GST treatment: Grants, donations, gifts, sponsorships and scholarships
The following guidelines provide clarification for the GST treatment of transactions between RMIT and external organisations classified as: grants, donations, gifts, sponsorships and scholarships.
RMIT receives grants, donations, gifts, sponsorships and scholarships from our two government stakeholders (the Commonwealth of Australia and State Government of Victoria) and other external organisations for teaching and general research purposes.
GST treatment of grants, donations, gifts, sponsorships and scholarships varies and depends primarily on whether the receipt represents consideration that has relevant connection with the provision of a taxable supply (ie payment for service or goods).
GST is payable where there is a provision of supply by RMIT in relation to the money received from the external organizations and the transaction provides a material benefit to the grantor (or an associate / related person).
Is there a taxable supply
Section 9-10 of the GST Act defines a supply and includes but is not limited to:
- supply of goods
- supply of services
- provision of advice or information
- assignment or surrender of real property
- creation, transfer, assignment or surrender of any right; or
- entry into, or release from, an obligation
The following flow chart illustrates the treatment of GST:
The following examples were sourced from “GSRT 2000/11 Goods and Services Tax: Grants of Financial Assistance” and illustrate the above decision tree.
1. Material benefit to the giver:
A grant is made to RMIT for the purpose of conducting specific research and providing a report on the results of that research to the grantor, which the grantor intends to use in its business. The report may be expected to provide a material benefit to the grantor. In this situation, the grant does not have the characteristics of a gift. The grant is consideration for the supply of the report and therefore subject to GST.
2. Acquittal report that is not a material benefit
Bruce donates money to RMIT to conduct research and to disseminate the results in the usual way by publication in academic journals. An agreement is entered into between Bruce and RMIT under which RMIT will account for the expenditure of the gift on research. The gift will not be the provision of consideration, because the supply of information in accounting for the grant does not provide a material benefit to the grantor. No GST applies.
3. Obligation to do something
Snake Glass Jugglers is a commercial dance troupe that develops and presents performance art. While its performances are popular and critically acclaimed, their continued presentation is not viable given increasing production costs. In order for the troupe to continue its work, and in recognition of the organisation's contribution to the arts, it receives a grant of financial assistance from an Arts Foundation, a body that is established for the purpose of fostering the arts.
In exchange for the grant, the troupe enters into a written agreement to continue to develop and present its innovative performances. The agreement provides that the grant is to be repaid if the grantee fails to do this. The entry into the agreement will create an obligation that binds the grantee to do something. The obligation goes to the purpose for which the funds are granted. This obligation to the Arts Foundation is a supply for the purposes of GST and the grant represents consideration that will be subject to GST.
4. Mere recognition of the gift
Bruce, a wealthy philanthropist, decides to make a gift of $5,000,000 to RMIT for the purpose of building a new wing. As part of the gift, Bruce gives the money to RMIT with the stipulation that the money must be used for the purpose of constructing the new wing.
In order to recognise Bruce’s generosity, RMIT will name the new wing in his honour. In further recognition, RMIT will also acknowledge the gift by placing a plaque in the foyer of the new building. These acts by RMIT would not affect the status of donation as it still possesses the characteristics of a gift, i.e. the grant was made voluntarily and no material benefit accrued to the grantor. The fact that public recognition is obtained by Bruce or was a condition of the gift does not constitute a material benefit. The donation will not be the provision of consideration in respect of the supply and no GST applied.
5. No binding commitment
A foundation makes a grant to RMIT to provide art classes for children in Melbourne. The grant agreement provides that the grantee will receive periodic funding if it is continuing to provide art classes for children in Melbourne on specified dates. In this case, there is no supply by the grantee because there is no binding commitment to the foundation to provide classes in exchange for the money and no GST will apply.
6. Nominal value from sponsorship
Discount Electrical Warehouse (DEW) agrees to sponsor an event run by RMIT. It provides a DVD player (valued at $330) to RMIT to be presented to the winner of a Business Plan competition. DEW receives mere acknowledgment for providing the prize. There is no GST payable on the transaction between DEW and RMIT.[Next: Supporting documents and information ]