Edited version of private advice

Authorisation Number: 1051805047295

Date of advice: 5 March 2021

Ruling

Subject: Assessable income - government grants

Question 1

Is the funding you received under a Government Grants program included in your assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes, the grant of monies is considered assessable income under section 6-5 of the ITAA 1997.

Question 2

Is the grant of monies consideration for a supply made by you that is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the grant of monies is consideration for a supply made by you that is a taxable supply under section 9-5 of the GST Act.

This ruling applies for the following period:

Financial Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You carry on a business

You are registered for goods and services tax (GST).

You were awarded a Grant in the 20XX-XX financial year.

You are required to undertake various activities over the duration of the Agreement, and the funding is to facilitate the activities detailed in your Grant application and project budget.

The project budget shows that there were three milestones that you are required to achieve.

Failing to meet these milestones could result in a financial penalty.

Clause X.X of the Agreement states that 'subject to the terms of this Agreement, the Recipient must:

a)    undertake the Project and achieve the Outcomes;

b)    progress the Project in a timely and expeditious manner (without limiting its other obligations under this clause X.X);

c)    meet the completion dates for the Milestones listed in item X.X of Schedule X; and

d)    complete the Project by the Project Completion Date.'

Clause X.X of the Agreement states 'the Recipient must not commence any work in respect of the Project until the Recipient has provided to XXXXX, in a form and substance satisfactory to XXXXX,

a)    a Risk Management Plan, and

b)    a Community Consultation Plan,

in accordance with item X.X of Schedule X.'

Clauses XX and XX of the agreement sets out the provisions where if the milestones are not met, what action can be taken by XXXXX.

You are required to undertake various activities over the duration of the Agreement, and the funding is to facilitate the activities detailed in your Grant application and project budget.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

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

Reasons for decision

Your assessable income includes income according to ordinary concepts, which is called ordinary income (section 6-5 of the ITAA 1997).

Ordinary income has generally been held to include 3 categories, namely, income from rendering personal services, income from property and income from carrying on a business.

Taxation Ruling TR 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business (TR 2006/3) contains the Commissioner's opinion on how the income provisions apply to various grants paid or funded by the Commonwealth Government

The Grant you have received for your project is intended to provide funding for the specified activities you are required to perform as outlined in the Agreement and Project Budget. The Grant has been received in the course of carrying on your business and is included in your assessable income under section 6-5 of the ITAA 1997 when it is derived.

When a grant is being provided from an entity to the grantee it is the grantee's obligation to determine if the grant monies received are consideration for a supply that they make.

You make a taxable supply under section 9-5 of the GST Act if:

a) you make the supply for consideration, and

b) the supply is made in the course or furtherance of an enterprise that you carry on, and

c) the supply is connected with the indirect tax zone (includes Australia), and

d) you are registered or required to be registered for GST.

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

What needs to be considered is whether the supply is made for consideration.

Goods and Services Tax Ruling GSTR 2012/2 provides that for a financial assistance payment (grant of monies) to be consideration for a supply there must be a sufficient nexus between the financial assistance payment made by the grantor and a supply made by the grantee (you). 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.

You enter into a binding agreement with the grantor to undertake the Project, to achieve particular outcomes and to meet particular milestones. The payment of the grant funds to you is payment for the entry into by you of these obligations to do these things. As such, you satisfy paragraph 9-5(a) of the GST Act in that you make a supply for consideration.

This supply is made in the course or furtherance of an enterprise that you carry on, is connected with Australia and you are registered for GST. As such, you are making a taxable supply of the entry into of binding obligations to do certain things under section 9-5 of the GST Act.