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Analysis of GSTR 2012/2 – financial assistance payments

On 30 May 2012 the Commissioner published GSTR 2012/2 ‘Goods and services tax: financial assistance payments’, which replaced GSTR 2000/11.  The Ruling outlines the Commissioner’s views on when a financial assistance payment is consideration for a supply made by the recipient of the payment.

The ruling is particularly important for government, community groups and not-for-profit entities as it seeks to outline when the recipients of financial assistance may have a GST liability (which would represent 1/11th of the payment).

My detailed analysis of the ruling can be accessed here.

Responses

  1. Garry Avatar
    Garry

    Chris
    Thanks for the updated analysis.

    However, I still think there is confusion for practioners on some very basic scenarios.

    The basic scenario is government gives a community club a ‘grant’ to allow it to say, install secutiy lighting/cameras at its clubrooms. This is in pursuit of the governemnt aim of improving public safety and preventing crime. There is a comprehensive funding agreement signed by both parties. If the club uses the money it is obliged to use it to put in the lights/cameras. If the club does not install the lights/cameras it is obliged to return the money.

    However if the club decides not to go ahead and just returns the money the government will not pursue the club for breach of contract. Government is more likely to retain the funds or find another group to support.

    In practice, if the club has money left over after installing the lights/cameras, government probably will not even enforce a return of excess funds.

    Is this a taxable supply?

    Any light you can shed on this very common scenario would be appreciated.

    Kind regards

    Reply
    1. chrissievers Avatar
      chrissievers

      Garry,
      Under the Ruling, the Commissioner would likely take the view that there is not taxable supply because there was no “binding obligation” on the club to install the security/lighting cameras. This is the case even if the club spends the money on installing the security/lighting.
      The rationale for the Commissioner’s view is that there is a “mere expectation” that the club will actually use the money to install the security/lighting. Whether this is truly the case, or there is actually some type of binding obligation on the club to do something (whether express or implied) will very much depend upon the terms of the funding agreement.
      Also, what happens in practice (e.g., the payer not seeking to recover excess funds) should not affect the GST outcome.
      Hope that helps
      Chris.

      Reply
  2. Garry Avatar
    Garry

    Thanks Chris
    I can see that many not for profits/government will in practice just gross everything up and say it is all too hard. I will give the ATO a funding agreement and get their view. Thanks for your help. Garry

    Reply

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