Edited version of private advice

Authorisation Number: 1051571944552

Date of advice: 27 August 2019

Ruling

Subject: Goods and services tax (GST) and grants

Question

Is the Department (you) entitled to claim input tax credits for the grant to the grantee?

Answer

Yes

The scheme commences on:

1 August 2019

Relevant facts and circumstances

You are a government department.

You are registered for GST.

You administer the program providing funding.

You have awarded a funding grant to the grantee for the project.

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 section 9-15

Reasons for decision

Under section 11-20, you are entitled to the input tax credit (ITC) for any creditable acquisition that you make.

Under section 11-5 one of the requirements for making a creditable acquisition is that the supply of the thing to you is a taxable supply.

Under section 11-10 an acquisition is not just a supply of goods or services. Acquisitions can also be made in relation to rights and information for GST purposes.

Generally, for each acquisition there is a corresponding supply. Goods and Services Tax Ruling GSTR 2006/9 provides guidance in relation to the meaning of 'supply' and explains, at paragraph 53, that the meaning of 'acquisition' in section 11-10 is the corollary of the meaning of 'supply' in section 9-10.

Supply

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 are making a creditable acquisition from the grantee, we must first analyse if the grantee is making a supply to you for which a payment you make under the Agreement is consideration.

Financial assistance payments

Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments (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 payments you make are considered to be financial assistance payments.

An entity that receives a financial assistance payment is liable for GST in respect of that payment if the entity has made a taxable supply in accordance with section 9-5.

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. The payment is consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement of' a supply under an objective test.

Further, 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 Agreement provides that Grant Funds will be expended to undertake the project tasks.

Example 3 in GSTR 2012/2, discusses a payment for entry into an obligation where a dance troupe enters into a binding agreement to present three performances outside South Australia during the following year. By entering into this obligation, the troupe has made a supply to the grantor and the payment has been made in connection with, in response to, of for the inducement of this supply.

The project requires the grantee to present a number of training courses. The grantee has entered into an obligation with you, under which they are required to deliver a specified service to the community. You are making the payment to the grantee for the purpose of those services being delivered in pursuit of your objectives. Therefore, the grantee is making a taxable supply and your payment is consideration for that supply.

Although not determinative, the agreement provides for repayment of funding in certain circumstances and the entry of the grantee into this obligation meets the statutory definition of 'supply'. Consistent with the guidance at paragraphs 134 to 137 of GSTR 2012/2 the payment you make to the grantee would not, on its own, be consideration for that supply.

The Agreement also provides that the grantee is to acknowledge the support received from you in all material relating to the project. Approval must be sought from you prior to release.

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 acknowledgement provided by the grantee is mere acknowledgement of the payments you make and is not an act which has the character of advertising or promoting you.

Other conditions of funding in relation to risk and reporting 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 a payment is made.

As there is a binding obligation supplied to you by the grantee, the payments you make are in connection with, in response to or for the inducement of a supply. This supply is a taxable supply and you are acquiring it for a creditable purpose. You are entitled to claim an input tax credit for the payment made to the grantee.