Edited version of private ruling

Authorisation Number: 1011549735025

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Ruling

Subject: GST and supplies of membership services

Question 1

Is the methodology you used for determining the consideration for acquiring things to supply membership services in the years in question (the relevant years) (and to be applied to subsequent years) acceptable to the Commissioner for the purposes of subparagraph 38-250(2)(b)(ii) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Question 2

By applying the costing methodology specified in the relevant years in question 1, is the supply of membership services by you to your members in these years GST-free under subparagraph 38-250(2)(b)(ii) of the GST Act?

Answer

Yes

Relevant facts and circumstances

You are an organisation established within an institution and are endorsed as a charitable institution.

You are registered for GST and are entitled to access GST concessions.

Your objective is to improve the quality of your members' experience.

You received cash funding from the institution to subsidise your operating costs.

You run a membership program which provides memberships to your own members (your own members are also members of the institution), and members of the public who pay the prescribed annual fee to you.

The current prescribed annual premium membership fee, payable you by your members, is a fixed amount.

In return for the membership fee, all categories of members enjoy the same membership benefits provided by you.

The membership fee is marketed and advertised without any reference to GST. The price of a premium membership is simply stated as 'a fixed amount' on the website and all marketing materials.

Historically you have remitted 1/11 of the membership fee as GST to the Australian Taxation Office (ATO) in the quarter you receive payments.

In determining the portion of indirect costs incurred in providing membership services, you have adopted a revenue method in apportioning all indirect costs.

Under the revenue method, you have sought to identify the proportion of revenue that your activities generate from your member program as a percentage of the revenue you generate from all your activities. In this regard, the allocation percentage is determined by the total annual membership fees received divided by the total revenue (excluding the funding) you received.

As it is likely that any reasonable method of apportioning the subsidy funding would also be a reasonable method for purposes of determining your overall proportion of member to non-member activities, the inclusion of the subsidy funding creates a somewhat circular apportionment methodology without adding any additional value or benefit to the calculation. Inclusion of the subsidy amount without apportionment in the calculation will distort the result. For these reasons the subsidy payment has been excluded from your revenue apportionment methodology.

You have excluded depreciation and imputed costs from the calculation.

You have provided your summarised calculations on the costs of providing services per class of membership.

Relevant legislative provisions

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

Issue 1

Question 1

Summary

Yes, your methodology used in determining the cost of supplying memberships for the relevant years is in accordance with the Cost of Supply Guidelines provided in the Charities Consultative Committee Resolved Issues Document (CCC).

Detailed reasoning

Commercial activities of charities will generally be taxable or input taxed. However, the non-commercial activities conducted by charities are GST-free.

As question one relates to the supply of membership services (that is, a supply other than the supply of accommodation), subparagraph 38-250(2)(b)(ii) of the GST Act will apply.

Subparagraph 38-250(2)(b)(ii) of the GST Act provides that your supply of membership services is GST-free if the consideration received for your supply is less than 75% of the consideration you provided or was liable to provide, for acquiring the thing supplied.

To assist charities in working out the difference between 'commercial' and 'non-commercial' activities, the Australian Taxation Office (ATO) have developed guidelines in the CCC.

Under Issue 1 of the CCC, the 'Cost of supply' guidelines have been developed for the purposes of applying subsection 38-250(2) of the GST Act.

The term 'cost of supply' in the CCC means either the cost to the supplier of providing accommodation for the purpose of subparagraph 38-250(2)(b)(i) of the GST Act or where the supply is not a supply of accommodation, the consideration the supplier provided or was liable to provide, for acquiring the thing supplied for the purposes of subparagraph 38-250(2)(b)(ii) of the GST Act.

Cost of supply guidelines

In this instance the supply of membership services will be GST-free if they are made for consideration that is less than 75% of the consideration you provided or are liable to provide, for acquiring the thing supplied or things to make the supply.

In determining the consideration you provided or were liable to provide in acquiring the thing supplied, the ATO considers the following points allow you to use the cost of providing the thing supplied when making the calculation. The CCC provides that:

When working out the cost of providing something, the 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, insurance.

Cost of providing supplies - other than accommodation

For supplies other than accommodation, 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 for the supplier provided or was liable to provide for acquiring the thing supplied'. The consideration the supplier provided or was liable to provide is GST-inclusive.

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.

Your methodology used for determining the costs of supplying membership services

In determining the costs of supplying membership services provided to your members in the relevant years, you have calculated:

· Direct costs, and

· Apportionment of indirect costs

Direct costs

You have provided a list of expenses directly related to the provision of membership services or the relevant years.

Indirect costs

In determining the proportion of indirect costs relating to the supply of membership services you have used a revenue method as a basis of apportionment. Using this method you have sought to identify the proportion of revenue your activities generate from your member program as a percentage of the revenue you generate from all your activities. In this regard, the allocation percentage is determined by the total annual membership fees received divided by the total revenue (excluding the funding) you received. 

Calculation of the apportioned indirect costs

Total membership revenue

Total annual revenue (excluding the funding)

Apportionment of indirect costs

Goods and Services Tax Ruling GSTR 2001/8 focuses on apportioning the consideration for a supply that includes both a taxable and non-taxable part. Paragraphs 92 to 95 provide some general principles to be adopted in choosing a basis of apportionment.

What is a reasonable method of apportioning depends on the circumstances of each case. In some cases, there will be only one reasonable method you may use.

Depending on your circumstances, you may use a direct or indirect method when apportioning.

The method you choose should be based on a consideration of all the circumstances and not because it gives you a particular result. You may need to use different methods, or a combination of methods, for different supplies to ensure the appropriate amount of GST is payable.

You need to keep records that explain all transactions and other acts you engage in that are relevant to supplies you make.

Furthermore, GSTR 2006/4 provides guidance on how to determine the extent of creditable purposes to claim the correct amount of input tax credits and also provides examples of apportionment methods.

Paragraph 101 of GSTR 2006/4 provides that the most appropriate method depends on the circumstances of each case and should consider:

· the nature of the acquisition and the ways of directly measuring its use, and

· the value of the acquisition and the cost of directly measuring its use.

You have applied a revenue method (output based, indirect method) to apportion the indirect costs.

We consider that your methodology in determining the cost of supply of memberships for the relevant years (as summarised above) is in accordance with the Cost of Supply Guidelines provided in the CCC for the purposes of subparagraph 38-250(2)(b)(ii) of the GST Act.

Question 2

Summary

Yes, by applying the costing methodology specified in question 1 for the relevant years, the supply of membership services by you to your members in these relevant years is GST-free under subparagraph 38-250(2)(b)(ii) of the GST Act.

Detailed reasoning

The Cost per membership is determined by the following formula. In return for the membership fee all categories of members are entitled to receive the same membership benefits. Therefore, it is not necessary to separately calculate the cost of supply for each class of membership.

Total consideration (direct + indirect costs) provided for supplying membership

Total number of memberships

You have provided your summarised calculations on costs of providing membership services.

Under subparagraph 38-250(2)(b)(ii) of the GST Act, you are required to compare the consideration you receive for the supply against the cost of making the supply to determine whether your supply is GST-free.

It is determined that the consideration received for all categories of membership for the relevant years were less than 75% of the cost of making the supply.

Therefore, the supply of your membership services to different categories of memberships was GST-free for the relevant years.