GST Q&A ‘ Funding to community organisations
Whether the funding provided to a community organisation (such as a Neighborhood House) includes GST or not.
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Council agreed to provide $1,500 worth of funding to a Neighbourhood House for the purchase of childcare tables. The agreement stated that the Neighbourhood House would purchase the tables and then Council would pay the $1,500 to the Neighbourhood House.
The Neighbourhood House has now provided Council with a copy of the receipt for a total of $1,980 (which includes GST of $180) and an invoice of $1,500 (excluding GST).
Is it correct to pay the Neighbourhood House the $1,500 without taking into account GST or should we allocate 1/11th of the payment to the GST payable account?
Paragraphs 15 and 15A of GSTR 2012/2 summarises the relevant test:
’15. 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.
15A. Further, in identifying the character of the connection, the word ‘for’ ensures that not every connection between supply and consideration meets the requirements for a taxable supply. That is, merely having any form of connection of any character between a supply and payment of consideration is insufficient to constitute a taxable supply.’
Based on the information you have provided it appears your situation is similar to the comments and examples provided at paragraphs 55 to 62 of GSTR 2012/2. In particular, it appears that while Council has agreed to provide funds towards the acquisition of the tables there is insufficient nexus between the payment and any supply made to Council. The comments in examples 10 and 11 appear to apply in this case.
‘Example 10 – no supply – mere expectation
- A local tennis club is seeking funding to enable them to resurface their privately owned tennis courts. The local council provides financial assistance to the tennis club on the basis that the money is only used for the resurfacing of the tennis courts.
- The local council has an expectation that the works will be carried out. However, as there is no binding obligation on the tennis club to actually carry out the resurfacing of the courts, and there are no other goods or services passing between the parties there is no supply to the local council.
- There are no GST consequences arising from the arrangement for either party.
Example 11 – no supply – mere expectation (where the thing is done)
- Continuing with the last example.
- Even if the payment is ultimately used to resurface the tennis courts, this does not change the fact that the tennis club has not made any supply to the local council. Transactions that are neither based in an agreement that binds the parties in some way nor involve the supply of goods, services or, some other thing to the payer, do not establish a supply. In this example, the mere doing of the thing that was expected does not amount to a supply to the local council because it does not involve some good, service or other supply being provided to the local council by the tennis club for which the payment is consideration. Rather, the payment has facilitated the acquisition of services by the tennis club in having its courts resurfaced. This is not a supply made to the local council.’
Accordingly, the payment by Council of the $1,500 would not be for a taxable supply to Council and therefore would not include any GST component.
Disclaimer: Information provided in this article, while correct at time of publishing, is subject to change.