GST Q&A – GST on payments to government bodies

Question

Council has been invoiced by a State Government department for a capital works project Council is contributing to. Should GST be included in this invoice?

As further detail, in order to pay this contribution, Council received funding through a grant from a different government department which had no GST associated with it.

Answer

In relation to the payment by Council, there are two key questions:

• Is there a sufficient nexus between the payment by Council (or other Government Department) and a supply being made by the State Government department?
• If so, are the conditions in section 9-17(3) of the GST Act satisfied?

Where there is insufficient nexus between the payment being made and a supply being made by the payee, then the payment does not qualify as consideration for a supply. Accordingly, the transaction is not a taxable supply and the payee will not be liable for GST. Please refer GSTR 2012/2 which relates to financial assistance payments and provides a more detailed explanation.

Where a sufficient nexus does exist, then the transaction would ordinarily be a taxable supply (and GST would apply). However, this is then subject to the application of section 9-17(3) which essentially provides that if:

• the payment is made by a government related entity (e.g. a Council) to another government related entity (e.g. a Department) for making a supply;
• the payment is paid under a government appropriation (or pursuant to specified intergovernmental health reform arrangements); and
• the payment satisfies a non-commercial test (essentially that the amount paid is no more than the cost to make the underlying supplies),

then the payment is not treated as consideration for a supply. In this instance, the transaction will not qualify as a taxable supply and GST will not apply.

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.

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