Private ruling: GST and funding of a student scholarship.
Published: September 2017

Ruling: Q1: Will the payment by Entity A to Entity B (you), for the purpose of funding a student scholarship, be subject to GST? | A1: No, the payment by Entity A to you, for the purpose of funding a student scholarship, will not be subject to GST. All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Subsection 7-1(1) provides that GST is payable on taxable supplies. 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 have made a taxable supply for which you will receive the payment, it is first necessary to consider whether you have made a supply for consideration. 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 payment you will receive is considered to be a financial assistance payment. 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. 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 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 some circumstances, there is no supply where the agreement between the parties is not binding and creates expectations alone. Paragraph 56 of GSTR 2012/2 explains that the payee may still make a supply in the absence of enforceable obligations where there is something else, such as goods or some other benefit, passing between the parties. In your circumstances, the payment you are to receive pursuant to the Grant Arrangement Documents is for the purpose of funding a student scholarship. However, under the Grant Arrangement Documents you are to also provide something in relation to the support you are to receive. For example, in relation to publicity, the Documents state that advertising is to be undertaken. Further, the Documents state that you are to provide certain benefits, include naming rights, to Entity A. 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 you provide is mere acknowledgement of the payment you are to receive as support and is not an act which has the character of advertising or promoting Entity A. 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; … Pursuant to the Grant Arrangement Documents you are also to provide other benefits to Entity A. Consistent with the principle contained in the guidance at paragraph 18 of GSTR 2012/2, we consider that no material benefit will be obtained by Entity A in relation to the payment. Further, there is nothing else that will be supplied by you to Entity A for which the payment you are to receive is in connection with, in response to or for the inducement of a supply. As you will not be making a supply for consideration, there will be no supply by you that is a taxable supply under section 9-5 and, therefore, the payment by Entity A to you will not be subject to GST.

Relevant facts and circumstances: You are a not-for-profit entity and you are registered for GST. You are registered as a charity with the Australian Charities and Not-for-profits Commission and you are endorsed as a Deductible Gift Recipient. You received a commitment from Entity A to make a payment to you. The purpose of the payment is to fund a student scholarship. The payment is to be in the circumstances set out in the Grant Arrangement Documents.

Relevant legislative provisions: All legislative references are to the GST Act: ● subsection 7-1(1) | ● section 9-5 | ● section 9-10 | ● section 9-15.