Edited version of your written advice

Authorisation Number: 1013093900832

Date of advice: 20 September 2016

Ruling

Subject: GST and financial assistance payments

Question 1

Is Entity A liable for GST on payments it receives from Entity B for eligible expenditure under the grant arrangement?

Answer

No. Entity A is not required to remit any GST in relation to the financial assistance payments received from Entity B for eligible expenditure under the grant arrangement.

Relevant facts and circumstances

The applicant, Entity A, is an incorporated body.

Entity A is registered for GST.

Entity A incurs costs in the course of providing a public service.

Funding for Entity A is raised through fund raising, donations from the public and reimbursements from Entity B. Entity B defrays the cost through grants made by Entity C under the grant arrangement. Entity B is registered for GST.

Expenses incurred by Entity A in relation to their activities are funded by the grant arrangement.

There are no written documentation describing the accounting processes between Entity B and Entity A.

The grant arrangement is administered, and accounting is managed, by Entity B's Service Manager. Generally, goods and services are either ordered and paid by the Service Manager, or paid by Entity A and a reimbursement request is made to the Service Manager.

When it incurs expenditure for goods and services, Entity A pays these expenditures from its own account.

Entity A's expenditures are collated on a spreadsheet and the spreadsheet and supporting original tax invoices are delivered to Entity B's Service Manager for reimbursement.

Entity B reimburses Entity A for expenditure that conforms to the grant arrangement. Any expenditure that is determined not eligible expenditure is not reimbursed. In that instance, Entity A bears the cost from its own funds.

Entity A's submission included a copy of the guidelines for the grant arrangement.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Section 9-10

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 153-B

Reasons for decision

GST is only payable on taxable supplies. Supplies that are made in connection with the receipt of financial assistance payments will be subject to GST where the payment represents consideration for a supply, and the other elements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied.

In accordance with section 9-5 of the GST Act you make a taxable supply if:

• you make the supply for consideration

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

• the supply is connected with the indirect tax zone, and

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

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

Therefore, a taxable supply cannot exist unless there is a 'supply for consideration'. In determining this question, it must be established whether there is:

• a supply

• consideration, and

• the necessary relationship between the supply and the consideration.

Supply is defined broadly in subsection 9-10(1) as 'any form of supply whatsoever'. Subsection 9-10(2) provides a non-exhaustive list of activities or occurrences that are included within the meaning of supply. Essentially, a supply is something which passes from one entity to another and may be goods, services or something else such as rights or obligations.

Goods and Services Tax Ruling GSTR 2012/2 (GSTR 2012/2) explains when a financial assistance payment is consideration for a supply. Paragraph 15 states that:

15. 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. A financial assistance payment is consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement of' a supply. The test is an objective one.

Paragraph 15A of GSTR 2012/2 explains that 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. Merely having any form of connection of any character between a supply and payment of consideration is insufficient to constitute a taxable supply.

Paragraph 16 of GSTR 2012/2 further states:

16. Reference to all of the surrounding circumstances of the arrangement, in particular any written documentation, determines whether a financial assistance payment is 'in connection with', 'in response to' or 'for the inducement of' a supply. The surrounding 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 the considered as a whole. The description the parties may give to the arrangement, whilst relevant, is not determinative.

Entity B and Entity A are participating in a funding arrangement under a grant arrangement. The specific role and function of the grant arrangement is described in the grant arrangement guidelines.

There no written documentation describing the accounting processes between Entity B and Entity A. The grant arrangement is administered, and accounting is managed, by Entity B. Generally, goods and services are either ordered and paid by the Service Manager, or paid by Entity A and a reimbursement request is made to the Service Manager.

There is no indication in the grant arrangement guidelines, and there are no other written agreements, which contain a description of actual services that must be provided by Entity A to Entity B.

Having regard to the general purpose and outline of the grant arrangement as explained in the grant arrangement guidelines and the manner in which payment for eligible expenditure is made to Entity A from Entity B, it is considered that there is no tangible good or service that passes from Entity A to Entity B in return for the payments.

Under the GST Act a 'supply' can also include the supply of rights and obligations. In relation to this, paragraphs 18 and 28 of GSTR 2012/2 state:

18. In some arrangements the payer obtains a material benefit in return for the financial assistance payment. The may occur where the payer is provided with the right to commercially exploit the results of the payee's work in return for the financial assistance payment. In this circumstance, the payment has a sufficient nexus with the supply of the right because the payment is made in connection with, in response to or for the inducement of the supply of the right.

28. Where a supply is constituted by the payee entering into an obligation with the payer to do or refrain from doing something and the payment is made to secure that obligation, there is a sufficient nexus between the payment and the obligation. This is because the financial assistance payment is made in connection with, in response to, or for the inducement of the entry into the obligation.

Based on an examination of all of the surrounding circumstances of the arrangement, it is considered that Entity B is not making the payments to receive any rights which are of material benefit to them. Further, the payments from Entity A under the grant arrangement are not for the entry into an obligation by Entity A to do or refrain from doing anything. Accordingly, there is no supply of a right or obligation by Entity A to the Entity B.

A payment request form is submitted by Entity A to Entity B for reimbursement for eligible expenditure. Paragraph 133 of GSTR 2012/2 explains that an application for financial assistance is commonly submitted to the payer which includes all the information necessary to determine the payee's entitlement to a financial assistance payment. Providing this information is a supply. However, the payment is not consideration for that supply because the payment was not made to obtain the information provided on the form. It is merely a mechanism to establish whether a financial assistance payment will be made. There is an insufficient nexus between the payment and the supply in these circumstances.

There is nothing in the grant arrangement guidelines or other information provided in the submission to indicate that anything else such as advice or other peripheral things are being supplied to Entity B from Entity A.

Therefore, under the grant arrangement, Entity A is not making any supplies to Entity B for GST purposes other than the supply of information in the payment request form which has insufficient nexus with the financial assistance payment.

In the absence of a 'supply' or 'supply for consideration' there is no taxable supply under section 9-5 of the GST Act. Therefore, Entity A is not required to remit any GST in relation to the financial assistance payments received from Entity B pursuant to the grant arrangement for reimbursement of eligible expenditure.