Edited version of private advice

Authorisation Number: 1052226824531

Date of advice: 29 February 2024

Ruling

Subject: GST - the supply of residential accommodation by registered charities

Question 1

Will your supply of accommodation to social and affordable housing tenants be GST-free under subsection 38-250(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), where the consideration for the supply is less than 75% of the GST inclusive market value of the supply?

Answer

Yes.

Question 2

Is the Annual Operations Fee payable by the government entity consideration within the meaning of section 9-15 of the GST Act for a taxable supply made by you under section 9-5 of the GST Act?

Answer

Yes.

Question 3

Is the Annual Operations Fee taken into account for the purposes of determining the application of paragraph 38-250(1)(b) of the GST Act?

Answer

No.

Relevant facts and circumstances

You are a company limited by guarantee. You have been registered for GST since <date>.

You are a charity registered with the Australian Charities and Not-for-profit Commission (ACNC) from <date>. You are also an endorsed charity within the meaning of section 176-1 of the GST Act from <date> and have access to GST concessions. You are registered as a community housing provider.

You have acquired the freehold interest in land at <address> (the Land).

You will develop approximately <number> residential dwellings on the Land to be leased to eligible tenants as social and affordable housing as part of a project with a government entity (hereafter 'the Project').

In respect of the provision of the accommodation, you have committed to the government entity that you will enter into tenancy agreements with eligible tenants for an agreed number of social and affordable housing dwellings that will be constructed as part of this project (the Provider Commitment). The rent payable by a social or affordable housing tenant under a tenancy agreement will be less than 75% of the GST inclusive market value of the rent for the dwelling leased.

In exchange for your performance of the Provider Commitment, the government entity promises to pay you an annual fee (the Annual Operations Fee).

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 9-40

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

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

Reasons for decision

In this reasoning, please note:

•         unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

•         all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

•         all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO's website ato.gov.au

Issue 1

Question 1

Summary

Your supply of social and affordable housing to eligible tenants will be GST-free under section 38-250 of the GST Act to the extent that they are supplied for less than 75% of the GST inclusive market value of the supply.

Detailed reasoning

Section 9-40 provides that GST is payable on taxable supplies.

Under section 9-5, you make a taxable supply if:

(a)  You make a 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 (Australia); 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.

You are making a supply of leasing social and affordable housing to eligible tenants, which you have committed to the government entity as part of the Project. This supply is made for consideration, being the rent charged to eligible tenants. The supply of leasing social and affordable housing to eligible tenants is in the course of furtherance of your enterprise as a charity. Your supply is done in Australia and is connected to the indirect tax zone. You are registered for GST. Therefore paragraphs 9-5 (a) to (d) are satisfied.

It will now be determined whether the supply of the social and affordable housing is GST-free under section 38-250.

Section 38-250 states:

(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)           If the supply is not a supply of accommodation - is less than 50% of the GST inclusive market value of the supply.

You are a charity registered with the ACNC and an endorsed charity within the meaning of section 176-1. You are supplying social and affordable housing to eligible tenants for consideration being the rent charged. Your supply of social and affordable housing is a supply of accommodation, given it is a supply of a lease of residential premises. Therefore, subsection 38-250(1) is satisfied if the consideration provided for the supply of the social and affordable housing is less than 75% of the GST inclusive market value of the supply.

Section 195-1 of the GST Act relevantly defines 'GST inclusive market value' of a supply as meaning the market value of the supply of the thing in question without any discount for GST payable on the supply. You intend to make supply of accommodation of social and affordable housing to eligible tenants and charge rent at less than 75% of the GST inclusive market value of the supply.

Therefore, given the other elements of section 38-250 have been satisfied in your case, your supply of accommodation of social and affordable housing to eligible tenants will be GST-free under section 38-250, provided the rent payable for that accommodation is less than 75% of the GST inclusive market value of the supply.

Question 2

Summary

The Annual Operations Fee payable by the government entity to you is consideration within the meaning of section 9-15 for taxable supplies you make under section 9-5 when you fulfil your Provider Commitment.

Detailed reasoning

Is the Annual Operations Fee consideration for a supply?

'Consideration' is defined in section 195-1 to mean 'any consideration, within the meaning given by section 9-15, in connection with the supply'. Subsection 9-15(1) provides that consideration includes:

a)    any payment, or any act or forbearance, in connection with a supply of anything; and

b)    any payment, or act or forbearance, in response to or for the inducement of a supply of anything.

Subsection 9-15(2) provides that it does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply.

Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration (GSTR 2001/6) sets out the Commissioner's view of what constitutes non-monetary consideration for the purposes of section 9-15. Although non-monetary consideration is not an issue arising in your case, the general principles contained in GSTR 2001/6 of how the Commissioner interprets section 9-15 have application on these facts.

Paragraphs 49 to 51 of GSTR 2001/6 provide that there needs to be a connection between the supply and the payment for the supply to be made for consideration, and that the recipient of the supply need not be the provider of the consideration:

What is 'consideration'?

49. Consideration is defined in section 195-1 to mean 'any consideration, within the meaning given by section 9-15, in connection with the supply'. The meaning given to consideration in section 9-15 extends beyond payments to include such things as acts and forbearances. It may include payments made voluntarily, and payments made by persons other than the recipient of a supply.

50. Section 9-15 further provides that a payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply. Thus, there must be a sufficient nexus between a particular payment and a particular supply for the payment to be consideration for that supply.

51. It follows that there are two elements to the definition of consideration. The first is the payment by one entity to another. The second element is the nexus that must be established between the payment and a supply.

Paragraphs 71 and 72 of GSTR 2001/6 provide that the test of determining a sufficient nexus between the supply and the consideration is an objective one based on the true character of the transaction:

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.

In your case, the relevant payments which need to be examined in the context of section 9-15 are the Annual Operations Fee which is payable by the government entity to you. Consequently, it needs to be determined whether the Annual Operations Fee is in connection with, or in response to, or for the inducement of, a supply of anything under the Project.

Subsection 9-10(1) provides that a supply is any form of supply whatsoever. Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9) further examines the meaning of supply under section 9-10.

Paragraph 22 of GSTR 2006/9 outlines the ten propositions which may be relevant to characterising and analysing supplies. The most pertinent of the propositions on these facts include:

• Proposition 2: Generally, for every supply there is a recipient and an acquisition
• Proposition 4: A transaction may involve two or more supplies
• Proposition 5: An entity will make a supply if it provides something of value to another entity
• Proposition 6: 'Supply' usually, but not necessarily, requires something to be passed from one entity to another.

The arrangement on these facts involves things being provided to entities other than you and XXX. The Commissioner refers to arrangements involving more than two entities as tripartite arrangements, and provides an overview of what they entail in paragraphs 115 and 116 of GSTR 2006/9:

115. In more complex arrangements involving more than two entities, which the Commissioner refers to as tripartite arrangements, analysis may reveal:

•         a supply made to one entity but provided to another entity;

•         two or more supplies made; or

•         a supply made and provided to one entity and consideration paid by a third party.

116. As with two party transactions, the GST consequences of tripartite arrangements turn on identifying:

•         one or more supplies;

•         consideration (a payment act or forbearance);

•         a nexus between the supply and the consideration; and

•         to whom the supply is made.

The ten propositions for supplies discussed above are equally applicable to tripartite arrangements. Additional propositions apply specifically to tripartite arrangements, and these are described in paragraph 117 of GSTR 2006/9. The most pertinent of these in your case is Proposition 15 - namely, one set of activities may constitute the making of two or more supplies. Proposition 15 is discussed in more detail in paragraphs 217 and 217A of GSTR 2006/9 with reference to the seminal case Federal Commissioner of Taxation v Secretary to the Department of Transport (Vic) [2010] FCAFC 84:

217. Examining the levels of contractual or reciprocal relationships between the entities in a tripartite arrangement may reveal two or more supplies being made based upon the one set of activities.

217A. This proposition is illustrated by Federal Commissioner of Taxation v. Secretary to the Department of Transport (Vic) (Department of Transport), where the activity undertaken by the taxi operator of transporting the eligible passenger resulted in two supplies being made:

(i)            the supply of transport to the passenger; and

(ii)           the supply to the Department of the service of transporting the eligible passenger.

The Department of Transport case concerned an arrangement where taxi-cab operators provided discounted trips for passengers with disabilities that were members of the Multi-Purpose Taxi Program (MPTP), and the Department of Transport (DOT) reimbursing the taxi-cab operator for the shortfall between the full-price fare and the discounted fare. The reimbursement was referred to as an 'MPTP Payment'. Kenny and Dodds-Streeton JJ observed the following GST consequences of this arrangement at paragraph 45 of the judgment:

45. ... The occasion for the MPTP Payments was not the grant of a taxi-cab licence. Indeed, a licensee could have operated a taxi-cab under a taxi-cab licence without the DOT ever having made a MPTP Payment, or having incurred any liability to make a MPTP Payment, to that licensee. The DOT made a MPTP Payment to a taxi-cab operator, or assumed the liability to make such a payment, only when the taxi-cab operator made a MPTP trip. As the DOT submitted, in the ordinary case, the trip became an MPTP trip, and the obligations under the MPTP were enlivened, when the driver inserted the Member MPTP Card into the EFTPOS terminal and received the authorisation to undertake the trip as an MPTP trip.

In your case, like in Department of Transport, there is a commitment by you to the government entity to fulfill certain obligations - namely, the Provider Commitment.

The Arrangement and its GST consequences resemble Example 11B in paragraphs 221L to 221R of GSTR 2006/9, which are reproduced below:

Example 11B: specialised equipment - two separate supplies

221L. A State government's policy provides that any eligible resident (E) of specified country areas should have access to telecommunications services that are accessible through specialised equipment, at a scheduled price.

221M. The State government (G) enters into a contract with a retailer of specialised equipment (R) where if R sells the specialised equipment to an eligible person, R must charge the eligible person a scheduled price. The scheduled price is lower than the recommended retail price and under the agreement R is entitled to receive from G a specified amount when R sells specialised equipment to E for the scheduled price. The specified amount is calculated as the difference between the recommended retail price and the scheduled price.

221N. To assist R in identifying eligible residents, G issues an eligibility card to E that is presented to R when E purchases the specialised equipment.

221O. If R does not supply the specialised equipment to E for the scheduled price, for example, because E does not present the eligibility card, and therefore E buys the specialised equipment at the recommended retail price, E cannot seek the specified amount from G.

221P. Each time R sells specialised equipment to E for the scheduled price, R will be entitled to claim the specified amount from G. Under the contract between R and G, R makes a supply to G because it enters into and fulfils an obligation to provide specialised equipment to E for the scheduled price.

221Q. G's payment of the specified amount to R is the contractual consideration G provides to R under the contract between them in return for R undertaking and fulfilling its contractual obligations. The specified amount received by R from G is consideration for the supply made by R to G.

221R. If R is registered or required to be registered for GST, R has made a taxable supply to G for consideration which is calculated as the difference between the recommended retail price and the scheduled price charged to E. R issues a tax invoice to G where the specified amount is the GST-inclusive price of the supply to G. R is liable to remit GST and G has made a creditable acquisition and is entitled to claim input tax credits if the requirements of section 11-5 are met.

Based on the principles extracted above from GSTR 2006/9 and the Department of Transport case, the above analysis demonstrates that your obligations are providing the government entity with something of value when you perform the Provider Commitment, and so you are making a supply to the government entity of entering into and fulfilling the Provider Commitment. We consider that the payments of the Annual Operations Fee that you receive are consideration for the supply of your Provider Commitment to the government entity.

Is your supply of the Provider Commitment a taxable supply?

For the reasons stated above, you are making a supply of the Provider Commitment for consideration, being the government entity's obligation to pay the Annual Operations Fee. The supply of your obligations is in the course or furtherance of your enterprise as a charity. The supply of your obligation is done in Australia and so are connected to the indirect tax zone. You are registered for GST. Paragraphs 9-5(a) to (d) are therefore met and it remains to be determined whether your supply of the Provider Commitment is either GST-free or input taxed.

The principles extracted above from GSTR 2006/9 and the Department of Transport case both draw a distinction between obligations supplied to the provider of the consideration, and the things supplied under those obligations to the third-party recipient of those things. While you have the obligations to the government entity to lease affordable and social housing to eligible tenants, those obligations do not constitute a supply of residential premises to the government entity. Therefore, your supply of the Provider Commitment to the government entity is neither a GST-free supply of accommodation under section 38-250 nor an input taxed supply of leased residential premises under section 40-35. Your supply of the Provider Commitment is therefore a taxable supply under section 9-5.

Question 3

Summary

The Annual Operations Fee will not form part of the consideration for your supply of affordable and social housing to eligible tenants for the purposes of paragraph 38-250(1)(b) of the GST Act.

Detailed reasoning

As explained in the answer to Question 2, the Annual Operations Fee is consideration for your taxable supply of the Provider Commitment. It is not consideration specifically for your supply of affordable and social housing accommodation directly to eligible tenants. Therefore, it does not form part of the consideration referred to 38-250(1)(b).