Grants are however subject to GST when the recipient of the grant has done something for the grantor in order to receive the grant, i.e. a supply took place.
Determining if GST Applies
If you receive a grant without any requirement for you to provide direct benefits in the form of goods or services to the grantor, the grant will not attract GST.
If you provide direct benefits to the grantor in the form of goods or services in return for the grant, you are making a taxable supply. Hence, you have to account for GST on the grant received.
Claiming Input Tax on Expenses
When you provide free or subsidised goods and services, you would usually receive non-business receipts, such as grants or donations to fund your operations. In such a case, you are treated as carrying on both business and non-business activities.
You are not allowed to claim the GST (input tax) incurred on your taxable purchases in full because part of the purchases is for non-business activities. Only GST incurred for business activities is claimable.
For more information on grants and input tax apportionment, please refer to e-Tax Guide GST: Guide For Charities and Non-profit Organisations.
If you are a commercial organisation making fully taxable supplies, i.e. non-subsidised goods and services, you may receive grants such as water efficiency grant or wage credits, as incentives to engage in initiatives that meet national objectives. As you would not be involved in subsidised or free activities, you would be regarded as carrying on wholly business activities and need not apportion your input tax due to receipt of grants.
I am a kindergarten/ child care centre operator. I received a grant from a government agency to renovate my centre. Do I have to account for output tax on the grant received? Can I claim input tax on the renovation expenses?
You are required to account for output tax if you provide direct benefit to the government agency in return for the grant. If the renovation grant is an outright payment for which no benefit is conferred to the grantor in return for the grant, you are not required to account for output tax on the grant received.
Renovation grant provided by the government is usually inclusive of GST. You should not claim input tax on renovation expenses that are funded by GST-inclusive grant. If GST is not included in the grant amount, you can claim input tax on the renovation expenses, if you are carrying on wholly business activities to make fully taxable supplies.
I am a training provider. The trainee is awarded a grant to subsidise his course fee. However, the grant payment is made to me and I deduct the amount from the trainee's course fee. Do I charge GST on the gross course fee or the net course fee?
In this case, the grant is for the trainee. The grant payment being made to you instead of directly to the trainee is merely a payment arrangement. You need to charge and account for GST on the gross fee.
In other cases where the grant is awarded to you to subsidise your cost of training so that you are able to charge the course fee at a subsidised rate, GST is chargeable on the net fee.
I am a training provider. I receive grants from a government agency to subsidise my cost of training so that I can charge the course fees at a reduced rate to the trainees. Can I claim in full the GST (input tax) incurred on my taxable purchases?
You are able to provide training at reduced rates and GST is chargeable based on the reduced rates, because grants are provided to subsidise your cost of training.
As you do not provide any benefits to the grantor in return for grants received, such grants are outside the scope of GST and regarded as non-business receipts.
As you are carrying on both business and non-business activities, a portion of the GST incurred by you is attributable to your non-business activities. The portion for non-business activities is not claimable.
For input tax apportionment, if you are unable to separately track and attribute the input tax between your business and non-business activities, you can use the following simplified apportionment method:
- Non-business receipts refers to the grants received by you to subsidise your cost of training.
- Total input tax incurred excludes any input tax specifically disallowed under Regulations 26 & 27 of the GST (General) Regulations (e.g. GST incurred on motor car-related expenses, medical expenses and insurance).
- You only make regulation 33 exempt supplies consisting of local bank interest.
If you can identify the input tax for wholly business activities (i.e. non-subsidised activities) to make fully taxable supplies, such input tax is fully claimable. You can then apply the formula above to the remaining input tax which is incurred for both your business and non-business activities to arrive at the remaining input tax claimable. The portion of the input tax incurred for carrying out non-business activities cannot be claimed.
What is reverse charge and is it applicable to me?
With effect from 1 Jan 2020, GST registered persons have to apply reverse charge (RC) on services purchased from overseas suppliers (imported services) if they are not entitled to full input tax recovery. From 1 Jan 2023, RC will also apply to the purchase of imported low-value goods (‘LVG’) unless the LVG procured is directly attributable to taxable supplies. The requirement to perform RC applies to all purchases of LVG (except those directly attributable to taxable supplies) and includes LVG purchased from local and overseas suppliers, electronic marketplaces or redeliverers, regardless of whether they are GST-registered or not.
If you are unable to claim your GST in full, RC will apply to you.
Under the RC rules, you have to account for GST on the imported services and LVG (other than those specifically excluded from the scope of RC) as if you were the supplier. You may claim the GST on such imported services and LVG subject to your usual input tax apportionment formula. For more details on the RC rules, please refer to the e-tax guide 'GST: Reverse Charge'.