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Entity A, a charitable institution, owns land and buildings from which it makes or could make supplies of residential accommodation.

Supplies of residential accommodation by Entity A would be input taxed as they are made for consideration that is 75% or more of the GST inclusive market value of the supply and 75% or more of the cost to Entity A of providing the accommodation (sections 40-35 and 38-250 of the A New Tax System (Goods and Services Tax) Act 1999) (GST Act).

Entity A enters into a lease to supply the land and buildings to Entity B, an associated endorsed charitable institution.

The lease payments from Entity B to Entity A are recorded as book entries and no actual payments are made.

Entity B then provides the accommodation to residents.

The lease payments recorded from Entity B to Entity A serve to increase the cost to Entity B of providing the accommodation, so that the consideration to Entity B falls below 75% of the cost to the supplier of providing the accommodation.

Entity B treats the supplies of accommodation to residents as GST-free and claims input tax credits.