Edited version of private advice

Authorisation Number: 1051574263103

Date of advice: 12 September 2019

Ruling

Subject: GST and nexus between donations and supply of services

Question 1

Is the taxpayer required to account for goods and services tax (GST) on amounts received from Australian donors where the taxpayer does not make a supply to the Australian donors?

Answer

No. The taxpayer is not required to account for GST on the amounts received as donations on behalf of the Campaign Organisers. These donations are considered under donation-based funding model as explained in the reasons for decision.

However, the taxpayer is required to account for GST on the amounts received as tips from the donors. Please refer to the reasons for decision.

Question 2

In the event the Commissioner determines a supply is made to a donor, are amounts received from the Australian donors subject to GST if the taxpayer does not make a supply for consideration as required by section 9-5(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Please refer to the answer to question 1.

Question 3

In the event the Commissioner determines a supply is made to a donor and that supply is made for consideration, is the taxpayer required to account for GST on amounts received from the Australian donors if those amounts lack the necessary nexus of consideration as required by sections 9-15(a) and (b) of the GST Act?

Answer

Please refer to the answer to question 1.

Relevant facts and circumstances

·         The taxpayer operates social fundraising platform that enables Campaign Organisers to receive donations or fundraising for a particular cause, purpose or event (a Campaign). Campaigns may relate to a broad range of activities including education, medical, faith, travel or memorials.

·         A registered user of the platform may create a campaign (Campaign Organiser) to receive monetary donations from other registered users (Donors).

·         The taxpayer is registered for goods and services tax (GST).

·         The taxpayer does not charge a fee to Campaign Organisers to establish a Campaign and does not guarantee that a Campaign will obtain a certain amount of donations or any donations at all.

·         Currently, the taxpayer charges Campaign Organisers in Australia a fixed transaction fee on a per donation basis inclusive of GST on personal campaigns. No additional fees are charged to the Campaign Organisers.

·         While the taxpayer provides the platform to registered users, it does not enter into any arrangement between the registered users in relation to donations made via the platform.

·         The taxpayer facilitates the donation transaction between Campaign Organisers and Donors, but is not a party to any agreement between a Campaign Organiser and a Donor or between any user and a charity.

·         The taxpayer is not responsible for any offers, promises, rewards or promotions made or offered by Charities, Campaigns or Campaign Organisers.

·         The terms and conditions go on to confirm that the taxpayer does not and cannot verify the information that Campaign Organisers supply nor does the taxpayer guarantee that the donations will be used in accordance with any fundraising purpose prescribed by a Campaign Organiser.

·         All assessment, collection, reporting and remission of tax amounts that may be due in relation to the donation are the responsibility of platform users.

·         When a Donor makes a donation to a Campaign, the taxpayer platform also presents the Donor with an option to add an additional amount as a voluntary tip to their donation. This tip amount is collected and retained by the taxpayer.

·         These voluntary tip amounts are used by the taxpayer to fund the ongoing development and maintenance of the taxpayer platform used by Campaign Organisers to run their Campaigns.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 - section 9-5, 9-15

Reasons for decision

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), sets out the requirements that must be met for an entity to make a taxable supply. Under paragraph 9-5(a) of the GST Act, the supply made by an entity must be for consideration.

Consideration is defined in section 9-15 of the GST Act to include any payment, act or forbearance, in connection with, in response to or for the inducement of a supply of anything.

Subsection 9-15(2) of the GST Act includes the payments made voluntarily as consideration.

The concepts of supply, consideration and nexus are discussed in Goods and Services Ruling GSTR2012/2 Goods and services tax: financial assistance payments (GSTR 2012/2).

Paragraphs 15 and 16 of GSTR 2012/2 explain that for a financial assistance 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.

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'. 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. The Commissioner considers that this is an objective test.

The taxpayer provides the services of the platform to registered users to set up a fundraising Campaign by the Campaign Organisers. The taxpayer accepts donations from the Donors on behalf of the Campaign Organisers and does not enter into any arrangement between the registered Campaign Organisers and Donors or between any users and a charity.

According to the terms and conditions, the taxpayer:

·         does not guarantee that a Campaign will obtain a certain amount of donations or any donations at all;

·         does not verify the information that Campaign Organisers supply nor does not guarantee that the donations will be used in accordance with any fundraising purpose prescribed by a Campaign Organiser;

·         is not responsible for any offers, promises, rewards or promotions made or offered by Campaign Organisers.

·         charges Campaign Organisers a fee for the services provided to them to use the platform;

·         does not charge the Donors for using the platform to enable them to donate;

·         allows the Donors to make a voluntary tips in addition to their donations;

·         uses the tips received from the Donors to fund the ongoing development and maintenance;

·         does not have an expectation of receiving a tip from every Donor;

Crowdfunding Model

ATO has published the details of tax consequences in relation to donations provided under crowdfunding arrangements. The ATO has identified the following four types of crowdfunding models:

·         Donation-based crowdfunding: A contributor (Donor) makes a payment (Donation) to the project or venture (Campaign) without receiving anything in return from the promotor (Campaign Organiser).

·         Reward-based crowdfunding: The promotor provides a reward (Goods, services or rights) to contributors in return for their payment. For example, the contributor may receive merchandise or a discount. In many cases, there are different levels or types of rewards, according to the level of contribution and whether the fundraising reaches the prescribed levels.

·         Equity- based crowdfunding: The contributor makes a payment in return for a share (or equity interest) in the company undertaking the project or venture.

·         Debt-based crowdfunding: The contributor lends money to the promoter (or pool of promoters) who, in turn, agrees to pay interest and repay principal of loan.

Under the donation-based crowdfunding model, the Campaign Organiser does not have a GST liability as they do not supply anything in return for the donation they received. In other models there will be supplies made by the Campaign Organiser and therefore, a nexus between the donation and the relevant supply will exist. And if the Campaign Organiser is registered or required to be registered for GST they will be liable to account for GST.

Based on the facts provided, the taxpayer does not provide any goods or services to the Donors. They are acting as an intermediary between the Donors and the Campaign Organisers. They do not charge the Donors any fees for using their website to make the donations to the Campaign.

In the absence of any nexus between the donation made by the Donors and any supplies made by the taxpayer in return for the donations, it is considered that the donation provided by the Donors to a particular Campaign will not be a consideration for any supplies made by the taxpayer. Therefore, the taxpayer is not required to account for GST on the donation received from the Donors on behalf of the Campaign Organisers.

Tips provided by Donors

The taxpayer provides an option to the Donors to make additional amount as a voluntary tip when they make the donation to the Campaign. The taxpayer retains this additional amount paid by the Donors and uses them for ongoing development and maintenance of the platform used by the users. The payment of additional amounts by Donors is voluntary and not every Donor makes this tip.

The taxpayer provides the service of using their platform to both Campaign Organisers and the Donors. They charge fees to the Campaign Organisers for collecting the donation by using their platform. The fees charged by the taxpayer will be subject to GST as the taxpayer is registered for GST and making a taxable supply of providing service to the Campaign Organisers.

As explained above, when the Donors make donation to a Campaign using the platform there is no nexus between the donated amount and the service provided by the taxpayer to the Donors. Based on the facts provided, it is our view that the whole amount donated will be paid to the Campaign Organisers. Donors do not pay any amount to the taxpayer as fees and/or charges when they make the donation to the Campaign.

However, when the Donors make the tips to the taxpayer, the tips amount is used by the taxpayer for the development and maintenance of the platform in order to provide the services to the Donors as users of the platform. For GST purposes, consideration includes payment made voluntarily. There is a nexus between the tips amount paid by the Donors and the supply of service provided by the taxpayer to the Donors.

Under the reward- based model, a Campaign Organiser or a platform operator provides goods, services or rights in return for payments/donation by the Donors. The Campaign Organiser or the platform operator will have a GST liability if a taxable supply is made to the Donors.

The transaction between the Donors and the taxpayer in relation to the tips satisfies the requirements of section 9-5 of the GST Act. The supply of services to use the platform by the Donors will be made for consideration received by the taxpayer as tips; the supply is made in the course or furtherance of the enterprise that the taxpayer carries on; the supply is connected with the indirect tax zone and the taxpayer is registered for GST.

The supply of services to use the platform by the Donors will not be GST-free or input taxed.

Therefore, the tips amount received by the taxpayer from the Donors will be for a supply and required to account for GST.