Edited version of private advice

Authorisation Number: 1051634520329

Date of advice: 17 March 2020

Ruling

Subject: Non-commercial supplies of residential accommodation

Question 1

Are the services of your teaching staff consideration for your supply to them of residential accommodation for the purposes of section 38-250 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 1

No.

This ruling applies for the following period:

17 March 2020 to 17 March 2024.

Relevant facts and circumstances

·        You are registered for Goods and Services Tax (GST).

·        You are an Australian Charities and Not-for-profits Commission (ACNC) registered charity and an endorsed charity for GST purposes.

·        You operate a school and provide subsidised accommodation to some of your teaching staff.

Relevant legislative provisions

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

-   Section 9-15

-   Section 38-250

Reasons for decision

Summary

The services of your teaching staff are not consideration for your supply of subsidised accommodation to them as there is insufficient nexus between the services provided by your teaching staff and the benefits that you provide to them.

Detailed reasoning

A supply of accommodation may be GST-free under section 38-250 of the GST Act if certain requirements are met. Further, subsection 9-30(3) of the GST Act provides that to the extent that a supply could be both GST-free and input taxed, the supply is GST-free unless the provision under which it is input taxed requires the supplier to have chosen for its supplies of that kind to be input taxed (section 40-35 of the GST Act does not require such a choice).

Subsections 38-250(1) and 38-250(2) of the GST Act relevantly state as follows:

(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)              ...

(2)   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 cost to the supplier of providing the accommodation; or

(ii)              ...

(* an asterisk denotes a defined term in the GST Act)

As you are an endorsed charity for GST purposes, you satisfy both paragraphs 38-250(1)(a) and 38-250(2)(a) of the GST Act.

What needs to be determined is whether or not your supply of accommodation is for consideration that is less than 75% of either: the GST inclusive market value of the supply or the cost to you of providing the supply.

Section 195-1 of the GST Act provides that consideration, for a supply or acquisition, means any consideration within the meaning given by section 9-15 and 9-17, in connection with the supply or acquisition. Section 9-17 of the GST Act is not relevant in your case.

Section 9-15 of the GST Act relevantly provides that consideration includes: any payment, or any act or forbearance, in connection with a supply or anything; and any payment, or any act or forbearance in response to or for the inducement of a supply of anything.

What constitutes consideration and is it for your supplies of residential accommodation to teaching staff?

Goods and Services Tax Ruling 2001/3 Goods and Services Tax: GST and how it applies to supplies of fringe benefits (GSTR 2001/3) relevantly states as follows:

19. The services of an employee can be consideration for the supply of a fringe benefit to that employee.

Services provided by an employee could thus constitute consideration within the broad definition of that term in section 9-15 of the GST Act.

However, the question to be answered is not just whether your employees' services could fall within the definition of consideration, but whether they are for your supply to them of the fringe benefit consisting of the subsidised accommodation.

Goods and Services Tax Ruling 2001/6 Goods and services tax: non-monetary consideration (GSTR 2001/6) relevantly provides as follows:

68. In determining whether a payment is consideration under subsection 9-15(1), the test is whether there is a sufficient nexus between the supply and the payment made.

71. In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description that parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made

72. The test as to whether there is a sufficient nexus is an objective test. The motive of the supplier and the recipient also may be relevant in determining whether the supply was made for consideration, if a reasonable assessment of the evidence supports that motive.

73. The following two cases illustrate the form that non-monetary consideration can take, and the need to find the necessary link in overseas jurisdictions between the supply and the payment.

74. An example of non-monetary consideration was dealt with by the Court of Justice of the European Communities in Naturally Yours Cosmetics Ltd v. Customs and Excise Commissioners (1988) 3 BVC 428. This case involved a cosmetics company that sold its products through beauty consultants who arranged for hostesses to organise parties at which the products were offered for sale. The beauty consultant purchased the pot of cream from the cosmetics company for an amount of money less than its normal selling price, giving an undertaking to use it only for the purpose of providing it as a gift to a hostess for organising a party. Otherwise, the beauty consultant had to pay the normal price or return it.

75. It was found there was a direct link between the supply of the pot of cream and the service provided by the beauty consultant to the cosmetics company of arranging the party. The service was therefore non-monetary consideration for the supply of the pot of cream. The consultant's service was valued as the difference between the cream's normal wholesale price and the money paid by the consultant.

76. Similarly, in the UK case of Rosgill Group Ltd v. Customs and Excise Commissioners [1997] BVC 388, a company sold goods on a 'party plan' system. It rewarded hostesses for holding parties for the promotion of its goods by commission based on the value of goods sold at the party. The amount of commission depended on whether it was taken in money or as a discount on the price of goods. A hostess chose to receive her commission as a discount on the purchase of a blouse.

77. The Court of Appeal considered that under article 11(A)(1)(a) of the Sixth Directive the taxable amount was made up of 'everything' obtained by the supplier from the hostess. The hostess did not simply pay the money. She also held the party at her house. In holding the party, she was rendering a service of value to Rosgill so there was a 'direct link' between the provision by the hostess of that service to Rosgill and the supply of the blouse.

78. The Court of Appeal said there was also a causative link as the purchase would not have happened if the service had not been provided, and a contractual link as the purchase of the blouse at the reduced price was in exercise of a contractual right acquired under the agreement to hold the party. The consideration given by the hostess for her blouse therefore consisted partly of monetary consideration and partly of non-monetary consideration, being her service of holding the party at her house.

79. We consider that the principles on which these cases were decided are applicable in Australia.

The consideration included in applying the non-commercial activity rules includes monetary as well as non-monetary consideration. The non-monetary consideration can include things such as services provided by employees.

In applying the abovementioned rules to a supply of accommodation that is a fringe benefit, the supplier must include the value of the employee's services where they represent consideration for the supply of the accommodation (e.g. where a remuneration package is negotiated which includes as part of the remuneration the right to occupy a house owned by the employer).

How this applies in your case

In determining whether the supply of accommodation by you to teaching staff is GST-free under section 38-250 of the GST Act, it is first necessary to consider whether any part of your teachers' services represent non-monetary consideration for the supply of subsidised accommodation.

An employee's services will only be non-monetary consideration for the supply of subsidised accommodation where there is a sufficient nexus between the two, as highlighted in paragraphs 68 to 72 of GSTR 2001/6 (refer above).

Based on the facts in your case, subsidised accommodation is only provided to certain teachers that are eligible and who take up your offer. Regardless of whether or not your teachers are eligible and take up the offer of subsidised accommodation, they are paid the same base wages (where they have the same level of experience, etc.) for their teaching services.

In addition, although it is only your teaching staff that may be entitled to subsidised accommodation, those teaching staff who are provided with such benefits are under no binding obligation to do anything in return for receiving such benefits. Should any of the teaching staff decide to cease their employment with you, all that would happen is that they would cease being entitled to the subsidised accommodation.

For the above reasons, we do not consider the services of the teaching staff to be non-monetary consideration for the subsidised accommodation. Thus, the only consideration that you need to take into account in determining whether your supply of subsidised accommodation is GST-free under section 38-250 of the GST Act is the monetary amount of rent that you receive for that supply.