Edited version of your written advice

Authorisation Number: 1051315825627

Date of advice: 4 December 2017

Ruling

Subject: GST and Supply to attend and participate in the Event

Question

Is the methodology provided by you in determining the GST inclusive market value of a supply fair and reasonable for the purposes of section 38-250 of the A New System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the methodology provided is fair and reasonable for the purposes of section 38-250 of the GST Act. Please refer to Reasons for Decision for more detail.

Relevant facts and circumstances

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

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-15

A New Tax System (Goods and Services Tax) Act 1999 subparagraph 38-250(1)(b)(ii)

Reasons for decision

Section 38-250 of the GST Act discusses the GST treatment of non-commercial activities of charities. This section states:

(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.

Please note that *asterisk denotes a defined term in section 195-1 of the GST Act.

Accordingly, subparagraph 38-250(1)(b)(ii) provides that your supply to attendees to participate in the Event will be GST-free if the consideration received by you, as an endorsed charity, in return for the supply is less than 50% of the GST inclusive market value of the supply.

Consideration for the supply

Consideration is defined in section 195-1 of the GST Act to mean any consideration within the meaning of section 9-15 in connection with the supply or acquisition. Subsection 9-15(1) of the GST provides that consideration includes any payment, or any act or forbearance, in connection with a supply of anything or in response to or for the inducement of a supply of anything.

The methodology

The ATO has issued a Market Value Guidelines in the Charities Consultative Committee Resolved Issues Document (the Guidelines) to assist charities and other organisations in establishing the GST inclusive market values of their supplies under subsection 38-250(1) of the GST Act.

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. 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 the 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. 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.

● Whilst it is unrealistic to place a definitive figure upon how many GST inclusive prices should be obtained, we expect that, where possible, it would generally be more than one. The information collected would need to provide sufficient intelligence for the charity to be confident that the value they arrive at is representative of the supply in the market.

● 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 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.

It is expected that charities would maintain and retain records that adequately document the process and information collected in establishing the relevant GST inclusive market values of the supplies they make for the purposes of subsection 38-250(1) of the GST Act.

‘Cost plus’ method used by you in your capacity as organiser to determine the GST inclusive market value of a supply it makes to an individual

The ‘cost plus’ method allows charities to work out the market value of their supplies as the sum of:

1) direct costs incurred – for example material and direct labour

2) a reasonable apportionment of indirect costs incurred – for example, marketing, administration, office expenses, electricity, telephone and insurance

3) depreciation of assets used, and

4) imputed costs for things such as volunteer labour, donated goods and services and free rent.

Outcome

Having calculated the GST inclusive market value, you will now be in a position to determine whether the supply will satisfy subparagraph 38-250(1)(b)(ii) of the GST Act. That is, your supply will be GST-free under subparagraph 38-250(1)(b)(ii) of the GST Act, where the fee charged is less than 50% of the GST inclusive market of the supply. If the fee charged is 50% or more than the GST inclusive market value, then the supply will not be GST-free.

You advised you are planning to charge a fee that is less than 50% of the GST inclusive market value of the supply.

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