Edited version of your written advice

Authorisation Number: 1013118754472

Date of advice: 3 November 2016

Ruling

Subject: GST and social and affordable housing

Question 1

Is entity A (you) making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when entity A receives payments under the proposed Agreement between entity A and the Government?

Answer

Yes you are making a taxable supply under section 9-5 of the GST Act when you receive payments under the proposed Agreement between you and the Government.

Question 2

Are there any GST implications when you transfer land to other members of the group?

Answer

No, there are no GST implications when you transfer land to other members of the Group.

Question 3

Will payments the Government pays to entity A under the proposed Agreement, form part of the consideration for entity A's supply of accommodation to eligible tenants for the purposes of section 38-250 of the GST Act?

Answer

No, the payments will not form part of the consideration for entity A's supply of accommodation in to eligible tenants for the purposes of section 38-250 of the GST Act.

Question 4

Is entity A's proposed methodology for ascertaining the GST inclusive market value (MV) of its supply of accommodation acceptable to the Commissioner for the purposes of satisfying subparagraph 38-250(1)(b)(i) of the GST Act?

Answer

Yes, entity A's proposed methodology for ascertaining the MV of its supply of accommodation is acceptable to the Commissioner for the purposes of satisfying subparagraph 38-250(1)(b)(i) of the GST Act. This is the case providing entity A maintains adequate records to evidence and justify the appropriateness of the MV ascertained and adequately documents the process and information collected in determining the MV.

Question 5

Are full input tax credits available to you under section 11-20 of the GST Act in respect of the costs incurred when making all supplies associated with accommodation?

Answer

Yes input tax credits are available under section 11-20 of the GST Act in respect of the costs incurred when making all supplies associated with accommodation provided they are taxable supplies being made to you.

Question 6

Does the proposed lending arrangement between you and the financiers qualify for GST exemption under subsection 11-15(5) of the GST Act?

Answer

Yes the proposed lending arrangement between you and the financiers qualify for GST exemption under subsection 11-15(5) of the GST Act.

Relevant facts and circumstances

You are the owner of all real property of the entity. You are an endorsed charity.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Section 9-15

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

Reasons for decision

Under section 38-250 of the GST Act, the provision of accommodation by, amongst other things, endorsed charities may be GST-free where certain conditions are met.

Being an endorsed charity your supply, of accommodation to eligible tenants under the proposed agreement, will be GST-free under subsection 38-250(1) of the GST Act, if the supply is made for 'consideration' that is less than 75% of the GST inclusive MV of the supply.

Section 195-1 of the GST Act defines 'consideration' for a supply as meaning any consideration, within the meaning given by section 9-15 of the GST Act, in connection with the supply.

Consideration within the meaning of section 9-15 of the GST Act includes any payment, or any act or forbearance, in connection with a supply of anything and any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

Paragraphs 71 and 72 of Goods and services tax: non-monetary consideration (GSTR 2001/6) explain that in determining whether a sufficient nexus exists between a supply and consideration, regard should be had to the description that parties give to their arrangement, the nature or character of the transactions involved in the arrangement, and the circumstances in which the transactions are made. Similar guidance is given at paragraphs 121, 121A and 122 of Goods and services tax: financial assistance payments (GSTR 2012/2).

The rent that eligible tenants will pay you under the residential tenancy agreements to be entered into between you and the tenants will be payments in connection with your supply of the accommodation to the tenants. Consequently, this rent will be consideration for your supply of the accommodation within the meaning of section 9-15 of the GST Act and for the purposes of section 38-250 of the GST Act.

Accordingly, although based on the facts of the ruling scheme, the payments are not consideration for any specific supply of accommodation that you will make to any particular eligible tenant; the payments are consideration for a supply that you make to the Government under the proposed agreement.

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

Subparagraph 38-250(1)(b)(i) of the GST Act provides that a supply of accommodation that an endorsed charity makes is GST-free if the supply is for consideration that is less than 75% of the 'GST inclusive market value' of the supply.

Section 195-1 of the GST Act relevantly defines 'GST inclusive market value' of a supply as meaning the market value of the supply of the thing in question without any discount for GST payable on the supply.

The term 'market value' is however not defined for GST purposes.

The Goods and Services Tax Industry Issues Charities Consultative Committee Non-Commercial activities of charities, cost of supply and market value tests ruling (CCC ruling), sets out market value guidelines to assist charities in determining an acceptable MV when applying provisions such as section 38-250 of the GST Act.

At paragraph 35 of the CCC ruling, the Commissioner outlines his view that the market value of a thing for the purposes of section 38-250 of the GST Act is a price that would be negotiated between a knowledgeable, willing and not anxious buyer, and a knowledgeable, willing and not anxious seller acting at arm's length in an appropriate market.

According to paragraph 38 of the CCC ruling, for the purposes of section 38-250 of the GST Act, a charity should apply the following successive tests in determining the MV of a supply of a thing, including accommodation:

● the 'same supply test', where a charity must work out whether the same supply exists within the market they operate in and if no same supply exists then;

● the 'similar supply test', where the charity must then work out whether a similar supply exists within the market they operate in, and if no similar supply exists then;

● another methodology approved by the Commissioner to calculate the market value of the supply.

If the same supply exists in the market, paragraphs 43 and 44 of the CCC ruling provide that the price of this supply is the MV that the charity should use in its calculations having regard to other charitable or commercial suppliers together with the:

● identity of the market;

● locality of the supply or area of the market;

● quality or nature of the supply;

● size, quantity or duration of the supply;

● conditions of supply; and

● number of comparisons.

Paragraph 68 of the CCC ruling states that:

' … where there are genuinely identifiable differences in the quality of the 'same supply', the charity needs to take into account those differences in establishing the market value of the supply it makes …'

Further, paragraph 91 of the CCC ruling provides that the factors under the 'same supply test' are also relevant to the 'similar supply test'.

The process of taking account of identifiable differences will involve qualifying those differing characteristics on a reasonable basis and adjusting the price of the 'same supply' to arrive at the MV of the supply you are making.

You will be providing accommodation to eligible tenants pursuant to residential tenancy agreements. As such, you will be operating in a market of residential tenancies for longer term accommodation.