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  • Issue 1: How does an entity make a distinction between 'commercial' and 'non-commercial' activities using the 'cost of supply' and 'market value tests'?

    This issue including the sections, tables and issues contained in it, is a public ruling for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953.

    An entity may have difficulty in benchmarking the market value of its supplies where it holds an 'exclusive' market share, for example, crisis accommodation.


    The non-commercial supply rules listed in section 38-250 mean that anything supplied by a charity is GST-free if the payment, or consideration for the supply is either:

    • less than 50% of the GST inclusive market value – this does not include accommodation which is less than 75% of the GST inclusive market value, under subsection 38-250(1),or
    • less than 75% of the 'cost of supply' under subsection 38-250(2).

    This means the commercial activities of charities will generally be taxable or input taxed, but the non-commercial supplies by charities will be GST-free. In these situations, it is the supply that is GST-free not the 'supplier'.

    For more information, refer to section 38-250, in particular:

    • subsection 38-250(1)
    • subsection 38-250(2).

    To assist charities in working out the difference between 'commercial' and 'non-commercial activities', we have developed:

    • the 'Cost of supply' guidelines for the purposes of applying subsection 38-250(2) – Section A
    • the 'Market value guidelines' for the purposes of applying subsection 38-250(1) – Section B
    • the 'Benchmark market values' for the purposes of applying subsection 38-250(1) – The benchmark market values are contained in GST and non-commercial rules – benchmark market values. This fact sheet is updated annually to reflect changes in the benchmark market values. New benchmark market values take effect from 1 January each year. .

    More information can also be found in:

    • GST treatment of newsletters, magazines and journals provided supplied by charities – Section D.
    • Application of the cost of supply test to tickets supplied by organisations in the cultural and performing arts sector – Section E
    • Supply of meals in boarding schools, university residential halls or colleges, and other residential educational facilities – Section F.
    • Supply of accommodation in university residential halls or colleges, and other residential educational facilities – Section G.
    • The 'Specific questions and answers' sections.

    The 'Benchmark market values' provide a basis (benchmark) of the market value of a range of supplies for charities to use as a reference point. Charities making the following supplies can use the Benchmark market values to determine the GST inclusive market values of those supplies:

    • supported accommodation and community housing (long term accommodation)
    • crisis care (short term and long term accommodation as appropriate)
    • retirement villages (long term accommodation)
    • other residential housing (long term accommodation), and
    • 'Meals on wheels', charity 'soup kitchens' and other charities that provide or supply meals to the frail, homeless or needy (food guidelines).

    Working out the payment (consideration) for the supply

    In general terms, charities are required (by section 38-250) to compare the consideration it receives for a particular supply against the market value, or cost of the supply.

    Difficulties may arise if a charity receives a single amount for making a mixed supply that has taxable, GST-free or input taxed components. Each component is a supply in its own right and is separately identifiable. For example, a charity operating a boarding school may charge a single fee covering tuition, accommodation and meals. To be able to correctly apply section 38-250, the fee must be apportioned to establish the part of the fee that relates to each of those supplies.

    Section 38-250 does not provide a specific method to work out the consideration for the supply. We consider that a charity can use any reasonable method to apportion the consideration received for each supply. Charities must be able to show that their method is reasonable and supportable in their particular circumstances.

    In the boarding school example, the charity may use the cost of making each component of the mixed supply as a basis for apportioning the consideration. To use this basis, the charity first works out the cost of providing each component. It then works out the consideration for supplying a component by apportioning the consideration received. This is done in the ratio of the cost of that component to the total cost. If a charity worked out that the cost of supplying meals represented 30% of their total cost of making the mixed supply which they received consideration for, the consideration for the supply of meals would be 30% of the total consideration received.

    We would consider this kind of method acceptable so long as the costs worked out by the charity are reasonable and relevant to the costs and industry practice for any mark up applied.

    Charities must keep records that explain the method they use to apportion consideration for a mixed supply. For more information, refer to section 382-5 of Schedule 1 to the Taxation Administration Act 1953 (TAA).

      Last modified: 21 Dec 2020QC 27139