Private ruling: GST on government grants
Date of advice: 19 March 2024
Published: 29 April 2024
Date scheme commenced: 1 July 20YY

Ruling: Q1: Is X making a creditable acquisition pursuant to section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it makes a payment to a training organisation for the delivery of the training? | A1: No

Relevant facts and circumstances: X is an entity registered for GST. The training program is administered by X, with the delivery being outsourced. The services include whole of community training delivery to X people by X community organisations in partnership with registered training organisations. To be eligible to participate as a recipient of services, an individual must meet certain criteria. To be eligible to apply for a grant an organisation must meet certain criteria. Quality assurance providers are contracted by X to provide quality assurance and professional development services. The grant receiver is required to report how they have spent the grant funds. If any of the Grant amount has been spent other than in accordance with this Agreement or on expiration or termination of this Agreement is additional to the requirements of the Grant Activity, the Grantee agrees to repay that amount to the 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 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: Detailed Reasoning - Detailed reasoning: A supply is a taxable supply where the positive requirements of section 9-5 are satisfied. Amongst these one of the requirements in section 9-5(a) is that a supply be made for consideration. Section 11-20 provides that you are entitled to an input taxed credit for any creditable acquisition that you make. Amongst these of the requirements in section 11-5 is that you make a creditable acquisition if you provide, or are liable to provide, consideration for the supply. Section 11-10 defines acquisition as: 1) An acquisition is any form of acquisition whatsoever. 2) Without limiting subsection (1), acquisition includes any of these: (a) an acquisition of goods; (b) an acquisition of services; (c) a receipt of advice or information; (d) an acceptance of a grant, assignment or surrender of real property; (e) an acceptance of a grant, transfer, assignment or surrender of any right; The term 'grant' is not defined and the general principles of the GST Act apply in determining whether GST is payable on a grant of financial assistance. Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments (GSTR 2012/12) outlines the Commissioner's views on when a financial assistance payment is consideration for a supply made by the recipient of the payment. Paragraphs 15 and 16 of GSTR 2012/2 state: 15. For a financial assistance payment to be consideration for a supply, 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. 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 55 of GSTR 2012/2 states: 55. There will be some arrangements that do not involve the making of any supply whatsoever. If no supply has been made a key element of the definition of taxable supply is not met. GSTR 2012/2 Example 6 - insufficient nexus - provision of information to substantiate expenditure 41. A business qualifies for a government financial assistance payment that is to promote the advancement of technology. For the purposes of the government agency's own internal assurances, the business is required to provide a report to the agency outlining how the funds were expended. 42. The payment is made to enable the business to improve its technological capability, not to obtain the report on how the financial assistance payment was expended. The financial assistance payment does not have a sufficient nexus with the supply of the report because the payment was not in connection with, in response to or for the inducement of the report. GSTR 2012/2 Example 12 - no supply - eligibility criteria 63. A government agency offers prepared food retailers a rebate of up to $3,000 when they purchase and install a new commercial dishwasher in their kitchen. The dishwasher can be purchased from any retailer. 64. To be eligible for the rebate the dishwasher must be installed in existing premises and the dishwasher must meet a specified energy efficiency rating. To obtain the rebate the prepared food retailer must submit an application form with copies of their purchase and installation invoices. 65. The food retailer does not enter into any obligations, other than providing further evidence to support their claim in accordance with the eligibility criteria. 66. Although the application submitted by the food retailer and the agreement to provide further evidence in support of their claim may meet the statutory definition of a 'supply', these supplies are not the reason for which the payment was made. Rather the payments were made in order to encourage and facilitate the purchase of the commercial dishwasher by the food retailers. The provision of evidence in support of the claim does not have a sufficient nexus with the payment and is merely incidental to it. 67. The financial assistance payment is made once the food retailer has met the eligibility criteria. In meeting these criteria the food supplier is not supplying any good, service, or anything else to the government agency. In applying these examples to your case, the grant payment is made to X to enable the community to improve their skills, not to obtain the report on how the grant/financial assistance payment was expended. The financial assistance grant payment does not have a sufficient nexus with the supply of the report because the payment was not in connection with, in response to, or for the inducement of the report. The payments are a financial assistance payment to deliver grants to eligible organisations to co-design and deliver skills training to X people. As there are no GST consequences arising from the arrangement for either party, the requirements in section 11-5 are not met and you are not entitled to the input tax credits on the payments made to the training organisation.

Question 1: Is X making a creditable acquisition pursuant to section 11-5 when it makes a grant payment to a training organisation?