Edited version of private advice

Authorisation Number: 5010081685949

Date of advice: 17 February 2022

Ruling

Subject: GST and government grants

Question

In respect of the payment of "eligible grant payments" to be made by xxx (you) to an Operator in accordance with the terms and conditions of the sample Grant Framework Deed ("Deed") to be entered into between these parties, does the xx make a "creditable acquisition" under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Question 2

If the answer to Question 1 is "Yes", is the xxx entitled to an input tax credit ("ITC") in relation to the creditable acquisition made from the Operator under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Question 3

If the answer to Question 2 is "Yes", does clause 7.5 of the sample Grant Framework Deed supplied represent a "request" for the purposes of the application of subsection 29- 70(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), such that an Operator is required to give the xx a "tax invoice"?

Answer

No, it does not represent a "request".

This ruling applies for the following period:

xx

The scheme commences on:

xxx

Relevant facts and circumstances

The xx (Grantor) has established a scheme named the xx Scheme ("The Scheme") for the purpose of making regular public transport airfares for xx regional residents travelling to Location A for personal reasons more affordable.

The intention of the Scheme is that:

•                where a person has their primary place of residence in a regional community and the nearest The scheme Airport for that community is less than xx kilometres driving distance from Location A then that person will pay directly to the Operator no more than $xx for a one way flight between that The scheme Airport and Location A (and vice-versa); and

•                where a person has their primary place of residence in a regional community and the nearest The scheme Airport for that community is more than xx kilometres driving distance from Location A then that person will pay directly to the Operator no more than $xx for a one way flight between that The Scheme Airport and Location A (and vice versa)

To be eligible to apply for a grant under the Scheme, an airline operator (Operator) must either:

•                have an existing "resident airfare program", or similar, in place on Eligible Routes which is fully implemented and deemed as meeting the requirements of the Scheme Guidelines; or

•                can clearly demonstrate the design of a planned resident airfare program and provide satisfactory evidence of the airline's commitment to fully implement the program by no later than xx, in line with the Scheme timeframes for xx Fares going on sale from xx, for travel commencing from xx.

The Grantor and the Operator must enter into a "Grant Framework Deed" that sets out the terms and conditions of the grants under the Scheme including (but not limited to):

•                agreed costs to fund the gap between the Resident Fare and the xx Fare on each Eligible RPT Route;

•                payment terms;

•                commencement and end dates of the sale of xx Fares;

•                responsibilities for record keeping and sample checking; and

•                reporting requirements.

Under the terms and conditions of the Grant Framework Deed (once executed), the Grantor:

•                Provides a grant payment ("eligible grant payment") to an airline operator ("Operator") for each "qualifying The Scheme journey" made by a "qualifying regional resident' on an "eligible Regular Public Transport (RPT) route" with the operator.

•                A qualifying the Scheme journey means a one-way flight undertaken by a xx Resident on an Eligible RPT Route with the Operator and which flight is not ineligible for grant funding because of Other Third-Party Contributions.

•                xx Resident means a xx Resident whose primary place of residence has been verified by the Operator for the purpose of assessing if the individual can fly between an Eligible Airport and Location A.

•                Eligible RPT Route means a regular public transport air service that operates according to a published schedule between Location A and an Eligible Airport (or vice versa) and for which the Operator operates a xx Fare Program.

A xx Fare Program means a program operated by the Operator by which Qualifying Regional Residents can access reduced price fares for return flights between the relevant Eligible Airport and Location A as outlined above.

The Grant Framework Deed also provides in Clause 7 that the obligation to pay the additional amount only arises once the Operator has issued a tax invoice (and any adjustment note) to the recipient in respect of the additional amount.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-15

A New Tax System (Goods and Services Tax) Act 1999 section 29-10

A New Tax System (Goods and Services Tax) Act 1999 section 29-70

Reasons for decision

Question 1

Under section 11-20, an entity is entitled to an input tax credit for any creditable acquisition it makes.

Section 11-5 provides the criteria for making a creditable acquisition as follows:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide, *consideration for the supply; and

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

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

You are required to meet all of the above requirements for it to be a creditable acquisition.

In your case, we consider that the eligible grant payments to be made by the xx (you) to an Operator in accordance with the terms and conditions of the Deed is a consideration for a supply, therefore you will satisfy all the elements above.

We have used the principles outlined in GSTR 2012/2, which provides guidance on the Commissioner's view regarding "financial assistance payment" and it is on that basis we concluded that the payments are a consideration for a supply.

To determine whether you made an acquisition from an Operator, we examined the relationship between the qualifying xx Resident ("Passenger"), the Operator and you (a tripartite arrangement) in respect of the supply of an eligible Scheme journey ("transportation services")

As per the pre-existing framework, the tripartite arrangement between you, Passengers and an Operator can be characterised as a type that would result in an acquisition of a supply of service (of transporting Passengers) being made by you from an Operator. This is on the basis that the liability to pay an Operator always rests with you, rather than the Passenger. Therefore, in relation to the payment of eligible grant payments, it can be said that you acquire the supply of a service from an Operator that will be assumed to be a taxable supply.

However, if there is a change in the arrangement, we are not able to say whether that will be a taxable supply as well.

Question 2

Under section 11-20 of the GST Act, an entity is entitled to an ITC for any "creditable acquisition" that it makes. Further, the amount of the ITC for a creditable acquisition is determined by section 11-25 of the GST Act and will be an amount equal to the GST payable on the supply of the thing acquired unless the acquisition is only "partly creditable".

Under subsection 11-30(1) of the GST Act, an acquisition is made partly creditable if it is a creditable acquisition to which one or both of the following apply: (a) the entity makes the acquisition only partly for a creditable purpose; or (b) the entity provides or is liable to provide only part of the consideration for the acquisition

Following on from Question 1, under the proposed arrangement you will be entitled to input tax credits (ITC) in respect to your creditable acquisition that you make from an Operator.

In regards to the amount of ITC's you can claim, as outlined in section 11-25 of the GST Act it will be to the extent of the expenses you have incurred under this arrangement from the Operator

Question 3

Subsection 29-10(3) provides that an entity can only claim an input tax credit in an activity statement in the tax period that they hold a tax invoice (for purchases more than $82.50).

Where an entity accounts on a "non-cash" basis, subsection 29-10(1) of the GST Act provides that the entity will be entitled to attribute an ITC for a creditable acquisition to the earlier tax period in which it provides any consideration for the acquisition or is invoiced for the acquisition.

However, per subsection 29-10(3) of the GST Act, the attribution of the ITC to that tax period will be dependent on the entity holding a valid tax invoice for the creditable acquisition when it gives the Commissioner a GST return for the tax period in question.

Clause 7 in the Grant Framework Deed states "The obligation to pay the additional amount only arises once the supplier has issued a tax invoice (and any adjustment note) to the recipient in respect of the additional amount."

The word 'request' is not defined in the GST Act, thus we need to consider the ordinary meaning.

The meaning of 'request' as per the Macquarie dictionary is as follows:-

1. the act of asking for something to be given, or done, especially as a favour or courtesy; solicitation or petition: a dying request.

2. that which is asked for: to obtain one's request.

3. the state of being much asked for; demand: to be in great request as an after-dinner speaker.

-verb (t) 4. to ask for, solicit (something), especially politely or formally.

5. to ask or beg (used with a clause or an infinitive): to request that he leave; to request to be excused.

6. to make request to, ask, or beg (a person, etc.) to do something: he requested me to go.

We do not consider that a clause in a contract falls within the meaning of a "request" as per the Macquarie dictionary. The clause in the contract is a mutual obligation agreed to by the parties and therefore does not represent as a request. Therefore, the clause is not the act of asking and thus not a 'request' for a tax invoice.