GST on grant funding to New Zealand entities
Any grant a New Zealand entity receives from the Crown is considered to include GST. However the New Zealand Government has agreed there is an exception for grants intended for international overseas development if certain conditions are met.
Any payment or part of a payment made by the New Zealand Aid Programme to a New Zealand organisation, on condition that is transferred to an overseas agency for overseas use, is not subject to GST provided that the payment is:
- transferred outside New Zealand and
- transferred to an organisation that is operating overseas at the time the payment is received by them, and
- used to acquire goods or services outside New Zealand.
GST must be returned to Inland Revenue on any part of the grant that doesn’t meet these conditions, such as funding kept and spent by the New Zealand entity (e.g. for NZ management costs) even if it is ultimately spent offshore.
What do you need to do?
All MFAT contracts are now agreed at a total grant value exclusive of GST. Any additional GST can be requested on top of the grant or any portion which attracts GST, at the time a payment is requested.
Therefore we require a valid New Zealand Tax invoice that specifies any GST applicable to each milestone payment. The total amount of GST will be based on your assessment of the part of each payment, which does not meet the conditions.
MFAT enters into a grant funding arrangement (GFA) with the New Zealand NGO Aotearoa In Action (AIA). The approved activity will be delivered by their overseas partner, Aotearoa In Action's (AIA) Samoa, and conditions around the transfer of funds to an overseas partner are included in the GFA.
The total grant value is $300,000 (GST exclusive), of which $280,000 will be immediately sent to AIA Samoa, and $20,000 will be kept by AIA New Zealand to cover management and evaluation costs. We expect to receive a NZ GST invoice requesting $3,000 of additional GST calculated:
|Total grant funding arrangement|
Milestone 1 – part transferred to Samoa
Milestone 1 – part retained in NZ
|Total - GST exclusive||$300,000|
|Total - GST at 15% x $20,000||$3,000|
|Total payment requested - GST inclusive||$303,000|
Who's responsible to Inland Revenue?
Each individual entity is responsible to account to the Inland Revenue and specifically to:
- take independent advice as to whether you need to be registered for GST
- clarify what legal GST obligations you must meet
- satisfy Inland Revenue as to your obligations.
MFAT can't offer legal advice on these matters - what you see here is for information purposes only. Use it as a first point of reference, but not as a substitute for legal advice