GST – Subsidy payments and input tax credits
29 March 2011
The ATO now takes a broader approach when analysing subsidy arrangements. Specifically, the ATO now accepts that subsidy payments can be consideration for a supply and the entity paying a subsidy may be entitled to claim input tax credits. The broader approach has followed the decision in a recent case involving subsidy payments by a government agency to taxi cab operators.
Briefly, a government agency provides a 50% subsidy of the metered taxi-cab fare for taxi-cab travel to residents who suffer from a severe and permanent disability and are unable to independently access public transport.
The ATO now accepts that a supply to the paying agency for which the subsidy is consideration occurs if:
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subsidy payments are made to an entity (the supplier) by a government department or agency (the agency) in circumstances where the supplier supplies goods or services to a third party;
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the supplier obtains, before each individual supply of goods or services is made by the supplier to the third party, advance authorisation from the agency that the agency would make the payment to the supplier if the goods or services are supplied; and
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the supply by the supplier to the third party promotes the objects or functions of the agency.