Private ruling: Goods and services tax (GST) and non-commercial supplies
Date of advice: 5 July 2016
Published: August 2016

Ruling: Q1: Are your supplies of hall hire, art classes and membership GST-free in accordance with subsection 38-250 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes, your supplies of hall hire, art classes and membership are GST-free in accordance with subsection 38-250 of the GST Act. | Q2: Can you backdate the GST-free status application of your supplies of hall hire, art classes and membership, subject to the 4 year time limit? | A2: The GST-free treatments of your supplies of hall hire, art classes and membership apply from the date you are registered or required to be registered for GST. You can correct any GST errors you have made subject to the 4 year time limit.

Relevant facts and circumstances: You are endorsed as a charitable institution for GST purposes. You are self-funded and rely heavily on volunteers to provide your non-commercial products and services. The majority of your events, services and activities are operated by volunteers. You offer a range of non-commercial products and services including hall hire, art classes and membership. In determining the market value for your supplies of hall hire, art classes and membership, you advised that although there are similar supplies in the market that you operate there is no product that is exactly the same supplies as your supplies. In determining the market value for your supplies of hall hire, art classes and membership you followed the guidelines contained in the GST Industry Issues - Non-commercial activities of charities, cost of supply and market value tests (the Guidelines). In particular you applied the 'similar supply' test in the Guidelines taking into account the following factors: • The market itself; • 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. The assessments for your supplies of hall hire, art classes and membership fee show that the considerations you receive for these supplies are less than 50% of the GST-inclusive market values. The prices you charge for your supplies have remained unchanged for the past 5 financial years. You do not anticipate any significant changes either to the prices charged on your supplies or to your non-commercial activities in the next few years. However, if there were to be any changes to the prices or to the non-commercial activities, you will review the changes in accordance with the Guidelines. You are currently registered for GST. You were registered for GST in the past but mistakenly cancelled your GST registration for X periods based on incorrect advice from your previous accountant. After reviewing your previous years' financial statements, you realised that you are required to be registered for GST as your annual turnover exceeded the $150,000 turnover threshold for not-for-profit entities. You then re-registered for GST. You would like to backdate the GST-free status application of your supplies of hall hire, art classes and membership, subject to the 4 year time limit.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 7-1 | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 Division 38 | A New Tax System (Goods and Services Tax) Act 1999 section 38-250 | A New Tax System (Goods and Services Tax) Act 1999 subsection 38-250(1) | A New Tax System (Goods and Services Tax) Act 1999 subparagraph 38-250(1)(b)(ii) | A New Tax System (Goods and Services Tax) Act 1999 Division 40

Reasons for decision: Detailed Reasoning - Non-commercial activities of charitable institutions: Section 7-1 of the GST Act provides that GST is payable on taxable supplies. Section 9-5 of the GST Act provides that a supply is a taxable supply if: • it is for consideration; and • it is made in the course or furtherance of an enterprise that the supplier carries on; and • it is connected with the indirect tax zone; and • the supplier is registered, or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. Input taxed supplies are outlined in Division 40 of the GST Act and do not apply to non-commercial supplies by a charitable institution. GST-free supplies are outlined in Division 38 of the GST Act and section 38-250 deals with the non-commercial activities of charitable institutions. Subsection 38-250(1) of the GST Act states that 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. You are endorsed as a charitable institution for GST purposes. Your supplies of hall hire, art classes and membership are not supplies of accommodation. In order to determine whether or not your supplies of hall hire, art classes and membership are GST-free, you need to ascertain whether or not the consideration you receive for these supplies are less than 50% of the GST inclusive market value of the supply under subparagraph 38-250(1)(b)(ii) of the GST Act. The Tax Office has issued 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. In determining the GST inclusive market value of a supply, a charity must either apply the 'same supply' test, the 'similar supply' test or other methods approved by the Commissioner. You have advised that although there are supplies in the market that are very similar to your supplies, there is no one particular product that is the same as your supplies. Thus, the 'same supply' test outlined in the Guidelines does not apply for the purposes of determining the market value of your supplies. Instead you have used the 'similar supply' test as outlined in the Guidelines. In applying the 'similar supply' test to assess the consideration for your supplies of gallery hire, art classes and membership, you took into account the following factors outlined in the Guidelines: • The market itself; • 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. As your assessments of the considerations for your supplies of hall hire, art classes and membership are less than 50% of the GST-inclusive market values, these supplies are GST-free pursuant to subparagraph 38-250(1)(b)(ii) of the GST Act. You must maintain documentary evidence of conclusive and tangible proof for each of the steps you took in determining the considerations for your supplies of hall hire, art classes and membership. | Detailed Reasoning - Correcting GST mistakes and the four year time limit: Where an entity is registered or required to be registered for GST then the GST law applies to them from the date they are registered. If the entity made mistakes in completing their activity statements then they correct their GST mistakes in accordance with Goods and Services Tax: Correcting GST Errors Determination 2013 (the Correcting GST Errors Determination) and the Correcting GST mistakes guidelines. In your case, although you have cancelled your GST registration for previous financial years, you were required to be registered for GST for those financial years as your annual turnover exceeded the $150,000 turnover threshold for not-for-profit entities. Furthermore, you have advised that the prices you charge for your supplies of hall hire, art classes and membership have remained unchanged for the past 5 financial years. You also do not anticipate any significant changes either to the prices charged on your supplies or to your non-commercial activities in the next few years. This means subparagraph 38-250(1)(b)(ii) of the GST Act applies to your supplies of hall hire, art classes and membership, making them GST-free supplies, from the date you are registered or required to be registered for GST. Where you have made mistakes in reporting your net GST amounts on your activity statements then you can correct those GST mistakes, subject to the four year time limit, in accordance with the Correcting GST Errors Determination and the Correcting GST mistakes guidelines.