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GST treatment of gifts, donations and grants – time to review?
- By Krish Patel
- Published 15/07/2010
- Moore Tax News
- Unrated
With the passing of the tenth anniversary of the introduction of GST in Australia and a notable increase in Australian Taxation Office’s (ATO) GST audit activity, we recommend that not-for-profit (NFP) organisations review their GST systems with a view to confirming the correct GST treatment of gifts, donations and grants received.
Many NFPs are registered for GST and receive donations and grants from various government bodies, businesses and individuals.
We have outlined below a brief overview of the GST legislation on the donations, gifts and grants a NFP receives. In this overview, we have addressed the relationship between the provision of money by a donor and the undertakings agreed to by the recipient in order to identify whether the transactions are subject to GST.
Gifts & Donations
For a payment (monetary or non-monetary) to be considered a gift or donation, it must be unfettered. Specifically, there must be no obligation on the donee to do anything in recognition of the gift, and no expectation on the part of the donor to receive anything in return for the donation. Whether a payment is a gift, and therefore not subject to GST, depends upon the circumstances surrounding the payment. For a payment not to be subject to GST would require: a payment that is made voluntarily, and not as a result of a prior contractual obligation (written or implied); a payment where the payer does not receive an advantage of a material character by way of return for making the payment; and a payment that essentially arises from benefaction.
A donor may receive something in return for making a payment with the payment still being treated as a gift, providing the thing received is only of ‘insubstantial’ value. An item of insubstantial value will not provide a donor with a material benefit.
Grants
The term grant is not defined in the GST Act, and the general principles of the GST Act therefore apply in determining whether GST is payable on a grant transaction.
The GST treatment of a grant depends primarily on whether the grant represents consideration that has the relevant connection with a taxable supply. This will depend on the particular facts and circumstances of each grant program.
A grant will generally be subject to GST if the grant is consideration for a supply by the recipient to the grantor. This will be the case if the grant is conditional. Accordingly, if the recipient undertakes or is required to do something in exchange for the funds, there is a supply by the recipient for which the grant is consideration.
While a gift to a NFP is not consideration and not subject to GST, most grants are not deemed to be gifts. However, the fact that the grant has conditions attached which establish the terms on which the grant is made will not, by itself, preclude the grant from being a gift.
For further information, please contact your Moore Stephens relationship partner.
AUTHOR: Krish Patel, Moore Stephens Sydney
Many NFPs are registered for GST and receive donations and grants from various government bodies, businesses and individuals.
We have outlined below a brief overview of the GST legislation on the donations, gifts and grants a NFP receives. In this overview, we have addressed the relationship between the provision of money by a donor and the undertakings agreed to by the recipient in order to identify whether the transactions are subject to GST.
Gifts & Donations
For a payment (monetary or non-monetary) to be considered a gift or donation, it must be unfettered. Specifically, there must be no obligation on the donee to do anything in recognition of the gift, and no expectation on the part of the donor to receive anything in return for the donation. Whether a payment is a gift, and therefore not subject to GST, depends upon the circumstances surrounding the payment. For a payment not to be subject to GST would require: a payment that is made voluntarily, and not as a result of a prior contractual obligation (written or implied); a payment where the payer does not receive an advantage of a material character by way of return for making the payment; and a payment that essentially arises from benefaction.
A donor may receive something in return for making a payment with the payment still being treated as a gift, providing the thing received is only of ‘insubstantial’ value. An item of insubstantial value will not provide a donor with a material benefit.
Grants
The term grant is not defined in the GST Act, and the general principles of the GST Act therefore apply in determining whether GST is payable on a grant transaction.
The GST treatment of a grant depends primarily on whether the grant represents consideration that has the relevant connection with a taxable supply. This will depend on the particular facts and circumstances of each grant program.
A grant will generally be subject to GST if the grant is consideration for a supply by the recipient to the grantor. This will be the case if the grant is conditional. Accordingly, if the recipient undertakes or is required to do something in exchange for the funds, there is a supply by the recipient for which the grant is consideration.
While a gift to a NFP is not consideration and not subject to GST, most grants are not deemed to be gifts. However, the fact that the grant has conditions attached which establish the terms on which the grant is made will not, by itself, preclude the grant from being a gift.
For further information, please contact your Moore Stephens relationship partner.
AUTHOR: Krish Patel, Moore Stephens Sydney
Contact
Krish Patel
T +61 2 8236 7700
kpatel@moorestephens.com.au
www.moorestephens.com.au
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