Edited version of your written advice

Authorisation Number: 1012923224860

Date of advice: 7 December 2015

Ruling

Subject: GST and grants

Question 1

Are you making a taxable supply in return for grant money from another entity?

Answer

No, you are not making a taxable supply in return for grant money from another entity.

Question 2

If you are not making a taxable supply in return for grant money, are you still entitled to GST credits for acquisitions you make?

Answer

Yes, you are entitled to GST credits where your acquisitions are creditable acquisitions.

Relevant facts and circumstances

1. You are a not for profit arts management organisation.

2. You are agents for artists. However, in relation to the grant agreements, you enter into the agreement as principal and are the entity responsible for meeting the obligations agreed to.

3. You provided a copy of an agreement between you and another entity for a grant to you (Grant Agreement) for a sum of money.

4. The Grant Agreement provides:

a. Clause 1:

i. The grant money is only to be used for the purpose specified in the agreement. The purpose is specified as being for costs associated an artist's project (The Project).

ii. You are required to repay any portion of the grant not used for The Project.

iii. If additional funds are required to complete The Project, and those funds are not obtained and The Project cannot be undertaken, the total grant is to be repaid.

b. Clause 2: If The Project is not able to be commenced within three months of the date of the Agreement or concluded within three months of the completion date, the Grantor must be notified and the Grantor reserves the right to require repayment of the grant or alter the conditions of the grant.

c. Clause 3: Unless otherwise stated the grant is the only payment and will not be renewed or extended.

d. Clause 4: You are required to provide the Grantor a report on the outcome of receiving the grant. The report is to include evidence of how the grant was expended and the results of The Project.

e. Clause 5: You shall comply with any separate conditions imposed by the Grantor in writing when advising of the grant.

f. Clause 6: The Grantor shall be acknowledged in a prominent and appropriate manner in the form advised by the Grantor in all published or displayed material related to the grant.

5. You advised that no additional conditions were imposed by the Grantor. In particular you confirmed there were no requirements from the Grantor in relation to the development, showing, performing or displaying of The Project. In applying for the grant, details of an artist's project will be specified and this would include the artist intentions for how the project will be created, performed etc. If the Grantor did not like these details then the artist would be unsuccessful in obtaining a grant.

6. The level of specificity provided by the Grantor for the acknowledgement varies. In general, the specifications are around the format and style of the Grantor's logo. For this agreement, the acknowledgment includes another organisation who donated the funds to the other entity which were subsequently granted to you.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 11-5

Section 11-15

Section 11-20

Reasons for decision

Question 1

Summary

You are not making a taxable supply in connection with the receipt of grant money from the other entity under the terms of the Grant Agreement.

Detailed reasoning

You make a taxable supply when all of the conditions in section 9-5 of the GST Act are satisfied. The first of these conditions is that 'you make a supply for consideration'. For a grant to be consideration for a supply there must be a sufficient nexus between the grant made by the payer and a supply made by the payee.

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.

Things are often supplied by the payee to the payer that satisfies the statutory definition of a 'supply'. In some circumstances, things may be supplied by the payee that are merely incidental or have an insufficient nexus to the grant.

Due to the broad meaning of supply, some of these may be supplies. However, your supply will only be taxable if these supplies are for the grant.

Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments, outlines the Commissioner's view on when a grant is consideration for a supply. With regard to the clauses in your Grant Agreement the following parts of GSTR 2012/2 are considered relevant.

• Using the grant for the specified purpose:

Whether using grant money for a specific purpose will amount to a supply will depend on whether there is a binding obligation created or only a mere expectation. Where the financial assistance payment is made in circumstances where a party expects that something will be done, and it does not involve a binding obligation or the supply of goods, services or some other thing, there is no supply The mere expectation that an act or event will happen is not sufficient to establish a supply (see paragraphs 119-120 of GSTR 2012/2).

Example 10 in paragraphs 58-60 of GSTR 2012/2 provides an example of where a mere expectation does not amount to a supply.

Example 10 - no supply - mere expectation

58. A local tennis club is seeking funding to enable them to resurface their privately owned tennis courts. The local council provides financial assistance to the tennis club on the basis that the money is only used for the resurfacing of the tennis courts.

59. The local council has an expectation that the works will be carried out. However, as there is no binding obligation on the tennis club to actually carry out the resurfacing of the courts, and there are no other goods or services passing between the parties there is no supply to the local council.

60. There are no GST consequences arising from the arrangement for either party.

• Requirement to repay the grant

Paragraphs 44-45 of GSTR 2012/2 address requirements to repay grants. An arrangement may include an obligation to repay a financial assistance payment in specified circumstances. The existence of a repayment clause alone is not determinative in establishing whether a financial assistance payment is consideration for a supply.

Rather, the repayment obligation is to be taken into account in the broader context of the arrangement as a whole and may be relevant in determining whether the financial assistance payment is consideration for a supply made by the payee.

• Requirement to report on how the grant money was used

Things are often supplied by the payee to the payer that is merely part of the mechanism of making or accounting for the financial assistance payment. These things are considered to form part of the circumstance in which a supply is made but are not of themselves the supplies for which the consideration is provided (see paragraphs 132-133 of GSTR 2012/2). Giving a report to a Grantor to show how grant money was spent would fall into this category.

• Acknowledgment of grant

Where, in return for a grant, the payee promoted the payer's business through promotional material, programs or uniforms or advertises the business at events and in the media, the payment will have a sufficient nexus with the supply of the promotion and advertising. That is, the grant is in return for the promotion or advertising (paragraph 32-39 of GSTR 2012/2).

However, were the activity is merely an acknowledgment of the grant there will not be a sufficient nexus with the payment.

Application to your Grant Agreement

The requirements in Clauses 1 - 4 and 6 in the Grant Agreement (specified purpose, requirement to repay, requirement to report and to acknowledge the grant) are not supplies that are made for the grant of money. There is an insufficient nexus with the grant money to be supplies for the grant.

Clause 5 provides a general undertaking to comply with any separate conditions. Whether there is any supply for the grant will turn on what the special conditions are. For the Grant Agreement you provided there were no other separate conditions placed on the grant. Therefore, we do not consider that Clause 5 amounts to a supply to the Grantor for the grant.

When the arrangement is viewed as a whole, it is considered that there is no supply of goods, services or other thing from you to the other entity for the grant. The conditions in the agreement do not amount to supplies that have been made 'for' the grant.

Therefore, you are not making a taxable supply.

Question 2

Summary

You are still entitled to GST credits to the extent your acquisitions are creditable acquisitions.

Detailed reasoning

You are entitled to GST credits for any creditable acquisition that you make. You make a creditable acquisition if:

• you acquire it solely or partly for a creditable purpose

• the supply to you is a taxable supply

• you provide or are liable to provide consideration for the supply, and

• you are registered or required to be registered.

An acquisition will be for a creditable purpose to the extent you acquire it in carrying on your enterprise. However, an acquisition will not be creditable to the extent that the acquisition relates to making supplies that are input taxed or private or domestic.

It is not a requirement of entitlement to a GST credit that the acquisition relates to making a taxable supply. Therefore, although you are not making a taxable supply in return for receipt of grant money, acquisitions you make that satisfy the requirements listed above will still be creditable acquisitions.