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Ruling

Subject: GST and supply for nominal consideration

Question:

The methodology of determining the GST-inclusive market value of a supply of a right to attend the Event for the purposes of section 38-250 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act):

· for the Host Branch? and

· for other State Branches?

Advice/Answers

Please refer to Reasons for decision

Relevant facts

You, the Host, are registered for goods and services tax (GST).

You are endorsed as a charitable institution.

You are organising the Event.

You expect that a large number of your members from all of the States and Territory of Australia will attend the Event.

Each member pays the same fee determined by you for regardless of where in Australia that person comes from and what they do at the Event.

You are of the view that:

· neither 'the same test' nor 'the similar supply test' is capable of being used in determining the GST-inclusive market of the supply

· the Event is unique to your organisation

· you have not been able to identify any other organisation including commercial organisation, which provides the same or similar activity

Consequently, you consider that it is appropriate to use the 'cost plus' method of determining the GST-inclusive market value of the supply for the purposes of subparagraph 38-250(1)(b)(ii) of the GST Act

You are aware that in using the 'cost plus' method, it will take into account the imputed costs of volunteer labour provided to you by the attendees. The imputed costs of use of own facilities and equipment and the imputed costs of donated goods and services (excluding volunteer labour)

Each State Branch will charge their State members a fee for attending the Event.

Your have agreed to receive a private ruling explaining the methodology of determining the GST inclusive market value of the supply by you for the purposes of subparagraph 38-250(1)(b)(ii) of the GST Act.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 9-15

Subparagraph 38-250(1)(b)(ii)

Summary

A supply will be GST-free where you follow the steps in the methodology provided and 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.

Reasons for decision

GST-free supplies

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

38-250  Nominal consideration etc.  

(1) A supply is GST-free if:

(a) the supplier is a charitable institution, a trustee of a charitable fund, 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.

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 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.

(3)   Subsections (1) and (2) do not apply in relation to a charitable institution 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.

Example:

Subsections (1) and (2) do not apply in relation to an entity that is both a charitable institution and a gift-deductible entity unless the entity is an endorsed charitable institution.

(4) Subsections (1) and (2) do not apply to a supply by a *gift-deductible entity endorsed as a deductible gift recipient (within the meaning of the *ITAA 1997) under section 30-120 of the ITAA 1997, unless:

(a)  the supplier is:

(i)  a charitable institution or a trustee of a charitable fund; or

(ii)  a *government school; or

(iii)  a fund, authority or institution of a kind referred to in paragraph 30- 125(1)(b) of the ITAA 1997; or

(b)  each purpose to which the supply relates is a *gift-deductible purpose of the supplier.

* An asterisk denotes a defined term in the Dictionary of the GST Act.

You are an endorsed charitable institution and are organising the Event. you will make supplies of right to attend the Event. A supply of a right to attend will be GST-free if the requirements of subparagraph 38-250-(1)(b)(ii) are met. That is, such a supply of a right to attend the Event will be GST-free where the consideration received 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 Act 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.

For the purposes of the GST Act, it is clear that consideration has a broad meaning. Further, a payment is not limited to a payment of money. It includes a payment in a non-monetary or in an in kind form, such as:

- providing goods;

- granting a right or performing a service (an act); and

- entering into an obligation, for example to refrain from selling a particular product (a forbearance).

In some transactions, particularly those involving money only, the consideration is readily apparent. However, where there is monetary consideration for a supply, or acquisition it does not necessarily follow that there is no other consideration for the supply or acquisition. If any non-monetary consideration is received for a supply or paid for an acquisition, it must be added to the monetary amount to work out the total consideration received or paid.

You charge a member a monetary amount for attending the Event. For the purposes of the GST legislation, each of these charges constitutes monetary consideration received by you for making a supply to an attendee.

It should be noted that the fee paid by an attendee is not a gift the individual makes to you. An individual cannot be a member of a State Branch and cannot attend the Event without paying the requisite fee. The fee is not paid voluntarily and the payer receives material benefit in return.

THE METHODOLOGY

The ATO has issued GST Industry Issues, Charities Committee Consultative Ruling that contains Market Value Guidelines (the Guidelines) to assist charities and other organisations in establishing whether their supplies are GST-free 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 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, the ATO would expect that 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.

Lastly, in the unusual event that a market value cannot be established using those methods outlined above, the charity can use a 'cost+' 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, an organisation can include an imputed cost for donated goods and voluntary labour.

Importantly, these tests are successive tests for determining GST inclusive market value, they are not alternative tests. If, therefore, 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.

You are of the view that:

- neither 'the same test' nor 'the similar supply test' is capable of being used in determining the GST-inclusive market of the supply

- the Event is unique to the organisation

- you have not been able to identify any other organisation including commercial organisation, which provides the same or similar activity.

Consequently, you consider that it is appropriate to use the 'cost plus' method in determining the GST-inclusive market value of a supply for the purposes of subparagraph 38-250(1)(b)(ii) of the GST Act.

Cost plus method used by you in the capacity as the Host 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:

- direct costs incurred - for example material and direct labour

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

- depreciation of assets used, and

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

Where you as the Host use the cost plus method to determine the GST inclusive market value of a supply of a right to attend the Event to an individual, the methodology for this method comprises the following steps.

 Step 1

Determine in relation to the Event the GST exclusive:

- budgeted costs to be incurred by you

- imputed costs of volunteer labour provided to you by the attendees. Those costs must exclude any costs imputed for volunteer labour provided them to their respective Branches

- imputed costs of equipment and facilities owned and used by you. Those costs must exclude any costs imputed for equipment and facilities owned and used by other State Branches

- imputed costs of donated goods used by you, and

- imputed costs of donated services other than volunteer labour (for example, free promotion and/or advertisements) used by you.

Step 2

Apportion each of the costs determined in Step 1 between each member on a reasonable basis. An example of an apportionment method is to allocate any budgeted or imputed direct costs separately to each member and to apportion any budgeted or imputed indirect costs to these groups on a reasonable basis.

 Step 3

Calculate the total of the costs apportioned to each member respectively.

 Step 4

Increase the amounts calculated in Step 3 by 10%.

Step 5

Determine the GST inclusive market values of the respective supplies by dividing the amounts calculated in Step 4 respectively by the numbers of attendees.

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, the supply of a right to attend the Event by you in its capacity as organiser 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.

Cost plus method used by the other State Branch to determine the GST inclusive market value of a supply it makes to its member in its contingent to the 2013 event.

The monetary consideration received by other State Branches for the respective supplies is the respective fees they will receive from their members. The methodology above also applies to other State branches in determining whether their supplies are GST-free.

It should be noted that the imputed costs are only calculated on the services to the Branch, not at the Event (as this would be included in the imputed costs to you, the Host -see step 1 above).

GST private ruling and facts

 In a GST private ruling, we provide specific advice to a particular rulee about how the law applies to its circumstances. In doing so, we use the facts provided by the rulee. Therefore, if the rulee advises that it: 

- charges a fee which confers a particular right to a payer

- incurs a particular type of expenditure, or

- determines the imputed costs for donated services or volunteer labour in a particular manner;

- we will determine how the law applies to those facts as provided. It is not a role of the private ruling to determine the accuracy of, for example, the amount of a fee charged or the amount of cost incurred. However, we may comment on the appropriateness of the use of the particular method in determining the imputed costs. 

The rulee can rely on the advice provided in the private ruling on the operation of the GST law to its circumstances unless the rulee has made a material misstatement of fact or suppressed a material fact.