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Edited version of your written advice
Authorisation Number: 1012782280662
Ruling
Subject: Charities and nominal consideration
Question 1
Are you entitled to an input tax credit for the goods and services tax (GST) incurred on the purchase of certain prepaid fundraising articles?
Answer
Yes
Question 2
Does the Commissioner agree that your methodology for determining the market value of the fundraising article is reasonable?
Answer
Yes
Relevant facts and circumstances
You are registered for GST
You are a registered charity with the Australian Charities and Not-for-profit Commission.
You are an endorsed gift deductible recipient.
As part of your fundraising activities you will purchase and sell certain articles.
The supply of the article to you is a taxable supply.
The wholesaler of the article determines the wholesale value which is dependent on the number, type, total retail value of the article and the number that you expect to sell.
The retail price charged by you when you sell the article is determined by you and the wholesaler then arranges for the retail price to be printed on the article.
Discounted articles are limited to approved fundraising partners and do not apply to individual sales by the wholesaler.
The wholesaler sells the individual articles to consumers but at their full retail value.
The total retail value of the articles if purchased at the outlet without there being any connection with the endorsed charity's fundraising activity would be more than 50% of what you will be charging for the article.
Relevant legislative provisions
New Tax System (Goods and Services Tax) Act 1999
Section 11-5
Section 38-250
Section 100-5
Reasons for decision
Issue 1
Question 1
Summary
Yes you are entitled to an input tax credit as you have made a creditable acquisition.
Detailed reasoning
As your acquisition of the articles was for the purpose of fundraising, the supply to you included GST. You are providing consideration for the supply which is for a creditable purpose therefore you are entitled to an input tax credit.
Question 2
Summary
Yes the Commissioner agrees that your methodology is reasonable.
Detailed reasoning
Section 38-250 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides endorsed charities, gift deductible entities and government schools with a GST concession that allows them to make GST-free supplies if those supplies are made for nominal consideration. That is, if the supply is not a supply of accommodation then when it is sold for less than 50% of the GST inclusive market value the supply is GST-free.
The publication Goods and Services Tax Industry Issues Charities Consultative Committee: Non-commercial activities of charities cost of supply and market value tests contain guidelines for the purposes of applying the market value test to your supply.
The charities must calculate the market value by applying the following successive tests
• the same supply test
• the similar supply test
• if neither of the above exist then the charity may seek approval to use another methodology to calculate the market value.
As these tests are successive then you must use the first test that you are able to apply.
In your case you have purchased an article which you will sell as part of your fundraising activities. As the articles are available via retail for the retail value of the products and you will be selling the articles for less than 50% of that value then it follows that you are making GST-free supplies pursuant to section 38-250 of the GST Act.
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