Private ruling: Whether the sale of real property is included in the supply of accommodation for the purposes section 38-250 of the GST Act.
Date of advice: 8 November 2018
Published: February 2019
Ruling period: 1 July 20XX to 30 June 20XX

Ruling: Q1: Is your sale of residential premises, a ‘supply of accommodation’ for the purposes of subparagraph 38-250(1)(b)(i) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. | Q2: If the answer to question 1 is yes, do the arrangements under which the sale of the apartments are made fulfil the requirements of the 75% of market value test in section 38-250? | A2: Since the answer to question 1 is no, you do not meet the initial eligibility requirement for section 38-250 to apply to your circumstances, and consequently, it is not necessary to consider the arrangements raised in this question.

Relevant facts and circumstances: You are a registered charity and endorsed under the Australian Charities and Not-for-profits Commission (ACNC). You purchased a number of apartments from a related entity, and later sold them to needy recipients. The apartments were sold under an arrangement which included a combination of cash, bank loans and other financial arrangements. The arrangement you put in place for the sale of the apartments sought to ensure that the apartments were sold below 75% of their GST inclusive market value.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 s 38-250 (1)(b) | A New Tax System (Goods and Services Tax) Act 1999 s 38-250(1)(b)(i) | A New Tax System (Goods and Services Tax) Act 1999 s 38-250(1)(b)(ii) | A New Tax System (Goods and Services Tax) Act 1999 s 40-65 Explanatory Memorandum: A New Tax System (Indirect Tax and Consequential Amendments) Bill 1999

Reasons for decision: Summary: Is your sale of residential premises, a ‘supply of accommodation’ for the purposes of subparagraph 38-250(1)(b)(i) of the GST Act ? Reasons: The Commissioner considered and reviewed the various uses of the term ‘supply of accommodation’ or ‘accommodation’ in the GST Act and dictionaries. The Commissioner considered in particular the application of the Explanatory Memorandum A New Tax System (Indirect Tax and Consequential Amendments) Bill 1999 (EM). The EM included the amendment to section 38-250 of the GST Act which increased the 50% market value test to 75% of the market value test for the supply of accommodation, and which stated (in part): 1.73 Consultation with charities indicate that the 50% test is too low to give effect to the policy of making non-commercial supplies of charities GST-free in the supported accommodation/community housing sector. 1.74 Supported accommodation agencies charge clients an income-based contribution towards rental costs . In many cases this contribution is marginally above the 50% of market-value test. Not meeting the 50% test would make the supplies input taxed as residential rents , or taxable as commercial accommodation in the case of some boarding houses . Either treatment would have a negative impact on funding for this sector. 1.75 Items 67 and 68 increase the 50% market value and cost of supply tests for the non-commercial supplies of charities to 75% for supplies of supported accommodation/community housing. The test for supplies other than accommodation remains at 50%. [New paragraphs 38-250(1)(b) and 38-250(2)(b)] ( Emphasis added) Paragraphs 1.73 to 1.75 of the EM include the terms ‘supported accommodation/community housing’ and ‘rental costs’ which the Commissioner considers refer to rental situations and do not include any reference to the sale of real property. Although it can be argued that the rental situation was included in the EM only by way of example, the ATO view is that the intent of the legislation is to enable charities to provide housing assistance to the low income sector of the community and that this is envisaged to occur via subsidised rental arrangements. Furthermore, there is a difference in characterisation between the aspects of rental accommodation (and provision of temporary relief accommodation), as opposed to those of the sale and ownership of real property. The supply of accommodation (or the right to accommodation) is something separate which does not include the supply of the ownership of the physical asset (the house or apartment itself). Your sale of the apartments is not a supply of accommodation for the purposes of section 38-250 of the GST Act. This view is aligned to the policy intent of the GST legislation. Therefore you are unable to apply the GST concessions under section 38-250 of the GST Act as you do not satisfy the required criteria. You are making input tax supplies (as provided by section 40-65 of the GST Act), when you sell the apartments to third party purchasers. As a result you are not entitled to input tax credits (also referred to as GST credits) in relation to your purchase of the apartments from a related entity. | Detailed Reasoning - Question 2:: If the answer to question 1 is yes, do the arrangements under which the sale of the apartments are made fulfil the requirements of the 75% of market value test in section 38-250? Reasons: It is necessary for a charity to be making a ‘supply of accommodation’ before the Commissioner can consider whether any of the tests regarding market value under section 38-250 apply. Since the Commissioner does not consider that a supply of accommodation includes a sale of property, it is not necessary to determine whether your arrangements regarding the sale of the apartments meet the 75% of GST-inclusive market value test under section 38-250.