Edited version of private advice

Authorisation Number: 1052026762010

Date of advice: 31 August 2022

Ruling

Subject: GST and supply of property by charity

Question 1

Is the supply of residential premises (Townhouse) by Entity X to a program participant (purchaser) a GST-free supply under section 38-250 of the A New Tax System (Goods and Service Tax) Act 1999 (GST Act)?

Answer

No. The supply of the Townhouse is not GST-free under section 38-250 of the GST Act.

Question 2

When will Entity X be liable to attribute the GST payable on the supply of the Townhouse if Entity X accounts on a cash basis?

Answer

If Entity X accounts for GST on a cash basis, then in accordance with subsection 29-5(2) of the GST Act, GST on the supply of the Townhouse is attributed to each tax period during which a payment is received under the Contract of Sale or the Participant Agreement (as the case may be), but only to the extent of the payment. Under section 99-5 of the GST Act, the deposit paid under the Contract of Sale is not treated as consideration until it is applied as part of the consideration for the supply at settlement.

Question 3

Is the supply by Entity X to an Investor of the Program Provider's Interest a financial supply pursuant to section 40-5 of the GST Act?

Answer

Yes. The supply of the Program Provider's Interest to the investor is a financial supply under section 40-5 of the GST Act.

Question 4

On the basis that the Commissioner of Taxation (Commissioner) makes a ruling in favour of Entity X on questions 1, 2 and 3, will the Commissioner negate any GST benefits obtained by Entity X under the Model pursuant to the anti-avoidance rules in Division 165 of the GST Act?

Answer

As the Commissioner has not made a ruling in favour of Entity X in respect of questions 1, 2 and 3, a response to this issue is not required.

This ruling applies for the following period:

1 July 20XX till quarter ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The description of this scheme is based on information provided by the applicant in the following documents, which are to be read in conjunction with the facts as set out below:

•                     the proposed Contract of Sale under which Entity X will supply the new residential premise (Townhouse) to a program participant (the purchaser).

•                     the proposed Participation Agreement between Entity X and the purchaser.

•                     the Program Eligibility Criteria

Entity X is a registered charity with the Australian Charities and Not-For-Profits Commission (ACNC).

Entity X is registered for GST.

Entity X will develop affordable homes for disadvantaged and low-income families. It will develop a home (Townhouse) using a 'shared equity' model (Model) where it will sell the Townhouse for XX% of the properties GST inclusive market value in return for full freehold title.

Under the Model, Entity X and a purchaser will be party to 2 contracts that together form the basis of the arrangement. These contracts are:

•                     the Contract of Sale under which Entity X will supply new residential premises (the Townhouse) to the purchaser for monetary consideration equalling XX% of the Townhouse GST inclusive market value; and

•                     a Participation Agreement under which the purchaser (the Participant) agrees to a registered charge to be placed on the title of the Townhouse in favour of Entity X's ("Program Provider") or an 'investor' arranged by Entity X, and agrees that the charge will not be discharged until the Program Provider's Interest and all other amounts owing under any Program Document have been paid in full.

Rather than holding onto the Program Provider's Interest for the full ownership period of the property, Entity X anticipates assigning that interest (as an asset backed security) to a group of investors. Entity X notes that this enables it to scale to the next affordable housing project.

The investors will continue to hold the Program Provider's Interest until such time as the purchaser decides to sell the property, at which time any increase or decrease in the value of the property will be realised.

Under the Participation Agreement, the purchaser may "buy out" the Program Provider's Interest retained by Entity X (or the investors) at any time during their ownership of the property. Further if the purchaser is financially able, they are strongly encouraged to "buy out" the Program Provider's Interest.

Entity X is proposing to make a choice under subsection 157-5(1) of the GST Act to account for GST on a cash basis prior to entering into a Contract of Sale for the Townhouse with a purchaser.

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 9-17

A New Tax System (Goods and Services Tax) Act 1999 Section 9-75

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

A New Tax System (Goods and Services Tax) Act 1999 Section 40-5

A New Tax System (Goods and Services Tax) Act 1999 Division 165

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