• GST and non-commercial activity rules for fringe benefits

    Under the non-commercial activity rules, supplies for nominal consideration by charitable institutions, trustees of charitable funds, gift-deductible entities or government schools are GST-free.

    A supply by these entities is GST-free where the consideration is either:

    • (if the supply is of accommodation), less than 75% of the GST inclusive market value or 75% of the cost of supplying the accommodation
    • (if the supply is of something other than accommodation), less than 50% of the GST inclusive market value or 75% of the consideration the supplier provided in acquiring the thing supplied.

    How does GST apply to fringe benefits?

    Providing a fringe benefit can be a supply for GST purposes. A supply is a taxable supply when you make it for consideration. The services of an employee can be consideration for these purposes. The GST liability on a taxable supply is one-eleventh of the price. The price of a taxable supply that is a fringe benefit is determined by reference to either:

    • the recipient's payment (where the benefit is a car fringe benefit)
    • the recipient's contribution (for any other benefit).

    The provision of goods or services by an employer to an employee or an associate of an employee is therefore a taxable supply. However, the GST liability is calculated with reference to the money and/or property contributed by the recipient of the benefit.

    An exception is where the benefit provided is a housing fringe benefit. The payment of recipient's rent by an employee is not taken into account in working out the GST payable on the supply and therefore does not create a GST liability to the provider.

    How do the non-commercial activity rules apply to a supply that is a fringe benefit?

    The consideration included in applying the non-commercial activity rules includes non-monetary forms of consideration. This broad definition of consideration has ramifications for applying these rules to benefits provided to employees (or their associates) of charities.

    As consideration may include services provided by employees, a charity must include the value of these services when applying the non-commercial activity rules where they represent consideration for a supply that is a fringe benefit.

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

     

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    GSTR 2001/6External Link Goods and services tax: non-monetary consideration

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    Example

    Hope charity buys a car for $30,000. Hope charity subsequently transfers the car to Luke who is 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 from Luke, the supply of the vehicle by Hope charity would be GST-free. This is because the consideration received was less than 75% of the original cost of the car.

    However, the consideration for the non-commercial activity rules will include the services provided by Luke. Luke's total remuneration, including the provision of the car at a discounted price, reflects the value of his services. The value of the services regarded as consideration for the supply of the car will equal the discount to the market value provided by Hope charity. The consideration for the supply will be $24,000 ($15,000 + $9,000). Therefore, the supply of the car by Hope 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, Hope charity has made a taxable supply and is required to remit GST of $1,364 (being one-eleventh of $15,000). The GST liability is calculated on the basis that the $15,000 represents Luke's contribution for a property fringe benefit.

    End of example

    How will this approach affect the supply of accommodation?

    The supply of residential accommodation is normally input taxed. In these circumstances, the supplier is not required to remit GST on the rent received, but is not entitled to claim input tax credits for the GST included in expenses incurred in providing the accommodation.

    As stated earlier, where the supplier of the accommodation is a charitable institution, a trustee of a charitable fund, a gift-deductible entity or a government school, the supply of accommodation may be GST-free in certain circumstances.

    In applying these non-commercial activity rules to a supply of accommodation that is a fringe benefit, the supplier must take account of the employee's services where they represent consideration for the supply of the accommodation. Where the value of these services and any other consideration is 75% or more of the GST inclusive market value of the accommodation provided, the supply of accommodation will not be GST-free and will be input taxed.

     

    Example

    Hope, a charitable institution, and John, an accountant employed by Hope negotiate a remuneration package whereby John receives $50,000 cash per annum and the right to occupy a house, owned by Hope rent free. In this instance, there are no circumstances which indicate that the services of John are not consideration for the supply of the accommodation. Therefore, the consideration for the supply will include the services of John. The value of the services that are regarded as consideration for the supply of the accommodation in this instance is considered to be equal to the GST inclusive market value of the accommodation. The supply of the accommodation by Hope will therefore be input taxed.

    End of example

     

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      Last modified: 06 May 2014QC 16698