Edited version of your written advice

Authorisation Number: 1051179552612

Date of advice: 10 January 2017

Ruling

Subject: GST and lease of curriculum related goods.

Question 1

Does the school (you) make GST-free supplies under section 38-97 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you lease laptops to students who participate in the laptop program?

Answer

No.

Question 2

Do you make GST-free supplies under section 38-250 of the GST Act when you lease laptops to students who participate in that laptop program?

Answer

No.

Question 3

Do you make GST-free supplies under section 38-250 of the GST Act when you sell the laptop to the parents (on behalf of the student) at the end of that program for a certain amount?

Answer

Yes.

Relevant facts and circumstances

The government entity is registered for GST.

You are registered for GST.

You are a higher education institution that is a registered School. You provide accredited courses to students enrolled at your school.

The government entity advised that it has delegated the authorisation to you to design and implement the Laptop Program for the benefit of your students. You have established the laptop program for students enrolled in your school.

Laptops are provided as a tool to assist student learning - both at school and at home.

● The laptop participation fee is a certain amount.

● The value of the amount is equal to the cost to you.

● You purchase the laptop and you are invoiced for the laptop by the supplier. The cost of the laptop includes GST.

● Agreement

● The Agreement applies to the laptop programs as described in this ruling.

● In the Charter Agreement between you, and the student and their parents, the students and their parents agree to accept all policies and guidelines as per Documents A and B.

● Failure to comply with Document B could result in recall of the device, charges for damage and/or loss of access for home use.

● The document is signed and dated by the parent and the student.

● Document A

● Document A applies to the laptop programs as described in this ruling.

● It outlines the appropriate use of the device and the internet; including, when and how the computer is to be used, care instructions and security functions.

● Document B

● Document B applies to the laptop programs as described in this ruling.

● The equipment referred to in Document B includes a laptop computer and standard suite of software, including Microsoft Office.

● All computers used in the program remain the property of the government entity unless otherwise stated.

● At the end of the loan period, (either at the end of junior or senior secondary) all devices are returned to the school and will be removed from the school network. The devices will have all licensed software and data removed and will be restored to their original factory state.

● If the student completes their schooling or transfers from the school (ie: moves to another school, interstate or overseas), the device must be returned to the school. If the device is not returned, reimbursement will be sought. If the laptop is deemed lost or stolen, the school will follow the government entity procedures.

● Document C

● Specifies the model and cost of the laptops available in the laptop program.

● The cost (GST inclusive) of the laptop varies.

● Document D

● Document D applies to the laptop programs as described in this ruling.

● Document D is provided to individual student cohorts.

● Parents can pay a certain amount to purchase the device and take ownership. The managed operating environment will be removed prior to the device being released. This will remove all software currently on the machine.

You advised:

● the buyback option is available from the school for a certain amount, and

● the school owns the computer during the whole hire agreement.

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 38-97

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

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Student Assistance Act 1973 Section 5D

Reasons for decision

Question 1

According to section 9-5 of the GST Act, you make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

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

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

The supply of the laptop by way of lease will be a taxable supply, if the supply satisfies all the requirements of section 9-5, but only to the extent that the supply is not GST-free or input taxed.

Division 38 of the GST Act provides that the lease of curriculum related goods are GST-free if the supply satisfies all four limbs of section 38-97.

Section 38-97 of the GST Act states:

A supply by way of lease or hire of goods is GST-free if:

(a) the goods are for use directly or principally by a student in undertaking a *pre-school course, *primary course or *secondary course in which the student is enrolled; and

(b) the entity supplying the course leases or hires the goods; and

(c) at all times while the lease or hiring has effect, the entity supplying the course has the right to decide who uses goods and the use to which the goods are put; and

(d) the lease or hiring is not part of an arrangement that includes:

(i) a transfer of ownership of the goods; or

(ii) an agreement to transfer ownership of the goods; or

(iii) imposing an obligation, or conferring a right, to transfer ownership of the goods.

The first limb, is the supply must be directly or principally for use by a student in undertaking a pre-school, primary or secondary course in which the student is enrolled. Section 195-1 of the GST Act defines a secondary course as:

(a) a course of study or instruction that is a secondary course determined by the Education Minister under subsection 5D(1) of the Student Assistance Act 1973 for the purposes of that Act or

(b) …..

The Education Minister determined in paragraph 9 of Student Assistance (Education Institutions and Courses) Determination 2009 (No. 2) that a secondary course is as a course that is an accredited secondary course that is provided by a higher education institution. For the definition of higher education institution in subsection 3 (1) of the Student Assistance Act 1973, the following are to be regarded as higher education institutions for the purposes of the Student Assistance Act 1973:

(a) an institution that is established by a law of the Commonwealth, a State or a Territory as a higher education institution;

The determination defines an accredited secondary course as

'a course accredited as a secondary course by the State or Territory authority responsible for the accreditation of secondary courses in the State or Territory in which the course is conducted.'

You are a higher education institution that is a registered School. The school provides an accredited course to the students. Your enrolled students undertake a course. The laptops are used directly by the students for undertaking a course. The students use the laptop at school and at home to assist and maximise their learning.

Secondly, the goods must be hired or leased by you as the provider of a pre-school, primary or secondary course. Goods and Services Tax Ruling GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions (GSTR 2002/2) broadly defines a lease as:

“a contract whereby one party (the lessor) grants to another party (the lessee) the exclusive right to use the lessor's property for an agreed period of time, usually in return for the payment of rent over the term of the lease agreement.”

In your circumstances, you lease laptops to students through the laptop program. The laptop program offers students the right to use the laptop for the duration of their enrolment at the school or until the laptop warranty or program period ends. In return for the lease of the laptops, the parents, on behalf of the students make payments. Consequently, you are the provider of a course and you provide laptops to students enrolled at your institution by way of lease.

Thirdly, at all times, the school must retain the right to decide who uses the goods and the use to which the goods will be put. You have the right to decide whether a student is eligible to lease a laptop and how the laptop is to be put to use.

The fourth requirement that must be satisfied is paragraph (d) of section 38-97. It provides that for the lease to be GST-free, the leasing or hiring is not part of an arrangement that includes a transfer of ownership of the goods; an agreement to transfer ownership of the goods; or imposing an obligation, or conferring a right, to transfer ownership of the goods to any student at any stage. Where the arrangement provides for or leads to the transfer of ownership of the goods to the student, it will not be GST-free.

'Arrangement' is not a defined term in the GST Act and therefore takes its ordinary meaning. The Macquarie Dictionary defines 'arrangement' as, among other things, 'the manner in which things are arranged.' The term 'arrangement' is therefore considered to have a broad meaning. In your case, the 'arrangement' is considered to be all the documents since all these documents are provided to the students and their parents and all relate to the main supply, which is the lease of a laptop.

In Document D, which forms part of the arrangement for the purposes of section 38-97, you give each student's parents the option to purchase and take ownership of the laptop at the end of the program. The offer made by the school gives rise to obligations and rights. On that basis, although a separate transaction, the offer is part of the overall 'arrangement' for the purposes of section 38-97. Therefore, the lease arrangement does not satisfy the fourth limb of section 38-97.

Question 2

Subsection 38-250 provides that where a government school makes a supply for consideration that is either less than 50% of the GST inclusive market value of the supply or less than 75% of the consideration the supplier provided, or was liable to provide, for acquiring the thing supplied (cost of supply), the supply is GST-free.

Section 195-1 of the GST Act defines a government school as a school that supplies full time courses. You are a government school that provides full time courses.

Section 38-250 does not apply to the supply of the lease as, on the facts provided, it is not less than 50% of the GST inclusive market value of the supply and it is not less than 75% of the consideration the school provided to acquire the laptops.

The supply of laptops by way of lease to the students under the laptop program is not GST- free. The supply is subject to the normal GST rules outlined in section 9-5 and is taxable.

Question 3

It must be determined if the sale of the laptop at the end of the lease is a GST-free supply under section 38-250.

For the purposes of section 38-97, the arrangement includes an option for the students' parents to take ownership of the laptop at the end of the program as outlined in Document D.

A lessee may acquire goods on expiry of the lease for an amount equal to the residual value. Where the lessee does acquire the previously leased goods, they are not acquired under the terms or conditions of the lease agreement, but under a separate or collateral agreement that is separately negotiated between the parties. Goods and Services Tax Determination GSTD 2001/2 Goods and services tax: is the sale of goods by a lessor on expiry of a lease agreement a separate supply to the lease of the goods? (GSTD 2001/ 2) explains that the sale of goods by a lessor on expiry of a lease agreement is a separate supply to the lease of the goods.

Therefore, the sale of the laptop to the student's parent at the end of the lease is a separate supply.

The sale of the laptops will be GST-free if the consideration, that is the payment made by the parents to take ownership of the laptop, is less than 75% of the consideration you provided, or were liable to provide, for acquiring the laptop.

The 'cost of supply' guidelines in the Charities Consultative Committee Non-commercial activities of charities, cost of supply and market value tests document outlines that you should only include amounts paid or payable by you for the good because subparagraph 38-250(2)(b)(ii) states that it is the 'consideration the supplier provided or was liable to provide for acquiring the thing supplied'.

In your circumstance, the cost to supply the laptop would be the price you paid or were liable to pay for the purchase of the laptop.

According to the information provided, the laptop is supplied to the parents for a certain amount. The consideration received by you for the supply of the sale of the laptop to the parents is less than 75% of the cost of supply and is therefore GST- free under paragraph 38-250(2)(b)(ii).