GST and grants: Need more guidance? Is there a better way?

From TaxEd’s perspective, we regularly receive questions via our Q&A service asking whether grants paid or received by government entities (including departments and/or councils) and not-for-profits are subject to GST. The majority of these questions agitate on whether there is ‘sufficient nexus’, or whether there is ‘no supply’.

In our responses, we regularly refer to the current ATO public ruling (GSTR 2012/2: GST and grants of financial assistance) and the examples contained within it, which are generally useful, albeit limited to the specific facts described. Additional ATO provided COVID-19 related examples have also been useful but again somewhat limited.

The ATO express the concept of determining ‘sufficient nexus’ in paragraphs 15 and 16 of GSTR 2012/12 as follows:

Supply for consideration – establishing a sufficient nexus

  1. 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 financial assistance payment is consideration for a supply if the payment is ‘in connection with’, ‘in response to’ or ‘for the inducement of’ a supply.The test is an objective one.
  2. Reference to all of the surrounding circumstances of the arrangement, in particular any written documentation, determines whether a financial assistance payment is ‘in connection with’, ‘in response to’ or ‘for the inducement of’ a supply. 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. However, none of these factors will be determinative on their own and the arrangement must the considered as a whole. The description the parties may give to the arrangement, whilst relevant, is not determinative.

However, when contemplating the issue to be resolved and the variety of examples we see and the responses we provide it is clear more specific ATO practical guidance, including a wider range of examples would benefit all involved.

The challenge for the potential ‘supplier’ (often a not-for-profit with limited resources or access to advice) is to determine whether a taxable supply is being made. For smaller not-for-profits the consideration for the grant could cause the GST registration thresholds to be exceeded which potentially may bring the organisation into the GST system.

As experienced tax practitioners, the team at TaxEd also regularly grapple with whether a grant represents consideration for a supply.

This situation leaves us wondering if there is a better way or at least a way of making the task simpler.

In this regard we consider a Practice Compliance Guideline (PCG) from the ATO would be helpful and preferred, particularly if such a document included a wider range of examples covering typical grants and the terms imposed.

In context, we also note that where grants are made between government departments/entities the parties involved are generally both GST-registered and the outcome will be GST neutral irrespective of whether the grant is subject to GST or not. Given this, it would also be useful (and administratively practical) if the ATO allowed grants between (for example but not limited to)  two government entities to be treated as not being subject to GST (thereby removing the need to consider the nexus question and alleviating cash flow and documentation issues i.e. tax invoices). There would be no apparent detriment to the revenue and entities could provide/receive the grants with certainty regarding the GST treatment.

Another matter that would benefit from further clarification, are examples where a grant is provided (generally by a government department) to a non-GST registered entity. Currently, GSTR 2012/2 does not deal with such circumstances – it assumes all parties are GST-registered or required to be GST-registered. Such transactions would generally not be subject to GST. That is, even if the non-GST registered entity is making a supply that has sufficient nexus with the grant funds, as they are not GST-registered it is unlikely to be a taxable supply (although we note if it is taxable, depending on the quantum it may cause the recipient entity to be ‘required to be registered’). In this regard, maybe the ATO could provide some practical guidelines that if the only reason such entities would exceed the GST registration threshold is due to the grant received, this can be disregarded.


In a slight departure from normal articles, we encourage TaxEd members to provide some feedback on this topic.

  • Would you like more practical guidelines to assist with determining whether grants are subject to GST (for example, via a PCG or updated GST ruling)?
  • What proportion of grants that you issue are to: (a) other government entities that are GST-registered? (b) recipients that are GST registered? (c) recipients that are not GST registered?

Please email us at with your answers to the above questions, or with other comments.

Other references

Here are links to some of our more recent TaxEd articles or Q&As on this topic:

This article provides a general summary of the subject covered and cannot be relied upon in relation to any specific instance. It is not intended to be, nor should it be relied upon as, a substitute for professional advice. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use.