ATO Interpretative Decision
ATO ID 2012/78 (Withdrawn)
Goods and Services TaxGST and supplies made by endorsed charitable institutions for nominal consideration
FOI status: may be released
This ATO ID is withdrawn as the current ATO position on this issue is contained in GSTD 2013/4.This document has changed over time. View its history.
Status of this decision: Decision withdrawn 21 February 2014
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Can an entity, an endorsed charitable institution, include the consideration provided for acquiring capital items when calculating the cost of making a supply in a period under subparagraph 38-250(2)(b)(ii) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Yes. The entity can include as the consideration provided for acquiring each capital item:
- an amount equivalent to the decline in value amount for the capital item for that period consistent with Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997), or
- the consideration provided for the capital item in that period.
In either case, an apportionment of the consideration provided is required if the capital item is not used solely for the making of the supplies in the period - see Example 1.
The entity is an endorsed charitable institution registered for goods and services tax (GST).
The entity operates a zoo and makes supplies of zoo admissions for consideration.
The entity acquires a number of things such as the animals, the enclosures, the parks and gardens and other facilities for the purposes of making those and other supplies.
Reasons for Decision
All legislative references in this ATOID are to the GST Act unless otherwise stated.
Subparagraph 38-250(2)(b)(ii) provides that a supply (that is not a supply of accommodation) made by an endorsed charitable institution is GST-free if the supply is for consideration that is less than 75% of the consideration the supplier provided, or was liable to provide (the consideration provided), for acquiring the thing supplied.
A strict literal interpretation of the phrase 'acquiring the thing supplied' would mean that subparagraph 38 250(2)(b)(ii) would only apply where the things acquired are the things supplied. This would restrict the operation of the provision to a narrow ambit (such as an endorsed charitable institution acquiring a blanket for the purposes of making an on-supply of the blanket).
Accordingly, we consider the phrase 'acquiring the thing supplied' should be interpreted to include both things that are acquired and on-supplied and things that are acquired and 'used' in combination in making a supply of something else.
The calculation of whether a supply is GST-free under subparagraph 38-250(2)(b)(ii) is relatively straight forward if the thing acquired is the same thing as that supplied.
However, this may not be the case for supplies made in the performing arts or similar sectors. This is because the thing supplied (however described) is not necessarily the thing acquired, but is often made up of a combination of a number of things.
With a zoo admission, the visitor's experience is a combination of the animals, the enclosures, the parks and gardens and other facilities. In making the supplies of zoo admissions the entity needs to acquire these and other things. Most are not on supplied to the visitors of the zoo. Rather, they are 'used' by the entity to make a supply of zoo admission.
The things used to make the supply may include both recurring (or revenue) items (such as animal feed and services of zoo keepers) and capital items (such as buildings, or plant and equipment).
Where the entity uses a recurring (or revenue) item to make supplies of a kind, such as zoo admissions, the consideration provided is generally the price it pays for the item. Where such an item is only partly used to make supplies of a kind, the consideration provided is only a proportion of the price paid. This proportion equals the proportion of the item used to make those supplies.
For capital items, the consideration provided is often not so clear.
The Goods and Services Tax Industry Issues: Charities Consultative Committee Resolved Issues Document (the CCC document) in the section titled Non-commercial activities of charities, cost of supply and market value tests, provides the methodology for working out the 'cost of supply' for purposes of subparagraph 38-250(2)(b)(ii). It states that when applying the cost of supply test, entities can include all direct costs and a reasonable apportionment of indirect costs. However, costs used must be real costs.
Under this methodology, the consideration provided for acquiring capital items used to make supplies of a kind is included in the period in which the consideration is paid (or is liable to be paid). For example, if a capital item used to make supplies of a kind is acquired in a period and the total consideration of $1m is paid in that period, an entity can include $1m in the calculation for that period (even though the item may relate to making supplies over a number of periods into the future).
However, capital items are not generally consumed in making supplies in the period in which they are acquired. They normally have an effective life and are used by the entity to make supplies over a number of periods.
To reflect this, for purposes of subparagraph 38-250(2)(b)(ii), where the entity uses a capital item to make supplies of a kind in a period, the consideration provided is a proportion of the price paid. This proportion is generally equal to the portion of the effective life of the item falling within the period. For example, if a capital item acquired on 1st July has an effective life of ten years, the consideration provided in that period for acquiring the item is 1/10th of the cost of the item (where a capital item is only partly used to make supplies of a kind, the consideration provided needs to be apportioned further to take into account the proportion of the item used to make those supplies).
In that regard, the decline in value for income tax purposes is a good example of apportioning the total consideration provided over the effective life of an asset.
Therefore, for the purposes of subparagraph 38-250(2)(b)(ii), in calculating the consideration provided for acquiring capital items used in making the supplies of a kind in a period, it is reasonable, as an alternative to the method currently provided for in the CCC document, for an entity to include an amount equivalent to the decline in value amount for that capital item for that period consistent with Division 40 of the ITAA.
Entities must use one method or the other for each capital item.
Entities cannot include in a calculation any amount for a capital item that has been included in a previous calculation.
Entity ABC, an endorsed charitable institution, uses the financial year as the period for its subparagraph 38-250(2)(b)(ii) calculations. On 1 July 2013 it pays $1m for a capital item.If the capital item is used solely for making the supplies being considered, it can choose to include in the calculation for the 2013-2014 financial year:
A New Tax System (Goods and Services Tax) Act 1999