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Edited version of your written advice
Authorisation Number: 1012910343405
Date of advice: 30 November 2015
Ruling
Subject: GST and second-hand goods
Question 1
Are you making a GST-free supply when you sell the goods you purchase from 'local landfill facilities'?
Answer:
You are making a GST-free supply when you sell goods you have purchased from the local landfill facilities, if you sell the goods for less than 50% of their GST-inclusive market value. However, the sale of the goods will be a taxable supply if you sell the goods for more than 50% of their GST-inclusive market value.
Question 2
Are you making a GST-free supply when you sell goods which you have received as a gift or a donation?
Answer:
You are making a GST-free supply when you sell goods which you have received as a gift or donation, provided you have not changed the original character of the goods.
Reasons for decision
Question 1
You advised you purchase goods from local landfill facilities. You advised you will sometimes complete minor repairs or clean up the goods you receive prior to the goods being available for sale. However your activities do not change the original character of the goods.
Subdivision 38-G of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides information regarding activities of charities. Section 38-250 of the GST Act explains the criteria to be satisfied for a supply made by an endorsed charity or a gift-deductible entity to be GST-free.
The criterion states a supply, which is not a supply of accommodation, is GST-free if the supply is for consideration that:
• is less than 50% of the GST inclusive market value of the supply (paragraph 38-250(1)(b)(ii) of the GST Act).
• is less than 75% of the consideration provided to acquire the item (paragraph 38-250(2)(b)(ii) of the GST Act).
Section 9-15 of the GST Act provides the term consideration includes any payment or forbearance in connection with a supply.
Our publication 'Goods and Services Tax Industry issue: Charities Consultative Committee: Non-commercial activities of charities cost of supply and market value tests' (referred to as 'our publication') states:
8. In general terms, charities are required (by section 38-250) to compare the consideration it receives for a particular supply against the market values, or cost of the supply.
9. Difficulties may arise if a charity receives a single amount for a mixed supply that has taxable, GST-free or input-taxed components. Each component is a supply in its own right and is separately identifiable....
10. Section 38-250 does not provide a specific method to work out the consideration for the supply. We consider that a charity can use any reasonable method to apportion the consideration received for each supply. Charities must be able to show that their method is reasonable and supportable in their particular circumstances.
35. The term 'market value' is not defined in the GST Act. For the purposes of the non-commercial
supply rules, 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.
...
124. Charities must keep and maintain records that adequately document the process and information collected in working out the relevant market values which the consideration of the supplies the charity makes is to be compared to.
In applying the legislation and the abovementioned publication we assume section 38-250(2)(b)(ii) of the GST Act doesn't apply as it is unlikely that the sale of goods you acquire from local landfill facilities are sold by you for less than 75% of the payment you made to acquire the same goods.
You are making a GST-free supply when you sell goods you have purchased from local land facilities for less than 50% of their GST-inclusive market value. However, the sale of the goods will be a taxable supply if you sell the goods for more than 50% of their GST-inclusive market value.
In circumstances where you make a 'mixed supply' of goods, you must treat each component of the supply as a supply in its own right and work out a reasonable method to apportion the consideration you received, as detailed in paragraphs 8 and 9 of our publication.
You are also required to keep and maintain records as detailed in paragraph 124 of our publication.
Question 2
You advised you receive donated or gifted goods from individuals when you visit the local landfill facilities. You advised that you will sometimes complete minor repairs or clean up the goods you received prior to having the goods available for sale. However your activities do not change the original character of the goods.
Section 195-1 of the GST Act provides second-hand goods do not include:
• precious metals1;
• goods to the extent that they consist of gold, silver, platinum, or any other substance which, if it were of the required fineness, would be precious metal; or
• animals or plants.
Additionally, second-hand goods would not include any goods which you are aware are new goods.
Section 38-255 of the GST Act provides a supply of second-hand goods is GST-free if:
• the supplier is an endorsed charity, a gift-deductible entity or a government school, and
• the goods were supplied to the endorsed charity, gift-deductible entity or government school as a gift.
We conclude your sale of gifted or donated goods will be GST-free if the goods satisfy the abovementioned criteria of second-hand goods and you do not change the original character of the goods.
Relevant facts and circumstances
• You are a not-for-profit organisation and a public benevolent institution which is endorsed as a charity.
• You purchase items from local landfill facilities and you are often handed donations from people when you go to these locations.
• You do not undertake renovations on the goods and the stock is sold on an 'as-is' basis. However you may undertake minor repairs or clean-up the goods prior to selling.
• You sell the goods for a small fraction of their original value, you do not change the original character of the goods and you price the goods significantly lower than the amount for which the goods would be sold at a garage sale or a second-hand store.
Relevant legislative provisions
• Section 9-15 of the GST Act
• Section 38-250 of the GST Act
• Section 38-255 of the GST Act
• Section 195-1 of the GST Act
ATO view documents
• Goods and Services Tax Industry issue: Charities Consultative Committee: Non-commercial activities of charities cost of supply and market value tests.
1 The term 'precious metals' is defined in section 195-1 of the GST Act as either gold, silver or platinum (in an investment form) of at least 99.5% fineness; or any other substance (in an investment form) specified in the regulations of a particular fineness specified in the regulations.
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