This Department Sheet aims to help you understand how the goods and services tax (GST) is applied to grants or payments you receive from the Department and on the normal business purchases you make for your organisation.
If you have any questions about this the Department Sheet, please telephone the the Department's Tax Manager on (02) 6244 8647.
- Taxable Grants/Payments Transactions
- Taxables Business Transactions
- Further Information
Taxable Grants/Payments Transactions
You must have an ABN for the Department to provide you with a grant or payment. You are required to be registered for GST if your annual turnover is $75,000 ($1500,000 if you are a non-profit organisation such as a charity). If your turnover doesn't exceed these amounts, you may choose to be registered for GST in order to claim input tax credits.
According to the GST legislation, when the Department makes a grant or payment to you it is considered a taxable supply if:
- there is a supply for consideration, which includes your obligation to the Department to deliver goods and services to the community
- the supply is made in the course or furtherance of the work of your organisation
- the supply is connected with Australia
- you are registered for GST
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What does supply for consideration mean?
When you enter into a grant agreement with the Department it may create a binding obligation, which is a supply for the purposes of the GST Act. In some cases, the payment made by the Department to you is consideration for that supply. This means you are the supplier and the Department is the purchaser of the supply. However, this will not apply to all grant agreements. In many cases, binding obligations do not arise and/or the payment made by the Department does not constitute consideration for a supply.
Where you provide goods or services to the Department, this is the supply you make to us. The payment we make to you is the consideration for the supply.
Is your supply in the course or furtherance of the work of your organisation?
Typically supplies you make, including supplies to the Department, will be made in the course of your business. For example, a child care centre provides the Department with child care services, which are supplied in the course of the child care centres business.
How are your supplies connected with Australia?
Are you registered for GST?
If you are registered for GST, then you will normally need to charge GST on the supplies you make, but you will be entitled to input tax credits for the GST paid on the purchases you make.
Where a grant or payment satisfies the four criteria mentioned above ie. it is consideration for a taxable supply, the base level of the grant will be increased by 10%. Of the grant proceeds you receive, you will need to remit 1/11th to the ATO.
If the four criteria above are not satisfied, the base level of the grant will not be increased as GST is not applicable to the supply. Therefore you will not need to remit 1/11th of the proceeds to the ATO.
Any gifts made to a non-profit body are not consideration for a supply and therefore are not a taxable supply. GST is not paid on gifts made to a non-profit body.
The diagram below shows you if the Department grants/payments to you are taxable supplies.
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Taxables Business Transactions
When you purchase any goods and services, if the supplier is registered for GST then the supply to you will probably be a taxable supply. The diagram below shows you how the GST is applied to normal business transactions you make for the benefit of your organisation.
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Organisation - for the purposes of this Department Sheet, an organisation is an entity (such as an incorporated company, association, sole trader or other entity that provides goods and services) that conducts an enterprise (an activity or series of activities done in the form of a business).
Input tax credits - are claimed from the ATO by a GST registered organisation that pays GST on goods and services purchased for making taxable or GST-free supplies in carrying on the business.
Gift - is excluded from consideration for a supply if made to a non-profit body, and is made voluntarily.
Non-profit body - is an organisation (entity) that is not carried on for the purpose of profit or gain to its individual members.
GST-free supply - does not have GST included in the sale price. Examples of GST-free supplies are basic food, education, child care, health and medical supplies, many disability services, exports, non-commercial activities of charities and water and sewerage. If you are registered for GST, you are entitled to input tax credits on any inputs you acquire to make the GST-free supply.
Gross-up - grossing up a grant means increasing the base level amount of a grant in order to cover the GST liability of the organisation, which is registered for GST and is making a taxable supply.
Business Activity Statement (BAS) - the single form used to account for the GST included in your tax invoices and input tax credits paid by you to others. A BAS must be lodged by a GST registered organisation (entity) for each tax period.
Attributable tax period - GST on particular transactions is payable in the tax period when the grant/payment is received by you (if you report on a cash basis). If your organisation uses accrual accounting, GST is payable when either an invoice is issued or any payment is received, whichever is the earlier.
Transaction - each exchange of goods and services for payment or consideration is called a transaction.
Input taxed supply - GST is not charged on the supply of input taxed goods and services eg. financial supplies, residential rents, sales of residential premises (other than new residential premises) and some supplies of precious metal. Unlike GST-free supplies you are not entitled to input tax credits for anything acquired or imported to make that supply.
If you have any questions about this Department Sheet, please telephone the Department's Tax Manager on (02) 6244 8647.
We cannot help you with general tax questions and cannot provide tax advice. But we can explain what this DepartmentSheet means and what you will need to do to ensure that you can receive, and continue to receive, funding from the Department.
If you have general tax questions contact the Australian Taxation Office by:
- using the Business Tax Enquiry Infoline on 13 28 66, or
- visiting the Australian Taxation Office website
People considering issues relating to the application of the GST should not solely rely on the information in this Department Sheet. Further, comprehensive advice relevant to your particular circumstances should be obtained either from the Australian Taxation Office or from an appropriate professional advisor.