Edited version of your written advice

Authorisation Number: 1012660501526

Ruling

Subject: GST and student accommodation

Question 1

Is the supply of student accommodation GST-free?

Answers

Yes. Based on the examples provided for the same supply/similar supply where the supplies of student accommodation are made for less than 75% of the GST inclusive market value.

Question 2

Are you entitled to claim input tax credits (ITC) on costs for the acquisition of the lease of the premises?

Answers

Yes

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

• You are a charitable institution endorsed to access goods and services tax (GST) concessions.

• You are registered for goods and services tax.

• You lease a property. The property's primary purpose is of providing residential accommodation to your students at an affordable rate during their education.

• It has previously been determined by the ATO that the lease of the property is a taxable supply of commercial residential premises.

• In addition to the supply of accommodation at the property you also sub lease a portion of the property to a retail operator and also utilise part of the area of the property for the provision of education for the students.

• The property has clusters of accommodation in units consisting of student accommodation rooms. Within each unit there are separate rooms. Each unit has a private ensuite toilet facility, study desks, air-conditioning and storage space, with each cluster of units sharing kitchen and other living facilities. The units are homogenous and essentially indistinguishable. Living spaces are fully furnished

• Residents are predominately your program students, although some other students may reside in the premises the cost of the accommodation forms part of the tuition fees for the city's programs (which appear on your website).

• The students are here as part of their studies, participating in programs variants of which you provide in other locations. The students attend for one semester (generally a 16-25 week term) at a time and all accommodation pricing is calculated accordingly. The students pay a fee with distinct components allocated to tuition and non-tuition, including accommodation. Programs are divided into internship programs, of which about X% of your students in Australia are enrolled in, and other programs.

• You engaged Company A to provide a report ("the Market Value Report") which considers the rental values of comparable, and in some cases substantially identical, student accommodation facilities in the vicinity of the accommodation offered at the property which you have submitted with your application for a Private Binding Ruling (PBR).

• The Market Value Report essentially gives the relevant values of the "same supply". It involves the comparing of substantially identical facilities and supplies of accommodation, to arrive at the value of each supply of the property. It can be seen from the Market Value Report that there are rents for comparable facilities The rate for the supplies of the property for its equivalent period does not exceed $xxx per week, which is X% of the rent charged by the comparable premises and therefore less than 75%.

• You provided a table showing your comparisons for a 6 month period:

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 9-5

Section 11-5

Section 11-15

Section 38-250

Reasons for decision

Issue 1

Question 1

Summary

You contend that your supplies of accommodation in the property are GST-free under section

38-250 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). In particular, you have provided a Market Value report compiled by Company A that determines the supply will be made for less than 75% of the GST inclusive market value.

Detailed reasoning

General information

Whilst it is unrealistic to place a definitive figure upon how many GST inclusive prices should be obtained for comparison purposes, 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.

The Australian Taxation Office (ATO) has issued a GST public ruling that contains the 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 state the following when considering the number of comparisons a charity ought to make when considering the same supply test.

• Number of comparisons

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.

Additionally at Section G of the Guidelines the ATO In consultation with the Australian Valuation Office, has provided a methodology which has been approved for use by charities for applying the market value guidelines to accommodation supplied by charities, in university residential halls or colleges, and other residential educational facilities. This methodology is within the scope of the GST legislation and uses the principles explained in the Market value guidelines.

A link was provided to Section G.

Supplies of accommodation in university residential halls or colleges and other residential educational facilities

Section G provides that there is no requirement for the charity to obtain a professional valuation of its supply by a licensed valuer. The charity can undertake a valuation of its supply by comparing it with other supplies in the market. However, the general principles explained in the 'Market value guidelines' must be used regardless of whether the charity chooses to obtain a professional valuation.

To assist charities to undertake their own valuation the ATO has developed the ATO Residential College GST Tool.

Your Market report

You contend that your supplies of accommodation are GST-free under section 38-250 of the GST Act. In particular, you have advised that the supply is made for less than 75% of the GST inclusive market value.

You have based your contentions on the Market Value report from Company A that you have provided and contend shows that the value of your supplies is or will be less than 75% of the market value of 'same supplies' in the local marketplace.

When establishing the market value of accommodation the ATO advises that you should seek to compare the accommodation you offer with accommodation of a similar standard and under similar conditions including the duration of the lease. The CCC Document is clear when discussing this test that other properties need to be used as a comparison by using comparable features of the supply.

To work out correctly whether a supply of accommodation is GST-free, charities must compare its own supply of accommodation with another supply of accommodation in the market that has the same qualities as its supply. These qualities would include:

• types of accommodation such as single rooms, shared rooms or studios

• the accommodation is available for long term occupancy

• the quality of the fittings of the room

• whether the rooms are serviced daily, weekly or not at all, and

• the amenities or facilities that are provided in the supply of accommodation - these need to be separate from those available to all students attending the university whether residential or external.

Charities needs to take into account the following when making the comparison:

• identifying the market

• the locality of the supply or area of the market

• the quality or nature of supply

• the size, quantity or duration of supply

• the conditions of supply

• other charitable or commercial suppliers, and

• the number of comparisons.

In conclusion the Market Value report from Company A does supply sufficient information to comply with the requirements outlined in the CCC document and is adequate in assessing a market value to the supply of your student accommodation.

However whether the information supplied shows that your supply of student accommodation is less than 75% of the market value is discussed further below.

Market Value Guidelines

Commercial activities of charities will generally be taxable or input taxed. However, the non-commercial activities by charities will be GST-free under Sub-division 38-G -'Activities of charities etc' of the GST Act.

As you are the supplier of accommodation and you are also a charitable institution and your questions relate to the supply of accommodation (residential premises) for less than the market value, subparagraph 38-250(1)(b)(i) of the GST Act may apply,

Relevantly, subsection 38-250(1)(b)(i) of the GST Act provides that a supply is GST-free if the supplier is a charitable institution and the supply is a supply of accommodation that is for less than 75% of the GST inclusive market value of the supply.

Subparagraph 38-250(1)(b)(i) of the GST Act states that:

(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) …

*an asterisk denotes a defined term in the GST Act.

As an endorsed charity, your supply of residential premises is GST-free if the consideration received for your supply is less than 75% of the market value of the supply.

As mentioned previously the ATO has published the Guidelines to assist endorsed charities or gift deductible entities 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 (the same supply test). 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 (the similar supply test). 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.

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, 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.

A link to the Market Value Guidelines in the Charities Consultative Committee Resolved Issues Document was provided below.

Market Value Guidelines

In your case there are a number of facilities that provide the same supply or similar supply of student accommodation that you do, therefore the same supply test would apply when calculating the cost of your supply of student accommodation.

The same supply test

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.

The other suppliers in the market can be charities or profit making organisations.

If the same supply exists in the market, the price of this supply is the market value that the charity should use in their calculations.

You have provided a Market Value report from Company A which you contend provides the basis for treating your supplies as GST-free.

Where you have acted in accordance with the information from the Market Value report (if that report shows the supplies as being GST-free) and the Guidelines in determining that your supply of accommodation is for consideration that is less than 75% of the GST inclusive market value of the supply, we accept that the supply is a supply for nominal consideration and is GST-free.

Where you are entitled to treat the supplies as GST-free under section 38-250, this GST treatment overrides any other possible treatment (such as whether the underlying supplies may otherwise be an input taxed supply)(see subsection 9-30(3) of the GST Act). When a supply is GST-free no GST is payable on the supply, and an entitlement to an input tax credit for anything acquired to make the supply is not affected.

As an example, if we compare your rental for the y bedroom apartment at the property with those of the 'same supply' in order to meet the requirements of subparagraph 38-250(1)(b)(i) of the GST Act, and following the information in the valuation report, the rental amount you charge for the y bedroom apartments in the property must be less than:

• $xxx per week (Comparison A)

• $xxx per week (Comparison B)

The weekly rental amount you have stated for the y bedroom apartments you supply in the property is $xxx which is less than those amounts and therefore your supply of residential rental of the y bedroom apartments will be GST-free and not input-taxed.

In your case the Market Value report has compared the value of your supplies with up to 4 different facilities and we are willing to accept the dollar values contained in the report as true and current values.

Records

Charities must keep and maintain records that adequately document the process and information collected in working out the relevant market values which the consideration of the supplies the charity makes is to be compared to.

For example, the market values established and the methods used may be documented or minuted in the charity's books of account. This information should be captured in a way that will allow cross-referencing to accounting statements. It should also correspond to what is recorded on the charity's Business activity statements.

While you do not need to seek formal approval from the ATO where you conclude that the supplies of student accommodation (or other supplies or services) are GST-free, you must use the above guidelines to calculate the market value or cost of supply to make and support your decision.

Review of market values

Charities should monitor the market in which they make the supply to ensure that they will respond promptly to any material changes in the market.

Changes in market conditions include, amongst other things:

• suppliers entering or leaving the market

• changes in quality of the supplies as a result of different consumers' expectation

• changes in input costs, and

• changes in prices charged.

Input costs include real costs such as direct and indirect costs incurred, depreciation and imputed costs.

Question 2

Summary

Your acquisition of the lease at the property for the supply of student accommodation is a creditable acquisition for the purposes of section 11-5 of the GST Act.

Detailed reasoning

An entity is entitled to the input tax credit for any creditable acquisition that it makes.

Section 11-5 of the A New Tax System (Goods and services Tax) Act 1999 (GST Act) states:

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.

Note: the * denote a defined term within the GST Act.

You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire the 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.

Section 11-20 of the GST Act provides that you are entitled to the input tax credit for any creditable acquisition that you make.

Subsections 11-15 (1) and (2) of the GST Act provides that:

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

(2) However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be input taxed; or

(b) the acquisition is of a private or domestic nature.

Creditable acquisition

In your case you are acquiring the lease of the property in relation to the supply of the student accommodation, student tuition and the sub-lease for a commercial purpose in the course of your enterprise.

The property is primarily designed for student accommodation and the building is not of a private or domestic nature.

It has previously been determined by the ATO that the lease of the property is a taxable supply of commercial residential premises as defined in the GST Act.

Company B leases the property to you, for a long term greater than ten years. The lease commenced in 20XX (the Lease).

However, section 11-5 of the GST Act denies an input tax credit where a supply would be input taxed.

The supply of residential accommodation is normally input taxed, however section 38-250 of the GST Act and section 9-30 of the GST Act may apply to make the supply GST-free, thereby entitling you to an input tax credit.

Where you have determined that your supply of residential accommodation is GST-free under section 38-250 of the GST Act, the final provision of Section 11-5 of the GST Act will been met and you will be making creditable acquisitions.

Section 38-1 of the GST Act provides that:

If a supply is GST-free, then:

• no GST is payable on the supply;

• an entitlement to an input tax credit for anything acquired or imported to make the supply is not affected.

Therefore, you would be entitled to ITC for things acquired to make the GST-free supply of residential accommodation.

In your case, based on the evidence provided, you are entitled to ITC on the costs for the lease of property provided you hold a tax invoice.

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.