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Edited version of private ruling
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Ruling
Subject: a supply of second hand goods
Question
Is a retail sale of second hand goods by an endorsed charitable institution (charity) a GST-free supply under section 38-255 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer: No, the sale is not a GST-free supply under section 38-255 of the GST Act.
Relevant facts:
The charity is registered for goods and service tax (GST).
The charity is endorsed as a charitable institution for GST purposes.
Members of the public donate goods to the charity.
The charity enters into an agreement with an entity.
Under the agreement, the charity transfers the title of the donated goods to the entity which will sort them into certain qualities for sale.
The agreement also commits the charity to purchase an agreed quantity of saleable goods from the entity at certain GST inclusive unit price by weight.
The entity has not changed or altered the character of those goods it sells to the charity.
The entity is registered for GST but is not endorsed as a charitable institution for GST purposes.
Relevant legislative provisions:
A New Tax System (Goods and Services Tax ) Act 1999 Section 38-255
A New Tax System (Goods and Services Tax ) Act 1999 Section 9-40
A New Tax System (Goods and Services Tax ) Act 1999 Section 9-5
A New Tax System (Goods and Services Tax ) Act 1999 Section 38-250
A New Tax System (Goods and Services Tax ) Act 1999 Section 40-165
A New Tax System (Goods and Services Tax ) Act 1999 Section 40-160
Reasons for decision
Summary
Under the agreement the entity agrees to supply second hand goods to the charity for a GST inclusive price.
Section 38-255(1) of the GST Act provides that a supply of second-hand goods is GST-free if:
(a) the supplier is a charitable institution, a trustee of a charitable fund, a gift- deductible entity or a government school;
(b) the goods were supplied to the institution, trustee, gift-deductible entity or government school:
(i) as a gift or
(ii) by way of a supply that was GST-free because of a previous application of section 38-255,
As the second hand goods are not gifts provided to the charity or goods supplied to the charity as GST-free under section 38-255 of the GST Act, the retail sales of the second hand goods by the charity are not GST-free under section 38-255 of the GST Act.
Detailed reasoning
Supply Agreement
The agreement outlines the conditions of supplies by the entity to the charity. The charity transfers the title of the goods donated by the public to the entity. The entity then sorts the goods into different qualities and supplies to the charity, an agreed level quantity of goods for a certain unit price (GST inclusive). In these circumstances, we consider the charity does not acquire the goods as gifts from the public for retail sale as the entity has taken title of the goods before making supplies to the charity.
The charity has asked whether they could sell their goods GST-free under section 38-255 of the GST Act. The following discussion is about supplies of second hand goods by an endorsed charitable institution.
Subsection 38-255(1) of the GST Act provides that a supply of second-hand goods is GST-free if:
(a) the supplier is a charitable institution, a trustee of a charitable fund, a gift- deductible entity or a government school;
(b) the goods were supplied to the institution, trustee, gift-deductible entity or government school:
(i) as a gift or
(ii) by way of a supply that was GST-free because of a previous application of section 38-255,
However, the supply is not GST-free if the institution, trustee, gift-deductible entity or government school has dealt with the goods in such a way that the goods no longer have their original character.
Subsection 38-255(2) of the GST Act states that subsection (1) does not apply in relation to a charitable institution or a trustee of a charitable fund unless the institution or trustee is an endorsed charitable institution or an endorsed trustee of a charitable fund.
Therefore, a supply of goods can only be GST-free under section 38-255 of the GST Act if:
1. it is a supply of second hand goods
2. the goods retain their original character ie the supplier supplies the goods as they have acquired them
3. the supplier is an endorsed charitable institution or an endorsed trustee of a charitable fund, and
4. the goods are supplied to them as either gifts or GST-free supplies under section 38-255 of the GST Act.
The charity is supplying second hand goods.
The second hand goods have not been alerted or changed in form or character by the entity. Therefore, the goods retain their original character as second hand goods.
The charity is endorsed as a charitable institution for GST purposes. Therefore the charity may supply second hand goods GST-free if the supply of the goods satisfies all other criteria in section 38-255 of the GST Act.
The last issue for us to determine is whether the supply of second hand goods by the entity to the charity is a gift or a GST-free supply of second hand goods under section 38-255 of the GST Act.
Gifts
The meaning of gifts is provided in Goods and Services Tax Ruling GSTR 2000/11.
Paragraph 57 to 59 of GSTR 2000/11 outlines the criteria for gifts. Essentially a gift displays the following characteristics:
1. a gift is transferred voluntarily by the donor and the transfer is not as a result of a contractual obligation
2. the donor may not receive an advantage of a material character for providing the gift, and
3. a gift confers benefaction on the recipient, and is transferred by the donor by way of detached and disinterested generosity.
The entity supplies the goods to the charity for a GST inclusive price. Therefore the entity does not supply those goods to the charity as gifts.
GST-free supply of second hand goods under this section
Subsection 38-255(2) of the GST Act provides that subsection 38-255(1) of the GST Act will only apply if the entity is an endorsed charitable institution or an endorsed trustee of a charitable fund.
The entity is registered for GST but is not an endorsed charitable institution or an endorsed trustee of a charitable fund. Therefore, the supplies of the second hand goods to the charity by the entity cannot be GST-free under section 38-255 of the GST Act. This is confirmed in the agreement where the entity treats their supplies as taxable and charges a GST inclusive price.
As the supply of the second hand goods to the charity is not a gift or a GST-free supply of second hand goods under section 38-255 of the GST Act, the charity cannot supply those goods GST-free under section 38-255 of the GST Act.
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