Edited version of private advice

Authorisation Number: 1052268250579

Date of advice: 3 July 2024

Ruling

Subject: GST - capital works contribution

Question

Is the contribution received by the council from the fundraising group, consideration for a taxable supply made by the council under s9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for the capital works?

Answer

No.

This ruling applies for the following period:

1 September 2020 - 30 August 2024

The scheme commences on:

The date of issue of this notice of private ruling.

Relevant facts and circumstances

Council completed a capital works project on upgrading the pavilion.

The contract for the works was signed and the construction was completed.

The pavilion is owned by Council. The capital works were not dependent upon the contribution.

The fundraising group represents the users of the facilities and is a volunteer group. They facilitated the collection of funds from external fundraising events and the facility users and towards the project.

There was a verbal agreement in place that the facility users would contribute towards the project. Council determined that the works completed on the project was 'supply' for the purposes of GST. As such, the fundraising group were informed the contribution would be plus GST.

Council issued an invoice (including GST). The contribution has not been received to date. As such, there is an outstanding invoice.

The fundraising group have subsequently questioned the GST treatment, arguing that the "group isn't acquiring a good or service as such and is simply making a donation of funds collected from the community to support the Council to build the project, and as such there is argument to say GST is not applicable due to non-supply in return for funds."

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

Reasons for decision

Section 9-5 provides you make a taxable supply if:

(a)  you make the supply for consideration; and

(b)  the supply is made in the course or furtherance of an enterprise that you carry on; and

(c)   the supply is connected with the indirect tax zone; and

(d)  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.

Relevantly, Goods and Services Tax Ruling 2012/2 Goods and services tax: financial assistance payments (GSTR 2012/2) explains the Commissioner's views on when a financial assistance payment is consideration for a supply and provides the following guidance:

•         for a financial assistance payment to be consideration for a supply there must be a 'sufficient nexus' between the financial assistance payment made by the payer and a supply made by the payee;

•         a sufficient nexus exists where, upon an objective assessment and regard is had to the true nature of the transaction, the financial assistance payment is found to be made 'in connection with', 'in response to' or 'for the inducement of' a supply;

•         in identifying the character of the nexus required, the word 'for' ensures that not every connection between a supply and consideration meets the requirements for a taxable or input taxed supply (it is therefore not enough that there be any form of connection between a supply and the payment of consideration to constitute a taxable or input taxed supply);

•         reference to all of the surrounding circumstances of the arrangement supporting the payment of financial assistance (considered as a whole) determines whether there is a sufficient nexus. The surrounding 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;

•         provided that there is a sufficient nexus, a voluntary payment can be consideration for a supply (i.e. the payer in such a case does not have to be the recipient of the supply).

The following examples in GSTR 2012/2 are relevant to these circumstances. Although the role of the council is reversed in these examples, the outcome is the same.

Example 10 - no supply - mere expectation

58. A local tennis club is seeking funding to enable them to resurface their privately owned tennis courts. The local council provides financial assistance to the tennis club on the basis that the money is only used for the resurfacing of the tennis courts.

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.

60. There are no GST consequences arising from the arrangement for either party.

Example 11 - no supply - mere expectation (where the thing is done)

61. Continuing with the last example.

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.16 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.17 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.

Applying the law to your circumstances, the Council owns the facilities and the capital works were not dependent upon the contribution. As such, the Council has not made a supply.

Therefore, as the Council has not made a supply, the contribution is not consideration for a taxable supply.

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