Edited version of your written advice

Authorisation Number: 1012907618888

Date of advice: 6 November 2015

Ruling

Subject: Goods and services tax (GST) and grants received

Question 1

Is the payment received by you under program 1 (P1) to carry out a project (Project 1) subject to GST?

Answer

No.

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

Subsection 7-1(1) provides that GST is payable on taxable supplies. Under section 9-5 one of the requirements for making a taxable supply is that you make a supply for consideration.

Under section 9-10 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 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.

Therefore, to determine if you have made a taxable supply for which you received the payment, it is first necessary to consider whether you have made a supply for consideration.

Financial assistance payments

Goods and Services Tax Ruling GSTR 2012/2 provides guidance on when a financial assistance payment is consideration for a supply. The term 'financial assistance payment' is intended to encompass a wide range of payments and includes payments made to provide support or aid to the payee.

In your circumstances, the payment you received is considered to be a financial assistance payment.

In the context of financial assistance payments, paragraph 15 of GSTR 2012/2 explains that for a payment to be consideration for a supply there must be a sufficient nexus between the payment made by the payer and a supply made by the payee.

In establishing if there is a sufficient nexus between a payment and a supply, paragraphs 15A and 16 of GSTR 2012/2 explain that not every connection between supply and consideration meets the requirements for a taxable supply. Reference is to be made to all of the surrounding circumstances of the arrangement, in particular any written documentation. The circumstances may include the statutory purpose of the payer in providing the financial assistance, the activities which are to be undertaken by the payee and any other terms and conditions attached to the payment. However, none of these factors will be determinative on their own and the arrangement must be considered as a whole.

In your circumstances, the payment you received under the P1 Funding Agreement between you and the Payer (P1 Agreement) is to carry out Project 1.

However, the P1 Agreement also provides that you are to do something in relation to the support you received. For example, in relation to publicity, the P1 Agreement provides that you must acknowledge the financial and other support received from the Payer in your annual financial reports.

Relevant guidance in relation to acknowledgement of financial assistance payments, in circumstances where there is insufficient nexus between the payment and a supply, is provided in Example 5 at paragraphs 37 to 39 of GSTR 2012/2. Consistent with the principle contained in this guidance, we consider the publicity you provide is mere acknowledgement of the payment you received as support and is not an act which has the character of advertising or promoting the Payer.

In addition, in the table at paragraph 144 of GSTR 2012/2, an example of circumstances where a payment is made but a supply has insufficient nexus is provided at page 27 which states:

The only supply the payee makes is acknowledging the payment received;….

Other conditions of funding specified in the P1 Agreement in relation to reporting and acquittal requirements are considered to be part of the mechanism of making or accounting for the financial assistance payment. In accordance with the guidance at paragraphs 132 and 133 of GSTR 2012/2, these things are considered to form part of the circumstance in which a supply is made but are not of themselves supplies for which the payment is made.

There is nothing else supplied by you to the Payer for which the payment you received is in connection with, in response to or for the inducement of a supply.

As you are not making a supply for consideration, there is no supply by you that is a taxable supply under section 9-5 and, therefore, the payment you received under P1 is not subject to GST.

Question 2

Is the payment received by you under program 2 (P2) to carry out a project (Project 2) subject to GST?

Answer

No.

As discussed in the answer to Question 1, to determine if you have made a taxable supply for which you received the payment, it is first necessary to consider whether you have made a supply for consideration.

Financial assistance payments

The payment you received in accordance with the terms and conditions of the grant under P2 agreed between you and the Payer (P2 Agreement) is to carry out Project 2.

In accordance with the guidance in GSTR 2012/2, the payment you received is considered to be a financial assistance payment.

However, the P2 Agreement also provides that you are to do something in relation to the support you received. For example, in relation to publicity, the P2 Agreement provides that you must provide public acknowledgement of the Payer's contribution to the project by way of a permanent sign being attached to the facility in a prominent position.

Consistent with the principle contained in Example 5 at paragraphs 37 to 39 of GSTR 2012/2, we consider the publicity you provide is mere acknowledgement of the payment you received as support and is not an act which has the character of advertising or promoting the Payer.

Other conditions of funding specified in the P2 Agreement in relation to verification of the use of the funds and reporting requirements are considered to be part of the mechanism of making or accounting for the financial assistance payment. These things form part of the circumstance in which a supply is made but are not of themselves supplies for which the payment is made.

There is nothing else supplied by you to the Payer for which the payment you received is in connection with, in response to or for the inducement of a supply.

As such, there is no supply by you that is a taxable supply under section 9-5 and, therefore, the payment you received under P2 is not subject to GST.

Relevant facts and circumstances

You carry on an enterprise and you are registered for GST.

You received the following payments from the Payer:

• an amount to carry out Project 1

• an amount to carry out Project 2.

The P1 Agreement includes provisions relating to acknowledgement and reporting of the funds you received.

The P2 Agreement includes provisions relating to acknowledgement and reporting of the funds you received.

Relevant legislative provisions

All legislative references are to the GST Act:

• subsection 7-1(1)

• section 9-5

• section 9-10

• section 9-15.