Specific questions and answers

Non-interpretative – straight application of the law

Question 1. What happens where a school or a charity sells a motor vehicle two years after purchasing it for less than 75% of the consideration the supplier provided (the original price) – will it be GST free despite the fact that the selling price may not be less than 50% of the market value for a similar second hand vehicle?

Assuming the school or charity supply the vehicle for less than 75% of the cost of acquiring the vehicle, the supply will be GST-free under section 38-250 of the GST Act. This is the case irrespective of whether the sale price is greater than 50% of the market value for a similar second hand vehicle.

Where the vehicle is sold to an employee, the GST consequences may differ. The sale of a vehicle to an employee at a discount to the market value would constitute the provision of a fringe benefit. Where a supply is subject to GST, the amount of GST payable is generally 1/11 of the price. The price of a taxable supply that is a fringe benefit is specifically defined. This amount corresponds to:

  • the recipients payment (where the benefit is a car fringe benefit), or
  • the recipients contribution (for any other benefit) that is made in a tax period.

But for this definition, the provision of goods or services by an employer to an employee or an associate of an employee would result in a GST liability regardless of the money and/or property contributed by the employee.

This is due to the broad definition of 'consideration' for GST purposes. This term will encompass services provided by an employee or some other service provider.

In determining the consideration for a supply of the car for the purposes of applying section 38-250 of the GST Act, consideration will include the services provided by an employee or any other service provider. Therefore, it will be rare for the supply of fringe benefits to employees or their associates to be GST-free under this provision.

GSTR 2001/6External Link provides guidance on how non-monetary consideration should be valued. In most circumstances where the parties are dealing at arm's length, we are of the view that the goods, services or other things exchanged are of equal GST inclusive market value.


A charity buys a car for $30,000. The charity subsequently transfers the car to an employee in return for a payment of $15,000. The market value of the car at the time of transfer is $24,000.

If the only consideration to be taken into account in applying the 'non-commercial' rules was the cash payment, the supply of the vehicle by the charity would be GST-free as the consideration received would be less than 75% of the original cost of the car.

The consideration, however, will include the services provided by the employee. The value of the services will equal the discount to the market value provided by the charity. The consideration for the supply will therefore be $24,000 ($15,000 + $9,000) and the supply of the car by the charity will not be GST-free as the consideration is greater than both 75% of the original cost of acquiring the vehicle and 50% of the GST inclusive market value of the car.

Consequently, the charity is required to remit GST of $1,364 (being 1/11 of $15,000). The GST liability is calculated on the basis that the $15,000 represents the recipient's contribution in respect of a property fringe benefit.

End of example

Question 2. Do company cars attract the full input tax credits regardless of any private use by employees of the company car? Does the organisation need to apportion any of the GST in the purchase of the car?

Non-interpretative – straight application of the law

Where a company car is a creditable acquisition to the organisation then the organisation would be entitled to full input tax credits. Full input tax credits are available from 1 July 2000 where the organisation would have been entitled to an exemption from WST on the purchase of the vehicle, if it still applied.

There may be fringe benefit tax implications where employees use the company car for private use.

Question 3. A charity sells a community hall. The hall has been used for both charitable activity and has also been hired out at commercial rates. How will the sale of the hall be affected by the introduction of the GST?

Non-interpretative – straight application of the law

The sale of the hall will be subject to the normal rules, as it does not matter how the hall was used prior to its sale. A hall would be a supply and if it met all other tests then it would be treated as a taxable supply.

Question 4. Will the sale of buildings owned by charities and organisations that use them for non-commercial GST-free activities be subject to GST? Is the sale of a gifted real property GST-free, regardless of changes made to that property or usage of that property?

Non-interpretative – straight application of the law

The sale of buildings regardless of their prior use is generally a taxable supply. However, there are some exceptions to this principle.

If the premises are, or are intended to be used for residential accommodation, the sale will be input taxed, unless the sale constitutes the sale of new residential premises.

An example of a new residential sale would be a church that has been turned into a residence and is sold for the first time as a residence. In this instance, the sale would be taxable.

However, if the church had acquired a property as a residential property, any subsequent sale (provided it was still used for residential purposes) would be input taxed.

Sales of gifted real property will not be GST free. Such sales will be treated in the manner described above.

    Last modified: 18 Nov 2013QC 27139