Edited version of private advice

Authorisation Number: 1052291894370

Date of advice: 20 August 2024

Ruling

Subject: GST - charities and non-profit

Question 1

Is the Total Annual Subsidy payable by the State 'consideration' within the meaning of section 9-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for a taxable supply made by <entity name> under section 9-5 of the GST Act?

Answer

Yes.

Question 2

Will the supply by way of lease of affordable housing Dwellings under the Subsidy Deed to Eligible Tenants be GST-free under section 38-250(1) of the GST Act, where the consideration being the Subsidised Rent for the supply is less than 75% of the GST inclusive market value of the supply?

Answer

Yes.

Question 3

Is the Total Annual Subsidy consideration for the purposes of determining the application of paragraph 38-250(1)(b) of the GST Act?

Answer

No.

This ruling applies for the following period:

<date> to <date>

The scheme commenced on:

<date>

Relevant facts and circumstances

You, are a public company limited by guarantee. You were established as a not-for-profit corporation to acquire/develop land to construct housing to provide shelter to persons in crisis and/or who have inadequate access to safe and secure housing. You registered for GST from <date> and report your GST obligations on a <accounting> and <cycle> basis.

You 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 and have access to GST concessions.

Project Overview

You and the State Government, represented by the <Department>, will be entering into formal commercial arrangements for the provision of Affordable Housing within multiple sites (the Sites).

Your obligations regarding the development and the provision of Affordable Housing within the Sites are contained within the following draft written agreements:

• Subsidy Deed including a number of schedules
• Covenant
• Delivery Deed include a number of schedules.

Although these agreements are yet to be finalised and executed, you do not expect them to change substantially prior to signing and execution.

Under the proposed commercial arrangements, you will acquire the freehold interest in the Sites and will develop a number of dwellings within each Site. The dwellings are intended to be leased to:

• persons who meet the Affordable Housing Eligibility Criteria (Affordable Housing) and
• other members of the public (Other Dwellings)

All dwellings will be used for residential purposes. At the time of submitting the private ruling application the agreed number of Affordable Housing and Other Dwellings to be developed within each Site was yet to be determined/negotiated.

Your private ruling application applies only to your supply of Affordable Housing within each Site.

Under the Subsidy Deed you agree to rent Affordable Housing dwellings to Eligible Tenants and apart from utilities, you will only charge Eligible Tenants the Subsidised Rent which must not be more than the Subsidised Rent Limit - Affordable Housing which is specified at a limit of 74.99% of the Market Rent for the dwelling. In accordance with the terms of the Subsidy Deed 'Market Rent' will be an evaluation from an independent and qualified professional of the market rent for the relevant dwelling.

Under the Subsidy Deed you will commit to undertake several obligations, including but not limited to the following:

•         Renting obligations and the management of tenants

•         Responsibility for assessing applicants and tenants for their eligibility to meet the Affordable Housing Eligibility Criteria

•         Administration of tenancy documentation

•         Dwelling maintenance obligations

•         Preparing the Annual Report including information relevant to the State concerning the properties

In exchange for the performance of your obligations under the Subsidy Deed an Annual Subsidy is payable to you by the State.

Delivery Deed

The Delivery Deed governs the delivery of the Project. The Project is defined in the Subsidy Deed as the project between the State and the Provider for the development and operation of affordable housing at the Site as part of the < initiative name>.

Subsidy Deed

The Subsidy Deed outlines the objectives and the parties' obligations in relation to the provision of Affordable Housing.

The key clauses of the draft Delivery and Subsidy Deeds relevant to the ruling were considered.

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

Question 1

Is the Total Annual Subsidy payable by the State 'consideration' within the meaning of section 9-15 of the GST Act for a taxable supply made by <entity name> under section 9-5 of the GST Act?

Summary

The Annual Subsidy payable by the State to you is consideration within the meaning given by section 9-15 for the taxable supplies you make under section 9-5 to the State when you fulfil your Provider Obligations under the Subsidy Deed.

Detailed reasoning

In this ruling,

•         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 website ato.gov.au

'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 to this case.

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 sections 9-15 and 9-17, 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 for 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.

Based on the facts, the relevant payments which need to be examined in the context of section 9-15 is the Total Annual Subsidy which is payable by the State to you pursuant to the terms of the Subsidy Deed. Consequently, it needs to be determined whether the Annual Subsidy Fee is in connection with, or in response to, or for the inducement of, a supply of anything under the Deed.

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 10 propositions which may be relevant to characterising and analysing 2 party transactions. Based on the facts the most pertinent of the propositions to consider in this case 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 arrangements in this case also involve things being provided to entities other than you and the State. The Commissioner refers to arrangements involving more than two entities as tripartite arrangements, and provides an overview of supplies in the context of tripartite arrangements 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 propositions relevant to characterising and analysing 2 party transactions 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. Based on the facts the most pertinent of the propositions to consider in this 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 as follows:

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 the Department of Transport case, there is a commitment by you to the State to fulfill obligations that contribute towards the State's Affordable Housing policy outcomes - namely, the Provider's Obligations as defined under the Subsidy Deed.

Once you carry out the Provider's Obligations, the obligation on the State to pay the Total Annual Subsidy under Clause 6 of the Subsidy Deed is triggered. The Arrangement and its GST consequences resemble Example 11B in paragraphs 221L to 221S 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.

221S. When R supplies E with the specialised equipment R makes a taxable supply to E for consideration from E of payment of the scheduled price. This is a separate supply to the supply that R makes to G. R issues a tax invoice to E with the scheduled price paid by E as the GST-inclusive price of the supply to E. R is liable to remit GST for this taxable supply and if E is registered or required to be registered for GST then E is entitled to claim input tax credits if the requirements of section 11-5 are met.

In your case, you have entered into binding Provider's Obligations with the State under the Subsidy Deed which are connected to the State's Objectives and Legitimate Interests. These obligations involve you making commitments to the State to deliver Affordable Housing outcomes that contribute to the <State strategy name> by acquiring the Site, constructing the Affordable Housing Dwellings that are to be leased to Eligible Tenants at defined rates, In doing so, you have also at your cost committed to, among other things, meeting obligations around maintenance and repair of the Dwellings, assessing prospective tenant eligibility in line with the Eligibility Criteria contained in the Subsidy Deed, managing tenancy agreements, reporting to the Sate etc.

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 State with something of value, and so you are making a supply to the State of entering into and fulfilling those Obligations. We consider that the payments of the Total Annual Subsidy that you receive are consideration for the supply of your obligations to the State under the Subsidy Deed.

Is your supply of the Provider's Obligations a taxable supply?

Section 9-5, provides that 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.

For the reasons stated above, you are making a supply of the Provider's Obligations under the Subsidy Deed for consideration, being the State's obligation to pay the Total Annual Subsidy. The supply of your obligations is in the course or furtherance of your enterprise as a charity. The supply of your obligation is connected with the indirect tax zone as it is done in Australia. 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's Obligations is either GST-free or input taxed pursuant to Division 38 and 40 respectively.

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 State to lease Affordable Housing to Eligible Tenants, those obligations do not constitute a supply of residential premises to the State.

Furthermore, your supplies of entering into and fulfilling the Provider's Obligations in accordance with the Subsidy Deed are neither GST-free nor input taxed as provided for in the provisions in Division 38 and 40 respectively. Your supply of the Provider's Obligations is therefore a taxable supply under section 9-5.

Question 2

Will the supply of leasing of Affordable Housing Dwellings under the Subsidy Deed to Eligible Tenants be GST-free under subsection 38-250(1) of the GST Act, where the consideration being the Subsidised Rent for the supply is less than 75% of the GST inclusive market value of the supply?

Summary

Your supply of leasing of Affordable Housing Dwellings under the Subsidy Deed to Eligible Tenants will be GST-free under subsection 38-250(1) 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

Subsection 38-250(1) 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 will be supplying Affordable Housing to Eligible Tenants for consideration being the rent charged. Your supply of Affordable Housing will be the supply of accommodation, by way of lease, of residential premises. Therefore, subsection 38-250(1) will be satisfied if the consideration for the supply of the Affordable Housing will be less than 75% of the GST inclusive market value of the supply.

Section 195-1 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.

Under the Subsidy Deed, you are required to obtain an evaluation of the market rent for each of the Dwellings within a Site from an independent and qualified professional. Clause <number> of the Subsidy Deed provides that the rent to be charged to an Eligible Tenant in respect of an Occupied Affordable Housing Dwelling under a Tenancy Agreement is the Subsidised Rent. Furthermore, the Subsidised Rent must not be more than the Subsidised Rent Limit - Affordable Housing. The Subsidised Rent Limit - Affordable Housing is 74.99% of the market rate for a particular Dwelling.

In summary, your obligation under the Subsidy Deed is that the rent to be charged to an Eligible Tenant in respect of an Occupied Affordable Housing Dwelling must not be more than 74.99% of the market rate for that particular Dwelling.

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 3

Is the Total Annual Subsidy consideration for the purposes of determining the application of paragraph 38-250(1)(b) of the GST Act?

Summary

The Total Annual Subsidy is not consideration for the purposes of determining the application of paragraph 38-250(1)(b).

Detailed reasoning

As determined above at question 1 the Total Annual Subsidy is consideration specifically for your taxable supply of the Providers Obligations under the Subsidy Deed to the State. 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. Your supply of the Providers Obligations to the State is separate to your supply of Affordable Housing by way of lease to Eligible Tenants. The Total Annual Subsidy is consideration for your supply of the Providers Obligations and is separate to the consideration for your supply of Affordable Housing by way of lease directly to Eligible Tenants.

The Subsidy Deed also draws a distinction between the payment of the Annual Subsidy by the State to you, and the payment of the Subsidised Rent by an Eligible Tenant to you clarifying that:

• the State is not liable for the payment of the Subsidised Rent and that the State will not and is not required to assist the Provider in procuring payment of arrears [from an Eligible Tenant];
• you are not entitled to an increase in the Annual Subsidy or other payment or contribution by the State on account of Eligible Tenant arrears; and;
• you are solely responsible for taking all steps you determine (acting reasonably and in accordance with Laws) are required to minimise and recover arrears under a Tenancy Agreement [from an Eligible Tenant].

Therefore, the Total Annual Subsidy will not form part of the consideration for your supply of accommodation in an Affordable Housing Dwelling to Eligible Tenants for the purposes of paragraph 38-250(1)(b) of the GST Act.