Private ruling: GST and student accommodation
Published: November 2013

Ruling: Q1: Is the rental market valuation you have supplied acceptable for the purposes of section 38-250 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes. | Q2: Is the supply of student accommodation GST-free? | A2: No. Based on the examples in the valuation report. However they will be where the supplies of student accommodation are made for less than 75% of the GST inclusive market value. | Q3: Are you entitled to claim input tax credits (ITC) on costs for the construction of a student accommodation building? | A3: Yes, where the supplies of student accommodation in the new building are less than 75% of the GST inclusive market value at the time of supply. See reasons for decision for further information.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. · You are an education institution for the purposes of section 195 of the GST Act. · You are endorsed as a Deductible Gift Recipient under Division 30 of the Income Tax Assessment Act 1997 (ITAA). You are therefore a gift-deductible entity for the purposes of the GST Act. You are also a Charitable Institution endorsed to access goods and services tax (GST).concessions. · You are registered for goods and services tax (GST). · You own residential colleges (colleges) on or adjacent to your campuses. These colleges are for the primary purpose of providing residential accommodation to your students at an affordable rate during their education. · Your properties provide accommodation in a range of buildings and different configurations, including halls of residence, townhouse rooms, single, double, studio rooms and common rooms. · You are currently constructing additional student accommodation on one of your campus'. · The project to build the student accommodation will deliver a number of additional beds to meet the high demand for on-campus accommodation. · The first students are scheduled to take occupancy in the future. · The management company is a 100% subsidiary of yours and will be managing the accommodation on your behalf. · You advise that on campus accommodation is currently provided by you at less than 75% of market value for similar accommodation. · You advise that you intend to provide the new accommodation to students for consideration of less than 75% of the market value. · You engaged an independant company to provide a rental market valuation for the student accommodation which you have submitted with your application for a Private Binding Ruling (PBR).

Relevant legislative provisions: All references are to the A New Tax System (Goods and Services Tax) Act 1999 : Section 9-5 | Section 11-5 | Section 11-15 | Section 38-250

Reasons for decision: Summary: The valuation from the independent company does supply sufficient information to comply with the requirements outlined in the Charities Consultative Committee Resolved Issues document (CCC document) and is adequate in applying a market value to the supply of your student accommodation. | Detailed Reasoning - Detailed reasoning: Whilst it is unrealistic to place a definitive figure upon how many GST inclusive prices should be obtained, we expect that, where possible, it would generally be more than one. The information collected would need to provide sufficient intelligence for the charity to be confident that the value they arrive at is representative of the supply in the market. The Australian Taxation Office (ATO) has issued a GST public ruling that contains the Market Value Guidelines (the Guidelines) to assist charities and other organisations in establishing whether their supplies are GST-free under subsection 38-250(1) of the GST Act. The Guidelines state the following when considering the number of comparisons a charity ought to make when considering the same supply test. · Number of comparisons In the market the charity operates in, there may be more than one other supplier making the same supply but for a different price. Whilst it is not practical to obtain the full range of prices (of the same supply) the charity should generally obtain more than one price. Additionally at Section G of the Guidelines the ATO In consultation with the Australian Valuation Office, has provided a methodology which has been approved for use by charities for applying the market value guidelines to accommodation supplied by charities, in university residential halls or colleges, and other residential educational facilities. This methodology is within the scope of the GST legislation and uses the principles explained in the Market value guidelines. Section G provides that there is no requirement for the charity to obtain a professional valuation of its supply by a licensed valuer. The charity can undertake a valuation of its supply by comparing it with other supplies in the market. However, the general principles explained in the 'Market value guidelines' must be used regardless of whether the charity chooses to obtain a professional valuation. To assist charities to undertake their own valuation the ATO has developed the ATO Residential College GST Tool which has previously been sent to you. Your Valuation You have advised that your supplies of accommodation are GST-free under section 38-250 of the GST Act. In particular, you have advised that the supply is made for less than 75% of the GST inclusive market value. You have based your contentions on the valuation report from the independent company that you have provided that you contend shows that the value of your supplies is or will be less than 75% of the market value of 'same supplies' in the local marketplace. When establishing the market value of accommodation the ATO advises that you should seek to compare the accommodation you offer with accommodation of a similar standard and under similar conditions including the duration of the lease. The CCC Document is clear when discussing this test that other properties need to be used as a comparison by using comparable features of the supply. To work out correctly whether a supply of accommodation is GST-free, charities must compare its own supply of accommodation with another supply of accommodation in the market that has the same qualities as its supply. These qualities would include: · types of accommodation such as single rooms, shared rooms or studios · the accommodation is available for long term occupancy · the quality of the fittings of the room · whether the rooms are serviced daily, weekly or not at all, and · the amenities or facilities that are provided in the supply of accommodation - these need to be separate from those available to all students attending the university whether residential or external. Charities needs to take into account the following when making the comparison: · identifying the market · the locality of the supply or area of the market · the quality or nature of supply · the size, quantity or duration of supply · the conditions of supply · other charitable or commercial suppliers, and · the number of comparisons. In conclusion the valuation from the independent company does supply sufficient information to comply with the requirements outlined in the CCC document and is adequate in assessing a market value to the supply of your student accommodation. However whether the information supplied shows that your supply of student accommodation is less than 75% of the market value is discussed further below. | Summary: You have advised that your supplies of accommodation in the individual student residences within the colleges are GST-free under section 38-250 of the GST Act. In particular, you have advised by way of the valuation report compiled by the independent company that the supply will be made for less than 75% of the GST inclusive market value. Where this is the case the supplies will be GST-free . | Detailed Reasoning - Detailed reasoning: Market Value Guidelines Commercial activities of charities will generally be taxable or input taxed. However, the non-commercial activities by charities will be GST-free under Sub-division 38-G -'Activities of charities etc' of the GST Act. As you are the supplier of accommodation and you are also a charitable institution and your questions relate to the supply of accommodation (residential premises) for less than the market value, subparagraph 38-250(1)(b)(i) of the GST Act may apply, Relevantly, subsection 38-250(1)(b)(i) of the GST Act provides that a supply is GST-free if the supplier is a charitable institution and the supply is a supply of accommodation that is for less than 75% of the GST inclusive market value of the supply. Subparagraph 38-250(1)(b)(i) of the GST Act states that: (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) … *an asterisk denotes a defined term in the GST Act. As an endorsed charity, your supply of residential premises is GST-free if the consideration received for your supply is less than 75% of the market value of the supply. As mentioned previously the ATO has published the Guidelines to assist endorsed charities or gift deductible entities in establishing the GST inclusive market values of their supplies under subsection 38-250(1) of the GST Act. The Guidelines provide that in determining the GST inclusive market value of a supply, a charity must apply the following successive tests: Firstly, the charity must establish whether the same supply exists in the open market (the same supply test). Where it does, the price of the supply as defined by the market is the market value that the charity should use. The other suppliers in the market may be charitable or profit making organisations. It is the supply that is compared in the market not the recipient of the supply or the provider of the supply. The comparison should be based on quality, quantity and conditions of supply. Secondly, if no other organisation offers the same supply , the charity may identify similar supplies that exist in the open market and calculate the market value of its supply by reference to the prices charged for those supplies (the similar supply test). When establishing the market value of a service, the charity should seek to compare the services it offers with services of a similar nature and quality, of similar size or time length, and with similar conditions. Thirdly, in the unusual event that a market value cannot be established using the same supply test and the similar supply test outlined above, the charity can use a 'cost plus' method. This method allows the charity to use full absorption costing and then apply a mark-up appropriate to the general market of the particular supply. In using this method, the charity can include an imputed cost for donated goods and voluntary labour. The cost plus method is used as a last resort to determine the GST inclusive market value of a supply. This method has no application in determining the consideration charities provided, or were liable to provide for acquiring the thing supplied. Importantly, these tests are successive tests for determining GST inclusive market value, they are not alternative tests. If, therefore, the market value can be established under the first test, the charity cannot calculate the market value with reference to the second or third tests. In your case there are a number of facilities that provide the same supply of student accommodation that you do, therefore the same supply test would apply when calculating the cost of your supply of student accommodation. | Detailed Reasoning - The same supply test: The same supply test requires a charity to work out whether a supply, the same as the one it makes, exists within the market they operate in. That is, in applying the same supply test, the charity compares its supplies to those in the market. The comparison is made between the supplies made by the charity and those by other suppliers. It is not made between the recipients of the supply or the suppliers. The other suppliers in the market can be charities or profit making organisations. If the same supply exists in the market, the price of this supply is the market value that the charity should use in their calculations. You have provided a valuation report from an independent company which you contend provides the basis for treating your supplies as GST-free. Where you have acted in accordance with the information from the valuation report (if that report shows the supplies as being GST-free) and the Guidelines in determining that your supply of accommodation is for consideration that is less than 75% of the GST inclusive market value of the supply, we accept that the supply is a supply for nominal consideration and is GST-free. Where you are entitled to treat the supplies as GST-free under section 38-250, this GST treatment overrides any other possible treatment (such as whether the underlying supplies may otherwise be an input taxed supply)(see subsection 9-30(3) of the GST Act). When a supply is GST-free no GST is payable on the supply, and an entitlement to an input tax credit for anything acquired to make the supply is not affected. As an example, if we compare your proposed rentals with those of the 'same supply' being Comparison A (A) and Comparison B (A) in order to meet the requirements of subparagraph 38-250(1)(b)(i) of the GST Act, and following the information in the valuation report, the rental amount you charge for the Studio Apartments on campus and off campus must be less than: on campus o $172.50 - $225 per week ($230*75%) & ($300*75%) (A) off campus o $210 - $240 per week ($280*75%) & ($320*75%) (B) The maximum weekly rental amount you have proposed for the on campus studio apartments is $218 - $262 and off campus studio apartments is $225 - $375 which is more than those amounts and therefore your supply of residential rental of these Studio Apartments units will not be GST-free and will be input-taxed. In your case the valuation report has compared the value of your supplies with several different educational facilities with commercial and non-commercial rentals and has also provided 'future' market rental values for the student accommodation. Whilst we are willing to accept the valuations for the first period we are not willing to accept the 'future' periods as we are of the opinion that these periods must be assessed at the time closer to the completion and advertising for letting as there are too many variables that may impact on the rental market which may change the market value. | Detailed Reasoning - Records: Charities must keep and maintain records that adequately document the process and information collected in working out the relevant market values which the consideration of the supplies the charity makes is to be compared to. For example, the market values established and the methods used may be documented or minuted in the charity's books of account. This information should be captured in a way that will allow cross-referencing to accounting statements. It should also correspond to what is recorded on the charity's Business activity statements. While you do not need to seek formal approval from the ATO where you conclude that the supplies of student accommodation (or other supplies or services) are GST-free, you must use the above guidelines to calculate the market value or cost of supply to make and support your decision. | Detailed Reasoning - Review of valuation: Charities should monitor the market in which they make the supply to ensure that they will respond promptly to any material changes in the market. Changes in market conditions include, amongst other things: · suppliers entering or leaving the market · changes in quality of the supplies as a result of different consumers' expectation · changes in input costs, and · changes in prices charged. Input costs include real costs such as direct and indirect costs incurred, depreciation and imputed costs. | Summary: Your acquisition of supplies for the construction of the student accommodation building is a creditable acquisition for the purposes of section 11-5 of the GST Act where those supplies to you are a taxable supply and you have acquired them for a creditable purpose. Acquisitions in relation to GST-free or taxable supplies that you make are for a creditable purpose. However, your acquisitions that relate to making input taxed supplies are not for a creditable purpose (and are therefore not creditable acquisitions. | Detailed Reasoning - Detailed reasoning: An entity is entitled to the input tax credit for any creditable acquisition that it makes. Section 11-5 of the A New Tax System (Goods and services Tax) Act 1999 (GST Act) states: You make a creditable acquisition if: (a) you acquire anything solely or partly for a *creditable purpose; and (b) the supply of the thing to you is a *taxable supply; and (c) you provide, or are liable to provide, *consideration for the supply; and (d) you are *registered, or *required to be registered. Note: the * denote a defined term within the GST Act. You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making input taxed supplies or is of a private or domestic nature. Section 11-20 of the GST Act provides that you are entitled to the input tax credit for any creditable acquisition that you make. Subsections 11-15 (1) and (2) of the GST Act provides that: (1) You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your *enterprise. (2) However, you do not acquire the thing for a creditable purpose to the extent that: (a) the acquisition relates to making supplies that would be input taxed; or (b) the acquisition is of a private or domestic nature. Creditable acquisition In your case you are acquiring the goods and services in relation to the construction of the student accommodation in the course of your enterprise. The property is designed for student accommodation and the construction of the building is not of a private or domestic nature. However, section 11-5 of the GST Act denies an input tax credit where a supply would be input taxed. The supply of residential accommodation is normally input taxed, however section 38-250 of the GST Act and section 9-30 of the GST Act may apply to make the supply GST-free, thereby entitling you to an input tax credit. At the time of construction of the unit(s), you would therefore determine whether the supply of accommodation is either GST-free or input taxed. However, at a later date, there may be a change in the extent to which you have applied the unit for a creditable purpose. i.e. it may no longer be GST-free or input taxed. Therefore, in any subsequent year, you need to consider whether or not there is a change in creditable purpose. GST-free or Input Taxed As mentioned above, the acquisition will be a creditable acquisition if the supply is GST-free. A supply of residential accommodation is normally input taxed, however where a supply is both GST-free and input taxed, Section 9-30 of the GST Act operates to treat the supply as GST-free. Subsection 9- 30(1) of the GST Act states: GST-free (1) A supply is GST-free if: (a) it is GST-free under Division 38 or under a provision of another Act; or (b) it is a supply of a right to receive a supply that would be GST-free under paragraph (a). Where a supply is both GST free and input taxed the supply is treated as being GST free pursuant to subsection 9-30(3) of the GST Act. Subsection 9- 30(3) of the GST Act states: Supplies that would be both GST-free and input taxed (3) To the extent that a supply would, apart from this subsection, be both *GST-free and *input taxed: (a) the supply is GST-free and not input taxed, unless the provision under which it is input taxed requires the supplier to have chosen for its supplies of that kind to be input taxed; or (b) the supply is input taxed and not GST-free, if that provision requires the supplier to have so chosen Nominal consideration Subsection 38-250(1) states that the supply will be GST-free if: (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 have advised that you will charge less than 75% of the GST inclusive market value of the supply and have obtained a valuation report from the independent company to support this fact. However, the market value comparisons indicate that the rent that you will charge for your supplies of residential accommodation will be for consideration that is more than 75% of the GST inclusive market value. Therefore based on the facts provided, your supply of the residential accommodation will not be GST-free under section 38-250 of the GST Act as your supply will be for consideration that is more than 75% of the GST inclusive market value. Please note : You will the need to monitor the use of the property and your pricing structure to ensure that your rents do not exceed consideration that is less than 75% of the GST inclusive market value. | Detailed Reasoning - In conclusion: Where you have determined that your supply of residential accommodation is GST-free under section 38-250 of the GST Act, the final provision of Section 11-5 of the GST Act will been met and you will be making creditable acquisitions. Section 38-1 of the GST Act provides that: If a supply is GST-free, then: · no GST is payable on the supply; · an entitlement to an input tax credit for anything acquired or imported to make the supply is not affected. Therefore, you would be entitled to ITC for things acquired to make the GST-free supply of residential accommodation. In your case, based on the evidence provided, you are not entitled to ITC on the costs for the construction of student accommodation In order to determine whether the supply to the residential tenant is GST-free or input taxed and therefore whether you are entitled to ITCs for the construction costs of a unit, you need to determine, amongst other things, whether supplying accommodation in the unit at the commencement of construction is GST-free for the purposes of subparagraph 38-250(1)(b)(i) & (2)(b)(i) of the GST Act by applying the principles explained in question 1. At the time of construction of the unit(s), you would therefore determine whether the supply of accommodation is either GST-free or input taxed. However, at a later date, there may be a change in the extent to which you have applied the unit for a creditable purpose. i.e. it may no longer be GST-free or input taxed. Therefore, in any subsequent year, you need to consider whether or not there is a change in creditable purpose. | Detailed Reasoning - Change in Creditable Purpose: Division 129 of the GST Act provides that, amongst other things, you may have an adjustment for an acquisition where there is a change in the extent of a creditable purpose. The adjustment is made in a tax period called an adjustment period. It only applies where there is a later event that causes the actual use of a thing to be different from the intended use of it. Adjustments include increasing and decreasing adjustments. An increasing adjustment arises if the original input tax credit claimed was too much, whereas a decreasing adjustment occurs if the original input tax credit claimed was not enough. An adjustment period is a tax period in which an entity makes an adjustment under Division 129 of the GST Act. Adjustment periods generally occur once a year. The number of adjustment periods for a thing depends on its value and whether or not it relates to business finance. An adjustment period for an acquisition (or importation) is a tax period applying to an entity that: · starts at least 12 months after the end of the tax period to which an input tax credit for the acquisition is attributable and · ends on 30 June, or, if none of an entitys tax periods end on 30 June, the tax period which ends closer to the 30 June than any other tax period. The following example clarifies how an entity determines its first adjustment period: Farmco Ltd is registered and has quarterly tax periods. It acquires some machinery on 15 March 2001 for its agricultural business. The GST exclusive value of the machinery was $ 100,000. An input tax credit of $10,000 was attributable to the tax period ending 31 March 2001. Farmco's first adjustment period is the tax period 1 April to 30 June 2002. This is the first tax period that ends on the 30 June and starts at least 12 months after the end of the tax period to which the input tax credit for the acquisition is attributable. The adjustment periods for acquisitions that are a non-business acquisition are as follows: GST-exclusive value of the acquisition or importation Adjustment periods $5,000 or less Two $5,001 to $499,999 Five $500,000 or more Ten Goods and Services Tax Ruling GSTR 2000/24 explains, amongst other things, what are the adjustment periods for an acquisition and how to work out the amount of an adjustment for an acquisition in an adjustment period. | Detailed Reasoning - GST private ruling and facts: In a GST private ruling, we provide specific advice to a particular rulee about how the law applies to its circumstances. In doing so, we use the facts provided by the rulee. Therefore, if the rulee advises that it: · charges a fee which confers a particular right to a payer · incurs a particular type of expenditure, or · determines the imputed costs for donated services or volunteer labour in a particular manner; We will determine how the law applies to those facts as provided. It is not a role of the private ruling to determine the accuracy of, for example, the amount of a fee charged or the amount of cost incurred. However, we may comment on the appropriateness of the use of the particular method in determining the imputed costs. The rulee can rely on the advice provided in the private ruling on the operation of the GST law to its circumstances unless the rulee has made a material misstatement of fact or suppressed a material fact.

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