On 1 March 2011, the Government introduced Tax and
Superannuation Laws Amendment (2012 Measures No. 1) Bill 2012 into
Parliament. One of the amendments introduced through the Bill is
the changes to the GST treatment of appropriations. The amendments
are substantially the same as the Exposure Draft legislation
released in November last year (see
"Changes to GST and appropriations are a victory for common
sense") and will apply from the date the legislation
receives Royal Assent.
These changes should provide certainty that non-commercial
activities of Government related entities ("GRE") are not
subject to GST. This was an area of uncertainty as a result of the
TT Line Company Pty Ltd v Commissioner of Taxation
The proposed changes will repeal the current GST provision
subdivision 9-15(3)(c) of the GST Act which provides that certain
payments between government related entities will not be
"consideration" for GST purposes if specifically covered
by an appropriation under an Australian law.
Sections 9-17(3) and (4) of the GST Act will be introduced in
its place. Broadly, a payment will not be considered a provision of
consideration under these provisions if (s.9-17(3)):
A payment is made by a GRE to another GRE for making a
The payment is covered by an appropriation under an Australian
law or pursuant to a specific intergovernmental health reform
The payment satisfies a non-commercial test.
Furthermore, a payment made by a GRE to a GRE supplier that is
of a kind specified in the Regulation is not the provision of
consideration (s.9-17(4)). This provision was included in the new
law to allow for some flexibility to specifically include certain
payment in the Regulations to provide certainty that GST is not
required to be charged on such payments.
Removal of the "specifically covered"
The term "specifically covered" in subsection
9-15(3)(c) is not included in the new law. This ensures the
The government related entity supplier does not need to be
specified under the terms of the appropriation (either by name or
as part of a class of entities). All that is required is for the
terms of the appropriation to state the purpose for which funds are
The terms of the appropriation do not need to be restricted to
government related entities. This is particularly useful for
universities and schools where the terms of the appropriation often
includes private entities as eligible for the funding.
Broadly, the non-commercial test will be satisfied where the sum
of the payment and anything else (non-monetary) received by the GRE
does not exceed the GRE suppliers anticipated or actual cost of
making the supply. The test should be assessed at the time at which
the amount of the payment is determined. The costs include direct
and indirect costs of making the supply or supplies (using an
absorption costing methodology for example) but not return on
capital or opportunity costs. Where a GRE receives a payment to
make a supply to a third party, the cost of making such a supply
would also be included.
Unfortunately the examples in the Explanatory Memorandum do not
provide much detail regarding the application of the non-commercial
test. GREs should ensure that their systems are appropriate to
accurately calculate actual costs or anticipated costs associated
with a particular supply for which they receive payments in order
to ensure that the non-commercial test is satisfied. In most
circumstances it is envisaged that payments made to GREs for
supplies would not exceed the costs and hence should satisfy the
non-commercial test. This will provide certainty that such payment
would not be subject to GST.
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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