The final ruling on financial assistance payments was issued by the ATO yesterday, 30 May 2012 – GSTR 2012/2.
As an initial observation, it refers to the existing (but about to be amended) provisions of the GST law dealing with:
- non-profit bodies (a term which is to be replaced by not-for-profit entity if the ED for Tax Laws Amendment (2012 Measures No. 4) Bill 2012: tax exempt body “in Australia” requirements finds its way into law); and
- appropriations (which is to be amended under the Tax and Superannuation Laws Amendment (2012 Measures No. 1) Bill 2012)
Apart from that, the ruling undertakes an identification of supplies for which financial assistance payments might be consideration and continues the mantra that any connection with anything is good enough.
Worse, it fails to acknowledge that, even if the payee does get some rights for the payment, the amount paid might not be solely for those rights – apportionment (dare I say proportionality) is, in many of the examples, necessary. The commercial advantages are simply not commensurate with the payment.
A simple example from the ruling is as follows:
Example 3 – sufficient nexus – payment for entry into an obligation
- Snake Glass Jugglers is a commercial dance troupe that develops and presents performance art in South Australia. It enters into an arrangement with Gooseville Arts Foundation, a body that is established for the purpose of fostering the arts. Under that arrangement, in return for a financial assistance payment from the Foundation, the troupe enters into a binding agreement under which it is obligated to expand its activities – by presenting three performances outside South Australia during the following year.
- By entering into this obligation to present three performances outside South Australia, the troupe has made a supply to the Foundation. The payment by the Foundation has been made in connection with, in response to, or for the inducement of this supply. Therefore, there is a sufficient nexus between the entry into the obligation and the financial assistance payment such that the financial assistance payment is consideration for that supply.
- Snake Glass Jugglers is liable for GST on the supply of the entry into the obligation. The Gooseville Arts Foundation is entitled to an input tax credit on their acquisition of the right to require Snake Glass jugglers to present the performances.
Let’s take this on in order:
- One presumes that Gooseville is a charitable institution. The payment to Snake Glass is either a gift (if it is for Gooseville’s general purposes) or it is a gift for purposes (and therefore subject to the enforcement of equity). Either way, it is not consideration for a supply made by Gooseville.
- Gooseville takes on an obligation to perform outside of SA? What advantage does this give to the Foundation for which one would allocate the payment as consideration. It is not enough, one would have thought, that Gooseville complies with a condition of the grant unless it is the subject matter of the grant. How much does the extra-SA tour cost as compared to the grant? Is this a “grandma’s flowers” case – is it a supply to Grandmas at large?
Sooner or later, the Commissioner and Treasury are going to have to conclude that gifts are gifts are gifts are gifts.
The consequence of this ruling, the amendment to the government to government appropriations provisions and the removal of certainty about government fees and charges in Div 81 leaves the entities that are non-commercial but in the GST system in the most difficult circumstances of all GST taxpayers.
It looks like a detailed review of all receipts and payments is necessary to work out that compliance obligations. If you conclude that you should tax everything just in case,
- The payer claiming credits is at risk of having them taken away if it turns out that GST wasn’t payable;
- The question of how to manage the cash flow looms large; and
- This is all a churn because the Government doesn’t want it to give rise to any sticky tax.
Principles? I don’t think so!