1051200095797 | Legal database

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Edited version of your written advice

Authorisation Number: 1051200095797

Date of Advice: 9 March 2017

Ruling

Subject: GST and nominal consideration

Question 1

Is the methodology you have presented for allocating estimates of costs to your supplies, an appropriate method for determining if a supply is GST-free under subsection 38-250(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Relevant facts and circumstances

Charity Y is registered as a charity with the Australian Charities and Not-for-profits Commission. You are registered for goods and services tax (GST).

You have owned and operated a sports complex. The sports complex is a sports recreation centre. The activities carried on by the sports complex are in advancement of your charitable purpose.

The sports complex is not separately incorporated. The sports complex is bound by Charity Y's Constitution and the legal obligation that any profits generated by the sports complex are kept and used by the College in meeting its objectives.

The supplies you make are not supplies of accommodation.

You calculate the cost to make a supply by applying the following methodology:

Direct expenditure is allocated to each sales item as it is incurred.

Indirect expenditure is allocated to different categories (i.e. grouped sales item). The aggregated indirect expenditure is apportioned to the categories based on the proportion of income derived from each category.

The apportioned expenditure is not allocated to more than one sales item.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 38-250.

Reasons for decision

A supply made by an endorsed charity or a deductible gift recipient is GST-free under subsection 38-250(1) of the GST Act if the supply is for consideration that:

If the supply is a supply of accommodation - is less than 75% of the GST inclusive market value of the supply, or

If the supply is not a supply of accommodation - is less than 50% of the GST inclusive market value of the supply.

A supply made by an endorsed charity or a deductible gift recipient is also GST-free under subsection 38-250(2) of the GST Act if the supply is for consideration that:

If the supply is a supply of accommodation - is less than 75% of the cost to the supplier of providing the accommodation, or

If the supply is not a supply of accommodation - is less than 75% of the consideration the supplier provided, or was liable to provide, for acquiring the thing supplied.

Charites can choose to apply either section 38-250(1) or (2). You are an endorsed charity and you do not make supplies of accommodation. You have requested that section 38-250(2) is applied to the sales you make. For a supply to be GST-free, section 38-250 (2)(ii) requires that the consideration provided for the supply is less than 75% of the 'cost of supply'.

Cost of supply guidelines

Paragraphs 18-22 of the Charities Consultative Committee Resolved Issues Document (CCCRID) explain that when working out the cost of providing something, a charity should include:

All direct costs incurred - for example, materials and direct labour, and

A reasonable apportionment of indirect costs incurred - for example, marketing, administration, office expenses, electricity, telephone and insurance.

Charities should only include amounts paid or payable by them in the calculation. This is because subparagraph 38-250(2)(b)(ii) states that it is the 'consideration the supplier provided or was liable to provide for acquiring the thing supplied'.

Charities cannot include the following things in the calculation as they do not involve an actual outlay by the charity:

Depreciation of assets, and

Imputed costs for things like volunteer labour, donations, and free rent where the charity has not actually provided any consideration or incurred any real costs.

According to the facts, you have calculated the cost of supply by:

Including all direct costs incurred to supply a sales item and

Indirect costs such as electricity and maintenance are first allocated to categories that are similar grouped sales items, which are then apportioned according to the percentage of income derived from each category.

We consider that the methodology applied reasonably reflects the proportion of costs as they relate to each supply made. If the consideration you receive for the supply is less than 75% of the cost of supply, the supply will be GST free under section 38-250(2)(ii).

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