S 5 (6D) is a deeming provision that applies in circumstances where a payment in the nature of a grant or subsidy is made on behalf of the crown or any public authority.
A payment is covered by S 5(6D) when it is made to:
- Any person in relation to or in respect of their taxable activity OR
- Any person for the benefit of and on behalf of another person in relation to or in respect of their taxable activity
When these requirements are met, the payment will be deemed to be consideration for a supply of goods and services by the person to whom or for whose benefit the payment is made in the course of the persons taxable activity. If GST registered, you will need to account for output tax.
A payment in the nature of a grant or subsidy will have one or more of the following characteristics:
- The crown or another public body pays it without obligation out of public funds
- The purpose of the payment is to further objectives in the public interest, and this may be done by lowering the price of a commodity or service
- The payment is often made to public, charitable or private bodies so that 3rd parties can benefit
- The objective of the payment is to promote or encourage an industry or enterprise
What payment is “in the nature of”?
The words “in the nature of” broaden the coverage of section 5(6D) to include payments that are not technically grants or subsidies. The deciding factor is the character or quality of what the payer pays, and of the consideration they give, rather than on what the payee receives
When an individual receives an amount under S 5(6D), and as a result of receiving the amount they cross the $60,000 GST registration threshold they will need to register for GST and pay output tax on the payment.
It is important to note that it is a requirement that the grant or subsidy is spent on replacing any plant or other capital asset they use in their taxable activity. If the requirement is followed and the person exceeds the GST registration threshold, then they will not be required to register.
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