Edited version of private advice

Authorisation Number: 1052296931236

Date of advice: 30 August 2024

Ruling

Subject: GST and non-commercial activities of charities

Question 1

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

Answer

Yes

Question 2

Will the supply by you of accommodation to social and affordable housing tenants be GST-free under subsection 38-250(1) of the GST Act, where the consideration for the supply is less than 75% of the GST-inclusive market value of the supply?

Answer

Yes

This ruling applies for the following period(s)

<date> - <date>

The scheme commences on

<date>

Relevant facts and circumstances

You are a special purpose vehicle established for the purpose of investing in the acquisition, development and operation of social and affordable housing.

You are registered as a charitable institution with the ACNC and has also applied to be endorsed by the ATO to access the following tax concessions:

•                income tax exemption;

•                fringe benefits tax (FBT) exemption; and

•                GST concessions for charitable institutions.

You are not a member of a GST group.

You are an endorsed as a gift-deductible entity for income tax purposes.

You are registered as a charitable institution.

You are registered as a Tier 1 or Tier 2 Community Housing Provider (CHP).

You will enter into the following documents with the <State> (represented by the State Government agency):

•                Draft Subsidy Deed (Subsidy Deed)

•                Draft Delivery Deed (Delivery Deed)

A Draft Subsidy Deed and Draft Delivery Deed has been provided to accompany the private ruling application.

Whilst the pro forma Draft Subsidy Deed and Draft Delivery Deed are still subject to continued negotiation with the <State>, it is expected the final versions of the deeds will be in substantially the same form.

Reference to 'Provider' in the deeds is a reference to you.

Relevant details of the deeds are as follows:

Draft Delivery Deed

'Project' means the project between the State and the Provider for the delivery and operation of a social and affordable housing project at the Site in accordance with the terms of this Deed and the Subsidy Deed.

Your obligations under the Draft Delivery Deed include:

•                design of the proposed development plan

•                cause any planning design documents and all reports, submissions and other documents necessary to apply for and obtain the planning approvals to be prepared

•                appointment of a builder

•                undertake the development in accordance with the development plan and development program

•                warrant that the design of the development works and all design documents will comply with the Social and Affordable Housing Standards, all Authorisations, Laws and Australian Standards including without limitation, the Disability Discrimination Act 1992 (Cth) and the Disability (Access to Premises - Buildings) Standards 2010 (Cth)

Draft Subsidy Deed

Under the arrangement between you and the State, you have undertaken a number of obligations in relation to providing social and affordable housing accommodation to eligible Affordable Housing and Social Housing tenants (Eligible Tenant). The key clauses of the draft Subsidy Deed relevant to the ruling were considered. Your obligations pursuant to the Draft Subsidy Deed include:

•       Renting obligations

Provide rental accommodation for an agreed number of Affordable Housing and Social Housing Dwellings.

Comply with relevant legislation and applicable policies, procedures and guidelines published by the State.

•       Assessment of tenants

On the expiry of an Eligible Tenant's tenancy agreement, offer the tenant a renewal of the agreement ensuring the tenant meets the ongoing eligibility criteria forming part of the Social Housing Eligibility Criteria published by the State.

•       Tenancy documentation administration

Maintain a tenancy register containing all relevant information relating to a Tenancy Agreement.

Maintain a register of bonds (for any bonds held (if any)) and other tenant securities.

•       Status

Remain an Exempt Provider or Registered Provider as defined in the <relevant legislation>.

•       Maintenance

Operate, maintain and repair the Building, Dwellings and Services to a level as required by Laws and Australian Standards.

•       Annual reporting

Appoint an Auditor (upon the State's approval) being an appropriately qualified and experienced chartered accountant.

Issue an Annual Report to the State.

•       Use of the Site

The Site is only to be used to deliver Social Housing and Affordable Housing in accordance with the Subsidy Deed.

•       Determination of Market Rent and rent charged to Eligible Tenants

Obtain a Market Rent evaluation from an independent and qualified professional for each of the Dwellings.

Rent charged to Eligible Tenants to be the lower of:

(a)           The rent payable in accordance with the Community Housing Rent Policy; and

(b)           74.9% of the Market Rent for that Dwelling.

Pursuant to the Draft Subsidy Deed, the State must pay to the Provider the Subsidy as calculated pursuant to the Draft Subsidy Deed.

The Draft Subsidy Deed also provides that the Provider:

(a)           acknowledges and agrees that the State is not liable for the payment of the Rent and that the State will not and is not required to assist the Provider in procuring payment of arrears;

(b)           is not entitled to an increase in the Annual Subsidy or other payment or contribution by the State on account of Eligible Tenant arrears; and

(c)            is solely responsible for taking all steps it determines (acting reasonably and in accordance with Laws) is required to minimise and recover arrears under a Tenancy Agreement.

Assumptions

You are registered for GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 9-15

Subsection 9-15(1)

Subsection 9-15(2)

Section 38-250

Subsection 38-250(1)

Paragraph 38-250 (1)(a)

Paragraph 38-250 (1)(b)

Subparagraph 38-250 (1)(b)(i)

Reasons for decision

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

Question 1

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

Consideration

The term '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.

In respect of the first element discussed in paragraph 51 of GSTR 2001/6 above, the Draft Subsidy Deed provides for the payment by the State to you of the Subsidy.

In respect of the second element, the question is whether there is a sufficient connection or nexus between the payment of the Subsidy by the State and a supply made by you.

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.

Supply is defined in section 9-10 and includes:

•                the provision of advice or information

•                an entry into an obligation to do anything

Under the arrangement between you and the State, you have undertaken a number of obligations in relation to providing social and affordable housing accommodation to eligible Affordable Housing and Social Housing tenants (Eligible Tenant).

In this case, we consider there is a direct connection between the payment of the Subsidy and the obligations you have undertaken to perform in accordance with the Draft Subsidy Deed.

Is payment of the Subsidy solely made for the supply by you to the State?

Under your arrangement with the State, you have undertaken to provide Affordable Housing and Social Housing Dwellings to Eligible Tenants. That is, you have made an undertaking to the State to supply accommodation to a third party. Arrangements involving more than two entities are referred to as 'tripartite arrangements'.

Pursuant to the Draft Subsidy Deed, Applicants are nominated to become a tenant and referred to you in accordance with the <relevant State policy>. You will enter into a Tenancy Agreement with an Eligible Tenant and receive the Rent payable by the tenant pursuant to the Tenancy Agreement.

Whilst under your arrangement with the State, you have an obligation to provide Affordable and Social Housing Dwellings to Eligible Tenants. We consider your entry into such obligations is a separate and distinct supply from the supply of dwellings to Eligible Tenants under the Tenancy Agreements. Therefore, we do not consider the payment of the Subsidy is in connection to your supply of the dwellings to the Eligible Tenants.

The Draft Subsidy Deed further draws a distinction between the calculation and payment of the Subsidy by the State to you. In relation to the non-payment of the Rent by an Eligible Tenant:

•                the State is not liable for the payment of the Rent [by an Eligible Tenant] and is not required to assist the Provider in procuring payment of arrears;

•                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.

Taxable supplies

A taxable supply is defined in section 9-5 and states:

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 entered into the obligations detailed in the Subsidy Deed in carrying on your enterprise as a charitable institution in Australia and, as discussed above, made the supply for consideration. For the purposes of this private ruling you have requested that it is an assumption that you are registered for GST. Your supply of entering into and fulfilling your obligations under the arrangement are neither GST-free nor input taxed. Therefore, your supply to the State will constitute a taxable supply as defined above.

Conclusion

The payment by the State of the Subsidy is 'consideration' (as defined for GST purposes) solely for the taxable supply made by you to the State.

Question 2

Will the supply by you of accommodation to social and affordable housing tenants be GST-free under subsection 38-250(1) of the GST Act, where the consideration for the supply is less than 75% of the GST-inclusive market value of the supply?

Section 38-250 provides that supplies for nominal consideration by a charity are GST-free.

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 registered as a charitable institution with the ACNC. You are also an endorsed charity and gift deductible entity as defined for GST purposes in section 195-1. Therefore, paragraph

38-250(1)(a) is satisfied.

You have entered into an arrangement with the State to provide social and affordable housing accommodation to Eligible Tenants.

Pursuant to the Subsidy Deed, the Rent to be charged to an Eligible Tenant under a Tenancy Agreement must be the lower of:

(a)           the rent payable by an Eligible Tenant for that Dwelling in accordance with the Community Housing Rent Policy; and

(b)           74.9% of the Market Rent for that Dwelling.

You have made an undertaking to the State to cap the Rent an Eligible Tenant will be liable to pay under a Tenancy Agreement to 74.9% of the Market Rent for a particular Affordable Housing Dwelling or Social Housing Dwelling.

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.

As discussed above in Question 1, we consider your supply of the Affordable and Social Housing Dwellings to Eligible Tenants under a Tenancy Agreement is a separate and distinct supply made to a tenant. The Rent payable by a tenant to you will be stipulated in a Tenancy Agreement and will constitute the consideration you will receive for that supply, being the supply of accommodation to social and affordable housing tenants.

Therefore, subparagraph 38-250(1)(b)(i) is also satisfied.

Conclusion

Your supplies of accommodation to social and affordable housing tenants will be GST-free pursuant to subsection 38-250(1).