Edited version of private advice

Authorisation Number: 1052088202928

Date of advice: 20 February 2023

Ruling

Subject: GST and nominal consideration

Question 1

Is the supply of each the Property by the Charitable Trust (Trust) to a tenant by way of lease a GST-free supply under section 38-250 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Question 2

Does the Trust make a creditable acquisition under section 11-5 of the GST Act where it acquires services to repair and maintain the Property?

Answer

Yes.

This ruling applies for the following period:

1 July 20XX till quarter ending 31 December 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

This Trust is registered with the Australian Charities and Not-for-profits Commission (ACNC) as a charity and is also a charity endorsed to access the following tax concession:

•         GST Concession

•         FBT Rebate

•         Income Tax Exemption.

The Trust carries on a number of activities for which it is registered for GST.

The objects of the Trust are to provide benefits to communities in areas such as health, education, poverty relief, transport, communication.

One of the activities carried on by the Trust is the provision of accommodation.

The Trust owns a property (the Property) which is residential premises.

The Trust has entered into a lease for the Property with the Tenant and does not charge or receive any consideration for the supply of the lease.

The Trust makes acquisitions to maintain the Property. The acquisitions made by the Trust include:

•         services to repair broken items,

•         maintenance services;

•         acquiring replacement capital items such as doors, air conditioning units or flooring for the Property.

•         insurance

•         services from professional valuers who value the Property.

The acquisitions made by the Trust are taxable supplies.

Relevant legislative provisions

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

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

Reasons for decision

Question 1

Summary

The supply of the Property by the Trust to the Tenant by way of lease is a GST-free supply under section 38-250 of the GST Act.

Detailed reasoning

Section 9-5 of the GST Act states:

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 the indirect tax zone; 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.

Note, an * denotes a term defined in section 195-1 of the GST Act.

In this case the Trust makes a supply of the leased Property to the Tenant. This supply is in the course or furtherance of the Trusts enterprise and is connected with the Indirect Tax Zone (Australia). Further the Trust is registered for GST. However, as the Trust does not charge any consideration for the supply being made the supply does not meet 9-5(a) of the GST Act.

Notwithstanding that the Trust does not satisfy 9-5(a) of the GST Act, what remains to be considered is whether the supply is considered GST-free or input taxed.

In this case the Trust makes supplies of residential premises which would be considered input taxed. However, sub-section 9-30(3) of the GST Act explain that to the extent a supply is both GST-free and input taxed, the supply is GST-free and not input taxed.

Division 38 of the GST Act sets out the supplies that are GST-free. If a supply is GST-free, then:

•         no GST is payable on the supply;

•         an entitlement to an input tax credit for anything acquired or imported to make the supply is not effected.

Section 38-250 of the GST Act states:

38-250 Nominal consideration etc.

(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) ...

The Trust is an endorsed charity and will meet paragraphs 38-250(1)(a) of the GST Act. However, to satisfy the requirements of either paragraphs 38-250(1)(b) the supply by the Trust must be for consideration that is less than 75% of the GST inclusive market value of the supply.

In this case the Trust does not receive any consideration for the supply of the Property.

According to view in the Charities Consultative Committee Non-commercial activities of charities, cost of supply and market value tests, paragraph 338 and 339 states:

Question 6. If a charitable institution, trustee of a charitable fund, gift deductible entity or government school makes supplies of residential accommodation for no consideration, will those supplies be treated as GST-free (under section 38-250) or input taxed (under section 40-35)?

338. According to section 38-250, a supply of accommodation by a charity is GST-free if the supply is for consideration that is less than 75% of the market rent or less than 75% of the cost of providing the supply.

339. Although section 38-250 specifically mentions consideration and the charity charges no consideration for the supply, however, to give effect to the intent of the section, we consider that supplies of residential accommodation by charities for no consideration will be GST-free.

Consistent with the above view the supply of the property satisfies the requirements of 38-250(1)(a). Consequently, the supply of the leased Property is considered a GST-free supply under 38-250 of the GST Act.

Question 2

Summary

The Trust is entitled to an input tax credit under section 11-5 of the GST Act where it acquires services to repair and maintain the leased Property.

Detailed reasoning

Section 11-20 of the GST Act provides that you can claim an input tax credit for any creditable acquisition that you make. Section 11-5 provides that you make a creditable acquisition if:

(a)  you acquire anything solely or partly for a creditable purpose;

(b)  the supply of the thing to you is a taxable supply,

(c)   you provide or a liable to provide consideration for the supply, and

(d)  you a registered or required to be registered for GST.

Section 11-15 of the GST Act explains 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 a thing for a creditable purpose to the extent that it relates to supplies that would be input taxed.

In this case where the Trust acquires a taxable supply to repair and maintain the lease Property, it is accepted that the acquisition is made for a creditable purpose. Consequently, the Trust is entitled to the input tax credit.