The GST trap of Sponsorship, Grant and Donation

such beautiful mature bamboo

In BT today, Wong Sze Teen and Yeo Kai Eng, GST experts from Ernst & Young, wrote an article on the implication of GST on sponsorship, government grants and donation.

I will cover issues on sponsorship and grants first.

Situation
Company X gives $1,000,000 to Company Y as sponsorship for a certain event that Company B is organising. Assuming both are GST-registered.

What is the Rule?
IRAS said sponsorship will not attract GST if company X:-
- did it voluntarily without any obligation and;
- did not receive any tangible benefits in return.

Failing which, company Y would have to issue a GST-tax invoice to company X.

For what amount should the invoice be issued on?
Answer - It depends on the market value of the benefits company Y would have to give to company X.

If market value of benefits < $1,000,000 eg. $800,000, company Y would have to issue an invoice for $800,000 inclusive of GST. Thus company Y would have to account for output GST of $52,236.45 to IRAS. Company X could then account for input GST of the same amount.

Any difficulty?
Firstly, when is a benefit given is considered a benefit given?
Secondly, company Y would have to determine the market value the benefits granted.

Government Grants
Generally and simply said - Attracts no GST to both the Giver and Recipient.