Edited version of private advice

Authorisation Number: 1052103618259

Date of advice: 29 August 2023

Ruling

Subject: GST - affordable housing

Question 1

Are your supplies of leasing residential premises to affordable housing tenants GST-free under section 38-250 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, your supplies of leasing residential premises to affordable housing tenants are GST-free under section 38-250 of the GST Act to the extent that the supplies of leasing to the affordable housing tenants are made for less than 75% of the GST-inclusive market value of the supply or are less than 75% of the cost to you of providing the accommodation.

Question 2

Are you entitled to claim input tax credits incurred on costs to the extent they relate to making GST-free supplies of affordable housing?

Answer

Yes, you are entitled to claim input tax credits incurred on costs to the extent they are incurred in relation to making supplies of leasing of affordable housing which are GST-free in accordance with section 38-250 of the GST Act.

This ruling applies for the following periods:

1 July 2022 to 30 June 2033

The scheme commenced on:

28 August 2023

Relevant facts and circumstances

You are a company limited by guarantee and are registered for goods and services tax (GST). You are also registered with the Australian Charities and Not-for-profits Commission (ACNC) as a registered charity.

You have been established to provide access to affordable housing options as a Community Housing Provider.

You intend to make affordable housing more accessible in the market. You are targeting to develop a platform for a long-term portfolio of quality and sustainable social and affordable build-to-rent homes in Australia. Your development will include a mixed portfolio of market and affordable rental properties.

The current housing project will comprise predominantly of affordable housing rented to third party tenants that are leased for reduced rental payments. In the same building there will be some apartments rented to third party tenants on market terms.

The 'market rent' to be charged to third party tenants will be based on the market rent being achieved for comparable apartments in the area.

You intend to enter into one or more agreements with Entity A for community housing management services.

Outsourced service providers will manage the affordable and market housing in compliance with all the relevant laws and authorities and in accordance with the agreement between you and the service providers.

You will work with the chosen community housing provider for each specific project to determine the eligibility for tenants. Eligibility for affordable rent will be determined by a variety of factors which will vary from project to project.

You will appoint an independent valuer to conduct an annual market valuation for its respective projects each year.

You will enter into leases directly with tenants, Entity A will be providing property management and facilities management services only. Entity A will have no contractual arrangements with the tenants.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Sections 11-5, 11-15

Reasons for decision

Question 1

Subsections 38-250(1) and 38-250(2) of the GST Act states:

Nominal consideration etc.

(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.

(2) 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 cost to the supplier of providing the accommodation; or

(ii)   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.

* is a defined term under Section 195-1 of the GST Act

Goods and Services Tax Industry Issue - Charities Consultative Committee - Non-commercial activities of charities, cost of supply and market value tests (Charities Issue Register) provides the ATO's view about determining the market value for the purposes of section 38-250 of the GST Act. Specifically, paragraphs 38, 41 and 87 of the Charities Issues Register state:

38. In determining the market value of a supply, a charity must apply the following successive tests:

•         the charity must work out whether the same supply exists within the market they operate in - referred to as the 'same supply test'

•         if no 'same supply' exists, the charity must then work out whether a similar supply exists within the market they operate in - referred to as the 'similar supply test'

•         if no 'same supply' or 'similar supply' exists, the charity may seek approval from the Commissioner to use another methodology to calculate the market value of the supply.

41. 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.

Number of comparisons

87. In the market the charity operates in, there may be more than one other supplier making the same supply but for a different price. Whilst it is not practical to obtain the full range of prices (of the same supply) the charity should generally obtain more than one price.

You have told us that you will be appointing an independent valuer to conduct an annual market valuation for the respective projects each year.

The ATO publication "Market valuation for tax purposes" states the following in relation to obtaining market valuations:

Who can determine market value?

For tax purposes, the acceptability of a valuation usually depends on the valuation process undertaken rather than who conducted it. However, there are some exceptions. For example, only a professional valuer may undertake a market valuation for GST margin scheme purposes and only an 'approved valuer' may undertake a market valuation for the Cultural Gifts Program.

A reasonable estimate of market value requires skill, knowledge and experience.

A valuation report carried out by a suitably qualified professional following commonly-accepted industry standards and professional codes of conduct generally contains sufficient evidence and reasoning to allow for testing or replication and is considered more reliable by the Commissioner.

Who is a professional valuer?

Institutes that provide certification and standards for valuers include:

•         the Australian Valuers Institute (AVI)

•         the Australian Property Institute (API)

•         the Royal Institute of Chartered Surveyors (RICS)

•         the Australian chapter of the American Society of Appraisers (ASA Australia)

•         Chartered Accountants Australian and New Zealand (CA ANZ), and

•         other professional accounting bodies.

Table 1: Asset class, description and relevant professional

You are registered as a charity with ACNC and therefore are endorsed by the Commissioner as a charity for the purposes of section 38-250 of the GST Act. Your supplies of leasing residential premises to affordable housing tenants will be GST-free under section 38-250 of the GST Act to the extent that the leasing supplies are made for less than 75% of the GST inclusive market value of the supply where the market value has been determined in accordance with the ATO guidelines or is less than 75% of the cost to the supplier of providing the accommodation.

Question 2

Section 11-5 of the GST Act provides that you make a creditable acquisition if:

(a)  you acquire anything solely or partly for a creditable purpose; and

(b)  the supply of the thing to you is a taxable supply; and

(c)   you provide, or are liable to provide, consideration for the supply; and

(d)  you are registered, or required to be registered.

Subsection 11-15(1) of the GST Act provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

However, subsection 11-15(2) of the GST Act provides that you do not acquire a thing for a creditable purpose to the extent that the acquisition relates to making input taxed supplies or is of a private or domestic nature.

Therefore, your acquisitions will be creditable acquisitions to the extent that the acquisitions relate to supplies of leasing of affordable housing which are GST-free because of the application of section 38-250 of the GST Act.

The acquisitions you make that relate to your input taxed supplies of leasing of housing to tenants at market value are not made for a creditable purpose and input tax credits for these acquisitions will therefore be denied.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).