Edited version of private ruling

Authorisation Number: 1011679440368

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Ruling

Subject: Supply for nominal consideration

Question 1

Is the charity (you) liable for the goods and services tax (GST) on making a supply of a ticket to the Concert?

Answer 1

Please see reasons for decisions.

Question 2

Can you claim GST credits on acquisitions you made in holding the Concert?

Answer 2

Yes.

Relevant facts:

You are registered for GST.

You account for GST on a cash basis.

You are endorsed as a charitable institution for GST purposes.

You carry on an enterprise of conducting concerts

You contracted a contractor to organise and manage a concert held in 2009 (the Concert)

You provided details of the Concert:

§ the performers were three international artists

§ the Concert was held in a stadium

§ duration of the Concert: was for a couple of hours

§ patrons were from local area.

The price for one Concert ticket was $20 for an early bird and $25 for the door sales

You advised that GST was included in the price of a ticket to the Concert.

Your contractor issued a tax invoice to you for their services.

The total amount on the tax invoice includes GST.

You advised that you have not recorded the Concert as an input taxed fund-raising event or a non-profit sub-entity in your records.

You advised an entity conducting another concert (Concert A) in the same area. The details of the Concert A are as follows:

§ the GST inclusive price of a ticket to the concert for general admission was over $50

§ the number of patrons attending the concert was far less

§ Concert A was held in a theatre.

§ the total time for the Concert A was 90 minutes

§ the performer to this concert was an international performer who had recognition in the market.

Reasons for decisions

Summary

Under section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) you must pay GST on taxable supplies you made. A supply is taxable under section 9-5 of the GST Act to the extent that it is not GST-free or input taxed.

As you have not advised us of your costing in holding the Concert we are not in a position to advise you on the cost of supplies rules in subparagraph 38-250(2)(b)(ii) of the GST Act. We could only discuss the application of the market value test under subparagraph 38-250(1)(b)(ii) of the GST Act. Under this subparagraph an endorsed charitable institution makes a GST-free supply (that is not a supply of accommodation) if they make the supply for nominal consideration.

The supply is made for nominal consideration if it is supplied for less than 50% of the GST inclusive market value of the supply.

The ATO view for the determination of market supply for section 38-250 purposes is outlined in section B in Part 3 of the Charities Consultative Committee Resolved Issues Document (CCCRID).

We consider that both your Concert and the Concert A are not the same supply as they did not satisfy the same supply test.

We consider that under the broad categorisation rules in the CCCRID for similar supply, both the Concert and the Concert A were supplies of music entertainment. However, there were genuinely identifiable differences in the qualities of these concerts. Therefore, we consider the ticket price to the Concert A is not the market value of a supply of a ticket to the Concert.

The Commissioner however has outlined a methodology in the CCCRID where you may adjust the ticket price to the Concert A to take into account the genuinely identifiable differences for the purposes of determining the market value for a supply to the Concert.

You advise that you have not recorded the Concert as an input taxed fund-raising event or a non-profit sub-entity in your records, the supplies made during the Concert could either be GST-free or taxable.

Your acquisitions made in relation to the Concert are therefore creditable acquisitions under section 11-5 of the GST Act. You are entitled to claim the GST credits where you hold tax invoices for these acquisitions.

Detailed reasoning

1. Is the charity liable for GST on making a supply of a ticket to the Concert?

Under section 9-40 of the GST Act you must pay GST on taxable supplies you made.

Under section 9-5 of the GST Act you make a taxable supply if:

§ you make a supply for consideration

§ the supply is made in the course or furtherance of an enterprise that you carry on

§ the supply is connected with Australia, and

§ you are registered, or required to be registered.

However, the supply is not a taxable to the extent that it is GST-free or input taxed

You conducted the Concert in the course of your enterprise. You charged $20 for an early bird ticket and $25 for the door sales ticket to the Concert. You are registered for GST. Therefore, your supply of a ticket to the Concert satisfies all the criteria in section 9-5 of the GST Act.

You advised that you have not make a note in your records to treat the supplies relating to the Concert as an input taxed fund-raising event for the purposes of section 40-160 of the GST Act. Therefore, the supply of the ticket to the Concert is not an input taxed supply under section 40-160 of the GST Act. In addition you also advise that you have not made a note in your records to treat the Concert as a non-profit sub-entity under Division 63 of the GST Act.

You charged $20 for an early bird ticket and $25 for a door sale ticket to the Concert. You advised that you have identified another entity supplying a ticket to Concert A for a price of over $50. If you charge a price of a ticket less than 50% of the market value, you could be selling the ticket for nominal consideration and the supply of that ticket could be GST free under section 38-250 of the GST Act. Therefore we need to consider whether a supply of the ticket to the Concert is a GST-free supply under section 38-250 of the GST Act.

Concert

You engaged a contractor to conduct the Concert on your behalf. GST was included in each ticket price. GST was also included on the booking fee element in the ticket

In your application, you asked to treat the supply of a ticket to the Concert as GST-free as you believe that you had made the supply of a ticket to the Concert for nominal consideration under section 38-250 of the GST Act.

You provided information of Concert A. You compared the price of a ticket to the Concert to this Concert A and advised that the ticket price to the Concert was less than 50% of the ticket price to the Concert A.

Supplies for nominal consideration

Subsection 38-250(1) of the GST Act states:

A supply 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; and

(b) the supply is for *consideration that:

(i) if the supply is a supply of accommodation-is less than 75% of the *GST inclusive market value of the supply; or

(ii) if the supply is not a supply of accommodation-is less than 50% of the GST inclusive market value of the supply.

*denotes a term defined in section 195-1

Subsection 38-250(3) of the GST Act provides that subsection 38-250(1) of the GST Act will not apply unless the supplier is an endorsed charitable institution or an endorsed trustee of charitable fund. 

You are endorsed as a charitable institution. You made a supply of a ticket (that is: not a supply of accommodation) to the Concert. You advise that each ticket price to the Concert is less than the ticket price to the Concert A. You have not advised us of your costing to the Concert. Therefore, the relevant legislation to consider is subparagraph 38-250(1)(b)(ii) of the GST Act, which is about comparing the market value of a supply to what you received for the supply.

Market value of a supply

The Australian Taxation Office (ATO) has provided guidelines to work out the market value for a supply in section B of Part 3 of the CCCRID. You may download a copy from the website at www.ato.gov.au.

The market value guidelines in CCCRID provide methodologies which allow charities to determine a market value for the purposes of section 38-250 of the GST Act.

The term 'market value' is not defined in the GST Act. For the purposes of charities making supplies for nominal consideration, we consider that the market value of a thing is the price that would be negotiated between:

§ a knowledgeable, willing and not anxious buyer, and

§ a knowledgeable, willing and not anxious seller acting at 'arm's length' in an appropriate market.

In determining the market value of a supply, a charity must apply the following successive tests:

1. the charity must work out whether the same supply exists within the market they operate in (same supply test)

2. if no 'same supply' exists, the charity must then work out whether a similar supply exists within the market they operate in (similar supply test)

3. if no 'same supply' or 'similar supply' exists, the charity may seek approval from the Commissioner to use another methodology to calculate the market value of the supply.

These tests are successive tests for working out the market value of a supply. If a charity identifies a 'same supply' in the market, the price charged by this other supplier is then the market value of the charity's supply. The charity cannot calculate the market value of the supply it makes by reference to the second or third tests. We consider that the first two tests would generally establish a market value and the last test would be rarely used

Same Supply Test

The same supply test requires a charity to work out whether a supply, the same as the one it makes, exists within the market they operate in. If the same supply exists in the market, the price of this supply is the market value that the charity should use in their calculations. When working out same supply tests charities needs to take into account the following:

§ identifying the market

§ the locality of the supply or area of the market

§ the quality or nature of supply

§ the size, quantity or duration of supply

§ the conditions of supply

§ other charitable or commercial suppliers, and

§ the number of comparisons.

Considering the above factors, we consider a supply of a ticket to the Concert A is not the same quality, nature, size, duration as the supply of a ticket to the Concert. Our reasons are as follows:

1. Although the Concert A was also conducted same locality it was conducted in a theatre with far less capacity than the stadium. The performer had wide recognition in the market and the duration of their Concert A was 90 minutes.

2. However the three artists performing at the Concert do not have mainstream recognition in the music market. The performers in the Concert are less well-known. The Concert was held at a stadium and the duration was for 4 hours.

Similar supply test

As a supply of a ticket to the Concert A cannot be regarded to be the same as a supply of ticket to the Concert, we now need to consider the similar supply test.

Under the similar supply test in the CCCRID, charities need to take into account board approach to the following when identifying a similar supply:

§ the market itself

§ the locality of the supply or area of the market

§ the quality or nature of supply

§ the size, quantity or duration of supply

§ the conditions of supply

§ other charitable or commercial suppliers, and

§ the number of comparisons.

The factors used in the 'same supply test' are relevant when a charity uses the 'similar supply test'. In identifying the market, under the similar supply test a charity can use a broad categorisation of the supply it makes as justification for using certain supplies in the market as similar supplies. Charities should take into account factors such as the quality, nature and conditions of the supply.

The CCCRID illustrates the concept of 'broad categorisation' of certain types of supplies with three examples. They are:

Example 13: broad categorisation of education

A charity offers a half-day class in relaxation techniques to unemployed adults for a small fee. There are no comparable classes offered in the market.

The charity would be able to use any half-day adult education course that is offered by other organisations that are similar to their half-day course in terms of nature, duration, standard of tuition and activities during the course.

That is, the half-day class in relaxation techniques and the half-day adult education course would be accepted as similar supplies made under the broad categorisation of 'education'.

Example 14: broad categorisation of entertainment

A regional government school holds a performance of a well known play performed by its drama class. There is an amateur choral society and no other amateur theatre or drama group in the area serviced by the school.

In applying the similar supply test, the school can classify the play under the category of entertainment which a choral concert of comparable duration and quality also belongs.

In these circumstances, the supply to attend a choral concert is, a similar supply to the supply to attend its play.

Example 15: broad categorisation and different conditions of supplies

A university supplies daily 10 hour car parking permits to students for a fixed fee. Another car park operator in the area charges the same fee for four hour car parking. Both the university and the other operator make supplies under the broad categorisation of car parking. However, the supplies they make are not the same or similar in terms of duration.

The university cannot compare its hourly rate with that of the other operator. This is because both of them make a supply for a specified duration regardless of how long the recipient actually occupies the parking space.

The information you have provided on Concert A, could not be considered a 'similar supply' to a supply of a ticket to the Concert because of the similar reasons discussed earlier and there was no broad categorisation approach to identify another supply for the similar test.

You have not established that you have identified a supply by another supplier in the market in which you operate to be the (or a) similar supply of a supply of a ticket to the Concert.

Therefore in view of the identifiable differences between the Concerts we do not consider that a supply of a ticket to the Concert A as being is a similar supply of a supply of a ticket to the Concert and that the ticket price of over $50 to the Concert A is the market value of a supply of a ticket to the Concert.

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. The Commissioner has provided a methodology in the CCCRID for the purposes of adjusting the price of a 'similar supply' in working out the market value of a supply. This methodology is explained after example 8 of section B of Part 3 of the CCCRID. Although the methodology refers to 'same supply', it nevertheless can be applied to 'similar supply'. Therefore for this purpose, a charity needs to adjust the price of the "similar supply" by taking the following steps:

§ identify the 'similar' supply and its price

§ identify all the differing characteristics shown in the quality of the 'similar supply' when comparing with the supply the charity makes

§ quantify those differing characteristics on a reasonable basis, and

§ use the quantified values of those differing characteristics to adjust the price of the 'similar supply'.

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

We consider that for the purposes of the 'similar supply test', this process adjusts or modifies the 'similar supply' so that it has the quality which is similar as that of the supply the charity makes.

The price calculated for the modified/adjusted 'similar supply' is the market value of the supply the charity makes.

The market value determined must represent an amount a willing but not anxious purchaser is prepared to pay

You may apply the above methodology to determine the market value for a ticket to the Concert by treating a ticket to the Concert A to be a 'similar supply': You work out the market value as follows:

§ you must firstly identify all the differing characteristics shown in the quality of the 'similar supply' The characteristics include the quality or nature, the size, quantity or duration and the conditions of supply

§ you then quantify those differing characteristics on a reasonable basis

§ you use the quantified values of those differing characteristics to adjust the price of the 'similar supply', and

§ finally you determine the market value for a ticket to the Concert.

You must keep documentary evidence of conclusive and tangible proof for quantifying values to adjust the price to determine the market value for a 'similar supply'.

Based on the above you could then determine whether a supply of a ticket to Concert is GST-free under section 38-250 of the GST Act.

If however, you determine that a ticket price to the Concert exceeds 50% of the market value, you would be liable for GST under section 9-40 of the GST Act. The supply of a ticket is not GST-free under section 38-250 of the GST Act and therefore taxable under section 9-5 of the GST Act.

In your case, you have to work out individually whether a ticket price to an early bird and a ticket price sold at the door sale is a GST-free supply.

2. Can you claim GST credits for your creditable acquisitions relating to the Concert?

Under section 11-20 of the GST Act, you are entitled to input tax credit (GST credits) for your creditable acquisition. Section 11-5 of the GST Act provides you make a creditable acquisition if:

a) you acquire anything solely or partly for a creditable purpose

b) the supply of the thing to you is a taxable supply

c) you provide, or are liable to provide, consideration for the supply; and

d) you are registered, or required to be registered.

Section 11-15 of the GST Act provides the meaning of creditable purpose and it states:

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

(2) However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be *input taxed; or

(b) the acquisition is of a private or domestic nature.

You carry on an enterprise of staging a Concert. You contracted your contractor to co-ordinate and conduct the Concert on your behalf. You invite artists to perform at these Concerts. Therefore the Concert is part of your normal business activities and your acquisitions relating to this event are for creditable purpose.

Your contractor issued a tax invoice to you for their services. They have treated their supplies as taxable. As you are liable to pay your contractor for their services and you are registered for GST, the acquisitions are creditable acquisitions to you and you hold tax invoices, you may claim the GST credits.

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