GST Q&A – GST on payments to government bodies


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.


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.