Edited version of your written advice

Authorisation Number: 1012931149689

Date of advice: 22 December 2015

Ruling

Subject: GST and nominal consideration

Will the supply of less than 80 lots in Australia from you (Entity 1) to Entity 2 (a wholly owned subsidiary) where the consideration to be paid by Entity 2 to Entity 1 is nominal, being $X per lot, be GST-free for the purposes of subsection 38-250(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

• Entity 1 is an endorsed charity for GST purposes in accordance with Division 176 of the GST Act and is an endorsed gift-deductible entity under item 1 of the table in section 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997).

• Entity 1 is registered for goods and services tax (GST).

• Entity 2 is a wholly owned subsidiary of Entity 1, is an endorsed charity for GST purposes and is registered for GST.

• The acquisition of the lots with existing dwellings by Entity 2 from Entity 1, for nominal consideration of $X per lot, will be solely for Entity 2's creditable purpose within the meaning of section 11-15 of the GST Act.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Subsection 38-250(1)

Reasons for decision

Subsection 38-250(1)

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

(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) if the supply is not a supply of accommodation - is less than 50% of the GST

inclusive market value of the supply.

…

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

In your case, you satisfy the requirement of being an endorsed charity. What remains to be determined is whether each of the supplies is for consideration that is less than 50% of the GST inclusive market value of the supply.

The ATO has published Market Value Guidelines in the Charities Consultative Committee Resolved Issues Document to assist endorsed charities or gift deductible entities in establishing the GST inclusive market values of their supplies under subsection 38-250(1) of the GST Act.

These guidelines are available on our website at www.ato.gov.au.

The Guidelines provide that in determining the GST inclusive market value of a supply, a charity must apply the following successive tests:

Firstly, the charity must establish whether the same supply exists in the open market (the same supply test). Where it does, the price of the supply as defined by the market is the market value that the charity should use. The other suppliers in the market may be charitable or profit making organisations. It is the supply that is compared in the market not the recipient of the supply or the provider of the supply. The comparison should be based on quality, quantity and conditions of supply.

Secondly, if no other organisation offers the same supply, the charity may identify similar supplies that exist in the open market and calculate the market value of its supply by reference to the prices charged for those supplies (the similar supply test). When establishing the market value of a service, the charity should seek to compare the services it offers with services of a similar nature and quality, of similar size or time length, and with similar conditions.

Thirdly, in the unusual event that a market value cannot be established using the same supply test and the similar supply test outlined above, the charity can use a 'cost plus' method. This method allows the charity to use full absorption costing and then apply a mark-up appropriate to the general market of the particular supply. In using this method, the charity can include an imputed cost for donated goods and voluntary labour. The cost plus method is used as a last resort to determine the GST inclusive market value of a supply. This method has no application in determining the consideration charities provided, or were liable to provide for acquiring the thing supplied.

Importantly, these tests are successive tests for determining GST inclusive market value, they are not alternative tests. If, therefore, the market value can be established under the first test, the charity cannot calculate the market value with reference to the second or third tests.

The Market Value Guidelines in the Charities Consultative Committee Resolved Issues Document is provided below.

https://www.ato.gov.au/Business/GST/In-detail/GST-issues-registers/Charities-consultative-committee-resolved-issues-document/?page=12#Section_B__Market_value_guidelines

The 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. That is, in applying the same supply test, the charity compares its supplies to those in the market. The comparison is made between the supplies made by the charity and those by other suppliers. It is not made between the recipients of the supply or the suppliers.

The other suppliers in the market can be charities or profit making organisations.

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.

Record keeping

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.

For example, the market values established and the methods used may be documented or minuted in the charity's books of account. This information should be captured in a way that will allow cross-referencing to accounting statements. It should also correspond to what is recorded on the charity's Business activity statements.

While you do not need to seek formal approval from the ATO where you conclude that the supplies or services are GST-free, you must use the above guidelines to calculate the market value or cost of supply to make and support your decision.

Reviewing the application of the non-commercial supply rules

Charities using subsection 38-250(1) of the GST Act should monitor the market they make the supply in to ensure they will respond promptly to any material changes in the market.

Whether the consideration for each of the supplies is less than 50% of the GST inclusive market value

As the consideration for the supply of each of the lots will be a nominal amount of $X, it is clear that the consideration will be less than 50% of the GST-inclusive market value of the supply.

The special rules in Division 72 of the GST Act would not apply as Entity 2 is registered for GST and the acquisition of the less than 80 lots will be solely for a creditable purpose.

Subsection 9-30(3)

Where you are entitled to treat the supplies as GST-free under subsection 38-250(1) of the GST Act, this GST treatment overrides any other possible treatment (such as whether the underlying supplies may otherwise be an input taxed supply) [see subsection 9-30(3) of the GST Act].

Decision

As Entity 1 is an endorsed charity and the consideration of each of the supplies of the less than 80 lots will be a nominal amount of $X (which would be less than 50% of the GST-inclusive market value of the supply), the proposed supplies would meet the requirements of a GST-free supply under subsection 38-250(1) of the GST Act.

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