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Authorisation Number: 1012916405377

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Date of advice: 4 December 2015

Ruling

Subject: GST and funding payments

Question

Is the payment received by the Trustee of the Trust (Trust), pursuant to the Agreement between Company A and the Government entity, consideration for a supply made by the Trust?

Answer

No, the payment the Trust receives from Company A, pursuant to the Agreement between Company A and the Government entity, is not consideration for a supply made by the Trust and is not subject to GST.

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

Under section 7-1 GST is payable on taxable supplies. Under section 9-5 you make a taxable supply if:

• you make a supply for consideration

• the supply is made in the course or furtherance of an enterprise that you carry on

• the supply is connected with Australia, and

• you are registered, or required to be registered, for GST purposes.

However the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In this case, what needs to be considered is whether the payment the Trust receives from Company A is consideration for a supply that the Trust makes.

Gifts to non-profit bodies are not consideration

Subsection 9-17(2) specifically excludes a gift made to a non-profit body (including charities) from being consideration for a supply. 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.

What constitutes a 'gift' for GST and income tax purposes has been set out in two public rulings - Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments and Taxation Ruling TR 2005/13 Income Tax: tax deductible gifts - what is a gift. The guidelines set out in TR 2005/13 are also applicable for GST.

Amongst other things, a gift ordinarily proceeds from a detached and disinterested generosity of the giver who must not receive a benefit or an advantage of a material nature by way of return. However it is a question of fact in each case whether any benefit or advantage is considered material.

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.

Paragraphs 69 and 70 of GSTR 2012/2 provide guidance in relation to gifts to a non-profit and the meaning of the term 'gift' and state:

69. Gifts to a non-profit body are not consideration for a supply.

70. The term 'gift' is not defined in the law and therefore takes its ordinary meaning having regard to the context in which it appears. It is considered that a 'gift' has the following characteristics and features:

• there is a transfer of a beneficial interest in property;

• the transfer is made voluntarily;

• the transfer arises by way of benefaction; and

• no material benefit or advantage is received by the giver (payer) by way of return.

Characteristics of the payment

To determine if the payment the Trust receives from Company A is considered to be a gift, it is necessary to examine the payment in terms of the characteristics set out above.

There is a transfer of a beneficial interest in property from Company A to the Trust

We accept that Company A, in making the payment in accordance with the terms of the Agreement and the Trust Deed has transferred a beneficial interest in property to the Trust. This characteristic is satisfied.

The payment made by Company A to the Trust is made voluntarily

In examining if the payment is made voluntarily and not as the result of a prior contractual obligation, paragraph 24 of TR 2005/13 explains that a gift can also be considered to be a voluntary transfer when contractual features are involved and states:

24. A transfer is not made voluntarily if it is made for consideration or because of a prior obligation imposed on the giver by statute or by contract. Nonetheless, a transfer which has the other attributes of a gift will not fail to be considered a voluntary transfer merely because the means used to give effect to the benefaction have contractual or similar features.

After considering the circumstances in this case we accept that the payment is made voluntarily by Company A. As such, this characteristic is satisfied.

The payment made by Company A to the Trust is made out of benefaction

Paragraph 140 of TR 2005/13 provides that the intention to confer benefaction need not be the sole reason for making a gift. For example, the fact that the giver is also motivated by the desire to obtain a tax deduction will not, by itself, deprive a payment of its character as a gift. In addition, paragraph 141 provides that where the surrounding circumstances and/or associated arrangements show the giver is giving effect to self- interested commercial or fiscal objectives rather than conferring benefaction on the non-profit body, the transfer does not proceed from a detached and disinterested generosity.

In this case, on the basis of the information provided, we have formed the view that the payment made by Company A to the Trust is made out of benefaction. Therefore, this characteristic is satisfied.

No material benefit or advantage is received by Company A in return for the payment made to the Trust

After reviewing all of the documentation provided in support of the application we consider there is no evidence that Company A receives a material benefit or advantage as a result of making the payment to the Trust. Therefore this characteristic is satisfied.

Summary

As all of the necessary characteristics have been satisfied, we have concluded that the payment the Trust receives from Company A is a gift. Since the GST legislation specifically excludes a gift made to a non-profit body from being consideration for a supply, the payment provided to the Trust by Company A is not consideration for a supply the Trust makes.

Relevant facts and circumstances

Company A is registered for GST.

Company A and a Government entity entered into an Agreement.

Company A and the Government entity, as settlor, agreed that they would establish a Trust.

The Trust is registered for the GST.

The Trust is registered as a charity by the Australian Charities and Not-for-profits Commission (ACNC) and has been endorsed to access GST and Income Tax Exemption concessions.

The Trust enters into individual funding agreements with applicants in accordance with the Trust Deed and the Trust provides grant payments, including on a periodic basis, to various recipients in the community.

Relevant legislative provisions

References to the GST Act:

• section 7-1

• section 9-5

• subsection 9-17(2).