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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your private ruling

Authorisation Number: 1012147339217

Ruling

Subject: GST and a commercial activity

Question 1

Is the commercial activity that you are about to undertake subject to goods and services tax (GST)?

Answer: Yes.

Are there any legislative provisions in the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) or any other Act that can be applied so that GST wouldn't be payable on the commercial activity?

Answer: Yes. Please refer to the reasons for decision as to these legislative provisions.

Relevant facts and circumstances

You are registered for GST.

You are an ATO endorsed charity and carry on an enterprise of furthering your charitable purpose.

You are to undertake a commercial activity for an annual payment of less than $150,000.

The money from the commercial activity will also be used for your charitable purpose.

Relevant legislative provisions

All legislative references are to the GST Act:

Reasons for decision

Is the commercial activity that you are about to undertake subject to GST?

Section 7-1 of the GST Act provides that GST is payable on taxable supplies.

Section 9-10 of the GST Act provides examples of what constitutes a supply for GST purposes. Further to this, section 9-5 of the GST Act provides that the supply is taxable if:

Note that the supply is not taxable to the extent that it is GST-free or input taxed.

In your case, you are to undertake a commercial activity for an annual payment of less than $150,000, this being a supply for GST purposes under section 9-10 of the GST Act. Your supply is also made in the course or furtherance of your enterprise (the furtherance of your charitable purpose), the supply is connected with Australia as it is made in Australia and you are registered for GST.

There are no legislative provisions in the GST Act or any other Act that would allow the commercial activity to be input taxed. There are legislative provisions in the GST Act however that may allow you to treat the commercial activity as being GST-free (nominal consideration rules) or outside the scope of the GST system (non profit sub entity). These are discussed in question 2. Note that in the case where a non profit sub entity can be used, the entity has the choice of whether they use it for their supply.

Given this, the commercial activity is subject to GST under section 9-5 of the GST unless the nominal consideration rules can be applied or you decide to use a non profit sub entity for the commercial activity.

Are there any legislative provisions in the GST Act or any other Act that can be applied so that GST wouldn't be payable on the commercial activity?

Nominal consideration rules

Under section 38-250 of the GST Act (nominal consideration rules) supplies made by a charitable institution for nominal consideration will be GST-free provided certain conditions are satisfied.

The ATO's view on the nominal consideration rules is contained in the publication Charities Consultative Committee resolved issues document (available in full from the ATO website www.ato.gov.au ). Part 3 of this document (Non-Commercial Activities of Charities, Cost of Supply and Market Value Tests - extract enclosed) discusses the non-commercial activities of charitable institutions under section 38-250 of the GST Act.

In accordance with Part 3 of this document, any supply (other than accommodation) made by a charitable institution, trustee of a charitable fund, gift deductible entity or government school is GST-free where either of the following conditions (tests) is satisfied:

In your case, you would need to determine whether you meet either of these tests before these rules can be applied to your commercial activity. Guidelines are provided in the enclosed document.

Non profit sub entity

A non-profit organisation such as an ATO endorsed charity, if it meets certain criteria, may choose to have some (or all) of its separately identifiable activities (each known as a branch) treated as non profit sub-entities for GST purposes. One benefit of splitting separately identifiable activities into separate branches for GST purposes is that the non-profit sub-entity will only need to register for GST if the GST turnover of that non-profit sub-entity exceeds the registration threshold for a non-profit body ($150,000).

Subsection 63-15(1) of the GST Act provides the requirements for a branch to be treated as a non-profit sub-entity. One of the requirements is that the branch should be separately identified by reference to the nature of the activities carried on through the branch.

In your case, you are an ATO endorsed charity and carry on an enterprise of furthering your charitable purpose. The commercial activity (although commercial in nature) is separately identifiable from your main purpose, that is, the furtherance of your charitable purpose. Consequently, you are entitled to treat the commercial activity as a non profit sub entity if you so wish.

Note that subsection 63-15(1) of the GST Act also requires that the non profit sub entity maintains an independent system of accounting, is referenced in your records as the branch that handles the commercial activity and is to be treated as a separate entity for GST purposes.

You have been sent a fact sheet on non profit sub entities which will provide further information on this. Information is also available from the Charities Consultative Committee resolved issues document.

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