In many cases where there is a grantmaker-grant recipient relationship, there are no GST-related consequences for either party when it comes to the payment or receipt of grants monies.
Question: Do grant recipients have to generate recipient-created tax invoices (RCTIs)?
Reference: Australian Taxation Office (ATO) Goods and Services Tax Ruling (GSTR) 2012/2. This help sheet provides a summary of GSTR2012/2 and how it broadly applies to grants.
The two clauses below (as contained in ATO Ruling GSTR 2012/2) outline the relationships between grantors and grantees.
Many grantmakers in Australia are covered by this; and so are most grant recipients.
Clause 8: Payers of financial assistance payments are typically, but are not limited to, governments, government agencies, non-profit bodies and charities.
Clause 9: Payees of financial assistance payments include government related entities, non-profit bodies, charities, clubs and associations; corporate entities and individuals.
In some situations, where a payment of financial assistance is made for the purpose of support or aid, there may be circumstances where no supply is made by the payee (the grantee).
This part of the ruling clarifies situations where it is determined that "No Supply" has occurred and therefore the definition of taxable supply is not met.
Clause 55: There will be some arrangements that do not involve the making of any supply whatsoever. If no supply has been made a key element of the definition of taxable supply is not met.
Clause 56: In particular, there is no supply where the agreement between the parties is not binding and creates expectations alone. However, the payee may still make a supply in the absence of enforceable obligations. Where there is an agreement that does not bind the parties in some way there may still be a supply where there is something else, such as goods or some other benefit, passing between the parties.
Example 10 - No supply - mere expectation
Clause 58: A local tennis club is seeking funding to enable it to resurface its privately owned tennis courts. The local council provides financial assistance to the tennis club on the basis that the money is only to be used for the resurfacing of the tennis courts.
Clause 59: 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.
Clause 60: There are no GST consequences arising from the arrangement for either party.
Example 11 - No supply - mere expectation (where the thing is done)
Clause 61: Continuing with the last example.
Clause 62: 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.
In summary, there are three players in this situation:
- The council giving;
- The not-for-profit receiving;
- The supplier delivering the goods or service to the not-for-profit.
Because the council is giving, and receiving nothing in return, there is NO SUPPLY to the council, and therefore the transaction (the grant) is NOT TAXABLE.
The transaction that IS TAXABLE is the one between the not-for-profit and its supplier of goods/services - for example, the people who resurfaced the tennis court.
Therefore there is no requirement for the grant recipient to generate a recipient-created tax invoice for its grant.
Please note: This help sheet offers general advice, rather than specific legal advice. For more specific information and advice about how the GST applies to your particular situation, contact the ATO or a legal professional.