Edited version of private advice

Authorisation Number: 1052177533992

Date of advice: 9 October 2023

Ruling

Subject: GST and donations

Question 1

Are you liable for goods and services tax (GST) in relation to the $YY donation you receive from the Volunteers?

Answer

No, you are not liable for GST in relation to the $YY donation you receive from the Volunteers.

Question 2

Are you liable for GST in relation to the $ZZ payment you receive from the Volunteers?

Answer

No, you are not liable for GST in relation to the $ZZ payment you receive from the Volunteers.

This ruling applies for the following periods:

1 July 2022 to 30 June 2025

The scheme commenced on:

3 October 2023

Relevant facts and circumstances

You are registered with the Australian Charities and Not-for-profits Commission (ACNC) as a charity. You are a Public Benevolent Institution endorsed to access GST concession and Income Tax Exemption and are endorsed as a Deductible Gift Recipient (DGR).

You are registered for goods and services tax (GST).

Most of your income is from donations and your annual income is in excess of $150,000.

You are run by volunteer board members who are not numerated.

Most but not all of your donations are sourced in Australia. Some are received from international donors.

Funds are remitted to your operations in XX (country outside the indirect tax zone) where your charitable services are provided and from which local expenses are paid.

You run a volunteer program which provide volunteer opportunities to XX. Participants volunteer to travel to XX to help at your international school giving their time and labour to complete local projects. These participants are referred to as Volunteers for the purpose of this private ruling.

The Volunteers in Australia are organised by the volunteer board members who are based in Australia. However, the coordinators in XX organise everything required for the volunteer program such as supplies, materials, accommodation, etcetera.

To qualify to participate in the volunteer program, Volunteers must:

(a)   Make a donation to you of $YY (can be more by choice) per Volunteer. Volunteers are encouraged to raise these funds but may also contribute their own funds towards the $YY. This donation to you is used exclusively at your discretion for projects in XX and no material benefit is received in return by the Volunteers.

Receipts are issued for all tax deductible donations as you are registered with DGR 1 status. When Volunteers donate personally, they are issued with a receipt for the amount they donate. Volunteers may hold fundraising campaigns or events where other individuals or businesses donate, each donor is issued with a separate receipt.

This money is sent directly to XX as a donation, where the coordinator uses it to purchase supplies, materials, and tools to work on projects while the Volunteers are in XX.

(b)   Pay an additional $ZZ towards the costs in XX. This money is sent, in full, directly to your international school in XX, where the coordinator organises and pays for land transport, accommodation, food, sightseeing, cruises and meals in Cambodia (collectively referred to as travel services for the purpose of this private ruling) on behalf of the Volunteers. All travel services provided in return for this payment are provided in XX. If any money is left over from this component of the payment it remains in XX as a donation and is used to pay for future maintenance projects.

Volunteers are responsible for organising and paying for their own flights to and back from XX.

No travel services are provided to Volunteers in Australia.

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 Subsection 9-17(2)

A New Tax System (Goods and Services Tax) Act 1999 Section 9-25

A New Tax System (Goods and Services Tax) Act 1999 Item 3 of Subsection 38-190(1)

Does Division 165 apply to this private ruling?

Not considered.

Reasons for decision

Summary

You are not liable for GST in relation to the donation by the Volunteers as it is not consideration in accordance with subsection 9-17(2) of the GST Act.

Detailed reasoning

An entity is liable to pay GST on any taxable supply that it makes under section 9-40 of the GST Act.

Section 9-5 of the GST Act defines taxable supplies and states:

9-5 Taxable supplies

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 *enterprisethat 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.

(The asterisk denotes a defined term in section 195-1 of the GST Act.)

Subsection 9-17(2) of the GST Act provides that making a gift to a non-profit body is not the provision of consideration. A gift made to a not-for-profit (NFP) organisation is not considered payment for a sale and is not subject to GST. The value of a gift is also excluded when calculating the NFP organisation's GST turnover.

For a payment to be considered a Gift:

1)    The payment must be made voluntarily

•         a payment is not voluntary when:

­   there is an obligation to make the payment, or

­   the NFP organisation is contractually obliged to use the payment in a specific way

2)    The donor cannot receive a material benefit in return:

•         it is not a material benefit if it is an item of insubstantial value that cannot be put to a use or is not marketable, such as a pin or a ribbon

•         it is a material benefit if it is an item of greater value, such as a ticket to a dinner, or an item that has a use or function, such as a pen or a book.

You are not contractually obliged to use the $YY donation in any specific way. Further, the Volunteers do not receive any material benefit in return for their $YY donation. As such, the $YY is a gift and is not consideration under subsection 9-17(2) of the GST Act.

Accordingly, paragraph 9-5(a) of the GST Act is not met and there is no taxable supply in respect of the donation. Therefore, no GST is payable or should be charged on the $YY donation.

Question 2

Summary

The supply of the travel services by you to the Volunteers in return for the payment of $1,500.00 is a GST-free supply under section 38-190 of the GST Act.

Detailed reasoning

The Volunteers make a payment of $ZZ to you in return for which you make a supply of travel services to the Volunteers in the form of land transport, accommodation, food, sightseeing, cruises and meals while the Volunteers are in XX. Accordingly, the $ZZ is not a gift under section 9-17 of the GST Act as the Volunteers receive material benefits in the form of the travel services in return for the payment.

The supply of the travel services by you to the Volunteers satisfies the requirements in paragraphs 9-5(a), 9-5(b) and 9-5(d) of the GST Act given:

(i)    you make the supply for consideration and

(ii)   you make the supply in the course of furtherance of an enterprise that you carry on and

(iii)  you are registered for GST.

Paragraph 9-5(c) of the GST Act requires that the supply is connected with the indirect tax zone. Subsection 9-25(5) of the GST Act provides that a supply of anything other than goods or real property is connected with the indirect tax zone if:

(a)          the thing is done in the indirect tax zone, or

(b)          the supplier makes the supply through an enterprise that the supplier carries on in the indirect tax zone.

(c)           ...

The supply of the travel services by you to the Volunteers therefore satisfies the requirement of paragraph 9-5(c) of the GST Act given the supply is made through an enterprise that you carry on in Australia.

It remains to be determined if the supply of the travel services is input taxed or GST-free. There are no provisions in the GST Act that will make the supply of travel services by you to the Volunteers input taxed.

However, the note to section 9-25 of the GST Act provides that a supply that is connected with the indirect tax zone because of subsection 9-25(5) might be GST-free if it is consumed outside the indirect tax zone in accordance with section 38-190 of the GST Act.

Section 38-190 of the GST Act

Under section 38-190 of the GST Act certain supplies other than supplies of goods or real property for consumption outside Australia are GST-free. Of particular relevance to the supply of the travel services to Volunteers by you is Item 3 in the table in subsection 38-190(1) of the GST Act (Item 3).

Item 3 states as follows:

Table 1: Item 3 in the table in subsection 38-190(1) of the GST Act:

(*denotes a defined term in section 195-1 of the GST Act.)

For a supply to be GST-free under Item 3 both paragraphs (a) and (b) of Item 3 must be satisfied and the supply is neither work physically performed on goods nor directly connected with real property situated in Australia.

Paragraph (a) of Item 3 requires that the supply is made to a recipient who is not in Australia when the thing supplied is done. The requirement in this paragraph refers to the recipient of the supply. Section 195-1 of the GST Act defines a recipient in relation to a supply to be the entity to which the supply is made. In this case the recipients of the travel services are the Volunteers.

The requirements of paragraph (a) of Item 3 are discussed in Goods and Services Tax Ruling GSTR 2004/7 Goods and services tax: in the application of items 2 and 3 and paragraph (b) of item 4 in the table in subsection 38-190(1) of the A new Tax System (Goods and Services Tax) Act 1999:

•         When is a 'non-resident' or other 'recipient' of a supply 'not in Australia when the thing supplied is done'?

•         When is 'an entity that is not an Australian resident' 'outside Australia when the thing supplied is done'? (GSTR 2004/7).

Paragraph 60 of GSTR 2004/7 provides that a resident individual who is physically in Australia when the thing supplied is done is in Australia in relation to that supply. Further, paragraph 221 of GSTR 2004/7 states:

221. Item 3 requires that the individual to whom a supply is made is not in Australia when the thing supplied is done and, as explained at paragraphs 202 to 213 in relation to item 2 and paragraph (b) of item 4, we consider that the physical presence of an individual establishes whether that individual is in Australia when the thing supplied is done. However, unlike item 2, item 3 may apply whether the recipient of the supply is a resident of Australia or a non-resident.

The term 'thing supplied is done' refers to the period of time in which the supply occurs. For a supply of services, the thing is done when the services are performed (Paragraphs 198 and 199 of GSTR 2004/7).

The requirements of paragraph (b) of Item 3 are discussed in Goods and Services Tax Ruling GSTR 2007/2 Goods and services tax: Is the application of paragraph (b) of item 3 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 to a supply, when does 'effective use or enjoyment' of the supply 'take place outside Australia'? (GSTR 2007/2).

Paragraphs 187 and 205 of GSTR 2007/2 state:

187. We consider that, in the context of section 38-190 and for the reasons outlined below, the place where a supply is used or enjoyed is the place where the supply is provided to the entity. Thus, if the supply is provided to an entity outside Australia effective use or enjoyment of the supply takes place outside Australia.

205. We therefore consider that effective use or enjoyment of a supply takes place outside Australia, if the supply is provided to that entity outside Australia; effective use or enjoyment of a supply does not take place outside Australia if the supply is provided to that entity in Australia.

In this case the supply of the travel services by you to the Volunteers takes place from the time the Volunteers arrive in XX and for the duration of their stay in XX and hence the 'thing supplied is done' and the 'effective use or enjoyment' of the travel services takes place outside Australia. Therefore, the supply of travel services by you to the Volunteers in return for the payment of $ZZ is a GST-free supply under subsection 38-190(1) of the GST Act.