1 Is the entity making GST-free supplies under subsection 38-250(2) of the A New Tax System (Goods and Services Tax Act 1999 when it provides admissions?
1 Yes, the supplies are GST-free. This ruling applies for the following periods: • tax periods from 1 October 20XX - 30 June 20XX
The entity is a not-for-profit charity and deductible gift recipient and is registered for GST. The entity provides entry to a venue. In addition to the admission fees charged to the general public, the entity receives income from other sources including from commercial activities. The entity has undertaken an analysis of the costs incurred in relation to providing admission to the venue. This is to allow it to determine whether the prices it charges is less than 75% of those costs.
A New Tax System (Goods and Services Tax) Act 1999 section 38-250
A supply is GST-free under subsection 38-250(2) of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if: • the supplier is an endorsed charity, a gift-deductible entity or a government school; • the supply is for consideration that is less than 75% of the consideration the supplier provided, or was liable to provide, for acquiring the thing supplied. The entity is a charity and deductible gift recipient registered with the Australian Charities and Not-for-profits Commission (ACNC). As such, if the price of admission for entry into the venue is less than 75% of the costs incurred to provide that entry, then the supply of admission is GST-free.
When calculating the cost of providing admissions, the entity can include all direct costs incurred (such as materials and direct staff costs) as well as a reasonable apportionment of indirect costs incurred (such as marketing, administration, office expenses, electricity, and insurance). However, only amounts that have been paid or are liable to be paid can be included. This is because subparagraph 38-250(2)(b)(ii) of the GST Act states that it is the 'consideration the supplier provided or was liable to provide for acquiring the thing supplied'. As the entity also undertakes commercial activities, costs which relate to both the commercial activities as well as the admissions will need to be apportioned to determine the proportion of those costs which related to the admissions. Goods and Services Tax Ruling GSTR 2006/4 Goods and services tax: determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose
(GSTR 2006/4) provides guidance on acceptable methods of apportionment. Although it is specifically focussed on the use of acquisitions for the purposes of claiming input tax credits, the discussion of apportionment in GSTR 2006/4 is relevant wherever apportionment is required. It states: 32. You may choose your own apportionment method, but the method you choose needs to be fair and reasonable in the circumstances of your enterprise. It needs to appropriately reflect the intended or actual use of your acquisitions or importations. 33. The 'fair and reasonable' principle was used by the High Court in Ronpibon Tin v. FC of T (1949) 78 CLR 47 ( Ronpibon
), in the context of the apportionment of expenditure serving more than one object 'indifferently'. The High Court did not, in that case, apply this principle in relation to the allocation of specific acquisitions wholly to specific ends, or to apportioning items of expenditure 'distinct and severable parts of which' can be identified as being devoted to such specific ends. The Commissioner's view is that the 'fair and reasonable' principle applies equally to the choice of method for allocating or apportioning acquisitions in all circumstances. 34. Following the principles set out by the High Court, the apportionment method you choose needs to: • be fair and reasonable; • reflect the planned use of that acquisition (or in the case of an adjustment, the actual use); and • be appropriately documented in your individual circumstances ... Paragraphs 98 - 100 of GSTR 2006/4 expand on the decision in Ronpibon and, at paragraph 99, states:
99. The High Court therefore emphasised the necessity of considering the facts of individual cases. Where items of expenditure ('acquisitions' or 'importations' in the context of GST) are not referable to a particular object, then apportionment is required using a method which results in a fair and reasonable reflection of the relation of the expenditure to assessable income. The overriding principle in any method of apportionment is that it is fair and reasonable in the particular circumstances to which it is applied. The methods utilised by the entity are a reasonable estimation of the costs incurred to provide the supplies of admissions. Furthermore, no distorting factors are evident in the methods adopted. The prices of the supplies of admissions and the costs incurred by the entity in providing those supplies results in the supplies being made for consideration that is less than 75% of the consideration that the entity has provided (or is liable to provide) for making those supplies. Consequently, the supplies of admissions are GST-free under subsection 38-250(2) of the GST Act.