Edited version of private advice

Authorisation Number: 1052315961129

Date of advice: 11 October 2024

Ruling

Subject: GST - financial assistance payments

Is the contribution made towards the funding of the refurbishment of the tennis courts by Entity A to Entity B consideration for a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the payment received by Entity B from Entity A is not consideration for a taxable supply under section 9-5 of the GST Act.

This ruling applies for the following period:

October 2024 to October 2028

Relevant facts and circumstances

Entity B is registered for goods and services tax (GST).

Entity B provides a range of tennis courts and clubrooms which are owned by Entity B. The tennis courts and clubrooms are managed by Entity A under a lease agreement with Entity B.

Entity B and Entity A entered into a funding agreement.

Entity A is not registered for GST.

Relevant legislative provisions

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

Reasons for decision

In this ruling, unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Taxable supply

The requirements of a taxable supply are set out in section 9-5, which states:

You make a taxable supply 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 indirect tax zone; and

(d) you are *registered or *required to be registered.

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

(*Denotes a term defined in section 195-1 of the GST Act)

All the above requirements must be met for a supply that you make, to be a taxable supply.

Relevantly, to satisfy the first requirement in section 9-5, an entity must first make a 'supply' for which payment is 'consideration'.

The Commissioner has considered when a financial assistance payment is consideration for a supply in Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments (GSTR 2012/2). In GSTR 2012/2, the term 'financial assistance payment' is intended to encompass a wide range of payments including those made to provide support or aid to the payee.

It is considered that the contribution towards the upgrade of the courts by Entity A is a financial assistance payment.

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.

GSTR 2012/2 focuses on the first requirement of a taxable supply that there is a 'supply for consideration' in relation to a financial assistance payment and outlines that for there to be a 'supply for consideration' there must be:

• a supply
• consideration
• and a nexus between supply and consideration.

The definition of 'supply' provided by section 9-10 includes 'any form of supply whatsoever', such as the 'supply of goods', or the 'supply of services', or 'a provision of advice or information', or 'an entry into...an obligation... 'to do anything' or any combination of any 2 or more of the matters referred to in subsection 9-10(2).

'Consideration' is defined under section 9-15 of the GST Act. The definition extends beyond payments to include such things as acts and forbearances. A payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of the supply.

To determine whether Entity B is making a taxable supply to Entity A, we must determine whether Entity B is making a supply to Entity A for which the payment of the contribution under the funding agreement is consideration.

Under the funding agreement, Entity A must fund a percentage of specialised surfaces and floodlight upgrades. Although Entity A receives a benefit from the upgrade of the courts through improved amenities, it is an indirect benefit as the contribution they make to the upgrade is for services provided to the Entity B. The ownership of the courts and club rooms remains with Entity B and Entity B is the primary beneficiary of the upgrade works. The upgrade contributes to Entity B's commitment to providing sporting infrastructure.

There is no supply of goods or services to Entity A from the upgrade to the courts.

However, it still needs to be determined if the financial contribution by Entity A is consideration for a supply by Entity B of a right or entry into an obligation to do something.

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. Merely having any form of connection of any character between a supply and payment is insufficient to constitute a taxable supply. Reference is to be made to all 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 this case, while there are obligations under the funding agreement, we do not consider the payment by Entity A for their contribution to the upgrade of the courts to be consideration for those obligations. As discussed above not every connection between supply and consideration meets the requirement for a taxable supply.

The contribution by Entity A is part of the arrangement to fund the upgrades to the courts. The courts remain in the ownership of the Entity B at all times.

A supplier can be said to have made a taxable supply if the making of that supply was an act consciously performed in order to obtain consideration. This is not the situation in this case. The upgrade contributes to Entity B's commitment to providing sporting infrastructure and is beneficial to both Entity B and Entity A. The contribution by Entity A is not consideration for any obligation emanating from the funding agreement.

Summary

The payment received by Entity B from Entity A towards the cost of the upgrade to the courts is not consideration for a taxable supply under section 9-5.