Private ruling: GST and nominal consideration
Published: December 2011

Ruling: Q1: Is the methodology you have used in determining the cost per supply of tickets to an event acceptable to the Commissioner for the purposes of sub-paragraph 38-250(2)(b)(ii) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes

Relevant facts and circumstances: The entity is a charitable institution endorsed to access GST concessions. The entity has lodged a claim for refunds for the following tax periods: June 2007, June 2008, June 2009, and June 2010 For these tax periods, the entity remitted GST in respect of ticket sales for an event. The majority of these ticket sales were to the general public. The event is the only activity conducted by the entity each year. In its refund request the entity states that a portion of tickets to the events between 2007 and 2010 were sold for consideration that was less than 75% of the cost of putting on the event. In determining this, the entity has relied on a private ruling from 1 November 2000 which sets out an acceptable methodology for members of this organisation to use when determining the cost per supply in relation to performances. The entity has stated that as it applied the methodology retrospectively it has used actual costs and attendance to determine cost per supply. Both indirect and direct costs of putting on a performance have been used to determine the consideration. These costs have been obtained from the entity's records. As the event is the only one run by the entity each year the entire costs have been used. For the 2010 and 2009 financial year depreciation/amortisation expenses have been included in the calculations provided. For the 2007 and 2008 financial year there has been no depreciation/amortisation expenses included in the calculations. Calculation of cost of free events The entity has used the business units method in calculating the cost per supply. This approach excludes free events and other non-core events from the calculation. The entity states that free events are different as they require less administration than paid events and are not separately promoted. Therefore the free events have been segregated in one business unit and the paid performances have been included in another. The entity has been able to identify the direct costs of free events for 2010. However for prior years this data was not available so the average cost per free event has been determined using the 2010 data and this average has then been used to determine costs for prior years. Indirect costs per free event have been determined by using a percentage based on the amount of activity required for the free events. Calculation of cost per supply of paid events Direct and indirect costs for free events as outlined above, were added together and deducted from the entity's total costs per year to give the total cost for paid events. The average cost per supply has been determined by dividing the total costs by the attendance numbers at paid events.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 38-250

Reasons for decision: Summary: A supply made by an endorsed charity or gift-deductible entity is GST-free under sub-section 38-250(2) of the GST Act if the supply is for consideration that: · if the supply is a supply of accommodation - is less than 75% of the cost to the supplier of providing the accommodation, or · if the supply is not a supply of accommodation - is less than 75% of the consideration the supplier provided, or was liable to provide, for acquiring the thing supplied. | Detailed Reasoning - Cost of supply guidelines: Charities are able to use the cost of providing the thing supplied when calculating the consideration provided for acquiring the thing. The ATO has provided guidelines as part of the Charities Consultative Committee Resolved Issues Document to assist endorsed charities or gift deductible entities in establishing the cost of their supplies under subsection 38-250(2) of the GST Act. These guidelines are available on our website at www.ato.gov.au. For supplies that are not accommodation, charities should only include amounts paid or payable by them in the calculation. This is because subparagraph 38-250(2)(b)(ii) states that it is the 'consideration the supplier provided or was liable to provide for acquiring the thing supplied'. The consideration the supplier provided or was liable to provide is GST-inclusive. When calculating the cost of providing something an endorsed charity or gift-deductible entity should include: · all direct costs incurred in making the supply- for example materials and direct labour, and · a reasonable apportionment of indirect costs incurred in making the supply - for example, marketing, administration, office expenses, electricity, telephone, insurance. The following things cannot be included because they do not involve an actual outlay by the charity: · depreciation of assets, and · imputed costs for things like labour, donations, and rent if the organisation has not actually provided any consideration or incurred any real costs. The methodology you have used to determine the cost per supply of tickets to the event is set out under the heading Relevant Facts above. For the 2007 and 2008 financial years, the methodology you have used is an appropriate methodology and meets the requirements as set out on the ATO website. However in making your calculations for the 2009 and 2010 financial years, you have included depreciation/amortisation expenses in the cost of supply. These expenses are specifically excluded in the cost of supply guidelines on the ATO website. If you remove the amortisation expense from your calculations for the 2009 and 2010 financial years then your methodology for these years will be acceptable to the Commissioner for the purposes of sub-paragraph 38-250(2)(b)(ii) of the GST Act When calculating the cost of supply for future years, you will need to ensure that you do not include depreciation/amortisation expenses.

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.