Skip to content
State Government of Victoria logo
Service Agreement Information Kit for Funded Organisations

3.4.3 Goods and services tax

  • Disclaimer: this disclaimer must be read in conjunction with the content of this page.

Processing of GST

Goods and Services Tax (GST) is payable where all three of the below conditions are met:

  • An organisation, has an active Australian Business Number (ABN)

An Australian Business Number (ABN) uniquely identifies every Australian trading entity that has a relationship with the Australian Taxation Office (ATO), whether business, government or not-for-profit. Organisations need an ABN to register for GST. The department retains records relating to the ABN for each organisation. An organisation when entering into a new agreement with the department needs to provide the ABN that relates to the business entity that the service agreement will be with.

If the organisation is also the lead organisation for a consortium, the organisation will need to return the ABN and GST registration details for that consortium, in addition to its own GST and ABN details. The ATO provides a separate GST registration form for organisation groups/partnerships.

Further information on ABN registration is available on the ATO website ( external link, opens in new window,).

  • An organisation is registered for GST;

The ATO requires that all entities carrying out an enterprise must register for GST if their annual turnover is at or above the ATO threshold of $75,000 (for commercial organisations) or $150,000 (for non-profit organisations). This includes income from all sources, not just funding from the department. The ATO website (external link, opens in new window) provides further information on registering for GST.

  • The services supplied are a taxable supply.

Refer to the ATO website for a definition of taxable supply  (external link, opens in new window).

GST is not payable where:

GST is not payable if the organisation:

  • has an ABN but is not registered for GST
  • has no ABN -  If an organisation does not have an active ABN, a withholding tax of 46.5 per cent may be applied on the funding, subject to exceptions listed on the statement by a supplier - see ATO website for further information(external link, opens in new window). For example, a withholding tax may not apply for organisations without an ABN, where funding is a low-value, one-off grant approved for a self-help group. It should be noted the department does not normally fund organisations through the standard service agreement that do not have an ABN. 
  • the service agreement is with a government entity (for example, local government, government schools, public hospitals)provided that the non-commerciality test is met by the entity receiving funds
  • the services being supplied are not taxable supplies (applies to Disability individual support funding managed through a financial intermediary arrangement).
  • gifts' made to the organisation by the department are not subject to GST. A gift is defined as a transfer of funds where there is no contractual obligation attached to those funds.

GST payment process where GST is payable

The process for GST payment is as follows:

  1. The department will pay the organisation the agreed funding, plus any applicable GST, either upon receiving a tax invoice from the organisation, or issuing a Recipient Created Tax Invoice (RCTI), whichever applicable (see below).
  2. The organisation will remit the GST to the ATO.
  3. The department will claim GST from the ATO.

Recipient Created Tax Invoices

GST legislation requires that where a taxable 'supply' is made that a tax invoice must be issued that must comply with certain requirements by the ATO.

Where GST is payable to an organisation, the department will issue a Recipient Created Tax Invoice (RCTI) to an organisation. An RCTI is a tax invoice issued by the payer (funder) rather than the supplier (payee) where the funder knows how much the supplier is to be paid. Where an RCTI is issued, an organisation does not need to issue a tax invoice.

This arrangement also enables the department to make payments in advance to organisations.

Recipient Created Tax Invoice Agreement

Under the GST legislation where an RCTI is to be issued this needs to be agreed to in writing.

Under the current Service Agreement, by agreeing to the service agreement where GST is payable to the organisation, an RCTI arrangement is authorised under section 29-70 (3) of the A New Taxation System (Goods and Services Tax) 1999 (Cth).

The organisation and the department agree under this arrangement that:

  • the department is registered for GST and agrees that it will notify the organisation if it ceases to be registered for GST or ceases to satisfy any of the requirements of GST Ruling GSTR 2000/10
  • the department will reasonably comply with its obligations under the taxation laws
  • the department can issue a RCTI in respect of a taxable supply made to the department of goods or services provided by the organisation under the agreement and will provide a copy of each RCTI to the organisation and  retain the original
  • where an adjustment needs to be done in relation to GST, the department will issue a copy of each adjustment note to the organisation and retain the original
  • the department will not issue a document that would otherwise be an RCTI, on or after the date when it or the organisation has ceased to satisfy the requirements of GST Ruling GSTR 2000/10
  • the organisation will not issue tax invoices in respect of taxable supplies of goods or services to the department
  • the organisation acknowledges that it is registered for GST and has an active ABN and agrees that it will notify the department within seven days if it ceases to be registered.

If the RCTI arrangement is unable to be implemented or ceases, for a funding payment to be processed the organisation must issue a tax invoice to the department in respect to any taxable supply made to the department by an organisation.

Any repayment of funding that was subject to GST where the organisation issued a tax invoice to the Department must be accompanied by an adjustment note from the organisation.

Where the Department previously issued an RCTI to the organisation, the department should issue a Recipient Created Tax adjustment note in respect of repayment

Change to GST status of the organisation

If the GST status of the organisation changes during the term of the agreement, they must notify the department in writing within seven (7) days of the change.

A 'change' in this context would be an organisation becoming registered or deregistered for GST, or ceasing to have an active ABN.

Presentation of GST in the Service Agreement

The funding set out in the Service Agreement document is exclusive of GST. Where GST is payable, it will be added at the applicable rate (currently 10 per cent) to scheduled payments at the time payment is actually made.

This process is used to make transparent to organisations the funding related to service delivery and the separate GST component. This enables organisations to immediately identify the GST component of payments for the department's funding, which must be remitted to the ATO.

Further information

Organisations can refer to the A New Taxation System (Goods and Services Tax) 1999 (Cth) for further information related to GST. The Australian Taxation Office (external link, opens in a new window) website also provides information on the GST system.

If any organisation has any questions in relation to its taxation obligations, it should seek independent advice.