records reflect the manner in which you expend the funds

• provide the Payer with documentation as set out in the Agreement

• provide the Payer with a 'Tax Invoice' for the amount payable with the specified GST amount. You provided an example of such a 'Tax Invoice'.

You have not treated the receipt of the funds from the Payer under the Agreement as being consideration for taxable supplies made by you. Similarly, the Payer has not claimed corresponding input tax credits in relation to the release of the funds to you.

Under the terms of the Agreement the funds paid to you are fully expended within each financial year unless there is a prior written arrangement with the Payer. No part of the funds are retained by you as payment for supplies (i.e. administrative services) made by you nor are separate fees charged by you for those services.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act section 9-10,

A New Tax System (Goods and Services Tax) Act section 9-15 and

A New Tax System (Goods and Services Tax) Act section 9-40.

Reasons for decision

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

Section 9-5 of the GST Act relevantly provides that, you make a taxable supply, if amongst other things 'you make the supply for consideration'.

The Commissioner has considered when a financial assistance payment is consideration for a supply in Goods and Services Tax Ruling GSTR 2012/2: financial assistance payments.

In GSTR 2012/2, the term 'financial assistance payment' is intended to encompass a wide range of payments including those made to provide support or aid to the payee or to support the implementation of government policy or initiatives.

Paragraphs 15 and 16 of GSTR 2012/2 explain that 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 (you).

On the facts provided, you have entered into the Agreement with the Payer, to administer and manage, on behalf of the Payer, the expenditure of the funds in the manner prescribed in the Agreement. A GST liability in relation to such payments turns on identifying:

• one or more supplies made by the entity receiving the funds (you)

• establishing that the payment was consideration (a payment, act or forbearance), and

• a sufficient nexus between the payment and the 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 'a 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.

The arrangement contemplated by the Agreement involves you administering the expenditure of the funds paid to you by the Payer. The Agreement stipulates conditions and obligations. For example, the Agreement stipulates that the funds can only be spent on those initiatives that are described in the Agreement. You are further required to provide the Payer with a business plan and provide documentation.

You must keep and maintain proper accounting records and provide the Payer with a Tax Invoice for the amount payable with the specified GST amount.

A provision of information in the form of a report or business plan or an obligation to do something such as keep records or administer the expenditure or issue a tax invoice answers the definition of a supply under subsection 9-10(2) of the GST Act.

The term 'consideration' is defined in subsection 9-15(1) of the GST Act and 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.

The Agreement provides that you are paid the funds by the Payer to fully expend for the purpose for which the funds had been declared by the Payer. In the present circumstances the payments of the funds are in connection with the supplies identified in the Agreement.

However, in identifying the character of the connection, the word 'for' ensures that not every connection between supply and consideration meets the requirements for a taxable supply. That is, merely having any form of connection of any character between a supply and payment of consideration is insufficient to constitute a taxable supply.

In other words, unless there is a sufficient nexus between a payment and the supply, absent any other supplies for which the payment can be said to be consideration, there is no taxable supply under the arrangement.

The Commissioner considers that this nexus test is an objective one, having regard to all of the surrounding circumstances of the arrangement. An examination of the Agreement and other relevant documentation is the starting point in analysing an arrangement to determine the GST implications.

Applying the principles set out in GSTR 2012/2 to the arrangement contemplated by the Agreement, you are required to provide reports, issue Tax Invoices, maintain records and administer the expenditure.

Although the reports submitted and the records kept and maintained by you involve the provision of information which meets the statutory definition of a supply, these supplies are not the reason for which the funds are provided, as is the case in example 2 of GSTR 2012/2 set out in paragraphs 25 to 27. The funds are not paid to obtain or use the information contained in the reports or records.

Rather, the funds are made to be expended for the purpose as generally specified in the Agreement and approved by the payer. Having regards to the Agreement and the surrounding circumstances the funds paid to you do not have a sufficient nexus with the supply of information to constitute consideration for that supply.

Similarly, the funds paid to you do not have a sufficient nexus with a supply of administrative services made by you to constitute consideration for such a supply.

In addition, the Agreement does not indicate the supply of any other goods, services or acts for which the funds could be consideration.

Therefore, the funds paid to you by the Payer under the Agreement do not have the relevant nexus with any supply made by you in order for those funds to constitute consideration for such supplies.

As an essential requirement for a taxable supply, that there is a 'supply for consideration' is not satisfied, the funds paid to you by the Payer under the Agreement are not consideration for taxable supplies made by you. As such, no GST is payable by you in relation to the funds paid to you.