• Section F. Supply of meals in boarding schools, university halls or colleges and other residential education facilities

    Applying the cost of supply test – meals supplied in boarding schools, university residential halls or colleges, and other residential educational facilities

    Some government schools and charities operate boarding schools. Some universities operate residential halls or colleges.

    For the purposes of this section, the term 'other residential educational facilities' is used to refer to the following types of residential halls or colleges, those operated by:

    • TAFEs and higher education institutions
    • charities and are affiliated with universities under the respective statutory provisions of the universities, and
    • charities and are affiliated with higher education institutions.

    Generally, this type of operator-supplier charges a student-resident a single fee for supplying the student-resident, with meals, accommodation and other things for a period. The period may be a term, a semester, an academic year or a school year. For GST purposes, the operator-supplier makes a bundle of supplies to the student-resident for the fee. In conducting its general operations, during the period, the operator-supplier may supply each student-resident with:

    • three meals per day, or
    • two meals per day on Mondays to Fridays and three meals per day on weekends and public holidays.

    Higher education institutions that are within the meaning of the Higher Education Funding Act 1988 are charities and gift deductible entities.

    TAFEs are gift deductible entities.

    Charities can apply a range of GST concessions. Some charities making the above supplies have been concerned about the application of the cost of supply test to their supplies.

    A supply (that is not a supply of accommodation) by a charity is GST-free if the consideration received for the supply is less than 75% of the consideration the charity provided, or was liable to provide, for acquiring the thing supplied.

    Further information

    For more information on:

    • the GST concessions available for non-profit organisations, and
    • the cost of supply test, refer to subparagraph 38-250(2)(b)(ii) of A New Tax System (Goods and Services Tax) Act 1999.
    End of further information

    Methodology for applying the cost of supply test - meals supplied in boarding schools, university residential halls or colleges, and other residential educational facilities

    The following methodology for applying the cost of supply test is approved for meals supplied in boarding schools, university residential halls or colleges, and other residential educational facilities where the actual costs cannot be established at the time of supply.

    This methodology is within the scope of the GST legislation and uses the principles explained in the cost of supply guidelines – section A It simplifies the administrative and compliance requirements for the supplier.

    To correctly calculate whether a supply is GST-free or taxable, the supplier must go through the following steps.

    Step 1: work out the cost of making a supply

    Estimate the projected costs of providing meals in a period (such as a term, a semester, an academic year or a school year) for which the supplier charges a student-resident a single fee.

    Estimate the total number of all meals to be provided in the period. The total number of meals provided includes:

    • meals provided to student-residents
    • free meals provided to supervising staff and guests
    • casual meals provided to other paying staff and students, and
    • meals provided (ordered) but not consumed, for example a student-resident elects not to eat a meal.

    Divide the projected costs for the period by the estimated total number of meals to be provided for the period to obtain the cost of supplying a meal.

    Attention

    We accept that when applying the cost of supply test, a supplier can include all direct costs (for example, food and kitchen staff wages) and a reasonable apportionment of indirect costs (for example, electricity and insurance). However, costs used must be real costs. Things like voluntary labour, donations, other imputed costs and depreciation can not be included. All projected costs must be realistic and must be aligned with other costing conducted when the supplier determines meal prices and the costs of providing a meal.

    End of attention

    Special functions

    If a supplier holds a special 'one-off' function, such as a valedictory dinner, the supplier may use Step 1 to work out the cost of supplying a meal in the function by using the following options.

    Option 1: treat the general operations and the special function together in estimating the projected costs and the total number of all meals. The cost of supplying a meal in the general operations is the same as the cost of supplying a meal in the special function.

    Option 2: treat the general operations and the special 'one-off' function separately. If the supplier chooses this option, it must isolate the projected costs and the number of meals provided at the special function when working out a separate cost of supplying a meal at the special function.

    In allocating costs to the special function, both direct costs and an appropriate proportion of indirect costs must be taken into account. To the extent that projected costs and number of meals have been included in the calculation of the cost of supplying a meal at the special function, they will not be included in the calculation of the cost of supplying a meal in the general operations. Therefore, the cost of supplying a meal in the special function may not be the same as the cost of supplying a meal in the general operations.

    Step 2: working out whether a supply is GST-free

    Divide the price that is charged for a meal by the cost of supplying a meal, worked out in step 1.

    As the supplier charges a student-resident a single fee for supplying the student-resident with meals, accommodation and other things for the period, the supplier needs to work out the 'price' it charges for the meals by apportioning the single fee on a reasonable basis (see 'Working out the consideration for the supply').

    If the supplier charges different prices for meals supplied to student-residents and others, such as non-resident students and staff, each price charged should be compared with the cost of supplying a meal to work out whether a supply of a meal for that price is taxable or GST-free.

    The supplier can not compare the average price with the cost of supplying a meal.

    If the price charged for a meal is less than 75% of the cost of supplying the meal, the supply will be GST- free.

    If the price charged is equal to or more than 75% of the cost of supplying the meal, it will be subject to GST.

    Example 1: applying the methodology to meals supplied in boarding schools, university residential halls or colleges, and other residential educational facilities

    A government boarding school provides facilities for 50 junior boarding students, 40 senior boarding students and five supervising staff. It provides three daily meals to each boarding student and supervising staff.

    In the 2009 school year comprising 260 days, the school estimates it will supply:

    • 70,200 ((50 + 40) x 3 x 260) meals to 50 junior boarding students and 40 senior boarding students for fees
      • 3,900 (5 x 3 x 260) meals to five boarding school supervising staff free
      • 9,000 lunches to paying staff and day students, and
      • 500 dinners to paying guests at a special 'one-off' function.
       

    The school estimates that the cost of providing meals for the 2009 school year is $500,000. The estimated cost for providing meals at the special 'one-off' function of $50,000 is included in this cost.

    The school has the following meal prices:

    General operations  

    Three daily meals supplied to a junior boarding student

    $11.50

    Three daily meals supplied to a senior boarding student

    $12

    A lunch supplied to a staff member or a day student

    $6

    Special function

     

    A dinner

    $100

    The boarding school estimates total number of meals supplied as follows:
    General operations comprising all meals supplied to boarding students and supervising staff, and lunches supplied to paying staff and day students
     
    83,100 meals

     

    Special function comprising 500 dinners

     

    500 meals

     

    Option 1:treating the general operations and special function together

    The estimated costs are $500,000.

    The estimated total number of meals supplied is 83,600 (70,200 + 3,900 + 9,000 + 500).

    The cost of supplying a meal is $5.98 ($500,000/83,600).

    75% of the cost of supplying a meal is $4.49 (75% x $5.98).

    75% of the cost of supplying three daily meals is $13.47 (3 x $4.49).

    A supply of three daily meals to a junior boarding student will be GST-free ($11.5 is less than $13.47).

    A supply of three daily meals to a senior boarding student will be GST-free ($12 is less than $13.47).

    A supply of a lunch to a staff member or day student for $6 will be taxable ($6 is greater than $4.49).

    A supply of a dinner in the special function for $100 will be taxable ($100 is greater than $4.49).

    Option 2:treating the general operations and special function separately

    General operations

    Estimated costs for providing meals in general operations are $450,000 (($500,000 - $50,000).

    The estimated total number of meals provided in the general operations is 83,100 (70,200 + 3,900 + 9,000).

    The cost of supplying a meal in the general operations is $5.42 ($450,000/83,100).

    75% of the cost of supplying a meal is $4.06 (75% x $5.42).

    75% of the cost of supplying three daily meals is $12.18 (3 x $4.06).

    A supply of three daily meals to a junior boarding student will be GST-free ($11.5 is less than $12.18).

    A supply of three daily meals to a senior boarding student will be GST-free ($12 is less than $12.18).

    A supply of a lunch to a staff member or day student for $6 will be taxable ($6 is greater than $4.06).

    Special function

    Estimated costs for providing dinners in the special function are $50,000.

    The estimated total number of dinners provided in the special function is 500.

    The cost of supplying a dinner in the special function is $100 ($50,000/500).

    75% of the cost of supplying a dinner is $75 (75% x $100).

    A supply of a dinner in the special function for $100 will be taxable ($100 is greater than $75).

    End of example
      Last modified: 18 Nov 2013QC 27139