Edited version of private advice

Authorisation Number: 1052210398395

Date of advice: 31 January 2024

Ruling

Subject: GST - donations

Question

Does the charity cafe make taxable supplies of coffee and goods under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when the consideration is paid voluntarily in an amount determined by the recipient?

Answer

No.

The scheme commences on:

Year ending January 20YY.

Relevant facts and circumstances

You are an outreach mission of a church.

You operate a charity cafe, which provides free groceries and hot drinks to walk-in customers.

Most of the inputs and ingredients are donated by local businesses, congregation members and households.

The café is an outreach program to support the local under-privileged community and not a commercial operation for profit. There is a rough menu on the wall but no pricing on the board, and no obligation to pay for a coffee or leave a donation.

All purchases are 'free of charge' and some customers choose to receive that free coffee but also provide a donation on top of that.

'Donations' can be direct deposits from parishioners into the bank account, usually after a fund-raiser event, income via the café's Square EFTPOS terminal net of merchant fee, and cash over the counter in the café.

Parishioners and customers may or not 'pay' for a coffee or muffin. They may take a coffee, sit down to drink, then give a donation of $XX on exiting, or take a coffee on the day and leave a $XX donation and then come back for a few days for a free coffee, having 'paid it forward'. The value of the donation is far more than the market value of any goods supplied.

Conversely the poorer customer may take a coffee and muffin and a free bag of fruit or goods donated by local supermarkets, with no money exchanged.

Local donors and supermarkets donate excess fresh fruit and vegetables which are often bagged into a set, to distribute to the under-privileged. The fresh produce as a sale would be GST-free.

You are a public benevolent institution and an endorsed Deductible Gift Recipient. Your trading turnover is less than $XX and registration is voluntary.

You provided an income worksheet showing the individual donations received.

It is not practical for the volunteer staff to have separate item codes on the eftpos or Square terminals to attempt to identify any "retail sales".

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

Reasons for decision

Section 9-5 states that you make a taxable supply if:

(a)  you make the supply for *consideration

(b)  the supply is made in the course or furtherance of an *enterprise that you *carry on

(c)  the supply is *connected with the indirect tax zone

(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.

Given your circumstances, the only issue in doubt is whether you receive consideration for the supply of goods, such as coffee and muffins etc. All the other components of section 9-5 are met.

Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9) discussed consideration:

107. The definition of consideration in section 195-1 states:

consideration, for a supply or acquisition, means any consideration within the meaning given by sections 9-15 and 9-17, in connection with the supply or acquisition.

Subsection 9-17(2) provides that making a gift to a non-profit body is not the provision of consideration.

Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments explains:

70. The term 'gift' is not defined in the law and therefore takes its ordinary meaning having regard to the context in which it appears. It is considered that a 'gift' has the following characteristics and features:

•        there is a transfer of a beneficial interest in property;

•        the transfer is made voluntarily;

•        the transfer arises by way of benefaction; and

•        no material benefit or advantage is received by the giver (payer) by way of return.

Weighing up all of your circumstances, the amounts the café receives are paid as donations (or gifts). This is because:

•         there is a lack of commerciality to the arrangement;

•         there are no prices displayed in the café;

•         the café provides goods for free to everyone. When someone takes up the option to donate, they are not receiving anything that they weren't getting already - i.e., nothing is provided 'by way of return.'

•         it would be anomalous that a $XX donation where the donor received a coffee is treated differently for GST purposes to a straight $XX donation where nothing is received.

As such, the café is not making taxable supplies of goods and the amounts received are to be treated as donations to the charity which are out of scope for GST purposes.