Edited version of your private ruling

Authorisation Number: 1012441015983

Ruling

Subject: GST and supply for nominal consideration

Question 1

Is your supply of accommodation to your employees GST-free?

Answer

Yes

Question 2

Is your supply of accommodation to employees of other Not-For-Profit organisations (NFPs) GST-free?

Answer

Yes

Question 3

To the extent that the supplies are GST-free are you entitled to input tax credits on the construction costs?

Answer

Yes

Relevant facts and circumstances

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

(b) You are endorsed to access GST concessions.

(c) You are planning to build a residential facility in a remote area in Australia with additional funding being provided for by sponsorship from businesses.

(d) You were granted the land on a strict condition that it only will be used for NFPs organisations purposes, as such there is a conditional tenure over the land on this basis. Because of the condition, you cannot receive commercial return from the land.

(e) Market rent for residential premises in your area are extremely high due to the significant shortage of accommodation in the region. To maintain charitable services in your area, the project aims to provide affordable accommodation to both your employees and also employees of other NFPs.

(f) The project is the construction of a number of dwellings comprising of a mixture of two and three bedroom units. It is also envisaged that an area of communal open space containing a shaded barbecue facilities and outdoor fitness station will be constructed.

(g) It is anticipated the units will be allocated for use as follows:

- 2/3 of the units providing subsidised accommodation for your staff,

- 1/3 of the units available for subsidised accommodation for other NFPs staff (and potentially your staff if required).

· You have provided that you will engage a qualified Valuer to determine the market value of the supply of accommodation in the relevant area. Tenants will pay less than 75% of GST-inclusive market value of rent.

· You need to pay staff in the remote area Y% above award rates to attract and retain suitable staff in that area.

· You have provided that you will engage a qualified Valuer to determine the market value of the supply of residential premises in the relevant area. Tenants will pay less than X% of GST-inclusive market value of rent.

· Your employees all get paid equally whether they take up the offer of the residential premises or not. Their salary is not adjusted to reflect whether they take up your residential premises.

· You have applied and received a private binding ruling on the issue of whether fringe benefit tax will apply to your supply of residential premises to your employees and employees of other not-for-profit organisations.

Relevant legislative provisions

A New Tax System (Goods and services Tax) Act 1999

Section 9-5

Section 38-250

Section 40-35

Fringe Benefits Assessment Act 1986

Section 25

Section 26

Section 136

Section 58ZC

A New Tax System (Fringe Benefits) Act 2000

Schedule 2

Reasons for decision

Issue 1

Question 1

Summary

The supply of residential premises to your employees is GST-free under section 38-250 of the A New Tax System (Goods and services Tax) Act 1999 (GST Act) as your employees do not provide you with any additional consideration (non-monetary) in return for the subsidised rent (that is less than X% of the market rent).

Detailed reasoning

Commercial activities of charities will generally be taxable or input taxed. However, the non-commercial activities by charities will be GST-free under Sub-division 38-G -'Activities of charities etc.' of the GST Act.

As your questions relate to the supply of accommodation (residential premises) for less than the market vale, subparagraph 38-250(1)(b)(i) of the GST Act may apply.

Subparagraph 38-250(1)(b)(i) of the GST Act states that:

(1) A supply is GST-free if:

(a) the supplier is an *endorsed charity, 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) …

*an asterisk denotes a defined term in the GST Act.

As an endorsed charity, your supply of residential premises is GST-free if the consideration received for your supply is less than X% of the market value of the supply.

However, we need to consider the following matters:

· whether your supply must be limited to non-related entity/person to meet the requirement of subparagraph 38-250(1)(b)(i) of the GST Act?

· What constitutes the consideration for your supply?

It is not a requirement that a supply made under subdivision 38-G of the GST Act must not be made to your employees or related parties. A supply made to corporate sponsors is also not excluded under this Sub-division. In brief, a supply under Sub-division 38-G of the GST Act can be made to any entity or person.

What constitutes consideration for your supply of accommodation?

You will engage a qualified Valuer to determine the market value of the supply of residential premises in the relevant area. Tenants (your employees/employees of other NFP organisations) will pay less than 75% of GST-inclusive market value of rent.

Schedule 2 of the A New Tax System (Fringe Benefits) Act 2000 contains amendment to the GST Act as follows:

2.14 The price of a taxable supply that is a fringe benefit is to be defined as the amount that corresponds to the recipient's payment or recipients contribution, as appropriate, that is made in a tax period. It does not matter if the payment or contribution is in the form of money or takes some other form. [Item 1, new subsection 9-75(3)]

2.17 The new rule will also apply to a taxable supply that is an exempt benefit. The term fringe benefit' will be defined in the Dictionary to the GSTA 1999 in a way that includes exempt benefits [item 2]

2.13 A recipient's payment (in the case of a car fringe benefit), and recipients contribution (in the case of a benefit other than a car fringe benefit), are both amounts taken into account in calculating the taxable value of a fringe benefit. 'Recipient's payment' is to be defined in the Dictionary to the ```GSTA 1999 by reference to the meaning of that term in paragraphs 9(2)(e) and 10(3)(c), FBTAA 1986 [item 4]. Similarly, 'recipients contribution' is to be defined in the Dictionary to the GSTA 1999 in a way that includes exempt benefits, as well as the meaning of that term in subsection 136(1), FBTAA 1986 [item 3].

The definition of the term 'fringe benefit' is defined in section 195-1 of the GST to mean:

fringe benefit has the meaning given by section 995-1 of the * ITAA 1997 but includes a benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 that is an exempt benefit for the purposes of that Act.

The definition of the term 'recipient contribution' is defined in section 195-1 of the GST Act to mean:

recipients contribution has the meaning given by subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 but includes any consideration paid in respect of the provision of a benefit that is an exempt benefit for the purposes of that Act.

You have applied for a private binding ruling on whether the supply of residential premises to your employees is a fringe benefit. The Tax Office has indicated that the supply of residential premises to your employee and employees of other NFP organisations is an exempt benefit.

For GST purposes, under the amended definition you have provided fringe benefit to your employee although the benefit is an exempt benefit.

Subsection 9-75(3) was inserted to the GST Act by No 52 of 2000. This subsection provides that:

In working out under subsection (1) the value of a *taxable supply made in a *tax period, being a supply that is a *fringe benefit, the price is taken to be the sum of:

(a) to the extent that, apart from this subsection, paragraph (a) of the definition of price in subsection (1) would be applicable:

(i) …; or

(ii) if the fringe benefit is a benefit other than a car fringe benefit - so much of the amount that would be worked out under that paragraph as represented the *recipients contribution made in that period; and

(b) (b) to the extent that, apart from this subsection, paragraph (b) of the definition of price in subsection (1) would be applicable:

(i) …; or

(ii) if the fringe benefit is a benefit other than a car fringe benefit - so much of the amount that would be worked out under that paragraph as represented the recipients contribution made in that period.

The subsection refers to the definition of the term 'price' in subsection 9-75(1)

price is the sum of:

(a) so far as the *consideration for the supply is consideration expressed as an amount of *money - the amount (without any discount for the amount of GST (if any) payable on the supply); and

(b) so far as the consideration is not consideration expressed as an amount of money - the *GST inclusive market value of that consideration.

Therefore, the consideration used in applying the non-commercial activities rules must also include non-monetary consideration (if any). This broad definition of consideration has ramifications for applying these rules to benefits provided to employees of charities.

Where consideration includes services provided by employees, the charity must include the value of those services when applying the non-commercial activity rules when they represent consideration for a supply that is a fringe benefit (including exempt benefit).

The view of the Tax Office expressed in the fact sheet 'GST and non-commercial activity rules for fringe benefits' is reproduced as follows:

In applying these non-commercial activity rules to a supply of accommodation that is a fringe benefit, the supplier must take account of the employee's services where they represent consideration for the supply of the accommodation. Where the value of these services and any other consideration is 75% or more of the GST inclusive market value of the accommodation provided, the supply of accommodation will not be GST-free.

Therefore, it is necessary to work out the value of non-monetary consideration provided to you in relation to your supply of residential premises.

In your circumstances:

· Your employees receive a higher remuneration than the award rate when they come to work in the remote area.

· When the units are completed, the rent will be less than 75% of the local market rent.

· Your employees all get paid equally whether they take up the offer of residential premises or not. Their salaries are not adjusted to reflect whether they take up your residential premises or rent elsewhere.

It is considered that there are no services (non-monetary consideration) provided to you in return for the supply of the subsidised residential premises, in addition to rent as the services that your employees provided to you are appropriated compensated by the above award remuneration. Their salaries are also not affected by taking your offer of the unit or rent elsewhere. Furthermore, your employees and employees of other NFP pay the same rent. The subsidised rent is considered an incentive to work in a remote area rather than provided in return for the services of the employees.

Therefore, the consideration for your rent only includes the recipient rent and this amount is less than 75% of the local market rent.

Therefore, your supply of the residential premises will be GST-free under section 38-250 of the GST Act as your supply of accommodation to your employees is for consideration that is less than 75% of the market value.

Question 2

Summary

The supply of residential premises to the employees of other NFP organisations is also GST-free under section 38-250 of the GST Act as the employees of other NFP organisations do not provide you with any additional consideration (non-monetary) in return for the subsidised rent (that is less than 75% of the market rent).

Detailed reasoning

A fringe benefit can arise where a benefit is provided by a third party (i.e. arranger) under an arrangement between the employer (or an associate of the employer) and the arranger or another person.

Arrangement is defined under section 136(1) of the Fringe Benefits Assessment Act 1986 (FBTAA) to mean:

(a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, or intended to be enforceable, by legal proceedings; and

(b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.

The definition of a "fringe benefit" in subsection 136(1) FBTAA includes a benefit provided to an employee of an employer under an arrangement between the employer (or associate) and a third party.

A "provider" is defined in subsection 136(1) FBTAA as meaning the person who provides the benefit. The provider will usually be the employer but this need not be the case.

Third party - with employer's participation or facilitation

Additionally, the provision of a benefit to an employee or associate of an employee by a third party will be a fringe benefit of the employer if the employer or its associate:

· participates in or facilitates the provision or receipt of the benefit, or

· participates in, facilitates or promotes the scheme involving the provision of the benefit, and

· knows or ought reasonably to know that it is so participating, facilitating or promoting the benefit.

You will be allocating a number of units of subsidised residential premises to employees of the other NFP employers. This may indicate that it is more than likely an arrangement of some kind exists between you and the other NFP employers, and that the other NFP employers either facilitated the provision of the benefit or ought to have known the benefit was being provided.

For similar reasons explained earlier in relation to your employees, if there is an arrangement, or the other NFP employers facilitated in providing the benefit ought to have known the benefit was being provided, then the provision of the subsidised residential premises to employees of the other NFP employers would be considered 'in respect of their employment with their respective employers'.

However, although such a benefit is being provided in respect employment it would constitute an exempt benefit as provided for under subsection 58ZC(1) of the FTAA.

Similar to the discussion above, the issue is whether the employees of other NFP organisations provide any additional consideration (non-monetary) to the supplier (you) in return for the supply of the subsidised rent.

It is considered that the employees of other NFP organisations do not provide you any consideration in addition to the subsidised rent. The rent they pay is similar to the rent paid by your employees, which is less than 75% of the local market rent

In conclusion:

1. the supply of subsidised residential premises to your employees is GST-free under 38-250(1)(b)(i) of the GST Act.

2. the supply of subsidised residential premises to employees of other non profit organisations is also GST-free.

Question 3

Summary

As your supply of residential premises is GST-free, you are entitled to input tax credits acquired to make the supply.

Detailed reasoning

Section 38-1 of the GST Act provides that:

If a supply is GST-free, then:

§ no GST is payable on the supply;

§ an entitlement to an input tax credit for anything acquired or imported to make the supply is not affected.

Therefore, you are entitled to input tax credits for things acquired to make the GST-free supply of residential premises in question.

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