Private ruling: Grants of financial assistance
Published: September 2014

Ruling: Q1: Is the Government grant received to assist with a project, subject to goods and services tax (GST)? | A1: Yes | Q2: Are the partner co-contributions made by the project partners, subject to GST? | A2: No.

Relevant facts and circumstances: You are registered for GST and you have been provided with a grant by a Government Department (the Department) to assist you to undertake a project. The terms and conditions of the grant are outlined in the Grant Agreement between you and the Department. One of the conditions for receiving the grant is that the project partners provide contributions of a set amount to you to complete the project. While the project partners are not a party to the Grant Agreement they were required to provide letters of commitment to the project confirming their project role and contribution. The Department will advance you the grant amount in instalments but only if you have complied with all of your obligations under the Grant Agreement. For the first two instalments you have provided tax invoices to the Department that include GST.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Section 9-10 | Section 9-15

Reasons for decision: Summary: The Government grant you received to assist with a project is subject to GST because the Government grant is consideration for your supply of entering into binding obligations under the Grant Agreement and all of the other requirements of a taxable supply are satisfied. | Detailed Reasoning - Detailed reasoning: GST is payable in respect of taxable supplies. The GST treatment of 'funding' or 'grant' payments from the Government depends primarily on whether the payment is made for the funding recipient's supply of goods or services, or for their entry into a binding obligation with the Government to do something in exchange for that payment. If either of these things is occurring, there is likely to be a taxable supply by the funding recipient. However, in the absence of these things, the payment is likely to be out of scope, which means that GST is not required to be remitted by the funding recipient and input tax credits are not entitled to be claimed by the funding body. Under the basic rules, Division 9 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) defines taxable supplies, states who is liable for the GST, and describes how to work out the GST on supplies . Under section 9-5 of the GST Act you make a taxable supply if : (a) you make a 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 Australia; 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. Note: Definitions of asterisked terms are provided in the Dictionary under section 195-1 of the GST Act. In this case, the question at issue is whether the grant provided by the Department under the Grant Agreement constitutes consideration for a supply that you have made or will make. The term 'consideration' is defined in section 9-15 of the GST Act as any payment, or any act or forbearance, in connection with, in response to or for the inducement of, a supply of anything. It follows that there must be a sufficient nexus between a particular payment and a particular supply for the payment to be consideration for that supply. Goods and Services Tax Ruling GSTR 2012/2 discusses the GST treatment of grants of financial assistance. It states at paragraph 28. 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 From the information provided, the grant was to assist you to undertake a project. The Grant Agreement outlines the binding obligations that you agreed to meet in order to receive that grant funding. Therefore, the grant of the monies from the Department to you has a sufficient nexus with your supply of entering into the binding obligations under the Grant Agreement. As such, the Government grant is consideration for a supply and your supply of entering into the binding obligations are in the course of your enterprise in Australia and you are registered for GST. In addition, there are no provisions that would make the supply under the Grant Agreement either GST-free or input taxed. Accordingly, as all of the requirements of section 9-5 of the GST Act are met you are making a taxable supply when you undertake the binding obligations under the Grant Agreement. Consequently, each instalment of the Government grant received by you from the Department is subject to GST. | Summary: The partner co-contributions made by the project partners are not subject to GST because there is no supply for GST purposes being made by you to the project partners for which the partner co-contributions are consideration. | Detailed Reasoning - Detailed reasoning: As previously mentioned, a taxable supply cannot exist unless there is a 'supply for consideration'. The meaning of the term 'supply' is very broad - it means any form of supply whatsoever and includes: • a supply of goods or services • a provision of advice or information • a grant, transfer or surrender of real property • a creation, grant, transfer, assignment or surrender of any right, or • an entry into, or release from, an obligation to do anything, 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. Goods and Services Tax Ruling GSTR 2006/9 provides guidance on the meaning of 'supply' in the GST Act. The ruling examines 10 propositions for characterising and analysing supplies. Of relevance to this case is proposition 9 which states that the creation of expectations alone does not establish a supply. As explained in paragraph 102 of GSTR 2006/9, the Commissioner considers that an agreement that does not bind the parties in some way is not sufficient to establish a supply by one party to the other. In this case, there is no written agreement between you and the project partners and the letters of commitment from the project partners did not establish any binding obligations between you and the project partners. In addition, there is no indication that any goods, services or some other thing will pass from you to the project partners. Therefore, you are not making a supply to the project partners for which the partner co-contributions could be considered to be consideration. As there is no supply for GST purposes there cannot be a taxable supply under section 9-5 of the GST Act. Consequently, the partner co-contributions made by the project partners are not subject to GST.