Ahhh I thought if the grant recipient is registered for GST I just add 10% to my grant. What do you mean its not that simple?
Are you confused about how GST applies to your grant program in Australia? Have you trudged through the quagmire of the ATO website and emerged none the wiser. Or do you reckon you’ve got it figured out? …. are you sure?
Photography Kat Jayne – Pexels
The GST implications of a grant actually have a lot to do with what type of agreement you enter into. There are two quite separate GST issues that are often confused. GST on the cost items in the activity budget and quite separately, whether the nature of the agreement entered into for payment of the grant results in a taxable supply.
The Australian Tax Office provides a good deal of information on whether the grantee will need to pay GST on the receiving of grant monies. Unfortunately, they use a lot of language that can easily get confused in the context of the grant sector.
We use the term ‘recipient’ to denote the recipient of a grant, but when reading the tax rulings, recipient refers to the recipient of goods or services in return for money, which might constitute a taxable supply (ie the giver of the grant).
Very long and complicated story short, whether or not GST is payable on the receipt of grant monies is dependent on whether the agreement that you enter with the grantee obligates them to do something and the payment is made to secure that obligation. This is usually the case in most grant programs where you enter an agreement with clear deliverables, milestones and payments tied to the delivering of those things.
There are, however, several ways to give money that don’t result in GST consequences that might be suitable for your objectives, but this means letting go of the need to control what the grantee does. For example, making a payment to a gallery on the understanding that it is used to acquire artwork but with no formal obligation to do so.
What about GST on the costs for undertaking the funded activity?
GST on cost items in the activity budget is an entiely different conversation to GST on the payment of the grant itself. It is about whether they have to pay GST on the tin of paint they buy at Bunnings to paint the set with for the play you are funding. Don’t confuse these things when deciding whether to ask your applicant to budget GST inclusive or exclusive.
And think about it – if you ask a grantee to submit a GST exclusive budget that means they will need to look at each item they intend to spend the grant money on and determine whether purchasing it will attract GST. If registed for GST they might be able claim a tax imput credit after the event – but will need to be able to bank roll the purchases in the mean time. If they are not registered for GST they will have to pay the GST on the items.
Design of your approach to your grant application budget needs to carefully consider just how complicated and onerous you really want to make things for you grantee (and yourself).
A risk based approach might be to keep it super simple for very small grants and opt for a budget GST inclusive approach. particularly considering those applying for small grants may well be small organisations or individuals not able to bank roll even 10% of the project.
For larger more complex grants where 10% of the project represents a considerable sum – you will need to take a more forensic approach.
What ever you do make sure you explain it properly to your applicants so they don’t miss understand. You don’t want a project to fall over because you have conflated GST on the payment of the grant with GST on activity cost items resulting in the grantee being short 10% and having to wear the tax implications.