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Edited version of private advice
Authorisation Number: 1051632725166
Date of advice: 10 February 2020
Ruling
Subject: Goods and services tax and payments of financial assistance
Question
Are you entitled to input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for funds paid to entities?
Answer
Yes
The scheme commences on:
20XX
Relevant facts and circumstances
You are a government department.
You make payments to entities based upon a statutory and regulatory framework.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Division 9
A New Tax System (Goods and Services Tax) Act 1999 Division 11
Reasons for decision
Under section 11-20, you are entitled to the input tax credit (ITC) for any creditable acquisition that you make.
One of the requirements under section 11-5 for making a creditable acquisition is that the supply of the thing to you is a taxable supply.
Section 11-10 states that 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 Goods and services tax: Supplies 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. Section 9-15 provides that 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 provisions of the Education Act 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.
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.
As there are binding obligations supplied to you by the entities, 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 funding payments made to the entities.