Edited version of private advice

Authorisation Number: 7920154221286

Date of advice: 11 November 2022

Ruling

Subject: Charities & non-commercial activities

Question 1

Is the supply of accommodation and meals made by a Charity for their week-long program GST-free under section 38-250 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Summary

The supply of accommodation is not GST-free as the supply is made for more than 75% of the relevant benchmark market value for accommodation, it is an input taxed supply.

The supply of food is GST-free as it is being supplied for less than 50% of the relevant benchmark market value for food.

Question 2

Is the supply of accommodation and meals made by a Charity for their month-long program GST-free under section 38-250 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Summary

Yes, in part. Only part of the supply of accommodation is supplied at less than 75% of the benchmark market value and is GST-free.

Part of the supply of accommodation is made for more than 75% of the of the relevant benchmark market value. It is therefore an input taxed supply of residential premises in accordance with section 40-35 of the GST Act.

The supply of meals is made for more than 50% of the relevant benchmark market value and therefore is a taxable supply in accordance with section 9-5 of the GST Act.

Relevant facts and circumstances

A registered charity and a not-for-profit organisation is registered for GST effective 01 October 20XX.

The entity provides fully staffed programs, with on-site mentors and program organisers.

The entity assists participants through respite and intervention programs.

The price charged for the week-long (5 day) program is $x per individual/person. This price includes lunches, dinners, breakfasts, snacks, accommodation and support programs for each individual.

There are up to x participants in the week-long program at any time. The accommodation is share accommodation of up to x participants sharing each room.

The price charge for the month-long intensive programme is $x. The program is full time. it includes all meals, snacks, support/counselling/social and life skills development/mental health & physical development plus live-in accommodation.

The price charged for each individual for the month-long intensive program is $x per week.

The accommodation for the month-long program is provided in free standing premises.

There are smaller individual dwellings which accommodates program participants and staff.

The remaining participants stay in their own room on the leaders block with staff.

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 38-250.

Reasons for decision

Section 9-5

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 enterprise that 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 non-commercial supply rules listed in section 38-250 mean that anything supplied by a charity is GST-free if the payment, or consideration for the supply is either:

•         less than 50% of the GST inclusive market value - this does not include accommodation which is less than 75% of the GST inclusive market value, under subsection 38-250(1), or

•         less than 75% of the 'cost of supply' under subsection 38-250(2).

This means the commercial activities of charities will generally be taxable or input taxed, but the non-commercial supplies by charities will be GST-free. In these situations, it is the supply that is GST-free not the 'supplier'.

Week-long program (5 days)

The meals component charged to each individual day which is less than 50% of the benchmark value. Therefore, the meals component for the week-long program is GST-free.

The accommodation component is greater than 75% of the accommodation benchmark market value of. Therefore, the accommodation component for the week-long program is not GST-free.

What needs to be considered is whether or not the supply you make of accommodation is taxable or an input taxed supply of residential premises. The supply you are making is for lease and not the supply of new residential premises

Section 40-35 of the GST Act provides that a supply of premises that is by way of lease, hire or licence is input taxed if the supply is of a residential premises to be used predominantly for residential accommodation (regardless of the term of the occupation).

Residential premises is a defined term in the GST Act and has two limbs. A premises will be residential premises if any one of these two limbs are satisfied.

Paragraph 6 of GSTR 2012/5 explains that the first limb of the definition refers to the actual use of the premises and requires that the premises are occupied as a residence or are for residential accommodation, regardless of the term of the occupation.

Paragraph 7 of GSTR 2012/5 explains that the second limb of the definition refers to premises that are designed, built, or modified so as to be suitable to be occupied, and capable of being occupied, as a residence or for residential accommodation regardless of the term of the intended occupation. This is demonstrated through the physical characteristics of the premises.

The requirement that the residential premises be used predominantly for residential accommodation is to be interpreted as a single test that looks to the physical characteristics of the property (paragraph 9 of GSTR 2012/5).

As you are renting out residential premises for residential accommodation, your rent is input-taxed and you don't include GST in the rental component. You also can't claim credits for the GST included in any costs relating to the rental.

Month-long Intensive Programme (30 days)

The supply of accommodation that you make are not that of a Commercial residential premises and are predominantly for residential use that would be input taxed. However, we need to consider section 38-250 of the GST Act in your circumstances and determine whether or not your supplies of accommodation would be GST-free.

For the part of the supply of accommodation, the price charged is greater than the benchmark market value to the accommodation type. The supply is that of a residential premise and therefore input taxed in accordance with section 40-35 of the GST Act.

As you are renting out residential premises for residential accommodation, your rent is input-taxed and you don't include GST in the rental component. You also can't claim credits for the GST included in any costs relating to the rental.

For the other dwellings the amount charged to a participant occupying single accommodation is less than 75% of the benchmark market value

Section 38-250 of the GST Act states that the accommodation component must be less than 75% of the benchmark market value and thereby is GST-free.

The amount apportioned towards meals is more than 50% of the benchmark value. Therefore, the meals component for the month-long program is not GST-free.