Edited version of private ruling

Authorisation Number: 1011622750639

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Ruling

Subject: GST grant and supplies made by a charitable institution

Questions:

Is the federal grant included in your GST turnover to determine whether you are required to be registered for GST despite the one-off nature of the grant?

If you register for GST, will your supply of meals be GST-free?

If you register for GST and conduct fund raising events such as raffles, morning tea and selling donated goods, will these supplies be GST-free?

Answers

No, based on the information received, the federal grant will not be included in your GST turnover when considering whether you are required to be registered for GST.

If you register for GST and your provision of meals is part of community care to an aged or disabled person, your supply will be GST-free under subsection 38-30(4) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) .

Further under section 38-250 of the GST Act, your supply of meals will also be GST-free where the amount charged is less than:

· 50 percent of the GST-inclusive market value of the supply; or

· 75 per cent of the consideration the supplier provided, or was liable to provide, for acquiring the thing supplied.

If you register for GST:

· your supply of raffles will be GST-free under subsection 38-270(1) of the GST Act provided you do not contravene the State law.

· your sale of the donated second hand goods will be GST-free under section 38-255 of the GST Act provided there is no change in the original character of the goods and the goods were given to them as a gift.

Where the supply you make when holding the morning tea meets the requirements in section 38-250 of the GST Act, your supply will be GST-free.

Where the requirements in section 38-250 of the GST Act are not met, the supply will be a taxable supply under section 9-5 of the GST Act.

However, you have the option to treat the supply as an input taxed supply under section 40-160 of the GST Act and, therefore you will not be required to charge GST on the supply.

Relevant facts

You are a non profit organisation and a charitable institution that is endorsed by the Australian Taxation Office (ATO) to access goods and services tax (GST) concessions. You are also registered as a deductible gift recipient (DGR).

Currently you are not registered for GST as your GST turnover is below the $150,000 threshold.

You conduct non-commercial activities. Your principle activity is to provide low costs hot meals to the elderly in Australia. The meals are charged at below costs. You receive state funding to supplement the costs of running the kitchen and providing the meals to people with disabilities, older people and their carers so that they can participate fully in community life (you have provided a copy of the funding agreement you have with the State) . You currently rent the place where you carry out your activity.

You also conduct raffles, morning tea and sell donated goods in order to raise money for the building of a new kitchen. You advise that not much money was involved during these activities and this fund raising will be minimal by the end of the year.

You are in line to receive a federal grant to fund the building of the new kitchen. You do not know when you will receive the grant and there is currently no funding agreement in place. You advised that this federal grant is of a one off nature. You have not lodged any application with the Government for this grant.

The only information you have in regard to this federal grant is a Media Release which stated that a secure amount in Federal Government Funding project will be made available to you under the Government's Community Investment project. There is no information on whether there are conditions or obligations attached to the provision of this grant to you and whether the grantor would receive a benefit in making this grant in this Media Release.

You are of the view that there may be an agreement in place when you receive the grant. You do not think the grantor will receive a benefit from this grant, however you may have to account how the grant is used to the grantor and there may be a time frame for the kitchen to be constructed.

Reasons for decisions

Question 1

GST is payable in respect of taxable supplies. A supply is a taxable supply under section 9-5 of the GST Act if:

· you make the supply for consideration;

· the supply is made in the course or furtherance of an enterprise that you carry on;

· the supply is connected with Australia; and

· you are registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed

The term grant is not defined and the general principles of the GST Act apply in determining whether GST is payable on a grant transaction.

The ATO has issued a Goods and Services Tax Ruling GSTR 2000/11 which deals with the application of GST to grants and financial assistance and funding. This ruling provides guidelines for working out when grants of financial assistance and funding constitute consideration for a taxable supply.

The GST treatment of grants depends primarily on whether the grant represents consideration that has the relevant connection with a taxable supply. This will depend on the particular facts and circumstances of each grant program.

Supplies made in connection with the receipt of a grant will be subject to GST where the grant represents consideration for a supply which is a taxable supply. Conditional grants made to a registered grantee will usually be subject to GST.

Accordingly, a grant will be subject to GST if the following four tests are satisfied:

· Is the grant consideration for a supply by the recipient to the grantor?

· Is the supply to which the grant relates made as part of the recipient's enterprise?

· Is the supply for which the grant is paid connected to Australia?

· Is the recipient of the grant registered or required to be registered for GST?

Is the grant consideration for a supply by the recipient to the grantor?

Subsection 9-10(1) of the GST Act defines supply as any form of supply whatsoever and subsection 9-10(2) of the GST Act expands on the meaning of supply.

Essentially, a supply is something which passes from one entity to another. The supply may be one of particular goods, services or something else which is reflected in an agreement by one party to do something for another.

However under subsection 9-10(4) of the GST Act a supply does not include a supply of money unless the money is provided as consideration for a supply that is a supply of money.

A supply is not subject to GST in Australia unless it is made for consideration. Consideration 'for a supply or acquisition' is defined in section 195-1 of the GST Act as any consideration, within the meaning given by section 9-15 of the GST Act, which is 'in connection with the supply or acquisition'.

Subsection 9-15(1) of the GST Act defines consideration and includes:

· any payment, or any act or forbearance, in connection with a supply of anything; or

· any payment or any act or forbearance, in response to or for the inducement of a supply of anything.

However paragraph 9-15(3)(b) of the GST Act specifically excludes a gift made to a non-profit body from being consideration for a supply.

In determining whether a payment is in connection with the supply of an obligation, we consider that the test is whether there is a link or nexus that provides a substantial relation between the substance of the obligation and the grant. This is answered by considering whether a grant is conditional or unconditional. If the grantee undertakes or is required to do something in exchange for the funds this is a supply by the grantee for which the grant is consideration. The grant would therefore represent consideration for that supply.

Applying facts

From the information received, the federal grant stated in the Media Release is considered to be unconditional since there is no evidence that the grantor is receiving any benefit in return for this payment to you and its disposition. Accordingly, the grant is not consideration for a supply to the grantor and instead it is just a supply of money that you have received. A supply of money that is not consideration for a supply is not a supply under subsection 9-10(4) of the GST Act.

Since you are not making a supply, this payment is not included in your GST turnover when considering whether you are required to be registered for GST.

Further since the grant is made to a non-profit body and as the only conditions attached to the grant relate to the disposition of the fund, the question of whether the grant is a gift is also relevant.

Is the grant a gift?

The term gift is not defined in the GST Act and thus takes on its ordinary meaning. A grant is considered to be a gift if:

· the payment is made voluntarily, and not as a result of a prior contractual obligation;

· the grantor does not receive an advantage of a material character by way of return for making the payment; and

· the payment arises from benefaction.

The fact that the grant has conditions attached which establish the terms on which the grant is made will not by itself, preclude the grant from being a gift. For example the grant may still be a gift if the grant conditions:

· stipulate the project for which the fund are to be used;

· establish a date of completion for the project;

· require the grantee to maintain separately in its books of account, records on how the grant has been used; and

· require that the grantee acknowledge the assistance of the grantor in any published or display material.

If however, the grant conditions provide the grantor with material benefits or impose a binding obligation on the grantee, the grant would not be considered to be a gift. The following are examples of such conditions:

· the grantor is given an interest in any resultant intellectual property that is generated from the research;

· the grantor is provided with a share in the income from the commercial exploitation of the research results;

· the grantor is allowed to determine how the grantee should acknowledge their assistance (which may extend beyond mere acknowledgment); or

· the grantee must repay the grant if the conditions of the grant are not satisfied.

From the information received, there is no evidence that there is a contractual obligation and the grantor receives any material benefit for making the payment. If the payment essential arises from benefaction, then the grant will be a gift and will therefore not be consideration under paragraph 9-15(3)(b) of the GST Act. Hence, this payment will not be included when considering whether you are required to be registered for GST.

Summary

Based on the information received, the federal grant will not be included in your GST turnover when considering whether you are required to be registered for GST.

Note:

You will need to review the GST status of the grant when receiving it as its status may change since advice was provided based on the Media Release you provided. GSTR 2000/11 and Part 5 of the charities consultative committee resolved issue document (available on our website) may be of assistance to you when reviewing the GST status of the grant on receipt.

Question 2

If you register for GST, your supply of meal will satisfy the requirements of paragraph 9-5(a) to 9-5(d) of the GST Act as:

· you make the supply for consideration;

· the supply is made in the course or furtherance of an enterprise that you carry on;

· the supply is connected with Australia as the meal is provided in Australia and supplied through an enterprise that you carry on in Australia; and

· you are registered for GST.

However, the supply of meal is not a taxable supply to the extent that it is GST-free or input taxed.

Is your supply of meals GST-free?

Relevant to your supply of meal is sections 38-30 and 38-250 of the GST Act.

Section 38-30 of the GST Act

A supply of care services including meals as part of community care to an aged or disabled person by a government funded supplier is GST-free where the requirements of subsection 38-30(1), (2) or (4) of the GST Act are met.

Subsection 38-30(1) of the GST Act provides that the supply of meals as part of the supply of community care is GST-free where a community care subsidy is payable under part 3-2 of the Aged Care Act 1997 to the supplier.

Subsection 38-30(2) of the GST Act provides that the supply of meals as part of the supply of community care is GST-free where the supplier receives funding under the Home and Community Care Act 1985 in connection with that supply.

Under subsection 38-30(4) of the GST Act, the supply of meals is GST-free where the supplier receives funding from the Commonwealth, a state or territory in connection with the supply and it is made to a frail, older person or a younger person who:

has a moderate, severe or profound disability (including addiction to a drug)

lives at home, and

would, in the absence of services of the kind mentioned in Schedule 1 to GST-free supply (Care) Determination 2000, be at risk of prematurely or inappropriately needing:

long term care in a hospital or other institution; or

residential care within the meaning of the Aged care Act 1997.

From the information received, you have a funding agreement with a State Department in which you agreed to provide your services to the people with disabilities, older people and their carers by delivering meals to them.

Accordingly, where your provision of meal is part of community care to an aged or disabled person, your supply will be GST-free under subsection 38-30(4) of the GST Act.

Section 38-250 of the GST Act

Section 38-250 of the GST Act provides when the activities of a charitable institution, a trustee for a charitable fund, a gift deductible entity or a government school is GST-free.

Under subsection 38-250(1) a supply that is not a supply of accommodation by a charitable institution will be GST-free if the amount charged is less than 50 per cent of the GST inclusive market value of the supply.

Under subsection 38-250(2) a supply that is not a supply of accommodation by a charitable institution will be GST-free if the amount charged is less than 75 per cent of the consideration the supplier provided, or was liable to provide, for acquiring the thing supplied.

Therefore, a supply of meal by a charitable institution will be GST-free where the amount charged is less than:

· 50 percent of the GST-inclusive market value of the supply; or

· 75 per cent of the consideration the supplier provided, or was liable to provide, for acquiring the thing supplied.

To assist in determining market value, the ATO has provided benchmark market values for a range of supplies including meals. However, the use of these bench marks is limited to some types of organisations (and supplies by those organisations).

The benchmark market values for meals for charities is available in section C of part 3 in the charities consultative committee resolved issues document and can be accessed on our website.

The ATO updates the benchmark market values each year starting from 1January.

For the meals benchmark market value, the use of this benchmark is limited to 'meals on wheels, charity 'soup kitchens' and organisations that prepare and supply meals to frail homeless or needy.

You are an organisation that prepares and supplies prepared meals to frail homeless or needy. As a result, you are entitled to use the benchmarks provided by the ATO where you deliver the meal to a person who is frail, homeless or needy. This will apply regardless of whether you prepare or purchase the meal. This will also apply regardless of whether that you are contracted by another organisation to deliver the meal to a person who is frail, homeless or needy.

Accordingly, where you use the benchmark values provided by the ATO as a basis to determine whether you are making a taxable or GST-free supply because of the application of subsection 38-250(1) of the GST Act, that market value will be accepted by the ATO. Further if you satisfy the requirements in subsection 38-250(1) of the GST Act, your supply of meal will be GST-free.

However, where you supply a prepared meal to another organisation (including a Meals on Wheels entity), we consider there exists a comparable supply in the open market for this type of supply. Therefore, in this circumstance you cannot access the benchmark market values provided by the ATO. You can compare the supply you make to those made by other suppliers who are also in the market of supplying food, such as catering firms, to establish the market value. In this circumstance you should retain appropriate documentation to support alternative market values. Sections A and B of Part C in the charities consultative committee resolved issues document provides market value guidelines.

Accordingly, where you use the market value and if you satisfy the requirements in subsection 38-250(2) of the GST Act, your supply of meal will be GST-free.

Summary

If you register for GST and your provision of meal is part of community care to an aged or disabled person, your supply will be GST-free under subsection 38-30(4) of the GST Act.

Further, your supply of meal will be GST-free under section 38-250 of the GST Act where the amount charged is less than:

· 50 percent of the GST-inclusive market value of the supply; or

· 75 per cent of the consideration the supplier provided, or was liable to provide for acquiring the thing supplied.

Question 3

From the information received, you hold raffles, morning tea and sell donated goods to raise funds for the construction of your new kitchen.

If you register for GST, you will satisfy all the requirements of paragraph 9-5(a) to 9-5(d) of the GST Act as you make the supply for consideration and through an enterprise that you carry on; the supply is connected with Australia (as it is done in Australia and through an enterprise that you carry on in Australia) and you are registered for GST.

However the supply of these activities will not be a taxable supply to the extent that they are GST-free or input taxed.

We will now consider whether the supply of raffles, morning tea and sale of donated goods are GST-free or input taxed.

GST-free supply

Raffles

Under subsection 38-270(1) of the GST Act a supply is GST-free if:

The supplier is a charitable institution, a trustee of a charitable fund, a gift-deductible entity or a government fund; and

The supply is:

· a supply of a ticket in a raffle; or

· an acceptance of a person's participation in a game of bingo; or

· a gambling supply of a kind specified in the regulations; and

The supply does not contravene a State law or Territory law.

Subsection 38-270(2) further provides that subsection 38-270(1) of the GST Act does not apply in relation to a charitable institutions or a trustee of a charitable fund unless the institution or trustee is an endorsed charitable institution or an endorsed trustee of a charitable fund.

Generally each state or territory has enacted law to regulate the conduct of lotteries, gaming, art, unions, bingo and so on. The relevant State or territory law ('the law') may provide rules which the operators must comply with. If an operator breaches any of those rules, it may be guilty of an offence under the law.

The law may require an operator to hold a licence or an authority before it may conduct a raffle or bingo. A charity holding the required licence or authority for running a particular raffle or bingo may commit an offence if it breaches a rule under the law.

A supply of raffle that contravenes the State law is not GST-free under this subsection.

From the information received, your supply of raffles will be GST-free under subsection 38-270(1) of the GST Act provided you do not contravene the State law.

Sale of donated goods

For GST purposes, a second hand good is a good that has been used previously. However, a second-hand good also includes a new good that has been bought by an individual or organisation with the intention of donating it to a charity. However, if the new good was originally bought for the purposes of manufacture, sale or exchange it will not be considered as a second hand good for GST purposes.

Under section 38-255 of the GST Act, a sale of donated second hand goods by a charitable institution, charitable fund, gift deductible entity or government school is generally GST-free provided there is no change in the original character of the goods and the goods were given as a gift.

For example a charity receives donations of damaged second hand clothes. If the donated clothing is cleaned and/or repaired prior to sale, the sale of these clothes will be GST-free. If the second hand clothes are cut up and sold as rags, the sale of the rags will not be GST-free as they are no longer the same as the goods that were donated, but have been manufactured by the charity into a new product, that is rags.

Goods donated by a business that were trading stock of the business are not second hand goods and therefore cannot be sold GST-free.

For example a charity holds a fundraising fete where it sells items donated by individuals and local businesses. A local business donates some floor-damaged novelty cups to the charity for sale at the fete. The sale of the donated floor-damaged goods is not GST-free because the novelty cups wee trading stock of the local business who donated them.

Accordingly, a charity must be able to distinguish its donated second hand goods from other goods in order to ensure that the donated second hand goods are supplied to their customers GST-free under section 38-255 of the GST Act. The ATO recommends that a charity records whether a good is a donated second hand good at the time it is received.

In your circumstance, your sale of the donated second hand goods will be GST-free under section 38-255 of the GST Act provided there is no change in the original character of the goods and the goods were given to you as a gift.

For more information on second hand goods, please refer to part 6 of the charities consultative committee resolved issues document.

Morning tea

You advised that minimal consideration was involved in regard to the morning tea. Section 38-250 of the GST Act will therefore be relevant when you hold the morning tea.

Under section 38-250 of the GST Act, a supply that is not a supply of accommodation by a charitable institution will be GST-free where the amount charged is less than where the amount charged is less than:

· 50 percent of the GST-inclusive market value of the supply; or

· 75 per cent of the consideration the supplier provided, or was liable to provide, for acquiring the thing supplied.

Accordingly, where the supply you make when holding the morning tea meets the requirements in section 38-250 of the GST Act, your supply will be GST-free.

Where the requirements in section 38-250 of the GST Act are not met, the supply will be a taxable supply under section 9-5 of the GST Act.

However, there is a special provision under the GST Act that allows a charitable institution to treat their taxable supplies as input taxed supply for fund raising events (section 40-160 of the GST Act)

Input taxed supply

Fund-raising events

Under section 40-160 of the GST Act an endorsed charitable institution, charitable fund, gift deductible entity or a government school may choose to treat a certain types of fundraising events as input taxed.

Under subsection 40-165(1) of the GST Act, the following fund raising events if it is conducted for the purpose of fund raising and does not form part of a series or regular run of like or similar events can be treated as input taxed:

A fete, ball, gala show, dinner, performance or similar event - a similar event may include a charity auction, a cake stall, wine tasting or fashion parade;

An event where all goods are sold for $20 or less, but

the event cannot involve the sale of alcohol or tobacco; and

the selling of the goods must not be a normal part of the supplier's business, for example, a charity holds an annual flower day where it sells flowers for $2 each and the charity is not in the business of selling flowers;

An event that has been approved by the Commissioner as a fundraising event.

If a fundraising is not one of the types listed above (for example, a golf day), the organisation can write to the Commissioner and ask for approval to treat the event as an input taxed fund raising event. The Commissioner will grant approval only if:

· the event is held for the purpose of fundraising;

· the organisation is not in the business of conducting such events; and

· the proceeds from the event are for the direct benefit of the organisation's charitable or non-profit purposes.

The organisation can conduct a particular fund raising event up to 15 times in a financial year and choose to treat each event as input taxed as per the A New Tax System (goods and Services Tax) Frequency of Fund-raising Events Determination (No1) 2001 made by the Commissioner on 10 August 2001.

If the organisation holds more than 15 of the same type of event in a financial year, none of the events can be treated as input taxed fundraising events.

If an organisation chooses to treat a fundraising event as an input taxed fundraising event, it will have to treat all sales it makes in connection with the event as input taxed. That is, the organisation will not be entitled to claim GST credits for any acquisitions in relation to the event and it will not be required to charge GST on the sales it makes. The organisation will not be entitled to claim GST credits regardless of whether the supply would have been GST-free had it not made the election.

Proceeds from input taxed fundraising events do not form part of an organisation's annual turnover. Therefore, an organisation does not need to take into account payments received from sales made in connection with fundraising events that are input taxed in determining whether its annual turnover exceeds the $150,000 registration threshold.

Accordingly, if any of your fund raising events satisfy section 40-165 of the GST Act you may treat the supply as an input taxed supply. In this circumstance you do not have to charge GST on the sales and you cannot claim GST credits for any acquisitions related to the event. Further you must keep records containing details of your choice (for example, in accounts or meeting minutes) and do not need to notify the ATO of your choice.

For more information on fund raising events please refer to the fact sheet Goods and Services Tax - fundraising.

Summary

Where you register for GST:

Your supply of raffles will be GST-free under subsection 38-270(1) of the GST Act provided you do not contravene the State law.

Your sale of the donated second hand goods will be GST-free under section 38-255 of the GST Act provided there is no change in the original character of the goods and the goods were given to you as a gift.

Where the supply you make when holding the morning tea meets the requirements in section 38-250 of the GST Act, your supply will be GST-free.

Where the requirements in section 38-250 of the GST Act are not met, the supply will be a taxable supply under section 9-5 of the GST Act.

However, you have the option to treat the supply as an input taxed supply under section 40-160 of the GST Act.