Private ruling: Goods and Services Tax, Health Care Services and Residential Care
Date of advice: 5 July 2016
Published: August 2016

Ruling: Q1: Are the supplies of accommodation by you GST free pursuant to section 38-250 of the New Tax System (Goods and Services) Act 1999 (GST Act)? | A1: Yes | Q2: Are you entitled to input taxed credits on the construction of residential buildings used to supply accommodation to your clients? | A2: Yes

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 supply accommodation, board and other services to people with disabilities. You are: • A charity registered with the Australian Charities and Not-for-Profits Commission (ACNC) • Registered for GST and • A Gift Deductible Recipient In regards to your supply of board and lodging and other services you receive funding from the following sources in relation to your supplies. • Four different government departments • You deduct XX% from the client's pension. You provide the following types of accommodation for disabled individuals. • Long term • Short term and • Responsive emergency respite Your accommodation is supplied out of various premises to your disabled clients: • Houses and units government agencies have allowed you to use • Houses and units you have constructed for the purposes of supplying the accommodation • Houses leased from private and related entities and • Other houses and units you own. Each of the houses/units that you supply accommodation out of contains one or more bedrooms, a bathroom, and toilet kitchen. and dining room. You recently constructed residential premises being 2 units and 1 house When your clients enter your facilities they sign a "Residential Agreement". This covers the rental component and all or some of the following; • Service Components • Utilities • Groceries • Maintenance • General household cleaning supplies • Communal furnishings and white goods • Household equipment and utensils • Garden Costs • Some transport costs related to residences Clients pay you XX% of their weekly disability pension while occupying the premises. Each client receives a different amount of pension depending on their circumstances. Out of the XX% of the pension the following amounts are deducted • An amount per week is deducted for shared accommodation which is less than for single unit accommodation. • An amount is deducted for food • The balance is used for cleaning, utilities, repairs and maintenance and purchase of equipment for TV, electronics etc. The remaining YY% of their pension is put into a trust fund for authorised spending against personal spending eg clothes and activities. You state that the charges for accommodation component are less than 75% of the GST inclusive market value of the supply.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 38-250, | A New Tax System (Goods and Services Tax) Act 1999 Section 40-35, | A New Tax System (Goods and Services Tax) Act 1999 Section 38-1 | A New Tax System (Goods and Services Tax) Act 1999 Section 11-5.

Reasons for decision: Summary: In this reasoning, unless otherwise stated, • all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) • all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au • all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act You make a taxable supply if: • you make the supply for consideration • the supply is made in the course or furtherance of an enterprise that you carry on • the supply is connected with the indirect tax zone and • 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 supply of residential accommodation in your circumstances is normally input taxed pursuant to section 40-35. However section 38-250 applies to make supplies of accommodation GST free where relevantly the supplier is an endorsed charity where the consideration for the supply is less than 75% of the GST inclusive market value of the supply. Subsection 9-30 (3) provides to the extent that a supply would apart from this subsection be both GST free and input taxed the supply is GST-free and not input taxed. Therefore as you are an endorsed charity and the consideration for your supply is less than 75% of the GST inclusive market value of the supply your supplies of accommodation will be GST free. | Detailed Reasoning - Composite or mixed supplies: Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8) explains how you can identify whether a supply contains taxable and non-taxable parts. It refers to such a supply as a 'mixed supply'. A 'mixed supply' is a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised. It also describes the characteristics of a supply that appears to have more than one part but is essentially a supply of one thing. This type of supply is referred to as a 'composite supply'. A 'composite supply' is a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part. You treat a composite supply as a supply of a single thing. Paragraphs 19 and 19A of GSTR 2001/8 state: 19 Where a transaction comprises a bundle of features and acts, it may be necessary to characterise what is supplied to determine whether a particular provision applies in whole or in part. The characterisation should be undertaken in a manner that is consistent with the object of the particular statutory provision in issue. For example, if a provision specifically requires different treatment of two components of a transaction, this will mean that the two components must necessarily be separately recognised. However, that does not mean that the two components need to be separately recognised for all purposes of the GST Act. 19A. An identification of the essential character of what is supplied may inform whether (and to which extent) a particular transaction falls within the terms of a specific statutory provision. You must consider all of the circumstances of the transaction to ascertain its essential character.… 19B. Having regard to the essential character and with regard to the statutory provision in issue, you can then determine whether the transaction is a mixed supply because it has separately identifiable parts that the GST Act treats as taxable and non-taxable, or whether it is a composite supply because one part of the supply should be regarded as being the dominant part, with the other parts being integral, ancillary or incidental to that dominant part. Your supply of the accommodation comprises three major components being 1) the supply of accommodation and associated services 2) the supply of other services and 3) other supplies. You have asked us not to consider supplies two and three in this ruling. Based on the Residential Agreement you have with your clients the charges considered to be ancillary to the supply of residential accommodation would be the: • charges for utilities • maintenance of units and surroundings • supply of furnishings and white goods • household equipment and utensils and • gardening costs. Therefore based on the information provided, your supply of the residential accommodation and the ancillary supplies will be a single composite supply that is GST-free under section 38-250 of the GST Act. Please note: You may 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. You may also need to take into account any additional funding you receive from the Government for accommodating the residents. | Detailed Reasoning - Question 2: Are you entitled to input taxed credits on the construction of residential premises located in Australia used to supply accommodation to your clients? Section 11-20 provides that you are entitled to the input tax credit for any creditable acquisition that you make. Section11-5 provides that: You make a creditable acquisition if: • you acquire anything solely or partly for a creditable purpose; and • the supply of the thing to you is a taxable supply; and • you provide, or are liable to provide, consideration for the supply; and • you are registered, or required to be registered. Subsections 11-15 (1) and (2) 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. In your case you are acquiring the goods and services for the construction of the residential buildings in the course of your enterprise of supplying accommodation. The acquisition is not of a private or domestic nature. As it has been determined that your supply of residential accommodation is GST-free under section 38-250, all the requirements of section 11-5 has been met and you will be entitled to input taxed credits on the costs of construction of the residential premises.