Edited version of private advice

Authorisation Number: 1052378283024

Date of advice: 02 April 2025

Ruling

Subject: GST - grants

Question 1

Is the payment by X to Y under the two agreements (the Grant Agreements) consideration for a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 1

Yes.

This ruling applies for the following period:

1 July 2024 to 30 June 2026

The scheme commenced on:

18 June 2024

Relevant facts and circumstances

Y is registered for goods and services tax (GST) and carry on an enterprise.

Y and X entered into two grant agreements.

The Grant Agreements in place were entered into between X and Y.

X provides the grants to Y to carry out the activity on the terms of the Grant Agreement.

The Grant Agreement sets out the Approved Project Work Plan (including completing the Deliverarable/outputs set out under the Project in the Approved Project Work Plan.

The Grant Agreement sets out the key project milestones, detailing the stages of completion along with their respective deadlines. Failing to meet these milestones could result in termination of the agreement.

The Grant Agreement sets out the grant payment schedule, detailing instalments $ (excluding GST), each tied to the completion of specific project milestones and reports.

Y have been awarded $ (excluding GST) under each Grant Agreement.

Payments under this agreement (Grant) depend on the completion of specific deliverables outlined in the Approved Project Work Plan.

The Grant Agreement states that you must use the Grant payment only for the purposes of the activity and in accordance with the agreement; and for activities occurring up to the Activity End Date or earlier termination of the agreement.

There is a requirement for you to refund any unspent funds to X.

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 9-10

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

Reasons for decision

Question

Is the payment by X to Y under the two agreements (the Grant Agreements) consideration for a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Summary

The grants of money received from X is consideration for a taxable supply for the purpose of section 9-5 of the GST Act. Accordingly, you are liable to remit GST for the taxable supply.

Detailed reasoning

Section 9-40 of the GST Act provides that an entity must pay GST on any taxable supply that it makes.

Under section 9-5 of the GST Act, an entity makes a taxable supply if:

(a)  the entity makes 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)  the entity is 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.

The first requirement of a taxable supply to be satisfied is that there is a supply for consideration. The term 'supply' is defined in section 9-10 of the GST Act as meaning any form of supply whatsoever and includes:

(a)  a supply of goods;

(b)  a supply of services;

(c)   a provision of advice or information;

(d)  a grant, assignment or surrender of real property;

(e)  a creation, grant, transfer, assignment or surrender of any right;

(f)    a financial supply;

(g)  an entry into, or release from, an obligation to: do anything; or refrain from an act; or tolerate an act or situation.

However, the definition of supply excludes a supply of money unless the money is provided as consideration for a supply that is a supply of money. The term 'consideration' is defined in section 9-15 of the GST Act and extends beyond payments to include such things as acts and forbearances.

Financial assistance payments

Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments (GSTR 2012/2) provides the Commissioner's views 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. This includes payments:

•         made to provide support or aid to the payee, and/or

•         provided to support or aid in the implementation of government policy and initiatives.

In your case, you entered into two written agreements (Grant Agreements) with the X for a grant of money. The objective of the agreements was the provision of funding as part of two projects you were to undertake.

In your circumstances, the payments granted to you by the X are considered financial assistance payments. They are made to provide support to you by way of the provision of funding to you as part of the projects you undertake and/or to support or aid in the implementation of government policy and initiatives.

Sufficient nexus between supply and payment

For a financial assistance payment to be consideration for a supply, it is not sufficient for there to be a supply and a payment. The financial assistance payment must be consideration for that supply. Paragraph 15 of GSTR 2012/2 explains that there must be a sufficient nexus between:

•         the financial assistance 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. The test is an objective one. Paragraph 16 of GSTR2012/2 discusses factors that are to be taken into account when examining an arrangement and states.

16. Reference to all of the surrounding circumstances of the arrangement, in particular any written documentation, determines whether a financial assistance payment is 'in connection with', 'in response to' or 'for the inducement of' a supply. The surrounding 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 the considered as a whole. The description the parties may give to the arrangement, whilst relevant, is not determinative.

Paragraph 28 of GSTR 2012/2 discusses 'payments for the entry into an obligation to do or refrain from doing something' and states:

28. Where a supply is constituted by the payee entering into an obligation with the payer to do or refrain from doing something and the payment is made to secure that obligation, there is a sufficient nexus between the payment and the obligation. This is because the financial assistance payment is made in connection with, in response to, or for the inducement of the entry into the obligation.

The following example of sufficient nexus in relation to payment for entry into an obligation is provided at paragraphs 29 to 31 of GSTR 2012/2:

29. Snake Glass Jugglers is a commercial dance troupe that develops and presents performance art in South Australia. It enters into an arrangement with Gooseville Arts Foundation, a body that is established for the purpose of fostering the arts. Under that arrangement, in return for a financial assistance payment from the Foundation, the troupe enters into a binding agreement under which it is obligated to expand its activities - by presenting three performances outside South Australia during the following year.

30. By entering into this obligation to present three performances outside South Australia, the troupe has made a supply to the Foundation. The payment by the Foundation has been made in connection with, in response to, or for the inducement of this supply. Therefore, there is a sufficient nexus between the entry into the obligation and the financial assistance payment such that the financial assistance payment is consideration for that supply.

31. Snake Glass Jugglers is liable for GST on the supply of the entry into the obligation. The Gooseville Arts Foundation is entitled to an input tax credit on their acquisition of the right to require Snake Glass jugglers to present the performances.

In your case, the obligations that the arrangement imposed on Y and the X are contained in the Grant Agreement. Relevantly, you agreed to 'undertake the Activity in accordance with the Approved Project Work Plan (including completing the Deliverables/outputs as set out in the table under Project definition in the Approved Project Work Plan)'. Upon undertaking/performing the project activities, the X will pay you the Grant in accordance with the terms of the Grant Agreement.

Therefore, there is sufficient nexus between the financial assistance payments made by the X and the obligations Y entered into such that the payments are consideration for a supply you make.

Consequently, you are making a supply for consideration in relation to the payments you received from the X.

As the payments are consideration for a supply, you are liable to remit GST in relation to those payments if all the other requirements under section 9-5 of the GST Act for a taxable supply are met. You are registered for GST, and you have made the supply in the course of an enterprise you carry on. The supply is connected with Australia because the goods and services will be supplied in Australia. There are no provisions of the GST Act that apply to make the supply GST-free or input taxed. Accordingly, the supply is a taxable supply for which you are liable to remit GST.