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Are you making taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) pursuant to the grant agreement you entered into with Entity B?

Yes, you are making taxable supplies under section 9-5 of the GST Act pursuant to the grant agreement you entered into with Entity B.

You are a company that provides education, research and advisory services. You are registered for goods and services tax (GST). You are also registered with the Australian Charities and Not-for-profits Commission (ACNC). You entered into a Grant Agreement with Entity B. The Grant Agreement contained relevant clauses that covered the: •              objectives of the grant •              activities and obligations you are required carry out and/or to adhere to •              period of the grant •              payment milestones of the grant •              reporting requirements from you to Entity B •              withholding funding •              unspent and misused grant funding •              termination, and •              the grant is exclusive of GST.

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 A New Tax System (Goods and Services Tax) Act 1999 Section 9-10 A New Tax System (Goods and Services Tax) Act 1999 Section 9-15

All legislative references are to the GST Act, unless otherwise stated. Taxable Supply Section 9-5 provides that you make a taxable supply if: •               the supply is made for consideration •               the supply is made in the course or furtherance of an enterprise that you carry on •               the supply is connected with the indirect tax zone (includes Australia), and •               you are registered or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. All the above requirements must be met for a supply you make to be taxable. Relevantly, to satisfy the first requirement in section 9-5, an entity must first make a 'supply' for 'consideration'. Supply Section 9-10 defines the term 'supply' as any form of supply whatsoever and includes any of the following: •               a supply of goods; •               a supply of services; •               a provision of advice or information; •               a grant, assignment or surrender of real property; •               a creation, grant, transfer, assignment or surrender of any right; •               a financial supply;

•               an entry into, or release from, an obligation to: do anything; or refrain from an act; or tolerate an act or situation. However, the definition of supply excludes a supply of money unless the money is provided as consideration for a supply that is a supply of money. In your case, the activities and obligations you are required to undertake and adhere to under the Grant Agreement fall within the definition of supply. Consideration Section 9-15 defines the term 'consideration' and the definition extends beyond payments to include such things as acts and forbearances. In your case, the payments you receive under the Grant Agreement are considered financial assistance payments. Financial assistance payments The Commissioner has considered when a financial assistance payment is consideration for a supply in Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments (GSTR 2012/2) .

In GSTR 2012/2, the term 'financial assistance payment' is intended to encompass a wide range of payments including those made to provide support or aid to the payee and/or provided to support or aid in the implementation of government policy and initiatives. The grant payments in the Grant Agreement are to provide support to you by way of the provision of the funding for the activities you are undertaking under the Grant Agreement. An entity that receives a financial assistance payment is liable for GST in respect of that payment if the entity has made a taxable supply in accordance with section 9-5. Nexus between supply and consideration GSTR 2012/2 focuses on the first requirement of a taxable supply that there is a 'supply for consideration' in relation to a financial assistance payment and outlines that for there to be a 'supply for consideration' there must be a nexus between the supply and the consideration. In the context of financial assistance payments, paragraph 15 of GSTR 2012/2 explains that the payment is consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement of' a supply under an objective test.

Further, in establishing if there is a sufficient nexus between a payment and a supply, paragraphs 15A and 16 of GSTR 2012/2 explain that not every connection between supply and consideration meets the requirements for a taxable supply. Merely having any form of connection of any character between a supply and payment is insufficient to constitute a taxable supply. Reference is to be made to all the surrounding circumstances of the arrangement, in particular any written documentation. The circumstances may include the statutory purpose of the payer in providing the financial assistance, the activities which are to be undertaken by the payee and any other terms and conditions attached to the payment. However, none of these factors will be determinative on their own and the arrangement must be considered as a whole. Therefore, it needs to be determined whether there is a sufficient nexus between the supply you are making under the Grant Agreement and the grant payment being the consideration for that supply.

Taking into account the key conditions attaching to the grant, paragraph 28 of GSTR 2012/2 about the payment for the entry into an obligation to do or not to do something is relevant to your circumstances: 28. Where a supply is constituted by the payee entering into an obligation with the payer to do or refrain from doing something and the payment is made to secure that obligation, there is a sufficient nexus between the payment and the obligation. This is because the financial assistance payment is made in connection with, in response to, or for the inducement of the entry into the obligation. Example 3 at paragraphs 29 to 31 of GSTR 2012/2 provides an explanation of when there is a sufficient nexus for the entry into an obligation: Example 3 - sufficient nexus - payment for entry into an obligation

29. 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. 30. 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.

31. 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. In your case, the Grant amount is payable to you to support and perform the relevant activities. You can only use it for the relevant activities, otherwise it can be withheld or must be refunded to Entity B. Similar to Example 3 of GSTR 2012/2, by entering into the obligations, the grant payments by Entity B are made in connection with, in response to, or for the inducement of the supply you make. Therefore, there is a sufficient nexus between the supply you make and the financial assistance payment such that the financial assistance payment is consideration for that supply. Consequently, we determine that you are making a supply for consideration in relation to the Grant payments you receive from Entity B. The other requirements under section 9-5 for a taxable supply are met. That is, •               you make the supply in the course or furtherance of an enterprise that you carry on

•               the supply you make is connected with the indirect tax zone, and •               you are registered for GST. Accordingly, the supply you are making under the Grant Agreement is a taxable supply for which you are liable to pay GST.