On Wednesday 2 November 2011, the Commissioner issued a draft ruling – GSTR
2011/D4 – on financial assistance payments. The draft, when finalised, will replace GSTR 2000/11.
The due date for submissions is 16 December 2011.
What is of interest:
- A gift to a non-profit body is not consideration for a taxable supply. But a voluntary payment can be consideration for a supply. Where the payment is a gift but is not made to a non-profit body it may be in connection with, in response to, or for the inducement of a supply. For example:
- a tip may be paid in response to the supply of good service and therefore consideration for a supply.
- a payment by government to stop participating in an industry is subject to GST.
- The concern that arises from the ruling is that, in principle, sets a very broad scope of when a payment by one party can be “in connection with, for the inducement of or in response to” and “some act, activity or event that is a supply”.
- On the other hand, the non-binding appendix to the draft contains a number of examples of normal “funding” and support payments will not give rise to GST liabilities.
- While a number of examples are given where payments are sought and made to fund programs of not-for-profit entities, no consideration is given to whether the rules about “gifts for purposes” and resulting trusts will override the notion that the contribution is “in connection with” the supply.
- The question of distributions (gifts) by charitable trust and foundations to support their objects is not raised.
- There is little discussion about funding payments made between government agencies. The question of “specific” appropriations is covered in GSTR 2011/2 but there seems to be a live question about whether there can ever be a supply between “Government entities” that choose to register under Division 149. The
Division does not describe when and how one might have a “supply” for “consideration” between parts of the same “entity”.
Further, a general payment to fund a program by one agency to another would not, one would have thought be consideration for a supply in the context of the GST law. There was some discussion about this in the previous ruling but not here. Hopefully, generally funding payments between governments have no GST relevance but the position is not stated in GSTR 2011/2 nor in this draft.
Lastly, is example 16 named in this way for a reason