• Section D. GST treatment of newsletters, magazines and journals provided by charitable institutions

    The following issues have been raised in relation to the GST treatment of newsletters, magazines and journals supplied by charities:

    1. Is the provision of a newsletter, magazine and journal (publication) by a charity registered for GST a taxable supply for GST purposes?
    2. Under what circumstances would the supply of a publication be GST-free?
    3. In connection with Issue 2, how does a charity work out the market value of its publications?
    4. In connection with Issue 2, how does a charity work out the cost of supplying its publications?
    Attention

    The term 'publication' does not apply to books. The international standard book number (ISBN) is used as a basis for determining whether a publication is a book.

    End of attention

    Issue 1: Is the provision of a newsletter, magazine and journal (publication) by a charity registered for GST a taxable supply for GST purposes?

    If a charity registered for GST supplies a publication for consideration (payment), this is taxable. It is not taxable however if it is provided for nominal consideration (see issue 2). In this instance, the charity is supplying a good (a publication which is a newsletter, magazine or journal) for consideration. As such, the requirements for a taxable supply are met, and the sale of the publication will be subject to GST.

    Issue 2: Under what circumstances would the supply of a publication be GST-free?

    If a charity makes a supply of a publication for consideration that is less than 50% of the market value of the supply (market value test) or less than 75% of the costs the charity incurs making the supply (cost of supply test), the publication will be GST-free.

    Example 1

    A charity produces and sells a magazine. Each magazine costs $3 to make and has a market value of $5. If it is sold for less than $2.50, it will be GST-free under the market value test. Only one of the two tests need be met in order for the magazine to be GST-free.

    If the magazine is sold for less than $2.25, it will be GST-free under both the market value test and cost of supply test.

    End of example

    Issue 3: In connection with Issue 2, how does a charity work out the market value of its publications?

    In order to minimise compliance costs, we have developed three methods for charities to use in working out a market value for the publications and books they sell, subject to the following rules, if a charity:

    • does not sell a publication to the public at large, the charity can choose to use either the 'benchmark' method or the 'cost plus' method
    • sells a publication to the public at large, the charity should use the 'general' method, or
    • sells a book, the charity should use the 'general' method.

    The 'general' method (the same supply test or similar supply test)

    The term 'market value' is not defined in the GST Act. For the purposes of the market value test, we consider that the market value of a thing is the price that would be negotiated between:

    • a knowledgeable and willing but not anxious buyer, and
    • a knowledgeable and willing but not anxious seller acting at arm's length in an appropriate market.

    Example 2

    A parents and friends (P&C) group of a non-government school engages a publisher to produce 1,000 copies of a cook book. The publisher assigns an ISBN to the book. The P&C group sells the cook books to the public at large.

    The P&C group can use either the 'same supply test' or 'similar supply test' in the market value guidelines – section B to work out the market value of the cook book.

    End of example

     

    Example 3

    A charity produces a magazine on environmental and conservation matters and sells them to the public at large. It can use either the 'same supply test' or 'similar supply test' discussed in the Market value guidelines – section B to work out the market value of the magazine.

    End of example

    The 'benchmark' method (the similar supply test)

    If a charity sells a publication to its clients only, and there are comparable supplies in the market, the charity can use the 'similar supply test' discussed in the Market value guidelines – section B to work out the market value of the publication.

    Example 4

    A health promotion charity only sells its newsletters to; clients and members who are sufferers of a disease, health professionals, carers and other interested parties. The newsletter features some advertisements of aids and equipment for sufferers of the disease.

    A similar supply to the newsletter sold by the charity is an investment newsletter which is of similar length, does not have a high level of advertising and focuses on industry specific issues. The price of the investment letter is the market value of the newsletter produced by the charity.

    End of example

     The 'cost plus' method

    When a charity sells a publication only to its clients and members, and there is no comparable supply in the market, the charity can use the following 'cost plus' method to work out the market value of the publication. The 'cost plus' method allows the charity to work out the market value by applying a mark up of 100% to the total of the following:

    • direct costs incurred – for example, materials and direct labour
    • a reasonable apportionment of indirect costs incurred – for example, marketing, administration, office expenses, electricity, telephone and insurance
    • depreciation of assets used, and
    • imputed costs for things such as volunteer labour, donated goods and services and free rent.

    Issue 4: In connection with issue 2, how does a charity work out the cost of supplying its publications?

    In working out the costs to supply its publications, a charity should include:

    • all direct costs incurred – for example, materials and direct labour, and
    • a reasonable apportionment of indirect costs incurred – for example, marketing, administration, office expenses, electricity, telephone and insurance.

    All direct and indirect costs incurred must be amounts paid (or payable) by the charity.

    The following things cannot be included because they do not involve an actual outlay by the charity:

    • depreciation of assets, and
    • imputed costs for things like volunteer labour, donations and free rent where the charity has not actually provided any consideration or incurred any real costs.

    Substantiation

    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 they make is being 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 reviewed regularly, for example, yearly or when prices or costs change.

    The treatment of advertising

    An advertisement in a publication is a supply of services and a publication is a supply of a good.

    A supply of advertising in a publication by a charity is GST-free, if the supply is:

    • for consideration that is less than 50% of the market value of the supply, or
    • is less than 75% of the costs the charity incurs in making the supply.
      Last modified: 18 Nov 2013QC 27139