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Edited version of private ruling

Authorisation Number: 1011534744472

Ruling

Subject: GST and membership

Question 1

Is the supply of your membership (A) GST-free for the purposes of subparagraph 38-250(1)(b)(ii) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer: Yes

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You are endorsed as a charitable institution for GST purposes.

You provide 2 types of membership - A and B membership.

Membership A cost is less than $50 per year.

Membership A is associated primarily with volunteers.

Membership A entitles your members to certain rights and services, including coverage within a fixed area.

Members A also receive access to recognised training at a price that covers your costs, including a specialised course at no cost (which is valued at over $10,000).

You have been unable to locate an entity that provides the same supply of membership in the same market that you operate in.

The only commercial entity that you know that provides a comparable service is entity X.

Entity X is an international business with a location in Australia.

Entity X membership fee is in excess of $150 per year.

Entity X membership provides a range of services that are comparable to your membership A services.

You advise that there are several differences between the two compared membership services. The first is that Entity X's membership does not provide a coverage to the degree that you do and also does not provide the specialised training courses/packages (valued at over $10,000).

Summary

Your supply of membership A will be GST-free for the purposes of subparagraph 38-250(1)(b)(ii) of the GST Act if you charge a price that is less than 50% of the GST-inclusive market value of the supply. Based upon the information you have provided (that is using the Entity X membership as a similar supply), we are satisfied that you meet this requirement and your supply of membership A is GST-free.

Detailed reasoning

Section 38-250 of the GST Act deals with the non-commercial activities of charitable institutions. Subsection 38-250(1) of the GST Act states:

You are endorsed as a charitable institution for GST purposes.

In order to determine whether or not the supply of membership you provide is GST-free, you need to ascertain whether or not the consideration you receive for the supply is less than 50% of the GST inclusive market value of the supply under subparagraph 38-250(1)(b)(ii) of the GST Act.

The Australian Taxation Office (ATO) has issued Market Value Guidelines in the Charities Consultative Committee Resolved Issues document (CCCRID), to assist charities and other organisations in establishing whether their supplies are GST-free under subsection 38-250(1) of the GST Act. The Tax Office guidelines provide that in determining the GST inclusive market value of a supply, a charity must apply the following successive tests. These guidelines are located on the ATO website.

Firstly, the charity must establish whether the same supply exists within the market they operate in (referred to as the 'same supply test'). Where it does, the price of the supply as defined by the market is the market value that the charity should use. The other suppliers in the market may be charitable or profit making organisations.

Secondly, if no other organisation offers the same supply, the charity may identify similar supplies that exist in the open market and calculate the market value of its supply by reference to the prices charged for those supplies (similar supply test). When establishing the market value of a service, the charity should seek to compare the services it offers with services of a similar nature and quality, of similar size or time length, and with similar conditions.

Whilst it is unrealistic to place a definitive figure upon how many GST inclusive prices should be obtained, the ATO would expect that it would generally be more than one. The information collected would need to provide sufficient intelligence for the charity to be confident that the value they arrive at is representative of the supply in the market.

Lastly, in the unusual event that a market value cannot be established using those methods outlined above, the charity can use a 'cost+' method. This method allows the charity to use full absorption costing and then apply a mark-up appropriate to the general market of the particular supply. In using this method, an organisation can include an imputed cost for donated goods and voluntary labour.

Importantly, these tests are successive tests for determining GST inclusive market value, they are not alternative tests. If, therefore, the market value can be established under the first test, the charity cannot calculate the market value with reference to the second or third tests.

Determining the market value of a supply of membership.

Same Supply Test

To determine the market value of a supply of membership under the same supply test it is important that you identify the relevant market in which you make the supply.

You need to take into account the following factors when comparing your supplies to those in the market:

These factors are explained in more detail within the CCCRID (Part 3, Section B). No single factor is determinant on its own and often the factors can be interrelated.

For the same supply test, the supply made by the charity must have the same quality or nature as the supplies in the market it is being compared with.

In a case where there are genuinely identifiable differences in the quality of the 'same supply', the charity needs to take into account those differences in establishing the market value of the supply it makes. For this purpose the charity needs to adjust the price of the same supply by taking the following steps:

You must also maintain documentary evidence of conclusive and tangible proof for each of these steps.

You advised that in the market that you operate, there is no comparable membership of the same quality and style, as the membership supplied by you. Therefore the same supply test does not apply for the purposes of determining the market value of your Full membership.

Similar Supply Test

In accordance with the Market Value Guidelines you now need to consider whether the 'similar supply test' applies to your circumstances.

Reference is made to the factors discussed above under the 'same supply test' when comparing your supplies to those in the market. The points about these factors under the 'same supply test' are relevant to the 'similar supply test'.

You have identified Entity X as a commercial entity that offers a supply of membership similar to the supply of membership A that you provide. That is, on the basis of the matters relating to the 'similar supply test', the list of services offered by Entity X is sufficiently similar to your supply of membership A.

However, in this case, there are several genuinely identifiable differences in the quality of the Entity X membership when compared to your membership A. In particular, the issue of the wider coverage provided by your membership A entitlement and the availability of a $10,000+ training course which is provided at no cost to members A. This means that your supply of membership A is considered to be of a higher quality when compared to that of Entity X's membership.

Using Entity X's membership fee as the 'base' for the purpose of determining the market value of a supply of your membership, we will need to take into account any pricing adjustments to reflect this higher quality of your membership. To give effect to this, we would need to upwardly adjust Entity X's membership fee. However in this case it will not be necessary because your membership fee is priced at less than $50, which is less than 50% of the GST-inclusive price of Entity X's member price of $150+.

Based upon the information that you have supplied, we are satisfied that you can use the supply of membership by Entity X as evidence of the market value of supply of membership.

Since your supply of membership A fee ($50) is less than 50% of the GST-inclusive market value of the membership fee ($150+) provided by Entity X, your supply of membership A is GST-free pursuant to subparagraph 38-250(1)(b)(ii) of the GST Act.

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