Private ruling: Goods and services tax (GST) and financial assistance payments
Date of advice: 12 December 2018
Published: April 2019

Ruling: Q1: Are the payments consideration for a supply? | A1: No | Q2: Are the payments adjustments to consideration for an earlier supply? | A2: No | Q3: Is the entity making an acquisition for GST purposes for which it is eligible to claim input tax credits? | A3: No | Q4: Is there a requirement for the entity to hold a tax invoice from the recipient of the payment or raise a recipient created tax invoice? | A4: Does not arise.

Relevant facts and circumstances: Potential recipients will be invited to make an application for a payment. All eligible entities will be required to formally apply for the payment by completing an approved form within a period prescribed by regulation. It is anticipated that the majority will participate and apply for the available payments.

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 Division 19

Reasons for decision: Summary: All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 ( GST Act) unless otherwise stated. GST is payable on taxable supplies. Under section 9-5 you make a taxable supply if: (a) you make the 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 the indirect tax zone; and (d) you are *registered, or *required to be registered. The GST Act also requires that the supply must not be GST free or input taxed. Goods and Services Tax Ruling 2012/2 Goods and services tax: financial assistance payments (GSTR 2012/2) explains the Commissioner’s view on when a financial assistance payment is consideration for a supply. Paragraph 15 of GSTR 2012/2 provides that 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 sufficient nexus exists if the financial assistance payment is made ‘in connection with’, ‘in response to’ or ‘for the inducement of’ a supply. As explained in paragraph 99 of GSTR 2012/2, for a payee to have a GST liability in relation to a financial assistance payment and for a payer to be entitled to an input tax credit, it must be established that: ● the financial assistance payment is consideration, and ● there is a sufficient nexus or connection between the payment and a supply. GSTR 2012/2 provides further guidance: ● a sufficient nexus exists where, upon an objective assessment having regard to the true nature of the transaction, the financial assistance payment is found to be made ‘in connection with’, ‘in response to’ or ‘for the inducement of’ a supply; ● in identifying the character of the nexus required, the word ‘for’ ensures that not every connection between a supply and consideration meets the requirements for a taxable or input taxed supply; and ● reference to all of the surrounding circumstances of the arrangement supporting the payment of financial assistance (considered as a whole) determines whether there is a sufficient nexus. 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. Some arrangements do not involve anyone making any supply whatsoever. If no supply has been made, a key element of the definition of taxable supply is not met. Once an application is submitted and all required supporting documents have been provided, the application will be assessed. If the criteria are met, the application must be granted. It is understood that generally applicants are not required to undertake any activity (other than making an application in the approved form), or enter into any agreement to do something or refrain from doing something (for example, refrain from commencing any further action). | Detailed Reasoning - Conclusion: In meeting the criteria, applicants do not supply any goods, services, or anything else to the entity. Therefore, there are no GST consequences arising from the arrangement for either of the parties in regard to the payments; the applicant has no liability to pay GST and the entity does not make a creditable acquisition giving rise to an input tax credit entitlement. Additionally, no adjustment event arises for GST.