The Purpose team sometimes fields queries about the application of GST to grants, where a non-profit runs its own grant-giving program. These may be devolved Government grants, or they may be funded through donations received by the org.
In these cases, what is the GST treatment on the grant? Has the definition of a ‘supply’ been met, in relation to the grant? Here’s some advice we provide to clients on the subject…
- Irrespective of where an organisation receives its funding, we only need to determine if the grant recipient provides a taxable supply in the course of operating their business.
- Based on the GST Act (A New Tax System (Goods and Services Tax) Act 1999), section 9-10, the meaning of supply includes an entry into, or a release from, an obligation to do anything.
- So – we need to look at the grant agreement in question and ask: is there a clear, binding obligation for the grant’s recipient to perform a project, as per agreement?
- If yes, on this basis, there is a taxable supply provided by the grant recipient to the organisation, therefore the GST should apply.
See Example 3 of the Goods and Services Tax ruling (GSTR2012) below, which addresses the same issue:
Example 3 – sufficient nexus – payment for entry into an obligation
29. Snake Glass Jugglers is a commercial dance troupe that develops and presents performance art in South Australia. It enters into an arrangement with Gooseville Arts Foundation, a body that is established for the purpose of fostering the arts. Under that arrangement, in return for a financial assistance payment from the Foundation, the troupe enters into a binding agreement under which it is obligated to expand its activities – by presenting three performances outside South Australia during the following year.
30. By entering into this obligation to present three performances outside South Australia, the troupe has made a supply to the Foundation. The payment by the Foundation has been made in connection with, in response to, or for the inducement of this supply. Therefore, there is a sufficient nexus between the entry into the obligation and the financial assistance payment such that the financial assistance payment is consideration for that supply.
31. Snake Glass Jugglers is liable for GST on the supply of the entry into the obligation. The Gooseville Arts Foundation is entitled to an input tax credit on their acquisition of the right to require Snake Glass jugglers to present the performances.
The supply test will be the determinate in the vast majority of cases. There remains only a few exceptions, such as the below-cost supply of accommodation for by a non-profit.
Your Purpose service team is always available to advise on issues of GST application so please reach out if you have any queries.
Recent Comments