GST issues registers

Charities consultative committee resolved issues

Part 14 - Conservation

Issue 1: The GST legislation contains a number of special rules for endorsed charities and gift deductible entities. How will conservation groups determine whether they are included in either of these categories?

Non-interpretative - straight application of the law

For more information refer to Income tax and fringe benefits tax: charities.

Principle

The policy intent is for the commercial activities of charities to be subject to GST and non-commercial activities of charities to be GST-free. For more information, please refer to Income tax guide for non-profit organisations and GiftPack.

A charity's sole or dominant purpose is to provide benefits to the public or to relieve poverty. An entity will not be a charity if any benefit to the community is merely incidental to, or a consequence of, a non-charitable purpose.

For an organisation that is not a fund to be a charity, its sole or dominant purpose must be charitable. If it has purposes which when viewed in isolation would not be charitable, they must be incidental or ancillary to the charitable purpose.

The characteristics of each entity will determine whether it is a charity. An entity's governing or constituent documents (constitution, memorandum and articles of association, trust deed, rules, charter etc) must show that it is a charity. For entities that are not merely trust funds, their activities must also show they are charities.

There is no general doctrine in Australia which excludes a charity from having political purposes. In certain circumstances, an entity can be charitable if it has a purpose (including a sole purpose) of generating public debate with a view to influencing legislation, government activities or government policy that comes within the definition of a charitable purpose.

Political parties are not charitable and an organisation is not charitable if its sole purpose is engaging in activities associated with political parties.

However, if an organisation's purpose is otherwise charitable, the presence of political, lobbying or promotional activity that is incidental to the charitable aims will not prevent it being a charity.

Can conservation groups be charities?

Purposes are considered to be charitable if they benefit the community, or some section of it, through:

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the relief of poverty or sickness or the needs of the aged

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the advancement of education

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the advancement of religion, or

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other purposes beneficial to the community.

The category of most relevance to conservation groups is the last one - other purposes beneficial to the community.

Other purposes beneficial to the community

Charitable activities for other purposes that may be beneficial to the community include:

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preserving defence and public order

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relieving stress due to natural disasters

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providing community facilities such as a museum, library, hall, garden or fire service

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promoting art and culture such as through music and drama

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promoting health, for example through educating the public about disease

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protecting animals, and

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scouts.

Organisations that are not charitable include:

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organisations carried on for the profits of their members

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organisations carried on for their members' common interests, such as professional or trade groups, and

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community service organisations that have significant membership purposes, such as traditional service clubs, sporting, recreational and social clubs.

Environment

Non-profit organisations that operate for the public benefit to protect, preserve, care for, and educate the community about the environment are charities. Political bodies are not charities.

Examples of charities

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conservation bodies which help protect the environment provided they are not for political purposes

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environmental associations whose purpose is to educate the public about environmental issues

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flora and fauna conservation societies which are not political in nature

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land care groups and other greening organisations involved in tree-planting and revegetation

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marine conservation societies which are involved in the conservation of Australia's coastal areas or coral reefs

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natural resource organisations which educate the public about the wise use of Australian resources such as soil, water and forests

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support groups for national parks

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friends of botanic gardens.

Examples of non-charities

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bushwalking clubs

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government instrumentalities carrying out the ordinary functions of government.

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outdoor recreation clubs

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political bodies

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resident action groups set up to oppose planning policies detrimental to their lifestyles, for example a residents action group formed to lobby against a proposed rubbish dump

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water sports clubs.

Specific questions and answers

Question 1. Will conservation groups receive charity status, particularly recreation-type groups that have a strong conservation role?

Non-interpretative - other reference (see TR 2011/4 Income tax and fringe benefits tax: charities)

As stated above, for an organisation that is not a fund to be a charity, its sole or dominant purpose must be charitable. If it has purposes which when viewed in isolation would not be charitable, they must be incidental or ancillary to the charitable purpose.

In addition, the predominant activities of the organisation must be charitable. This is generally determined by examining the manner in which the majority of the organisation's funds are employed.

Question 2. Are Conservation Councils and similar organisations entitled to ITEC (Income Tax Exempt Charity) status?

Non-interpretative - other reference (see TR 2011/4 Income tax and fringe benefits tax: charities)

From 3 December 2012, there is a new national regulator for charities, the Australian Charities and Not-for-profits Commission (ACNC). The ACNC registers organisations as charities. An organisation must be registered with the ACNC to access any tax concessions available to charities from the Australian Tax Office. For more information, refer to Income tax guide for non-profit organisations.

Question 3. Do environmental/conservation organisations fall under the 'Home Care' category of GST-free supplies?

(Note: Effective from 1 August 3013, subsections 38-30(1) and 38-30(3) of the GST Act were amended by Aged Care (Living Longer Living Better) Act 2013 to substitute the term 'home care' for the term 'community care'.)

Non-interpretative - straight application of the law

The term 'home care' is defined in section 45-3 of the Aged Care Act 1997. It does not relate to environmental/conservation issues.

Question 4. What is the GST treatment of payments made to a conservation body in return for advertising/sponsorship?

Non-interpretative - straight application of the law

Assuming the body providing the advertising is registered for GST, this will constitute a taxable supply (of advertising). The recipient of the monies would therefore be required to pay 1/11th of the amount received to the Commissioner of Taxation. If the payer of the monies is registered for GST, they will be entitled to an input tax credit of the same amount.

Question 5. Are free services provided by conservation groups subject to GST?

Non-interpretative - straight application of the law

A key element of a taxable supply is that it is made for consideration. The term consideration has a very broad meaning, and extends beyond the mere payment of monies. If a supply is made, and there is truly no consideration received in return, it will not be taxable.

Question 6. Will grants made to conservation organisations be GST-free supplies?

Non-interpretative - other reference (see GSTR 2012/2 Goods and services tax: financial assistance payments)

In some cases a payment may be made by way of consideration provided by one party for a particular supply to an identified third party. Where that supply is GST free or input taxed, the payment will attach to that transaction and no GST will be payable.

Examples may be found in the Medicare arrangements. A 'pay doctor' cheque may be provided as a co-payment for a particular GST-free medical service, and a bulk billing arrangement provides a third-party payment by Medicare for such a service.

However, it will be necessary to identify the individual recipient, and the supply to that recipient, before a payment will be consideration from a third party for such a supply. The mere provision of funding on a per-capita basis will not ordinarily establish that the funding is consideration for supplies made to others.

If you are unsure of the GST consequences of an arrangement that may be a co-payment or third party payment, you should seek a ruling from the ATO in relation to the arrangement.

Question 7. Is each grant provided to a conservation organisation considered a separate enterprise within the entity?

Non-interpretative - other reference (see GSTR 2012/2 Goods and services tax: financial assistance payments)

An enterprise is an activity or series of activities carried on by an entity. The activities may be of a particular type, such as activities carried on in the form of a business, or it may be all the activities of a particular type of entity, such as a charitable fund.

Each grant may be consideration for a separate supply. However, each individual grant will not be a separate enterprise.

Question 8. What are the obligations of a peak conservation group if it processes and administers GST on all grants within its affiliate branches in the capacity of an agent?

Non-interpretative - other reference (see GSTR 2000/37 Goods and services tax: agency relationships and the application of the law)

Assuming the peak group is acting as an agent on behalf of its affiliates, the following rules contained within Division 153 of the Goods and Services Tax Act would apply.

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To claim input tax credits, either the agent or the principal must hold a tax invoice.

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To record an adjustment on a business activity statement, either the agent or the principal must hold an adjustment note.

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Either the agent or principal (but not both) may issue tax invoices.

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A tax invoice must be issued within 28 days of either the principal or agent receiving the request.

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Either the agent or principal (but not both) may issue adjustment notes.

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An adjustment note must be issued within 28 days of either the principal or agent receiving the request.

Question 9. How are transitional contracts involving grants for conservation organisations being treated where they span 1 July 2000?

Non-interpretative - other reference (see GSTR 2012/2 Goods and services tax: financial assistance payments)

GST is only payable on a taxable supply or taxable importation to the extent that it is made on or after 1 July 2000. There are transitional rules that will help grantees work this out.

GST is not payable on grants. It is payable on the supply or supplies to the grantor, if any, for which the grant is consideration. Consequently, how the transitional rules will apply depends on the nature of the supply made in exchange for the grant.

A supply made to the grantor in exchange for the grant will only be subject to GST to the extent it is made on or after 1 July 2000.

A supply of specific goods to the grantor in exchange for the grant is made when the goods are removed or made available to the grantor.

A supply of real property in exchange for the grant is made when the property is made available to the grantor.

A supply of specific services is made when the services are performed.

Where a grant is made in exchange for the supply of goods or services to the grantor over a predetermined period that begins before 1 July 2000 and ends on or after 1 July 2000, the supply is treated as having been made continuously or uniformly over the period. This includes a supply that is an obligation to do something with the funds over a predetermined period. GST will be payable in respect of the portion of the supply that relates to the period from 1 July 2000.

The following examples illustrate these principles.

Example 1

A conservation group receives a grant on 15 April 2000 in return for the performance of the obligation to plant 500 trees. As at 30 June 2000, the group has planted 300 trees. The remaining 200 trees are planted in July 2000. GST would be payable in respect of the grant to the extent of 200/500ths.

Example 2

A conservation group receives a grant on 15 April 2000 in return for the performance of the obligation to remove salvation jane (paterson's curse) from a 5km strip of coastland. As of 30 June 2000, the group has removed the weed from 2 kilometres. The remaining 3 kilometres are weeded in the following year. GST would be payable in respect of the grant to the extent of 3/5ths.

Example 3

A conservation group receives a grant on 15 April 2000 to finance the group's weed eradication programme over the period 15 April 2000 to 14 April 2001. As the grant is in exchange for a supply for a period of time, 288/365ths would be subject to GST.

If the grantor has already made the grant and it is to any extent taxable, the grantor may choose to increase the grant to account for the tax payable on the grant in anticipation of any input tax credit that will arise on the taxed grant. However any decision on the amount and timing of a grant payment will be a matter for grantor and grantee to determine.

Question 10. When are supplies made by Landcare groups in return for government grants recognised under the GST accounting rules?

Non-interpretative - other reference (see GSTR 2012/2 Goods and services tax: financial assistance payments)

The answer to this question will depend on whether the recipient of the grant (that is, the Landcare group making supplies to government) accounts for GST on a cash or 'other than cash' (accruals) basis.

If the Landcare group accounts on a cash basis, they will account for supplies they make as and when they receive cash. For example, if they receive $100,000 in September 2001 as part of a $1 million grant, they will recognise supplies of $100,000 in their business activity statement for the period ended 30 September 2001.

If the Landcare group accounts on the 'other than cash' basis, the general rule is that a taxable supply will be accounted for in entirety at the earlier of issuing an invoice or receiving any part of the grant.

However, a special rule (contained in Division 156) applies where a supplier makes supplies on a progressive basis, and payment is received progressively or periodically. Where this is the case, the supplier will account for its supplies on the following basis;

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If the Landcare group invoices supplies periodically (for example, as various milestones are met), GST will be accounted for at the earlier of issuing an invoice for the milestone or receiving any payment in respect of the milestone.

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If the Landcare group is making supplies over a set period of time (and distinct milestones are not specified) GST will be accounted for as and when payment is received.

The following examples illustrate this treatment.

Example 1

On 1 January 2001, a Landcare group enters into an agreement to provide services to the government over the period 1 January 2001 to 31 December 2001. The total amount of the grant is $100,000 of which $20,000 is paid on 1 January 2001. Further payments of $20,000 are made on 1 March 2001, 1 June 2001, 1 August 2001 and 1 November 2001. The Landcare group would account for each payment in the quarter (or month) in which it is received.

Example 2

On 1 January 2001, a Landcare group enters into an agreement to revegetate 10 kilometres of sand dunes. The total amount of the grant is $100,000 and the agreement states that the Landcare group can invoice for $10,000 as and when they complete each kilometre. By 31 March 2001, the Landcare group has revegetated one kilometre and issues an invoice to the government. Payment is received on 4 April 2001. The Landcare group would account for the GST on the $10,000 in the quarter ended March 2001.

Question 11. Will the provision of memberships by a charitable conservation body be subject to the non-commercial rules?

Non-interpretative - straight application of the law

The supply of membership rights will be subject to the non-commercial rules. Accordingly, if the membership fee charged is less than 50% of the market value of the goods/services and entitlements provided to a member, the supply will be GST-free. Alternatively, if the membership fee charged is less than 75% of the actual costs incurred by the charity in making the supply, the membership will be GST-free.

In calculating the market value of the goods/services and entitlements provided to the member, one should only consider those things enjoyed by the member that are not available free of charge to the general public. For example, if the member is granted access rights to a library, and members of the general public can access the library free of charge, this right should not be taken into account in determining the market value of the membership.

Question 12. Where an entity under the register of environmental organisations operates under a Trust Deed and all donations are directed through one bank account, is a separate ABN required for the trust?

Non-interpretative - straight application of the law

If in fact the entity is the trust, the trustee would apply for an ABN on behalf of the trust.

Question 13. When are payments to office-holders of conservation groups subject to PAYG withholding?

Non-interpretative - other references see:

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Volunteers and tax.

Question 14. What is the taxation treatment of payments made by conservation groups to leaflet distributors?

Non-interpretative - other references see:

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Volunteers and tax.

Question 15. Where a body pays a small amount (say a few hundred dollars) to its president or other office bearer, what are the GST and Pay as You Go (PAYG) consequences?

Non-interpretative - other references see:

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Volunteers and tax.

Question 16. Currently there is little tax reform information specifically directed at the conservation industry. How is this being addressed?

Non-interpretative - other references see:

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Volunteers and tax.

The Conservation Partnership Committee is another means of communicating information to this sector.

Question 17. A land care group has applied for a grant and has been successful. The grant may be to fence off a gully and plant trees and understorey. Money is transferred to the account of the Landcare group. How does GST apply to each of the following scenarios?

a) A farmer (on whose property the project will be conducted) purchases the fencing material and then is reimbursed by the group for the purchase.

Non-interpretative - straight application of the law

If in fact the farmer is buying the fencing material and then subsequently selling it to the Landcare group, this will have the following GST consequences:

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The fencing retailer (if registered for GST) will charge the farmer GST.

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The farmer (if registered for GST) will claim an input tax credit in respect of the GST paid.

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The farmer (if registered for GST) will charge the Landcare group GST.

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The Landcare group (if registered for GST) will claim an input tax credit in respect of the GST paid.

b) What if the Landcare group 'gives' the fencing to the farmer at the end of the project? What are the GST implications?

Non-interpretative - straight application of the law

Assuming both parties are registered for GST, the Landcare group is 'supplying' the fencing and the consideration is the value of the farmer's involvement. The farmer is contributing to the project, and the consideration for the supply is the value of the fencing. Given the supply and acquisition will normally be of the same value, there are no GST consequences. However, tax invoices reflecting the deemed 'price' paid for the fencing/involvement must be exchanged between the Landcare group and the farmer.

Where the farmer is a hobbyist and is therefore not registered for GST, the Landcare group is making a taxable supply to the farmer in return for the farmer's involvement. The farmer is not making a taxable supply to the Landcare the group as the farmer is not GST-registered. The farmer is also not entitled to claim an input tax credit on the acquisition of the fencing as he/she is not registered. This means the Landcare group should provide the farmer with a tax invoice. The consideration on the tax invoice is the value of the farmer's contribution. GST will be payable by the Landcare group on the supply of the fencing.

If an unregistered Landcare group provides fencing to a GST-registered farmer, the position is reversed. The farmer is supplying his/her labour in return for the fencing. The farmer is therefore making a taxable supply and must remit 1/11th of the value of the fencing to the ATO. As the Landcare group is not GST-registered, it does not have to account for GST. It cannot charge GST on the supply of the fencing and is unable to claim an input tax credit for the labour acquired from the farmer.

c) In some groups the farmer is given a voucher which is used as payment, either in part or in full for the purchase of materials. The invoice is made out to the farmer.

Non-interpretative - straight application of the law

The provision of vouchers has no GST consequences. It is treated in a similar manner to the giving of money. Where the farmer buys fencing material as an agent for the charity Division 111 will apply, and the charity can claim the input tax credit. Where the farmer buys fencing material on behalf of the charity in the capacity of a volunteer, the charity will be able to claim an input tax credit under section 111-18 of the GST Act.

d) A condition of the grants is often that the value of the grant is matched on a one for one basis. This may be done by the Landcare group or by the landholder. The matching may take the form of the following:

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Use of a computer for design purposes on the project.

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Machinery of the land-holder or a group member may be used in the project.

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Voluntary labour of the land-holder or the group members.

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Provision of accommodation to volunteers.

Non-interpretative - straight application of the law

When a grant is paid to an organisation for a specific purpose or with any conditions, GST is payable on the grant if the recipient of the grant is registered for GST. If there is no obligation tied to the grant and no other supply to be provided by the recipient of the grant, GST will not be payable. Where GST is payable, the amount payable to the ATO is 1/11th of the grant. The entity making the grant (the grantor) is entitled to an input tax credit equal to 1/11th of the grant amount. The recipient of the grant will need to give the grantor a tax invoice.

The 'matching' conditions form part of the supply for which the grant is consideration.

Question 18. The structure of some Landcare groups is hierarchal. The regional body makes bids on behalf of a number of groups. If the bid is successful then the grant is devolved to the individual groups. There could be a number of steps in the chain. Is there any GST implications on the devolution of funds?

Non-interpretative - other reference GSTR 2012/2 Goods and services tax: financial assistance payments.

The treatment of this issue depends on the manner in which the government grants are provided, for example:

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The government provides a grant to the regional body, and the regional body determines which other bodies should receive the grant monies.

Where the government provides a grant to a regional body and the regional body makes grants to individual groups, and both the regional body and the individual groups are registered for GST, there will be two taxable supplies. There will be a supply by the regional body to the government in return for the grant monies. There is a subsequent supply by the individual group to the regional body in return for a share of the grant monies.

In this situation, the regional body will remit 1/11th of the grant monies received to the ATO. The government will claim an input tax credit for the same amount. The individual group (if registered for GST) will remit 1/11th of the monies received from the regional body to the ATO. The regional body will claim an input tax credit for the same amount.

Where there are other links in the chain, each organisation receiving monies (if they are registered for GST) is making taxable supplies to the payer. They will remit 1/11th of the monies received to the ATO, and the payer (if registered for GST) will claim an input tax credit for the same amount.

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The government provides grants to the individual groups, and the regional body is merely a conduit via which the funds are transferred.

Where this is the case, the individual groups (if registered for GST) are making supplies directly to the government in return for the funds. They would therefore remit 1/11th of the funds received to the ATO. The government would claim an input tax credit for the same amount.

If the regional body charges the individual groups a commission for organising the grant or other services, this would be a taxable supply by the regional body. The regional body would remit 1/11th of the commission monies to the ATO, and the individual groups (if registered for GST) would claim an input tax credit for the same amount.

Question 19. Payments to carry out land care activities are sometimes made to landholders that are carrying on a hobby farm. These people will not have an ABN. To avoid withholding tax from these payments, will a letter have to be provided by the hobby farmer on every occasion they receive money to show that they are not carrying on an enterprise?

Non-interpretative - straight application of the law

To remove PAYG responsibilities, the payee must make a written, signed statement that a supply is private or domestic in nature, or relates to a hobby. A statement is required in respect of each supply provided by the hobby farmer.

Question 20. Similarly with payments to people for urban-based land care activities. Will a withholding event arise and will a letter be required from the recipient of the payment if they do not have an ABN?

Non-interpretative - straight application of the law

The above rule applies.

Question 21. Large companies may sponsor certain land care activities in a particular area. What are the GST consequences for the companies that provide these funds? Does it matter whether the recipient land care group is registered for GST or not?

Non-interpretative - straight application of the law

This will generally constitute a taxable supply (of advertising/sponsorship) by the land care organisation to the large company. The Landcare organisation (if registered for GST) is required to remit 1/11th of the amount received to the ATO. The large company will be able to claim an input tax credit of the same amount.

Question 22. If land is provided by the government to a conservation group, are there any GST implications? Does it matter whether the land is improved or unimproved?

Non-interpretative - straight application of the law

The first supply of crown land (ie from the Commonwealth, State or Territory) is GST-free if it is unimproved. This GST-free status only applies once, that is, any subsequent supply of the same land will be subject to GST under the general rules

The supply of farm land is GST-free if:

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a farming business has been carried out on there for at least five years before the sale, and

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the recipient of the land intends to carry on a farming business on the land.

Where GST applies, it generally applies to the price of the land (that is, the supply) regardless of whether the land had been improved or not. Where land is sold on or after 1 July 2000, the seller will have a choice under the margin scheme to charge GST only on the increase in value from 30 June 2000, rather than on the total sale price. It is not relevant for GST purposes whether the value added was due to improvements or simply an increase in market value.

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