Edited version of private advice

Authorisation Number: 1051905487560

Date of advice: 1 October 2021

Ruling

Subject: GST and provision of accommodation

Question 1

Are the services of the Teachers and Principals consideration for the supply of accommodation by you?

Answer

No.

Paragraph 19 of Goods and Services Tax Ruling 2001/3 Goods and Services Tax: GST and how it applies to supplies of fringe benefits (GSTR 2001/3) provides that the services of an employee can be non-monetary consideration for the supply of a fringe benefit to them.

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.

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

In your case, the Teachers and Principals can avail themselves of the accommodation you provide if they choose to do so. The residential accommodation is not something you are required to supply in order for the Teachers or Principals to be able to supply the School with their services.

Further, the Teachers and Principals get paid the same rate of base pay whether or not they get residential accommodation provided by you. The Teachers' and Principals' salaries are not adjusted to reflect whether they take up your offer to receive residential accommodation or to rent elsewhere.

Teachers and Principals who receive the residential accommodation provide you with the same quantity and quality of services as other Teachers and Principals who do not receive the residential accommodation.

Given the above, we do not consider there to be a nexus between the services supplied by the Teachers and Principals and the supply of accommodation provided by you and therefore the services supplied by the Teachers and Principals are not non-monetary consideration for the accommodation provided by you.

Question 2

If the answer to Question 1 is No, is the consideration less than 75% of the GST inclusive market value of the supply?

Answer

A supply made by an endorsed charity is GST-free if the supply is a supply of accommodation and the consideration for the supply is less than 75% of the GST-inclusive market value of the supply.

The term 'market value' is not defined in the GST Act. For the purposes of the non-commercial supply rules, we consider that the market value of a thing is the 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.

Goods and Services Tax Industry Issues Charities Consultative Committee: Non-commercial activities of charities, cost of supply and market value tests (CCC Issues Register) provides guidelines and methodologies which allow charities to determine a market value that is acceptable to the ATO when applying the non-commercial supply rules.

The CCC Issues Register provides that in determining the market value of a supply, a charity must apply the following successive tests:

• the charity must work out whether the same supply exists within the market they operate in - referred to as the 'same supply test'
• if no 'same supply' exists, the charity must then work out whether a similar supply exists within the market they operate in - referred to as the 'similar supply test'

•         if no 'same supply' or 'similar supply' exists, the charity may seek approval from the Commissioner to use another methodology to calculate the market value of the supply.

You provide accommodation to the Teachers and Principals in residential properties that you either lease from other landlords at arm's length rental rates or in properties you own.

With reference to your Leased properties, you are able to determine market value of the accommodation you supply based on the arm's length rental you pay to the lessors for these properties.

With reference to your Owned properties, you are able to apply the 'similar supply' test in accordance with the principles set out in the CCC Issues Register to determine the market value of your supply. In this regard you make a comparison between the nature of the residential accommodation supplied by you to other residential accommodation supplied in the area and where they are similar you use the weekly rent charged by these suppliers as the market value benchmark.

Determining market value in this way accords with the market value guidelines per the CCC Issues Register and to the extent that the consideration for the accommodation you supply to the Teachers and Principals is less than 75% of the market value determined thus, subparagraph 38-250(1)(b)(i) will apply to make your supply of accommodation to the Teachers and Principals GST-free.

Note: Where you are using the non-commercial supplies rules, that is subsection 38-250(1) of the GST Act, you will need to monitor the market you make the supply in and ensure that you respond promptly to any material changes in the market. In this regard you may have to consider adjustments in accordance with Division 129 of the GST Act where you stop meeting the requirements of subsection 38-250(1).

Question 3

If the answer to Question 2 is No, is the consideration less than 75% of the cost of supplying the accommodation?

Answer

A supply of accommodation by a charity is GST-free if it is for consideration that is less than 75% of the cost to the charity of providing the accommodation. This is also referred to as the 'cost of supply test'.

The CCC Issues Register provides cost of supply guidelines. When working out the cost of providing something, you should include:

• all direct costs incurred - for example, materials and direct labour, and
• a reasonable apportionment of indirect costs incurred - for example, marketing, administration, office expenses, electricity, telephone and insurance.

For supplies of accommodation, only costs incurred in providing the accommodation can be included in the calculation. This does not include imputed costs for things like volunteer labour, donations or free rent where you have not actually provided any consideration or payment or incurred any real costs.

If a depreciable asset is used to provide accommodation, you should use the depreciation amount for the asset rather than the whole cost of the asset in the calculation. You must not include both the full cost of an asset and the depreciation amount for the asset in the calculation.

To the extent that you have applied these principles to determine the cost of supply, and where the consideration for your supply is less than 75% of the cost to you of providing the accommodation, subparagraph 38-250(2)(b)(i) will apply to make your supply of accommodation to the Teachers and Principals GST-free.

Question 4

Will the supply of accommodation by you to the Teachers and Principals be a non-commercial supply and GST-free under section 38-250 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, to the extent that your supply of accommodation to the Teachers and Principals meet the requirements of section 38-250 of the GST Act.

Subsections 38-250(1) and 38-250(2) of the GST Act 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.

To the extent that the consideration for your supply of the accommodation to the Teachers and Principals is less than 75% of the GST inclusive market value of the supply (subparagraph 38-250(1)(b)(i)) or is less than 75% of the cost to you of providing the accommodation (subparagraph 38-250(2)(b)(i)), you will meet the requirements of section 38-250 of the GST Act and the supply of accommodation by you to the Teachers and Principals will be GST-free.

Question 5

If the answer to Question 4 is Yes, will you be entitled to claim the input tax credits on expenses paid to maintain the accommodation?

Answer

Section 11-5 of the GST Act provides that you make a creditable acquisition if:

• you acquire anything solely or partly for a creditable acquisition; and
• the supply of the thing to you is a taxable supply; and
• you provide, or are liable to provide, consideration for the supply; and
• you are registered or required to be registered.

Section 11-15 of the GST Act provides that 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 supplies that would be input taxed; or

•         the acquisition is of a private or domestic nature.

Subsection 9-30(3) of the GST Act provides that to the extent that a supply is both GST-free and input taxed, the supply is GST-free and not input taxed.

Therefore, to the extent that your supply of accommodation meets the GST-free requirements of section 38-250 of the GST Act, and the expenses paid to maintain this accommodation meet the requirements of section 11-5 and 11-15 of the GST Act, you are entitled to claim the input tax credits on the expenses paid to maintain the accommodation.

Question 6

If the answer to 4 is Yes, will you be entitled to claim the input tax credits on (i) repairs and maintenance and (ii) construction of new residential property?

Answer

Yes, under the same conditions and for the same reasons as discussed in Question 5.

Question 7

If the answer to 4 is Yes, will you be entitled to claim the input tax credits on the purchase of land that is acquired as a taxable supply (but not acquired under the margin scheme) and on which new residential premises will be constructed to be supplied to the Teachers and Principals as residential accommodation.

Answer

Yes, under the same conditions and for the same reasons as discussed in Question 5.

This ruling applies for the following periods:

1 January 20XX to 31 December 20XX

The scheme commences on:

1 January 20XX

Relevant facts and circumstances

The Taxpayer (you), is endorsed as a charitable institution for goods and services tax (GST) purposes.

The Taxpayer is registered for GST.

The Taxpayer operates a number of Schools.

All students live with their families and are not provided with accommodation.

Market rent for residential premises in the areas adjacent to the Schools' locations can be high due to either their remote location and/or shortage of suitable residential accommodation in those areas.

In order to provide Teachers and Principals with affordable accommodation, the Taxpayer provides accommodation to those employees who have moved near a School to carry out their teaching duties at that School.

Teachers and Principals are entitled to be accompanied by their spouse and children while staying in the residential accommodation provided by the Taxpayer.

Only Teachers and Principals at the School are provided with accommodation by the Taxpayer:

The Taxpayer also employs support officers to work with the Teachers and Principals in the School. These support staff are not entitled to receive residential accommodation and do not receive an accommodation allowance or similar compensation for living near the Schools.

Staff are paid fortnightly.

Under the Agreements with the Taxpayer, the Teachers and Principals pay for 47 weeks rent a year. Where the Taxpayer leases residential premises itself to provide to the Teachers and Principals, it is required to pay for the full 52 weeks. Effectively, the Taxpayer covers the cost of the accommodation over the Christmas holiday period (i.e. the Taxpayer covers the full cost of the cost of the accommodation in January). Despite this, the residential accommodation is available to that employee for the full 52 weeks.

All Teachers and Principals that are provided with accommodation are provided with a 12-monthly lease. Where the property is leased to staff members, The Taxpayer collects a 'bond' which is registered with the Residential Tenancies Authority.

Nature of accommodation supplied

The Taxpayer currently owns nine properties that are provided as staff accommodation.

The Taxpayer also leases properties from third parties to provide as staff accommodation.

A number of the properties are shared, mostly by unrelated employees. In addition, some of the properties are occupied by families (e.g. siblings and married couples).

There is a lease in place and bond collected for each employee sharing the property.

The rent is split evenly between each employee residing there.

Consideration

A Teacher or Principal is charged an amount per week in rent for the exclusive use of the accommodation provided by the Taxpayer.

The Teachers and Principals are salary packaging their rent. For the purposes of this ruling request, the 'rent paid' by the Teacher or Principal refers to the amount salary packaged.

The amounts paid by the Taxpayer are market values as the Taxpayer receives no discounts and are dealing with unrelated arm's length third parties, in all cases but one.

If the Teacher or Principal elects not to receive accommodation from the Taxpayer and instead elect to own or rent their own residential premises, they are provided with an annual accommodation allowance.

If the Teacher or Principal chooses to take up Taxpayer provided residential accommodation, they do not receive this annual accommodation allowance.

There is no difference in the rates of pay between Teachers or Principals who receive residential accommodation from the Taxpayer and the Teachers or Principals who choose not to receive residential accommodation, apart from the accommodation allowance.

The Teachers and Principals also receive a Remote Incentive allowance on top of their salary for the costs of food and transport. All Teachers and Principals receive this Remote Incentive allowance regardless of whether they are provided with residential accommodation.

Approximately XX staff are provided with discounted residential accommodation.

There are three properties that show the rent received as being greater than 75% of the leased costs paid by the Taxpayer. In this respect, the Taxpayer advises that the costs shown for these properties is understated, because it sets the rent paid by the employees to always equal to 75% of the cost paid by the Taxpayer, similar to its other properties.

Market value

Type of residential accommodation

You provide accommodation to the Teachers and Principals in residential properties that you either lease from other landlords at arm's length rental rates or in properties you own.

The details for each property are provided in a spreadsheet, titled "Property Details" which has been provided with this private ruling application.

Where you lease the properties, you are able to determine market value of the accommodation you supply based on the arm's length rental you pay to the lessors for these properties.

Where you owned the properties, you make a comparison between the nature of the residential accommodation supplied by you to other residential accommodation supplied in the area to determine market value.

Services provided

All residential properties are provided fully furnished by the Taxpayer.

Repair and maintenance services are provided by the Taxpayer for each residential property.

All expenses for electricity and water are paid for by the Teacher or Principal.

The Taxpayer does not provide motor vehicles as part of the residential accommodation.

The Taxpayer does not provide meals as part of the residential accommodation.

Conditions of occupancy

Each residential property is for the exclusive use of Teacher or Principal for the entire year. This residential accommodation is not rented out to third parties over Christmas holidays or during other breaks between terms. The residential property is not used by the Taxpayer to house other staff while that Teacher or Principal is on holidays and away from their property.

Teachers and Principals are required to pay rent for only 47 weeks of the year, however, are entitled to use the accommodation for 52 weeks of the year.

Costs

During the calendar year ended 31 December 20XX, the breakdown of staff housing costs (GST-exclusive) incurred by the Taxpayer has been provided with the private ruling application.

Two Building Services staff committing about 40% of their time to managing staff accommodation. The total employment cost in 20XX was $XX. As such, 40% equals about $YY per year.

This $YY has been proportionally allocated to each Property.

Application to Taxpayer's circumstances

The supply of residential accommodation is dependent on the person's status as a Teacher or Principal of a school rather than any particular services they provide in terms of teaching or other school related activities.

Teachers or Principals who are provided with subsidised residential accommodation are under no binding obligation to do anything in return for receiving such benefits.

Should any of the Teachers or Principals decide to cease their employment with a School, they would cease being entitled to the subsidised residential accommodation shortly afterwards.

The subsidised residential accommodation is not something the School is required to supply in order for the Teacher or Principal to be able to supply the School with their services.

The Teacher or Principal gets paid the same rate of base pay whether or not they get residential accommodation provided by the Taxpayer.

The Teacher or Principal salaries are not adjusted to reflect whether they take up the offer to receive Taxpayer provided residential accommodation or rent elsewhere.

Teachers or Principals who receive the subsidised residential accommodation provide the Taxpayer with the same quantity and quality of services as other Teachers or Principals who do not receive the subsidised residential accommodation.

The residential accommodation is for the exclusive use of the Teacher or Principal and is not rented out to third parties over periods the Teacher or Principal are not performing their duties, for example over the Christmas break.

Teachers or Principals pay rent for 47 weeks of the year; however, are entitled to use the property for 52 weeks of the year if they choose.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-30(3)

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5

A New Tax System (Goods and Services Tax) Act 1999 Section 11-15

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