Finance Policies and Procedures Manual

Category: GST

Section: 880

Date of Issue: 27 June, 2002

GST RESEARCH & CONSULTANCY PROCEDURES

TAX MANUAL

A tax manual providing assistance and guidance on GST and other taxation matters is available at the following Office of Financial Services web pages.

http://www.murdoch.edu.au/finance/admin/gst/gst.html

INTRODUCTION

These procedures should be used in conjunction with Section 700 of the Finance Policies and Procedures Manual.

http://www.murdoch.edu.au/finance/admin/polproc/manual/resgrants/700.html

GST OVERVIEW

Most research grants and contracts will be classified as GST taxable as there will be a Supply for Consideration. For example: something will be supplied in return for something else. This, where research or consulting is concerned, may be in a supply in the form of a report on the research conducted in return for payment from the awarding agency. A supply can also be of goods or services, provision of advice or even an obligation. For those not deemed as GST taxable refer to the classifications below.

For further information please also refer to GST procedures issued for accounts payable, purchasing, credit cards and accounts receivable.

GST CLASSIFICATIONS

GST Taxable

Where funding is deemed to be GST Taxable, all income must have GST included in the payment whether a University generated invoice or recipient created tax invoice is raised. (Refer to Invoicing below and Accounts Receivable GST Procedures for definitions) Tax credits can be obtained on the taxed expenditure.

To obtain a tax credit a tax invoice must be received from the entity you are purchasing from, however tax invoices are not required for amounts of $50 or less, exclusive of GST.

Most research grants and contracts will fall into the category of GST Taxable. The following example shows the effect that GST would have on a research account that falls into this category:

GST-FREE

Where funding is deemed to be GST-free this means that GST is not charged on funds received however tax credits CAN be claimed on taxed expenditure of these funds.

The following example shows the effect that GST would have on a research account that falls into this category:

NB Savings due to GST tax credits from existing contracts may be required to be passed on to the funding agency. This should be clarified with them before savings are expended.

Research and consultancies falling into this category will include DEST Higher Education Funding Act funding, those meeting the transitional arrangements and where conditions are met, overseas funding.

TRANSITIONAL ARRANGEMENTS

GST applied from 1 July 2000 and as many research projects will have commenced well before this date, special rules were written to accommodate this. These rules assume that the funding agency will be GST registered and entitled to claim input credits on invoices issued by Murdoch University.

Where the contract is entered into prior to 8 July 1999 without an opportunity to review - the funding for research performed after 30 June 2000 is GST-free until 30 June 2005.
The contract is entered into prior to 8 July 1999 with an opportunity to review - the funding for research performed after 30 June 2000 is GST-free until the earlier of the date of review or 30 June 2005.
Contracts entered into from 8 July 1999 onwards - the funding for research performed after 30 June 2000 is GST taxable.

Please use the following flowchart to determine whether your contract is GST taxable or GST-free. The date the contract was signed is the starting point.

For information relating to overseas funding refer to Overseas Funding information provided below.

INPUT TAXED

Where funding is from a source deemed to be input taxed this means that GST is not charged on the funds received that is on the invoice to the funding agency and subsequently paid to ATO. However tax credits CANNOT be obtained for GST charged on expenditure of these funds thus the related account bears the cost of the GST. It is not anticipated that research grants and consultancies would fall into this category.

Input taxed supplies will only affect research and consulting where there has been a provision of service to the project that is classified as input taxed and the project would be affected to the extent that no GST tax credit would be available. Refer to accounts payable procedures.

For example, if the University used a supplier who was not registered for GST, they would not charge GST on their invoice. However the costs borne by that entity would be passed on in their prices for which a tax credit would not be available. Therefore you should ensure that, where possible, only registered entities are used when purchasing supplies. The following example shows the effect that GST would have on a research account if it were to fall into this category:

OUT OF SCOPE

Where funding is out of scope it means that GST is not applicable to transaction

Examples of out of scope supplies:

items purchased and consumed overseas
internal transfers between Divisions/Schools/Offices

INVOICING

Not required

Invoicing will not be required where funds are classed as appropriations by government. For example: DEST Higher Education Act funding.

Recipient Created Tax Invoices (RCTI)

RCTI are invoices created by the funding agency at the time they are issuing the funds. The ability to do this has been granted by the ATO without applying to the Commissioner in the following circumstances:

(a)	tax invoices for taxable supplies of agricultural products made to registered recipients who:
	(i)	satisfy the requirements for issuing RCTI, and
	(ii)	determine the value of agricultural products (and any by-products) subsequent to, and dependent upon, quantitative or qualitative analysis of the supply being undertaken
(b)	tax invoices for taxable supplies made to registered government related entities that satisfy the requirements for issuing RCTI, and
(c)	tax invoices for taxable supplies made to registered recipients that satisfy the requirements for issuing RCTI and that:
	(i)	have a turnover (including input taxed supplies) of at least $20 million annually; or
	(ii)	are members of a group of companies, partnerships or trusts, or a joint venture operator, in which one or more other members of that group or participants in that joint venture have such a turnover.

This affects the University mainly with regard to (b) registered government related entities though some other entities, especially in (c) may also request agreements. Other entities that do not fall into any of these categories can make special requests to the Commissioner to enable them to use RCTI.

The main requirements to be met are that one or more of the above be fulfilled, that both parties be registered for GST, that proper records are kept for 5 years and that an agreement is in existence at the time the RCTI is issued.

The University must enter into an agreement with the funding agency to facilitate the use of RCTI and where this has been carried out the researcher is not required to raise an invoice.

It may be appropriate for the University to enter into these agreements, as funds may not payable until milestones have been assessed as being achieved. It may be more appropriate that the grantor issue the funds with the associated invoice. If the University issues an invoice the GST would be payable in the month that the invoice was raised. However, the milestone report may not be accepted and funding delayed, thus the University would have paid GST but not received those fund resulting in reduced cashflow. Therefore the grantor will issue the RCTI along with the payment to allow the University to record and pay GST and for the funding agency to claim the tax credit.

As a consequence of using RCTI where an agreement is in effect, there will be no change in the way we receive these funds from the way we do at present.

Invoices Required

ALL other research funding will require invoices to be raised and issued to ensure that GST is accounted for.

Please refer to the GST guidelines on Accounts Receivable for additional information relating to invoicing.

BUDGETING

When budgeting the amount to be requested in an application all costs must be assessed and where tax credits are available these deducted before the overall cost is calculated and the 15% overhead charged. Once this total is obtained, GST is chargeable on the whole of the funds being requested.

The following is a simple example of how the budget request would be calculated:

RESEARCH FUNDING TYPES

Commonwealth Government Grants - DEST Higher Education Fund Act (HEFA) and ARC Act

DEST HEFA and ARC grants are classified as a government appropriation and are not subject to GST. This means that no GST is charged on the funding provided, however tax credits can be obtained on all taxable expenditure. Refer to GST-free definition.

The University receives grants /funding from the HEFA and ARC as scheduled in the payment advices received from DEST.

National Competitive Grants

National Competitive Grants (NCG) currently includes grants from NHMRC, ACIAR, Department of Primary Industries - FRDC, GRDC, LWA, Australia Pork Ltd and RIRDC. Grants from these funding agencies will be subject to GST.

A list of current NCG is available at the following DEST website: http://www.dest.gov.au/highred/research/documents/list_ncgi_schemes.rtf

NB This information is updated and provided annually by DEST and the website address may change.

Contract Research - Overseas funding

Research services provided by the University to an overseas recipient would be GST-free where the following conditions are met:

Services relate directly with goods or land outside Australia;
Services are made to non-Australian resident who is not in Australia when the service is provided; or
Services are provided to a person who is outside Australia and the services are used or enjoyed outside Australia

Services will not be regarded as exported if the goods or services provided were directly connected to goods or land situated in Australia.

If a foreign company has a branch, a permanent establishment or an agency in Australia, then the services provided to that company would be subject to GST because the company has a presence in Australia when the service was carried out. A permanent establishment means a place at or though which the company carries on a business. Most companies would be able to register for GST and therefore receive tax credits for any GST it pays.

CRCs - Cash contributions

All cash contributions to/from CRC's will be subject to GST except where the transfer of funds is within the host institution. The same procedures as those for GST taxable should be adopted.

CRCs - In-kind contributions

In-kind contributions will be subject to GST, however the way in which these should be recorded by entities is still being considered.

The ATO has determined that in-kind contributions will be a 2-way supply. Each party will receive something and provide a contribution. An industry partner gives an in-kind use of one of their employees on the project valued at $20000 - one supply. The other supply would be the right to use of the research being conducted which would be valued at the same amount as that given by the industry partner - second supply. This means that each will be in a GST neutral position and if the supplies are aligned, neither will be required to remit any GST to ATO thereby not having an impact on their cash flow.

There is still a need to record these values, however the way in which this would be done is being reviewed, as there is no means of recording this through the current accounting system. It is likely that both an invoice and a RCTI would be issued by the University, once agreements are in place, and recorded separately from normal cash invoicing.

CRCs - Other

All other research funding from Government Departments & Agencies (including Commonwealth, State and Local) and Industry will be GST taxable unless given as a gift or donation (refer to Charitable Institution Grants).

Please refer to above definitions and also in-kind contributions under CRC's if applicable.

Collaborative Grants

Where a collaborative grant exists, regardless of whether the original funding is GST-free or taxable, the distribution of the grant to collaborators will attract GST. This is because they will be providing research (the supply) in exchange for the funds (consideration). The receipt of a share where we are the collaborator would also attract GST.

This will not affect the amount remaining in the grant since the amounts credited and debited to the account will be the original award amounts excluding the GST components.

Two scenarios - a grant of $100,000 of which half ($50000) goes to the collaborating institution, one GST-free and the other taxable. From the following examples you can see the effect on your account:

Charitable Institution Grants - Gifts/Donations

Charitable Institutions (Universities fall into this category) may receive grants by way of a gift or donation which would be classed as GST-free as long as the following conditions are met:

The funding must be transferred voluntarily - no prior contractual obligation exists regarding transfer of the grant.
That there would be no advantage of material character - mere recognition for making the grant would not constitute material character.

Some conditions may be attached to the grant without it losing it's gift/donation status. The grantor may have the right to regulate the disposal of the grant, however in doing this it must not directly or indirectly result in material benefit.

Example - Material benefit

If funds were provided to the University with a view to conducting specific research and the resulting report on the research being provided to the grantor to use in their business, this would constitute material benefit and would therefore not be classed as a gift or donation.

Example - Mere recognition

Funds are provided to the University with the stipulation that it is to be used for the provision of a scholarship and that the scholarship should be in the name of the grnator. No other conditions apply to the provision of the funds and since generally no benefits accrue to the grantor other than the scholarship being named after them, it would be classified as a donation or gift. (This may not apply to large organisations)

Financial Reports

Even where subsequently an agreement is entered into for the provision of financial reports on the funds, it will not affect the status of the grant as this will be accepted as merely accounting for the grant. It provides no material benefit to the grantor.

However, if there is a stipulation that the funds must be returned if not used for the purpose given, this will not be classed as a donation or gift but instead will be a normal grant and therefore GST taxable.

SCHOLARSHIPS

Scholarships will generally fall into the GST taxable category, however depending on the funding being provided and/or the conditions attached to the scholarship it may be classified as GST-free. Careful consideration of the contract would be required before classification is made.

APA's

Australian Postgraduate Award scholarships are provided under the DEST HEFA Commonwealth Government funding and are classified as GST free.

Top-ups

Top-up scholarships received from the AJ Parker CRC would currently be GST-free since the University acts as an agent for the Centre and the funding is provided using internal transfers.

Classification of other top-up scholarships would depend on the individual contract terms.

Research scholarships (not APA's)

Research scholarships will generally be provided to carry out specific research for which the grantor receives a report for their further use. Under these conditions a taxable supply will exist.

FEES FROM RESEARCH WORKSHOPS AND CONFERENCES

GST will apply to fees charged by the University to external clients for attendance at workshops or conferences held by a department. Any GST payable on inputs can be claimed as a credit. For Example: cost of materials, venue hire, etc

Research Publications

Sales of research publications are subject to GST (unless sold overseas) and a taxable invoice must be raised. Sales to divisions within the University are not subject to GST.

TRAVEL GRANTS

Travel grants by the nature of the fact that there are specifications on what the grant can be used for and that a report is required to be provided to the grantor, means that it will be a taxable supply. GST must therefore be included in the invoice on the funds being received. Whether or not a tax credit can be obtained on expenditure will depend on where the travel will take place and the mode of travel in addition to what other costs are included in the grant.

International air travel

Travel that is booked beginning in Australia with an overseas destination will be GST-free. This includes any domestic travel that is booked at the same time and is part of the international travel arrangements. Stop-overs can be incorporated within Australia.

Domestic air travel

Travel that is solely between Australian destinations will be GST taxable.

Other travel modes

Transportation within Australia by train, bus and cars are all GST taxable. Sea travel taht includes a departure or destination outside Australia is GST-free.

Accommodation and food

Where accommodation is provided as part of a conference package and is short term, less than 28 days, this will be subject to GST. Any food that is incorporated within the package is GST taxable. Many foodstuffs are GST-free but generally food that is cooked and consumed at a given place will be GST taxable.

Conference fees

Fees and charges made for attendance at conferences outside the University will be subject to GST where they take place within Australia. Only where the charges are internal to other University departments will they be GST-free.

Where the conference takes place overseas, payments will not be subject to GST, though you may be required to pay taxes in the country of the conference.

REIMBURSEMENTS

Reimbursement of expenses to individuals

GST credits will be obtained for reimbursements of expenses where they are goods or services used to provide a taxable supply and for which a tax invoice/receipt is received. Where no tax invoice is available, the Divisional account will be charged with the GST except where the inclusive amount is less than or equal to $55. Per-diem payments will not have claimable tax credits.

Income for expenditure reimbursed by an external agent

If an employee attends a meeting or conference and the University is subsequently reimbursed with the cost of attendance, GST will be payable on the income received at 1/11th of its value. Where reimbursements are obtainable, employees should ensure that the GST amount is added to the amounts claimed to cover the amount attributable to the ATO. Where this is not claimed, the amount reimbursed to the Divisional account will not cover the original cost.

SPECIAL RESEARCH CENTRES

Research and consultancies carried out by Centres are subject to the above procedures.

INTELLECTUAL PROPERTY RIGHTS AND PATENTS

The following is in draft format only as currently not applicable to the University.

In general Intellectual Property Rights and Patents will be classified as GST taxable since there is a taxable supply in return for consideration. However this is complicated by whether the supply is in connection with Australia or not. GSTR 2000/31 - Supplies connected with Australia http://law.ato.gov.au/pbrdocs/gst00-31.doc provides the determination.

In addition to GSTR 2000/31, the GST Act itself also has a section (9-25) which defines supplies connected with Australia and is referred to in the above ruling:

(1) Supplies of goods wholly within Australia
A supply of goods is connected with Australia if the goods are delivered, or made available, in Australia to the recipient of the supply.

(2) Supplies of goods from Australia
A supply of goods that involves the goods being removed from Australia is connected with Australia.

(3) Supplies of goods to Australia
A supply of goods that involves the goods being brought to Australia is connected with Australia if the supplier either:

(a) imports the goods into Australia; or
(b) installs or assembles the goods in Australia.

(4) Supplies of real property
A supply of real property is connected with Australia if the real property, or the land to which the real property relates, is in Australia.

(5) Supplies of anything else
A supply of anything other than goods or real property is connected with Australia if either:

(a) the thing is done in Australia; or
(b) the supplier makes the supply through an enterprise that the supplier carries on in Australia.

(6) When enterprises are carried on in Australia
An enterprise is carried on in Australia if the enterprise is carried on through:

(a) a permanent establishment (as defined in "subsection 6(1) of the Income Tax Assessment Act 1936); or
(b) a place that would be such a permanent establishment if paragraph (e), (f) or (g) of that definition did not apply.

In relation to Intellectual Property and Patents it is paragraph 5 that applies. The following are some of the examples provided by ATO in the above ruling in determining whether the agreement regarding intellectual property and patents is in connection with Australia.

INTELLECTUAL PROPOERTY

74.

If a right is granted under an agreement to another to use certain intellectual property, the granting of that right to another is done where the agreement is made. If the agreement is made in Australia the supplier of that right is connected with Australia. If the agreement is made outside Australia the supply is not connected with Australia under para 9-25(5)(a). However even if the agreement is made outside Australia the supply is connected with Australia under para 9-25(5)(b) if the supplier makes the supply through an enterprise that the supplier carries on in Australia.

178.

If the supply is the creation, grant, transfer, assignment or surrender of any right, the thing that is being supplied is the creation of that right in the recipient, the granting, transfer or assignment of that right to the recipient or the surrendering of that right. In this context, the thing is done where the right is created, granted, transferred, assigned or surrendered respectively.

179.

Whether a right is created, granted, transferred, assigned or surrendered in Australia will depend on how, in any given case, the creation, grant, transfer, assignment or surrender is effected. if the right to use intellectual property is granted by the execution of a written contract, the grant of that right is done in Australia if that contract is made in Australia.

201.

Right to use intellectual property provided in Australia.

Boffin Co (a US resident) grants Cyber Co (an Australian resident) the right to use the Boffin II software in Australia for 3 years. The right to use the intellectual property is granted under a written agreement. That agreement is made in Australia and accordingly the granting of the right is a supply that is connected with Australia.

202.

Right to use intellectual property not provided in Australia

Cyber Co (an Australian resident) supplies Linx Co (another Australian resident) the right to use the Cyber III software in New Zealand for 5 years. The right is granted by way of a contract made in New Zealand. The supply is not connected with Australia under para 9-25(5)(a). However, the supply is connected with Australia under para 9-25(5)(b) if the supply is made through the Australian business of Cyber Co.

203.

Right to use intellectual property provided in Australia for use partly outside Australia

Distributor Co (an Australian resident company) is granted by Cartoon co (a US resident company) the right to produce and sell certain cartoons in Australia and certain cartoons in New Zealand. The right is granted under an agreement made in Australia. The supply is connected with Australia under para 9-25(5)(a). However, the supply is of a right for use in Australia and New Zealand. To the extent that the supply is a right for use outside Australia, the supply is GST-free under item 4 of table 1 in subsection 38-190 (1). A taxable supply is only made in respect of the supply of the right for use in Australia.

PATENTS

215.

Supply made through a permanent establishment in Australia, but GST-free

An Australian resident which has all its business premises in Australia (ie has no offshore operations) grants a resident of New Zealand a right to use a patent in New Zealand. The supply is the grant of the right to use the patent in New Zealand. The right is granted under a legal agreement made in New Zealand to which the managing director of the Australian resident travels for the signing.

216.

Under para 9-25(5)(a) the thing supplied, the granting of the right to use the patent, is not done in Australia because the right is granted in New Zealand. However, as the supply is made by an Australian business operation (ie the Australian permanent establishment of the Australian resident) the supply of the right to use is connected with Australia under para 9-25(5)(b).

217.

While the supply is connected with Australia the supply is not a taxable supply because it is GST-free under subsection 38-190 (1). This is because the rights are for use outside Australia.

As the above shows, if the rights are wholly for use outside Australia and there is no connection with Australia the transaction can be classified as GST-free. However where there IS a connection, it will be GST taxable and this will apply whether to the whole of the agreement or in part.

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