• Section G. Supplies of accommodation in university residential halls or colleges and other residential educational facilities

    Methodology for applying the market value guidelines to accommodation supplied in university residential halls or colleges, and other residential educational facilities

    In consultation with the Australian Valuation Office, the following methodology for applying the market value guidelines to accommodation supplied by charities, in university residential halls or colleges, and other residential educational facilities has been approved for use by charities.

    This methodology is within the scope of the GST legislation and uses the principles explained in the Market value guidelines.

    A supply of accommodation by a charity is GST-free if the consideration received for the supply is less than 75% of the GST-inclusive market value of the supply.

    To work out correctly whether a supply of accommodation is GST-free, charities must compare its own supply of accommodation with another supply of accommodation in the market that has the same qualities as its supply. These qualities would include:

    • types of accommodation such as single rooms, shared rooms or studios
    • the accommodation is available for long term occupancy
    • the quality of the fittings of the room
    • whether the rooms are serviced daily, weekly or not at all, and
    • the amenities or facilities that are provided in the supply of accommodation – these need to be separate from those available to all students attending the university whether residential or external.

    Charities can compare their supply with those made by other charitable institutions or profit making organisations. The charity can use the 'similar supply test' if the 'same supply test' does not apply.

    There is no requirement for the charity to obtain a professional valuation of its supply by a licensed valuer. The charity can undertake a valuation of its supply by comparing it with other supplies in the market. This should be based on information and evidence available. The general principles explained in the 'Market value guidelines' must be used regardless of whether the charity chooses to obtain a professional valuation. Also, the charity must keep sufficient records of the accommodation with which it compares its supply.

    A valuation should not be done on the basis of cost or replacement. While the cost or replacement cost at times will be the same as the market value, there will be occasions when the market is depressed or inflated and it may be different. The charity must undertake a market rental value comparison and support this with documentary evidence.

    If there are genuinely identifiable differences in the quality of the supply the charity makes and the quality of the other supply in the market, the charity must take into account those differences when establishing the market value of its supply.

    To do this, the charity can make reasonable adjustments to the price of the supply in the market to reflect the superior or inferior quality of the supply it makes. As such, the charity can adjust the price of the supply in the market by doing the following:

    • identify the supply in the market and the related price
    • identify all differing characteristics shown in the quality of the supply when comparing with the supply the charity makes
    • quantify those differing characteristics on a reasonable basis, and
    • use the quantified values of those differing characteristics to adjust the price of the supply in the market.

    The charity must maintain documentary evidence for each of the above steps taken.

    This process adjusts or modifies the supply in the market so that it has the same quality as that of the charity's supply. The price calculated for the modified or adjusted supply is the market value of the supply the charity makes. This worked out market value must represent an amount a willing but not anxious purchaser is prepared to pay.

    For example, a certain supply of accommodation in the market has one feature which is clearly of a better or lesser quality than the accommodation supplied by the charity (such as a bathroom). In this case, the charity should work out what the market generally accepts as an appropriate adjustment for this feature and keep documentary evidence to support this adjustment.

    If an adjustment is made without supporting evidence, the market value will be established without taking into account the adjustment.

    Some valuation methods are not appropriate for the purposes of working out the market value of accommodation in university residential halls or college. For example:

    • adding a premium to reflect a high demand for the particular premises
    • adding a premium to compensate for students occupying a room for a 30 or 40 week term
    • adding a premium for access to nearby community amenities such as a swimming pool
    • adding a premium for the accommodation being located on campus
    • including amenities which are available to the wider community such as security for walking to car parks on university campuses, 24 hour access to sporting facilities, and
    • including things which are not appropriate to be deemed part of the supply of accommodation.
    Further information

    For more examples of this, refer to GSTR 2001/1External Link Goods and services tax: supplies that are GST-free for tertiary education courses, in particular paragraph 156.

    End of further information

    We consider that these types of adjustments are already part of the market value of accommodation with which the charity would be comparing its supply. The market value has already been adjusted to make provision for those factors so a further adjustment is not appropriate.

    Market value obtained as a result of a professional valuation or where the supplier undertakes their own market valuation.

    Some universities operate residential halls or colleges. For the purpose 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, such an operator-supplier charges a student-resident a single fee for supplying the student-resident with accommodation, meals and other things for a period. The period may be a term, a semester or an academic year. For GST purpose, the operator-supplier makes a bundle of supplies to the student-resident for the fee.

    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 supplies to student-residents of accommodation in university residential halls or colleges and other residential educational facilities have been concerned about working out the market value of a supply of accommodation to a student-resident under the market value guidelines.

    A supply of accommodation by a charity is GST-free if the consideration received for the supply is less than 75% of the GST-inclusive market value of the supply.

    A charity must work out the market value of a supply of accommodation. However, the GST law does not require charities to obtain a professional valuation of the supply of accommodation by a licensed valuer. For the purposes of assisting charities to work out the market values, we have developed the Market value guidelines – section B for charities to use.

    If a charity has not used the 'Market value guidelines' appropriately, adjustments may be required in the future.

    Further information

    For more information on:

    • the GST concessions available for non-profit organisations, and
    • the market value test, refer to subparagraph 38-250(1)(b)(i) of A New Tax System (Goods and Services Tax) Act 1999.
    End of further information
    Defining market value

    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.

    Defining market rental value

    Market rental value has been defined by the National Board of the Australian Institute of Valuers and Land Economists as:

    '…the estimated amount for which premises should rent, as at the relevant date, between a willing lessor and a willing lessee in an arm length's transaction, wherein the parties had each acted knowledgeably, prudently, and without compulsion, and having regard to the usual market terms and conditions for leases of similar properties.'
    Market value guidelines

    When working out the market value of a supply as part of the 'market value guidelines', the charity must apply the following successive tests:

    • the charity must work out whether the same supply exists in the market it operates in. This is referred to as the 'same supply test'. If the same supply exists in the market, the price of the supply as defined by the market is the market value that the charity should use.
    • if no 'same supply' exists, the charity must then work out whether a similar supply exists in the market it operates in. This is referred to as the 'similar supply test'. If a similar supply exists in the market, the price of the supply as defined by the market is the market value that the charity should use.
    • if no same or similar supply exists, the charity may seek approval from the Commissioner of Taxation to use a methodology to work out the market value of the supply. This is referred to as the 'third test'.

    These tests are successive when working out the market value of a supply. They are not alternative tests. If a charity identifies a same supply in the market, the price charged by the other supplier is the market value of the supply the charity makes. The charity cannot then calculate the market value of the supply it makes by reference to the similar supply test or the third test. We consider that either the same supply test or the similar supply test would generally establish a market value and the third test would be rarely used.

    Record keeping for supplies of accommodation

    Charities should keep and maintain records that adequately document the process and information collected in working out the relevant market values. 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 such a way that will enable cross-referencing to accounting statements. It should therefore correspond with what is recorded on the charity's business activity statements.

    Documentary evidence identifying the accommodation the charity supplies can include:

    • address and location of accommodation
    • features or amenities of accommodation
    • standard or quality of accommodation
    • photographs or pamphlets of accommodation types or styles, and
    • any other relevant information.

    Documentary evidence identifying other supplies of accommodation in the market to compare with includes:

    • records of rents for the accommodation such as newspaper advertisements, written information from boarding houses or written records of enquiries made with other suppliers
    • address and location of accommodation
    • features or amenities of accommodation
    • standard or quality of accommodation
    • photographs or pamphlets of accommodation types or styles, and
    • any other relevant information.

    If a charity has instructed a licensed valuer to provide a professional valuation of the supply the charity makes, a copy of the valuation report.

    Review of valuation

    Charities should monitor the market in which they make the supply to ensure that they will respond promptly to any material changes in the market.

    Changes in market conditions include, amongst other things:

    • suppliers entering or leaving the market
    • changes in quality of the supplies as a result of different consumers' expectation
    • changes in input costs, and
    • changes in prices charged.

    Input costs include real costs such as direct and indirect costs incurred, depreciation and imputed costs.

      Last modified: 18 Nov 2013QC 27139