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Structuring to receive grant funding

Discussion in 'Accounting, Tax & Legal' started by frankie, 22nd Nov, 2011.

  1. frankie

    frankie Member

    14th Oct, 2007
    We may be successful in receiving a governement grant for improving infrastructure. The money is to pay for upgrading a health centre.

    If successful what vehicle needs to be established to receive the funding monies and then pay them out to contractor doing the works, without losing any cashflow to taxation.

    My thoughts:
    A pty ltd set up as a not for profit
    All money comes in goes out to pay contractors, end of project nil balance

    thank you for your input
  2. Shaunus

    Shaunus New Member

    27th May, 2008

    Hi Frankie,

    Interesting choice of vehicle, to be seen as a legitimate not for profit their are nine principals you either need to comply with.

    From the AASB:
    These criteria are not mutually exclusive and provide clarification or further support for determining the underlying substance of the entity to be classified.
    The most relevant criteria, ranking in approximate order, are:

    1. Is the substance of the not-for-profit definition explicitly included or excluded in legislation, associated regulations or in its constitution?

    2. Is the entity funded from the Government Budget to deliver, as its principal activity, goods &/or services for no or nominal cost to the beneficiary? (i.e. is the entity Budget dependent?)

    3. Do the financial targets of the entity reflect profit concepts or an objective to be commercially successful?

    4. Is the entity self-funding in the longer-term including raising sufficient revenue from its trading or provision of services to meet ongoing maintenance expenditures for all its assets and fund the replacement of the existing service potential of these assets?

    5. Does the entity pay tax or is it subject to tax equivalent reporting to the Government?

    6. Does the entity intend to pay or has been paying dividends and are the dividend targets expected to be equal to or greater than the long-term bond rate expressed as a rate of return on equity or contributed capital?

    Rejected Criteria:
    The following criteria have been rejected, as they do not provide a basis for discriminators as between for-profit and not-for-profit:
    1. A regulator sets prices.
    2. The entity is a monopoly provider
    3. The majority of revenue from its trading or provision of services is gained in a fully contestable market.

    Alternatively a trust structure may work better if you can not claim that the contractors are legitimate expenses. Because if they are and you are not making a profit then you won't need to pay tax on a PTY LTD.