Grants - appropriations/gifts/in-kind/research – GST fact sheet 12

Fact sheet

Overview

The GST status of payments made as grants to RMIT University by entities, will depend upon the nature of the payment and the type of entity providing the payment.

The GST status may be summarized as follows:

1. Industry body making the grant/payment to RMIT University

The grant to RMIT is generally subject to GST (unless considered to be a gift). RMIT charges GST and the business is entitled to an input tax credit for the GST paid;

2. Government making the grant/payment to RMIT University

Not subject to GST if it is an appropriation under an Act of Parliament. Subject to GST if it is not paid pursuant to an Act of Parliament.

The majority of grants received by RMIT are from the Commonwealth government, DEST (Department of Education, Science and Technology) and State government, OTTE (Office of Training and Tertiary Education). The fortnightly payments received from DEST and OTTE are considered as appropriations under Acts of Parliament, and are not subject to GST because they are paid pursuant to the Higher Education Funding Act (HEFA) and the VET Act respectively.

1. Introduction

There are two ATO Rulings regarding Grants/Appropriations, these are: Goods and Services Tax Rulings GSTR 2000/4 – Appropriations; and GSTR 2000/11 – Grants of Financial Assistance.

GST is payable in respect of taxable supplies. Supplies made in connection with the receipt of a grant will be subject to GST where the grant represents consideration for a supply, which is a taxable supply. In determining whether a taxable supply has been made, all of the following tests need to be satisfied:

Is there a supply for consideration;
Is the supply made in the course or furtherance of an enterprise that is carried on by the supplier;
Is the supply connected with Australia; and
Is the entity, (incl. individual, body corporate, corporation sole, partnership, trust ), making the supply registered for GST, or required to be registered for GST

2. Grants from Industry - General

Any grant or payments to RMIT University by an industry body will generally be subject to GST. This is because the grant will satisfy the definition of a taxable supply (as stated above in section 1.0) under the GST Act. Therefore RMIT University will charge GST to the business for the provision of this grant, and the business will be entitled to claim an input tax credit.

In the event the definition of a taxable supply is not satisfied, the grant will be considered as a gift (please refer to section 7.0). Gifts are not subject to GST.

3. Does the grant represent consideration

Section 9-15 of the GST Act defines consideration as any payment, or act or forbearance, in connection with, or for the inducement of, the supply of anything. Consideration may include voluntary payments, and payments made by a person other than the recipient of the supply, but specifically excludes gifts made to RMIT University.

In cases where a grant has conditions attached, the definition of a ‘gift’ can still be met, provided that the equitable rights arising from the grant transaction do not directly or indirectly provide a material advantage to the grantor (refer to section 7.0 for more information on gifts).

4. Grants / Appropriations from Government Related Entities

Appropriations from government entities or government related entities made to RMIT University pursuant to an Australian law are not subject to GST (refer to section 4.0).

Payments from government entities or government related entities to RMIT University that are not made pursuant to an Australian law are GST taxable. Examples of the types of payments in this category are:

Payment of a grant from one University to another, eg. University of NSW wins a competitive grant from the ARC. The UNSW contracts RMIT to do some work under this grant. The grant from ARC to UNSW is not subject to GST, but the payment from UNSW to RMIT is not considered an appropriation under a Government Act and is GST taxable.
Payments for commercial services provided by RMIT, eg. If RMIT rents out building space to a government or if RMIT provides a specific training course to a government department (that is not a GST free education course) both of these types of payments are GST taxable.

5. Government Entity

A Government entity as defined in section 41 of the ABN Act 1999 is:

a Department of State or Commonwealth ; or
a Department of the Parliament; or
a branch of the Australian Public Service in relation to which a person has, under an Act, the powers of, or exercisable by, the Secretary of a Department of the Australian Public Service; or
a Department of State or Territory; or
an organization that:
is not an entity; and
is either established by the Commonwealth, a State or a Territory (whether under a law or not) to carry on an enterprise or established for a public purpose by an Australian law; and
can be separately identified by reference to the nature of the activities carried on through the organization or the location of the organization;

whether or not the organization is part of the department, or another organization of the kind described in this paragraph.

A Government related entity as defined under section 195-1 of the GST Act is:

an entity that would be considered a government entity but for the fact that it is an entity; or
a local governing body established by or under a State law or territory law

6. Competitive Grants from Commonwealth Departments to RMIT

Commonwealth government competitive grants to RMIT University will be GST free because the grant payments are appropriations under the Higher Education Funding Act (HEFA). Pursuant to paragraph 9-15(3) of the GST Act, the grant received from the Commonwealth Government is not deemed to be consideration. This is regardless of the specification by the Commonwealth Government on RMIT’ University’s utilization of the grant.

Paragraph 9-15(3) of the GST Act does not deem the grant as consideration, the grant will not satisfy the definition of a taxable supply (as discussed in section 1.0), and no GST taxable.

7. Competitive Grants from State Government to RMIT

Similar to the GST implications of grants from above (section 6), appropriations received from State Government Departments are not subject to GST.

8. Competitive Grants from Industry to RMIT

Unlike the examples in the above (section 6 & 7), any competitive grants from industry will attract GST unless the grant is classified as a ‘mere gift’ (refer to section 12 for more clarification). Competitive grants by industry generally require a supply for consideration. The supply could involve RMIT University providing the grantor a report of the results of the research/testing, which the grantor intends using in its business. The grant will be consideration of the report. Other circumstances in which the grant is consideration for a supply provided by RMIT are outlined below in (sections 9 & 10). Refer to section 11 below to understand why supplies of information that is a condition of the grant does not necessarily make the grant GST taxable.

9. Nexus where RMIT University supplies rights

In many instances, the grantor will derive a direct and specific benefit in the form of a right from making the grant. These may include:

the grantor’s right to use the results of a project that is funded by the grant; and
the right to income from the sale of results of the project

10. Nexus where RMIT University supplies obligations

Many grants from industry are paid in exchange for RMIT University entering an obligation to do something in exchange for the grant. In such cases, the grant will be sufficiently connected with the supply of such an obligation if, the obligation is something that goes to the purpose for which the grant is made (eg, to deliver services to the community in accordance with the terms of the grant program). Where this is the case, the grant will satisfy the definition of a taxable supply and will be subject to GST.

11. Supplies of information

Items are often requested to be supplied by RMIT University to the grantor. These items do not always go to the purpose for which the funds were granted, but which are merely part of the mechanism of making or accounting for the grant. A requirement to account for the grant is merely incidental to the making of the grant, and thus would not of itself indicate that the grant was GST taxable.

12. Research Quantum.

The Research Quantum (RQ) is allocated on a performance basis and is directed to support research activities other than those directly linked to teaching.

RQ is currently granted by DEST under the HEFA and as such are GST free as an appropriation from a government related entity.

13. Grants in-kind (or CRC s) are supplies

Where a grant is provided in-kind, the grant itself will be a supply. As grants in-kind may be made in return for another supply, there may be a supply by the grantor and RMIT University to each other.

Where both supplies are taxable supplies, both RMIT University and the grantor will be liable for GST on the supply it makes. The GST liability will be calculated based on the GST inclusive market value of the consideration.

14. Gifts to non-profit bodies are not consideration

Paragraph 9-15(3)(b) of the GST Act, specifically excludes a gift made to a non-profit body from being consideration for a supply.

A non-profit body is considered as a body (body politic), which is not carried on for the purpose of profit or gain to its individual members. RMIT University is a body politic that is not carried on for the purpose of profit or gain and is thus considered to be a non-profit body. Therefore, any gifts made to RMIT University are not GST taxable.

RMIT University has the status of an “Income Tax Exempt Charitable Entity” under Subdivision 50-B of the Income Tax Assessment Act 1997 and the status of “Deductible Gift Recipient” under Subdivision 30-BA of the Income Tax Assessment Act 1997.

GSTR 2000/11 considers the meaning of ‘gift’ in paragraphs 57 – 69. It considers a gift to arise where:

there is no prior contractual obligation to make the gift; and

the grantor does not receive any material advantage for making the gift.

The mere recognition of the donor of the gift by RMIT University would not be considered a material advantage (ie. a plaque on a wall). Where a grant has conditions attached to it, that requires the funds to be used in a certain way, this will not necessarily prevent the payment from being a gift. If this is only a statement of the terms on which the donor intends to make the grant and RMIT University’s understanding of the terms on which the grant will be made.

15. Appropriations are not consideration

A payment made by a government related entity to another such entity that is specifically covered by an appropriation under an Australian law is not consideration for any supply made by the payee. GST will not apply in respect of such payments.

16. Overseas contract research activities and GST

The nature of the arrangement will be important in determining whether overseas activities will be afforded GST free treatment. The transaction should be analysed against the export provisions of the GST legislation.

In most cases where research funding comes from overseas and would be subject to GST, and a grant, it is likely that it would become exempt as an “export”. As the “report” or other information that is likely to be sent overseas to the organization providing the research funds will be considered an export, the payment to RMIT University (being the research fund) will be exempt from GST.

The terms and conditions of the contract will need to be examined closely to ensure the correct classification is reached for GST purposes.

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