Private ruling: GST and nominal supplies
Published: June 2012

Ruling: Q1: Are you entitled to access the GST concession under section 38-250 of the GST Act? | A1: Yes. | Q2: Is the supply of a workshop held by you to your patrons GST-free under subparagraph 38-250(1)(b)(ii) of the GST Act? | A2: 

Relevant facts and circumstances: You are registered for GST. You are endorsed by the Australian Taxation Office (ATO) as a charitable institution for GST purposes. You provide a number of short workshops of varying lengths of time. These workshops cover a variety of topics. The workshops also include exhibitions, displays, presentations and lectures of associated topics. The admission prices for the workshops vary based on the length of time of the workshop. The workshops do not add to the employment related skills of the people attending them. You have stated that there are no other organisations offering the same workshops of this nature in your region. An example of a similar workshop is X. When comparing this similar workshop you have advised that your fees are 50% or less than the market value. However this workshop X is no longer available. You are able to offer this charitable service as a large proportion of your work is carried out by volunteers. You have advised that as you are currently researching and attempting to locate a same or similar workshop you would like this ruling to include the appropriate methodology and requirements that are acceptable by the ATO in applying subparagraph 38-250(1)(b)(ii) of the GST Act.

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 | A New Tax System (Goods and Services Tax) Act 1999 Subparagraph 38-250(1)(b)(ii)

Reasons for decision: Detailed Reasoning - Relevant facts and circumstances: You are registered for GST. You are endorsed by the Australian Taxation Office (ATO) as a charitable institution for GST purposes. You provide a number of short workshops of varying lengths of time. These workshops cover a variety of topics. The workshops also include exhibitions, displays, presentations and lectures of associated topics. The admission prices for the workshops vary based on the length of time of the workshop. The workshops do not add to the employment related skills of the people attending them. You have stated that there are no other organisations offering the same workshops of this nature in your region. An example of a similar workshop is X. When comparing this similar workshop you have advised that your fees are 50% or less than the market value. However this workshop X is no longer available. You are able to offer this charitable service as a large proportion of your work is carried out by volunteers. You have advised that as you are currently researching and attempting to locate a same or similar workshop you would like this ruling to include the appropriate methodology and requirements that are acceptable by the ATO in applying subparagraph 38-250(1)(b)(ii) of the GST Act. | Detailed Reasoning - 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 A New Tax System (Goods and Services Tax) Act 1999 Subparagraph 38-250(1)(b)(ii) | Detailed Reasoning - Reasons for decision: A charity must be endorsed by the ATO if they want to access GST charity concessions. This includes section 38-250 of the GST Act which deals with non-commercial activities of charities, cost of supply and market value tests. Our records show that you have been endorsed by the ATO as a charitable institution for GST purposes and therefore are eligible to access certain GST charity concessions. For more information concerning endorsement and GST concessions that are available please refer to our Guide for non-profit organisations - 'Fundraising'. A copy of this booklet has been enclosed for your convenience. | Detailed Reasoning - GST-free supplies: Section 38-250 of the GST Act deals with the non-commercial activities of charitable institutions. Subsection 38-250(1) of the GST Act states: | Detailed Reasoning - A supply is GST-free if:: (a) the supplier is a charitable institution, a trustee of a charitable fund, 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. Note the terms with the asterisks are defined terms in the dictionary at section 195-1 of the GST Act. As indicated earlier, our records show that you are endorsed as a charitable institution for GST purposes. In order to determine whether or not the supply of the workshop you provide is GST-free, you need to ascertain whether or not the consideration you receive for the supply is less than 50% of the GST inclusive market value of the supply under subparagraph 38-250(1)(b)(ii) of the GST Act. The ATO has issued Market Value Guidelines in the Ruling - Goods and Services Tax Industry Issue: Charities Consultative Committee - Non-commercial activities of charities, cost of supply and market value tests (CCC Ruling) to assist charities and other organisations in establishing whether their supplies are GST-free under subsection 38-250(1) of the GST Act. The Tax Office guidelines provide that in determining the GST inclusive market value of a supply, a charity must apply the following successive tests. These guidelines are located on the ATO website at www.ato.gov.au. Firstly, the charity must establish whether the same supply exists within the market they operate in (referred to as 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. 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 (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. Whilst it is unrealistic to place a definitive figure upon how many GST inclusive prices should be obtained, the ATO would expect that 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. Lastly, in the unusual event that a market value cannot be established using those methods outlined above, the charity can use a 'cost+' 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, an organisation can include an imputed cost for donated goods and voluntary labour. 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. | Detailed Reasoning - Same Supply Test: To determine the market value of a supply of a workshop under the 'same supply test' it is important that you identify the relevant market in which you make the supply. You need to take into account the following factors when comparing your supplies to those in the market: · Identify the market · the locality of the supply or area of the market · the quality or nature of the supply · the size, quantity or duration of the supply · the conditions of the supply · other charitable or commercial suppliers, and · the number of comparisons. These factors are explained in more detail within the CCC Ruling (Section B). No single factor is determinant on its own and often the factors can be interrelated. For the same supply test, the supply made by the charity must have, amongst other things, the same quality or nature as the supplies in the market it is being compared with. In a case where there are genuinely identifiable differences in the quality of the 'same supply', the charity needs to take into account those differences in establishing the market value of the supply it makes. For this purpose the charity needs to adjust the price of the same supply by taking the following steps: · identify the same supply and its price · identify all the differing characteristics shown in the quality of the 'same supply' when comparing the supply the charity makes · quantify those differing characteristics on a reasonable basis, and · use the quantified values of those differing characteristics to adjust the price of the 'same supply'. You must also maintain documentary evidence of conclusive and tangible proof for each of these steps. You advised that in the market that you operate in there is no comparable workshop of the same quality and style, as the workshop supplied by you. Therefore the same supply test does not apply for the purposes of determining the market value of your workshop. | Detailed Reasoning - Similar Supply Test: In accordance with the Market Value Guidelines you now need to consider whether the 'similar supply test' applies to your circumstances. Reference is made to the factors discussed above under the 'same supply test' when comparing your supplies to those in the market. The points about these factors under the 'same supply test' are relevant to the 'similar supply test'. In identifying the market, under the similar supply test a charity can use a broad categorisation of the supply it makes as justification for using certain supplies in the market as similar supplies. Charities should take into account factors such as the quality, nature and conditions of the supply. The CCC Ruling illustrates the concept of 'broad categorisation' of certain types of supplies with three examples. They are: | Detailed Reasoning - Example 13: broad categorisation of education: A charity offers a half-day class in relaxation techniques to unemployed adults for a small fee. There are no comparable classes offered in the market. The charity would be able to use any half-day adult education course that is offered by other organisations that are similar to their half-day course in terms of nature, duration, standard of tuition and activities during the course. That is, the half-day class in relaxation techniques and the half-day adult education course would be accepted as similar supplies made under the broad categorisation of 'education'. | Detailed Reasoning - Example 14: broad categorisation of entertainment: A regional government school holds a performance of a well known play performed by its drama class. There is an amateur choral society and no other amateur theatre or drama group in the area serviced by the school. In applying the similar supply test, the school can classify the play under the category of entertainment which a choral concert of comparable duration and quality also belongs. In these circumstances, the supply to attend a choral concert is, a similar supply to the supply to attend its play. | Detailed Reasoning - Example 15: broad categorisation and different conditions of supplies: A university supplies daily 10 hour car parking permits to students for a fixed fee. Another car park operator in the area charges the same fee for four hour car parking. Both the university and the other operator make supplies under the broad categorisation of car parking. However, the supplies they make are not the same or similar in terms of duration. The university cannot compare its hourly rate with that of the other operator. This is because both of them make a supply for a specified duration regardless of how long the recipient actually occupies the parking space. You have identified workshop X as a commercial entity that offers a workshop similar to the supply of the workshop that you provide. However as this workshop is no longer provided or available to the general public it is not recommended to be used as a similar supply to compare against your future workshops to satisfy 38-250 of the GST Act, particularly where there are possibilities that price variations may occur in the future. You have stated that you are still in the process of locating a similar workshop that satisfies the market value guidelines for the similar supply test. In determining this comparison you should ensure that the workshop is similar in terms of nature, duration, standard of tuition and activities during the term of the workshop. Where there are genuinely identifiable differences in the quality of the workshop you are comparing to, then you may need to take into account any pricing adjustments to reflect the higher quality of the workshop on a reasonable basis. Where you find a similar workshop that satisfies the guidelines and methodology provided in this ruling and you subsequently determine that the supply of your workshop is GST-free, you are not required to seek confirmation or approval from the ATO. However, you may seek guidance from this office as to whether you have correctly applied the market value test. Assuming you are able to determine the market value for the supply of the workshop using the above tests, then you will be in a position to determine whether the supply will satisfy subparagraph 38-250(1)(b)(ii) of the GST Act. That is, the supply of the workshop to attendees will be GST-free under subparagraph 38-250(1)(b)(ii) of the GST Act where the fee you charge to attend the workshop is less than 50% of the GST inclusive market value of the supply. If the fee charged is 50% or more of the GST inclusive market value, then the supply will not be GST-free. You must also keep records that adequately document the process that you undertook and the information that you collected in establishing the relevant market value to which consideration of your own supply is to be compared. For example, the market values established and the methods used may be documented or minuted in your books of account. This information should be captured in such a way that will enable cross-referencing to accounting statements and therefore what will be recorded on your Business Activity Statement.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.