GST and supply of accommodation: National Rental Affordability Scheme

Is the incentive received under the National Rental Affordability Scheme (NRAS) by an endorsed charitable institution consideration for the supply of accommodation for the purposes of determining whether the supply is GST-free under section 38-250 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

No. The incentive received is not consideration for the supply of accommodation for the purposes of section 38-250 of the GST Act.

The entity is an endorsed charitable institution.

The entity supplies accommodation in a dwelling for which it is eligible to receive a National Rental Incentive (Incentive).

The NRAS is an Australian Government initiative to stimulate the supply of new affordable rental dwellings. The Incentive is only available in respect of a dwelling that has not previously been occupied as a residence or, if the dwelling was unfit for occupation but has since been made fit for occupation, has not been occupied as a dwelling since becoming fit for occupation.

The legislative framework for the NRAS is provided through the National Rental Affordability Scheme Act 2008 (NRAS Act), the National Rental Affordability Scheme (Consequential Amendments Bill) Act 2008 and the National Rental Affordability Scheme Regulations (NRAS Regulations).

The NRAS Act and NRAS Regulations are administered by the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA).

Successful NRAS applicants are eligible to receive an Incentive for each approved dwelling which is rented to eligible low and moderate income households at a rate of at least 20 per cent below market rates. The income levels for tenants to be eligible tenants are specified in the NRAS Regulations.

Subject to eligibility, the Incentive will be provided to approved participants each year for 10 years (Incentive Period).

FaHCSIA seeks applications from potential participants for the allocation of Incentives under the Scheme and offers successful applicants allocations of Incentives in relation to the approved dwellings. Upon accepting an offer, an applicant becomes an approved participant in the Scheme.

The approved participant must lodge a Statement of Compliance for each approved dwelling with FaHCSIA by 13 May of each year of the Incentive Period. The Statement of Compliance contains information about each approved dwelling for the preceding NRAS year.

Using the information provided in the Statement of Compliance, FaHCSIA determines the extent to which an approved participant is entitled to receive an Incentive in relation to an approved dwelling for the preceding NRAS year.

An approved participant for an approved dwelling that has satisfied the conditions of the allocation for the period is entitled to receive the full amount of the Incentive.

Incentives are payable annually over a period of ten years. The amounts payable are $6,504 from the Commonwealth Government and $2,168 from the relevant State or Territory Government (the amounts are current for the 2009-10 year).

The amounts payable are not affected by the value of the particular property, and nor are they affected by the amount of rent normally charged for the property, or the extent to which the market rent for the property is discounted (provided the minimum 20% discount requirement is satisfied).

The amount of the Incentive to be paid for the period is proportionately reduced where: • the approved dwelling is made available to the Scheme for less than the full year; • the approved dwelling is vacant for a cumulative or continuous period of more than 13 weeks in the year; or • the approved dwelling is vacant for a continuous period of more than 13 weeks across two years during the Incentive period.

The entity has received an Incentive for the 2009-10 year. No reductions were applicable.

The NRAS Act and NRAS Regulations do not prescribe how an approved dwelling is to be used at the end of the Incentive period.

A supply of accommodation by an endorsed charitable institution is GST-free under section 38-250 of the GST Act where it is made for consideration which is less than either: • 75% of the GST inclusive market value of the supply (subparagraph 38-250(1)(b)(i) of the GST Act); or • 75% of the cost to the supplier of providing the accommodation (subparagraph 38-250(2)(b)(i) of the GST Act).

The term 'consideration' is defined in section 195-1 of the GST Act. Relevantly subsection 9-15(1) provides that consideration includes: • any payment, or any act or forbearance, in connection with a supply of anything; and • any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

Subsection 9-15(2) of the GST Act provides that consideration includes payments made voluntarily and payments made by persons other than the recipient of the supply.

Goods and Services Tax Ruling GSTR 2001/6: Goods and Services Tax : non-monetary consideration considers the question of what constitutes consideration under section 9-15 of the GST Act. Paragraph 50 of GSTR 2001/6 states: 50. Section 9-15 further provides that a payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply. Thus there must be a sufficient nexus between a particular payment and a particular supply for the payment to be consideration for that supply.

Paragraphs 71 and 72 of GSTR 2001/6 consider the issue of whether a sufficient nexus exists between a payment and a supply. These paragraphs state: 71. In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description that parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made. 72. The test as to whether there is a sufficient nexus is an objective test. The motive of the supplier and the recipient also may be relevant in determining whether the supply was made for consideration, if a reasonable assessment of the evidence supports that motive.

The legislative framework for the Scheme stipulates the conditions that must be satisfied in order for an approved participant to receive an Incentive. Included in these conditions is that the approved dwelling is rented to an eligible tenant and that the rent charged is at least 20% less than the market value rent for the dwelling. Where the dwelling is either not available to the Scheme for the full year or is vacant for more than the prescribed amount of time the approved participant may only be entitled to a proportion of the Incentive. These conditions would indicate that some connection exists between the Incentive and the use of an approved dwelling in supplying accommodation.

However, in determining whether the Incentive is included as consideration for the supply of accommodation for the purposes of determining whether the supply is GST-free under section 38-250 of the GST Act, the degree of the connection that exists between the payment of the Incentive and the particular supply of accommodation must be considered. The Incentive will only be regarded as consideration for the supply of accommodation where a sufficient nexus exists between the Incentive and that particular supply.

The following factors support a conclusion that the Incentive is not consideration for the supply of the accommodation.

The objective of the NRAS is to increase the number of affordable rental dwellings generally, rather than to supplement the rent payable by specific tenants for the provision of specific accommodation,

The amount of the Incentive bears no relationship to the value of the particular property concerned nor the amount of rental income foregone (other than the requirement to provide a minimum 20% discount on market value).

Provided the property is made available to the Scheme for the entire year, the full Incentive is payable even where the property was untenanted for a period of time (provided it was not untenanted for a continuous period of 13 weeks or more during the relevant year, or for a continuous period of 13 weeks or more across two years). Accordingly, the Incentive is not paid in relation to the provision of accommodation to specific tenants (other than the requirement for the tenants to satisfy certain means tests) for specific periods. Rather it is paid in recognition of the entity's participation in the Scheme.

The nature of the NRAS Incentive can be contrasted with the rebate considered in TT-Line Company Pty Ltd v. Commissioner of Taxation [2009] FCAFC 178; 2009 ATC 20-157; (2009) 74 ATR 771 ( TT-Line ).

In TT-Line , the issue considered was whether the payment of a rebate by the Commonwealth to the supplier of travel represented consideration for the supply of the travel. The aim of the scheme considered in TT-Line was to reduce the costs associated with the transport by sea of passenger vehicles across Bass Strait. Under the Scheme, the ferry operator would provide a rebate (in the form of a fare reduction on the scheduled fee) to passengers travelling to Tasmania across Bass Strait with their vehicles. The Commonwealth would, on a monthly basis, pay an amount to the ferry operator that precisely matched the total of rebates provided to passengers.

In analysing the scheme, the judgment noted that the scheme was focused on providing a rebate to the passenger and not to the supplier of the travel. The consideration for the supply of the travel was the aggregate of the amount actually paid by the passenger and the amount paid by the Commonwealth to the ferry operator in recognition of the specific rebate given to the passenger.

Accordingly, in TT-Line , the amounts paid by the Commonwealth precisely matched the amount of fare reduction offered to passengers. If no service was provided, no amount was payable. The NRAS Incentives on the other hand are not matched specifically to specific tenants for specific supplies of accommodation. In addition, the Incentive is payable even where the property remains untenanted for less than 13 weeks.

Although the objectives of both the NRAS and the scheme considered in TT-Line are similar in that they are designed to reduce the cost of specific services provided to consumers, the variations in how the schemes are structured result in different outcomes for GST purposes. While the government payments in TT-Line were considered part of the consideration for the supply of the transport service, the NRAS Incentives do not have a sufficient connection with the supply of the rental accommodation to be regarded as consideration for the supply of the accommodation.

For the reasons explained above, the NRAS Incentives are not regarded as consideration for the supply of accommodation for the purposes of determining whether the supply is GST-free under section 38-250 of the GST Act. Note 1 : the issue of whether an approved participant is required to remit GST on the payment it receives from the Commonwealth, State or Territory will depend upon whether the approved participant has made a taxable supply under section 9-5 of the GST Act. The principles outlined in Goods and Services Tax Ruling GSTR 2000/11: Goods and Services Tax : ' Grants of financial assistance' provide direction on this issue. Note 2 : Goods and Services Tax Ruling GSTR 2000/11 was withdrawn with effect from 30 May 2012. The matters addressed in GSTR 2000/11 are now dealt with in Goods and Services Tax Ruling GSTR 2012/2. The transitional provisions provide that entities can continue to rely on the views expressed in GSTR 2000/11 for payments made before 1 January 2013 if: (a) the arrangement between the parties was entered into before 30 May 2012 (the date of issue of GSTR 2012/2); and (b) the GST consequences concerning the treatment of financial assistance payments made under those arrangements are impacted by any conflict between the views expressed in GSTR 2012/2 and GSTR 2000/11. Note 3 : the eligibility for the payment of the NRAS Incentives is that the rent charged is at least 20% less than the market value rent for the dwelling. However, the supply of accommodation is only GST-free under section 38-250 of the GST Act where the consideration for the supply by an endorsed charitable institution is less than 75% of the GST inclusive market value of the supply or less than 75% of the cost to the supplier of providing the accommodation. As such, an endorsed charitable institution may satisfy the NRAS Incentives eligibility criteria but may not meet the requirements of section 38-250 and consequently may not be considered to have made a GST-free supply.

Date of amendment Part Comment 6 September 2013 Reasons for decsion Legislative References Related Public Rulings (including Determinations) Updated for the changes in the appropriations legislation which involved the repealing of 9-15(3) of the GST Act and replacing it with section 9-17 of the GST Act. This change was included in the "Tax and Superannuation laws Amendment (2012 Measures No:1) Bill: 2012

Date of amendment | Part | Comment

6 September 2013 | Reasons for decsion Legislative References Related Public Rulings (including Determinations) | Updated for the changes in the appropriations legislation which involved the repealing of 9-15(3) of the GST Act and replacing it with section 9-17 of the GST Act. This change was included in the "Tax and Superannuation laws Amendment (2012 Measures No:1) Bill: 2012