1 Is XXX making a GST-free supply of accommodation under section 38-250 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
1 Yes, XXX is making a GST- free supply of accommodation under section 38-250 of the GST Act. Question 2 Is XXX entitled to the input tax credits under section 11-20 of the GST Act for the acquisitions made in relation to the making of its supply of accommodation? Answer 2 Yes, XXX is entitled to the input tax credits under section 11-20 of the GST Act for the acquisitions made in relation to the making of its supply of accommodation provided the supply to them are taxable supplies.
You are registered for goods and services tax (GST). You are a non-profit organisation registered with the Australian Charities and Not-for-profits Commission (ACNC) and is an endorsed charity for GST purposes. XXX leased a property comprises self-contained units. Under the lease agreement, is required to maintain the property. Maintenance and other expenses include payment for electricity, water, pest control, and repairs. XXX rents out the units to pensioners of the local community (eligible tenants) on a long-term basis. Rent is charged nominally on a fortnightly basis and GST has not been included in the rent.
A New Tax System (Goods and Services Tax) Act 1999 section 9-5 A New Tax System (Goods and Services Tax) Act 1999 section 9-15 A New Tax System (Goods and Services Tax) Act 1999 section 9-30 A New Tax System (Goods and Services Tax) Act 1999 section 11-5 A New Tax System (Goods and Services Tax) Act 1999 section 11-20 A New Tax System (Goods and Services Tax) Act 1999 section 40-35 A New Tax System (Goods and Services Tax) Act 1999 section 38-250
Detailed reasoning Question 1 Under section 9-5 of the GST Act, a supply will be a taxable supply if: (a) you make the supply for consideration; and (b) the supply is made in the course or furtherance of an enterprise that you carry on; and (c) the supply is connected with the indirect tax zone; and (d) you are registered, or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. In this case, you supply the accommodation for consideration in the course of your enterprise of providing health care and social assistance. The supply is connected with the indirect tax zone as the supply is made in Australia, and you are registered for GST. However, we need to determine whether your supply is input taxed in accordance with section 40-35 of the GST Act or GST-free in accordance with Section 38-250 of the GST Act.
A supply of leasing residential premises is input taxed under section 40-35 of the GST Act. If your supply would be GST-free under section 38-250 of the GST Act, the supply would be both GST-free and input taxed. In that case, the supply would be GST-free according to subsection 9-30(3) of the GST Act. Subsection 38-250 of the GST Act provides that for nominal consideration of non-commercial activities of charities: (1) A supply is GST-free if: (a) the supplier is an endorsed charity, a gift-deductible entity or a government school; and (b) the supply is for consideration that: (i) if the supply is a supply of accommodation - is less than 75% of the GST inclusive market value of the supply; or (ii) if the supply is not a supply of accommodation - is less than 50% of the GST inclusive market value of the supply. You are an endorsed charity, and you are supplying accommodation housing to eligible tenants for consideration which is the rent you collect. For your supply of accommodation to be GST-free under subsection 38-250(1) of the GST Act, we need to consider if subparagraph 38-250(1)(b)(i) of the GST Act is satisfied.
Subparagraph 38-250(1)(b)(i) of the GST Act provides that a supply of accommodation that an endorsed charity makes is GST-free if the supply is for consideration that is less than 75% of the 'GST inclusive market value' of the supply. Section 195-1 of the GST Act relevantly defines 'GST inclusive market value' of a supply as meaning the market value of the supply of the thing in question without any discount for GST payable on the supply. The term 'market value' is however not defined for GST purposes. The Goods and Services Tax Industry Issues Charities Consultative Committee Non-Commercial activities of charities, cost of supply and market value tests ruling (CCC ruling), sets out market value guidelines to assist charities in determining an acceptable market value when applying provisions such as section 38-250 of the GST Act. Paragraph 35 of the CCC ruling, outlines the Commissioner's view that the market value of a thing for the purposes of section 38-250 of the GST Act, is a price that would be negotiated between a knowledgeable, willing and not anxious buyer, and a knowledgeable, willing and not anxious seller acting at arm's length in an appropriate market.
According to paragraph 38 of the CCC ruling, for the purposes of section 38-250 of the GST Act, a charity must apply the following successive tests in determining the market value of a supply of a thing, including accommodation: • the 'same supply test' - the charity must work out whether the same supply exists within the market they operate in • the 'similar supply test' - if no same supply exists, the charity must then work out whether a similar supply exists within the market they operate in, and • if no 'same supply' or 'similar supply' exists, the charity may use another methodology approved by the Commissioner to calculate the market value of the supply. If the same supply exists in the market, paragraphs 43 and 44 of the CCC ruling provide that the price of this supply is the market value that the charity should use in its calculations having regard to other charitable or commercial suppliers together with the: • identity of the market • locality of the supply or area of the market • quality or nature of the supply • size, quantity or duration of the supply
• conditions of supply and • number of comparisons. Paragraph 68 of the CCC ruling states that: ... where there are genuinely identifiable differences in the quality of the 'same supply', the charity needs to take into account those differences in establishing the market value of the supply it makes ... Further, paragraph 91 of the CCC ruling provides that the factors under the 'same supply test' are also relevant to the 'similar supply test'. The process of taking account of identifiable differences will involve qualifying those differing characteristics on a reasonable basis and adjusting the price of the 'same supply' to arrive at the market value of the supply you are making. However, paragraph 122 of the CCC ruling provides that charities making a range of supplies including supported accommodation and community housing (long term accommodation) can use the benchmark market values to work out the market values of their supplies. The link, GST and non-commercial rules - benchmark market values, in the ATO website provides the benchmark market value tables for charities to use as a reference point.
Based on the information provided and the relevant benchmark for your location and type of housing, the rent that you charge for your supplies of accommodation to the tenants will be for consideration that is less than 75% of the GST inclusive market value. Therefore, your supply of residential accommodation is GST-free under section 38-250 of the GST Act, as your supply is for consideration that is less than 75% of the GST inclusive market value. Furthermore, paragraphs 124 and 125 of the CCC ruling state that: Charities must keep and maintain records that adequately document the process and information collected in working out the relevant market values which the consideration of the supplies the charity makes is to be compared to. For example, the market values established and the methods used may be documented or minuted in the charity's books of account. This information should be captured in a way that will allow cross-referencing to accounting statements. It should also correspond to what is recorded on the charity's business activity statements.
You will the need to monitor the yearly benchmark market values and your pricing structure to ensure that the rent you charge is less than 75% of the GST inclusive market value for your supply to be GST-free. Question 2 Section 11-20 of the GST Act provides that you are entitled to the input tax credit for any creditable acquisition that you make. Section 11-5 of the GST Act provides that: You make a creditable acquisition if: (a) you acquire anything solely or partly for a creditable purpose; and (b) the supply of the thing to you is a taxable supply; and (c) you provide, or are liable to provide, consideration for the supply; and (d) you are registered, or required to be registered. You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making input taxed supplies or is of a private or domestic nature.
In your case, you are acquiring the goods and services for the expenses paid to maintain or repair the property you lease, in the course of your enterprise in providing accommodation and the acquisitions are not of a private or domestic nature. As determined in to Question 1 above, your supply of accommodation is GST-free. Therefore, your acquisitions would be for a creditable purpose. The supply of maintenance and other expenses including payment for electricity, water, pest control, and repair are a taxable supply if the supplier is registered for GST, for which you provide consideration for the supply and you are registered for GST. Therefore, under section 11-20 of the GST Act, you are entitled to claim input tax credits on acquisitions you make as you would be making creditable acquisitions.