Edited version of private advice

Authorisation Number: 1052033570248

Date of advice: 19 September 2022

Ruling

Subject: GST and appropriations

Question

Are the XXX payments of financial grants to XXX payments between government related entities which do not constitute consideration and are therefore not subject to GST under subsection 9-17(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the payments are not subject to GST as they are payments between government related entities which do not constitute consideration under subsection 9-17(3) of the GST Act.

This ruling applies for the following period:

DD MM YYYY to DD MM YYYY

The scheme commences on:

DD MM YYYY

Relevant facts and circumstances

•                     XXX (you) are registered with ABN XXX and also registered for GST.

•                     You are a XXX department.

•                     In XXX, XXX wrote to the then XXX, formally offering a total of XXX as final payment for XXX in XXX.

•                     The offer of funding was subject to the following conditions:

XXX

•                     Through an agreement with the XXX, you secured the following funding for XXX in XXX:

o        XXX

•                     It has been determined by the XXX of these XXX the funding methodology and distribution of funds with weighting given for:

o        XXX

o        XXX

o        XXX

•                     It was also determined the XXX would apply XXX using the 'XXX'.

•                     To receive funding a XXX must submit a proposal to you.

•                     These funds must be used to "XXX".

•                     This estimation of funds required does not include a return on capital or concepts of cost which are measured based on opportunity cost or forgone revenue.

•                     There will be a written funding agreement with you and the XXX receiving funding.

•                     Any excess funds from this fund agreement must be returned to you.

•                     Where a XXX is a 'XXX, the funding is currently treated as GST inclusive.

•                     You state at XXX of your ruling application:

"XXX."

•                     All XXX operate under the XXX.

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 9-17.

A New Tax System (Goods and Services Tax) Act 1999 section 195-1.

Reasons for decision

Detailed reasoning

Under section 9-5 of the GST Act one of the requirements for making a taxable supply is that you make a supply for consideration.

Therefore, to determine if you have made a taxable supply for which you receive the payments, it is first necessary to consider whether you have made a supply for consideration. In your case, subsection 9-17(3) of the GST Act is relevant in examining if the payment is consideration.

Subsection 9-17(3) of the GST Act is intended to ensure that non-commercial activities of government related entities are not subject to GST. This is achieved by treating a payment which meets certain conditions as not being the provision of consideration and therefore not subject to the basic GST rules.

Under subsection 9-17(3) of the GST Act, a payment is not the provision of consideration where the payment:

•                     is made by a government related entity to another government related entity for making a supply

•                     is covered by an appropriation under an Australian law, and

•                     satisfies a non-commercial test.

Government related entity

The first condition of subsection 9-17(3) of the GST Act is that the payment must be made by a government related entity to another government related entity for making a supply.

The term 'government related entity' is defined in section 195-1 and includes:

•                     department of state of a state or territory

•                     an entity established by a state (whether under a law or not) to carry on an enterprise or established for a public purpose by an Australian law and can be separately identified by reference to the nature of the activities carried on through the entity.

You are a government related entity as a XXX.

For the purposes of this ruling, we accept the Councils are a 'government related entity' because they:

•                     were established under an Australian Law

•                     were established by a State to carry on an enterprise, or established for a public purpose, and

•                     can be separately identified by reference to the nature of the activities they carry on.

As the payments flow from you to the XXX, they will therefore be payments made between government related entities.

Payment covered by an appropriation

In relation to the second condition in subsection 9-17(3) of the GST Act, it is necessary to determine if the payment is covered by an appropriation under an Australian law.

Relevant guidance is contained in the Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2012 Measures No.1) Bill 2012 (EM). In particular, clause 2.17 of the EM explains that a payment is covered by an appropriation under an Australian law if the payment is made pursuant to an appropriation.

An appropriation is not in itself a payment. Payments cannot be drawn from a government's consolidated revenue fund unless the funds for which the payment is for have been appropriated for that purpose.

The Financial Framework (Supplementary Powers) Act 1997 in section 32B states:

(1) If:

(a) apart from this subsection, the Commonwealth does not have power to make, vary or administer:

(i) an arrangement under which relevant money or other CRF money is, or may become, payable by the Commonwealth; or

(ii) a grant of financial assistance to a State or Territory; or

(iii) a grant of financial assistance to a person other than a State or Territory; and

(b) the arrangement or grant, as the case may be:

(i) is specified in the regulations...

We then find within Financial Framework (Supplementary Powers) Regulations 1997 Schedule 1AB Part 4 (39) 'Indigenous Advancement-Remote Australia Strategies':

1. The funding and provision of activities, assistance, infrastructure, research and services that address social and economic disadvantage for Indigenous persons, families and communities, particularly in remote Australia, including:

(a) investment and improvements in housing and infrastructure and municipal and community services...

In relation to the payments to the XXX, the appropriation for the expenditure of money has occurred via this legislation which provides for amounts appropriated for the purpose of XXX for XXX.

Therefore, the payment is 'covered' by an appropriation under an Australian law.

Non-commercial test

The third condition of subsection 9-17(3) of the GST Act is that the payment must satisfy a non-commercial test.

The test is that the payment is calculated on the basis that the sum of the payment received by the government related entity supplier and anything else received by it from another entity in connection with the supply (or any other related supply), does not exceed the actual or anticipated costs of making those supplies.

In your case, the amount of the payments is calculated by the XXX for the anticipated expenditure that they will incur in making the supplies based on the XXX. As you have stated, the calculation of the payments does not include a return on assets and is not based on opportunity cost or forgone revenue.

Therefore, the non-commercial test is satisfied.

Conclusion

In summary, we consider the payments satisfy the conditions set out in subsection 9-17(3) of the GST Act. Specifically, the payments:

•                     Are made by a government related entity to another government related entity.

•                     Are covered by an appropriation under an Australian law, being an Appropriation Act of a government, and

•                     Have been calculated on the basis that the payment does not exceed the anticipated or actual costs of making the supply.

Therefore, the payments are treated as not being the provision of consideration.

As there has not been a supply for consideration for the purposes of section 9-5, the supplies to which the payments relate are not subject to GST.