Private ruling: GST and financial assistance payments
Date of advice: 7 August 2018
Published: September 2018

Ruling: Q1: Is Entity A (you) making a creditable acquisition from Entity B (Recipient)) when you make a payment to the Recipient under a funding Agreement (Agreement)? | A1: No, you are not making a creditable acquisition from a Recipient when you make a payment to the Recipient under the Agreement and you are not entitled to an input tax credit. This GST treatment applies to a payment made to a Recipient that is a government related entity and also a payment made to a Recipient that is not a government related entity.

Relevant facts and circumstances: You are a government entity and you are registered for GST. You provide grants under a Program to fund Recipient organisations that deliver certain services to eligible parties. The Recipients include various organisations. The Recipients may or may not be GST registered. The Recipients manage and use the funds to carry out the services in accordance with the provisions of the Agreement. The Agreement contains certain relevant information.

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 11-5 | A New Tax System (Goods and Services Tax) Act 1999 section 11-10 | A New Tax System (Goods and Services Tax) Act 1999 section 11-20

Reasons for decision: Summary: All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 . Under section 11-20, you are entitled to the input tax credit (ITC) for any creditable acquisition that you make. Under section 11-5 one of the requirements for making a creditable acquisition is that the supply of the thing to you is a taxable supply. Under section 11-10 an acquisition is not just a supply of goods or services. Acquisitions can also be made in relation to rights and information for GST purposes. Generally, for each acquisition there is a corresponding supply. Goods and Services Tax Ruling GSTR 2006/9 provides guidance in relation to the meaning of ‘supply’ and explains, at paragraph 53, that the meaning of ‘acquisition’ in section 11-10 is the corollary of the meaning of ‘supply’ in section 9-10. Supply Under section 9-5 one of the requirements for making a taxable supply is that you make a supply for consideration. Under section 9-10 a supply is not just a supply of goods or services. Supplies can also be made in relation to rights, obligations and information for GST purposes. Under section 9-15 the term ‘consideration’ is broadly defined as including any payment, or any act or forbearance, ‘in connection with’, ‘in response to’ or ‘for the inducement’ of a supply. Therefore, to determine if you are making a creditable acquisition from a Recipient, we must first analyse if a Recipient is making a supply to you for which a payment you make under the Agreement is consideration. Financial assistance payments Goods and Services Tax Ruling GSTR 2012/2 provides guidance 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 and includes payments made to provide support or aid to the payee. In your circumstances, the payments you make are considered to be financial assistance payments. The payments are made to provide support to a Recipient in its purpose of carrying out certain program services. 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. 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. Reference is to be made to all of 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 your circumstances, the Agreement provides that you will make payments to a Recipient, which are to be spent in accordance with the Agreement. However, the Agreement also provides that a Recipient is to do something in relation to the support you provide. For example, in relation to publicity, the Agreement provides that a Recipient is to acknowledge the support received from you in all promotional and advertising material in a manner that is commensurate with the funding received (for example in annual reports, publications, letterheads, websites and when dealing with the media) by using your logo, using a phrase indicating being sponsored by you or in such other way as you reasonably require from time to time by written notice to a Recipient. Relevant guidance in relation to acknowledgement of financial assistance payments, in circumstances where there is insufficient nexus between the payment and a supply, is provided in Example 5 at paragraphs 37 to 39 of GSTR 2012/2. Consistent with the principle contained in this guidance, we consider the publicity provided by a Recipient is mere acknowledgement of the payments you make as support and is not an act which has the character of advertising or promoting you. In addition, in the table at paragraph 144 of GSTR 2012/2, an example of circumstances where a payment is made but a supply has insufficient nexus is provided at page 27 which states: The only supply the payee makes is acknowledging the payment received;…. Other conditions of funding specified in the Agreement in relation to reporting and acquittal requirements are considered to be part of the mechanism of making or accounting for the financial assistance payment. In accordance with the guidance at paragraphs 132 and 133 of GSTR 2012/2, these things are considered to form part of the circumstance in which a supply is made but are not of themselves supplies for which a payment is made. Further, although the Agreement provides for repayment of funding in certain circumstances and the entry of a Recipient into this obligation meets the statutory definition of ‘supply’, consistent with the guidance at paragraphs 134 to 137 of GSTR 2012/2 a payment you make to a Recipient is not consideration for that supply. As there is nothing else supplied to you by a Recipient, the payments you make are not in connection with, in response to or for the inducement of a supply. Rather, the purpose of the payments is to facilitate a Recipient’s work in delivering the program. As a Recipient is not making a supply for consideration, there is no supply to you that is a taxable supply under section 9-5. Therefore, you are not making a creditable acquisition under section 11-5. Consequently, you are not entitled to an ITC under section 11-20 when you make a payment under the Agreement to a Recipient.