Private ruling: Supplies made for nominal consideration
Date of advice: 19 January 2018
Published: June 2018

Ruling: Q1: How are the fortnightly fees during the “initial period” to be characterised for Goods and Services Tax (GST) purposes? | A1: The fortnightly fees comprise a number of components, which are for separate supplies and should be characterised for GST purposes as follows: ● the licence fee – this component of the fee is for the supply of accommodation and is GST-free under subsection 38-250(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) ; ● the other accommodation related costs component – this component of the fee is incidental to the supply of accommodation and is GST-free supply under subsection 38-250(1) of the GST Act; ● the evening meals component – this component of the fee is for prepared meals and is GST-free under subsection 38-250(1) of the GST Act; and ● the breakfast and lunch ingredients component – this component of the fee will be GST-free to the extent that the ingredients are the supply of food under subdivision 38-A of the GST Act; to the extent that this is not the case, the supply of the ingredients will be taxable. | Q2: How are the fortnightly fees during the “second period” to be characterised for GST purposes? | A2: The fortnightly fees comprise a number of components, which are for separate supplies that should be characterised for GST purposes as follows: ● the capital repayment of a loan component – this component of the fee represents a principal repayment of a loan, which is a consequence of a financial supply and input taxed under section 40-5 of the GST Act. No GST is payable in respect of this component; ● the other components of the fee replicate the first period and will have the same GST characterisation during the second period.

Relevant facts and circumstances: Background information ● You are an Australian Charities and Not-for-profits Commission (ACNC) registered charity. ● You have an Australian Business Number (ABN) and are endorsed as a charity for the purposes of the GST Act. You are also endorsed as an income tax exempt entity and a deductible gift recipient. ● You are registered for GST. The accommodation ● You provide rooms in residences for particular residents that meet a certain criteria. ● Residents are provided the following assistance or services: ● preparation of evening meals ● cleaning and maintenance of all common areas ● purchase of all required groceries for breakfasts and lunches ● support and encouragement. ● The consideration for the payment of the room and the associated services and goods provided are structured differently depending on whether the residents are in the “initial period” or the “second period”. The initial period ● During the initial period, the resident will pay a fortnightly fee that is broken down as follows: ● consideration for an exclusive licence to occupy a particular room and the non-exclusive use of the common areas (licence fee); ● consideration for accommodation related expenses ● consideration for prepared evening meals; and ● ingredients for breakfast and lunch fee Second period ● During the second period, the resident will pay a fortnightly fee that is broken down as follows: ● repayment of a principal of a loan to purchase an interest which provides the right to occupy a room and the non-exclusive use of the common areas; ● consideration for accommodation related expenses ● consideration for prepared evening meals; and ● ingredients for breakfast and lunch fee

Relevant legislative provisions: All references below are to the A New Tax System (Goods and Services Tax) Act 1999: Section 9-5 | Section 9-10 | Subsection 9-30(3) | Section 9-40 | Subdivision 38-A | Section 38-2 | Section 38-3 | Section 38-4 | Section 38-250 | Subsection 38-250(1) | Section 40-5 | Section 195-1 | All references below are to the A New Tax System (Goods and Services Tax) Regulations 1999: Sub regulation 40-5.09(3)

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | Detailed Reasoning - Detailed reasoning: In this reasoning, unless otherwise stated, all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act. Section 9-40 of the GST Act provides that you must pay the GST payable on any taxable supply that you make. Section 9-5 of the GST Act provides that you make a taxable supply if: a) you make the supply for consideration b) the supply is made in the course or furtherance of an enterprise that you carry on c) the supply is connected with the indirect tax zone (Australia), and d) 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 fortnightly fees paid by residents are consideration for supplies made by you in the course of an enterprise carried on in Australia and you are registered for GST. Provided that you are not making GST-free or input taxed supplies, the supplies which are made in return for the fortnightly fees will be taxable supplies. | Detailed Reasoning - Composite or mixed supplies: The fortnightly fees paid by residents are payments for a ‘mixed supply’ comprised of separately identifiable parts with differing GST treatment rather than for a single ‘composite supply’. Goods and Services Tax Ruling 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. The ruling 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. GSTR 2001/8 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 to 19B and 43 to 44 of GSTR 2001/8 further explain this as follows: 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. 43. A mixed supply is a single supply made up of separately identifiable parts, where one or more of the parts is taxable and one or more of the parts is non-taxable, and these parts are not integral, ancillary or incidental in relation to a dominant part of the supply. On the other hand, a composite supply is a single supply made up of one dominant part and other parts that are not treated as having a separate identity as they are integral, ancillary or incidental to the dominant part of the supply. 44. In working out whether you are making a mixed or composite supply, the key question is whether the supply should be regarded as having more than one separately identifiable part, or whether it is essentially a supply of one dominant part with one or more integral, ancillary or incidental parts. In both the “initial period” and the “second period’, you are making a ‘mixed supply’ comprising supplies of: accommodation/accommodation related services, provision of evening meals and ingredients for other meals. Where your supplies are not GST-free or input taxed, they will be taxable supplies. These supplies are separately identifiable goods and services and are not a dominant supply of accommodation/accommodation related services with ancillary or incidental parts. The accommodation/accommodation related services are separately identifiable and significantly different in nature to the evening meals and the ingredients for other meals. Your ‘mixed supply’ in the “second period” also includes the capital repayment of a loan, which is a consequence of a financial supply and input taxed under section 40-5 of the GST Act and sub regulation 40-5.09(3) of A New Tax System (Goods and Services Tax) Regulations 1999. Further, in determining whether to look at the payments as one composite payment or separate payments, paragraph 19 of GSTR 2001/8 provides that it is necessary to first consider whether there are provisions of the GST Act that require different treatment. As section 38-250 of the GST Act sets different thresholds for the supply of accommodation/accommodation related services and other supplies to obtain GST-free status, it is therefore appropriate to separate out the different components, which you have shown you have been able to do relatively simply. Thus, we do not accept that the fortnightly fee in its entirety is for a composite supply of accommodation. Accommodation and related accommodation services Under section 9-10 of the GST Act a supply is any form of supply whatsoever and includes: ● a grant, assignment or surrender of real property, and ● a creation, grant, transfer, assignment or surrender of any right. The term real property is defined in section 195-1 of the GST Act. It includes: ● any interest in or right over land ● a personal right to call for or be granted any interest in or right over land, or ● a licence to occupy land or any other contractual right exercisable over or in relation to land. In the “initial period”, you grant the resident a licence to use and occupy their particular suite and common areas. The component of the fortnightly fee in the “initial period” is thus for the supply of accommodation. In the “second period”, no licence fee is payable and part of the fortnightly fee is specifically stated to be for the capital repayment of a loan. In both periods, a component of the fortnightly fee does however relate to the supply of accommodation related services. Thus, while there may be no formal or implied lease in the “second period”, we consider that it is the holding of the right and the paying of the component of the fortnightly fee for accommodation related services which entitles the resident to a right to use and occupy a room and common areas. This right is in the nature of a licence granted to the residents. The word ‘licence’ is defined in part in Osborn’s Concise Law Dictionary (ninth edition) as: … an authority to do something which would otherwise be inoperative, wrongful or illegal, e.g. to enter on land which would otherwise be a trespass. A licence to occupy land passes no interest in the land, in contrast with a lease. Paragraph 44 of Goods and Services Tax Ruling 2003/3 Goods and services tax: when is a sale of real property a sale of new residential premises? (GSTR 2003/3) states that the term ‘company title’ means: A type of title for multi-occupancy buildings (usually home units), common before the introduction of strata title. Under company title, a company owns the building, and the company’s shares are divided into a number of blocks or classes, each block or class entitling the owner of the shares to exclusive occupation of a particular part of the building. This right of exclusive occupation is not a proprietary interest in the freehold, but is rather a contractual right against the company or sometimes a right to be granted a lease. In this regard, paragraph 44 of GSTR 2003/3 indicates that the right of exclusive occupation under company title can sometimes be a right to be granted a lease but, in your case, there is no separate lease with residents. We accept that by allowing the residents to use and occupy their rooms and common areas, you are making supplies of accommodation and accommodation related services by way of a licence in return for those components of the fortnightly fee which you state represent: ● in the “initial period” – both the licence fee plus the other accommodation/occupancy related costs, and ● in the “second” period – the other accommodation/occupancy related costs. In relation to accommodation related services, Goods and Services Tax Determination 2000/10 Goods and services tax: are outgoings payable by a tenant under a commercial property lease part of the consideration for the supply of the premises? (GSTD 2000/10) states: 5. Whether a single supply or multiple supplies are made under a lease will depend on the nature of the supply and the terms of the individual agreement. There may be services referred to as outgoings which are provided to the tenant in addition to the premises and which are separate from the supply of the premises. For example, if the landlord makes a supply of office services such as typing and photocopying and makes a discrete charge for this supply based on the tenant's use of the services, this is a supply which is separate from the supply of the premises. If a payment is for a service that would normally be expected to form part of the supply of the premises and is merely incidental to the supply of the premises, then that payment will be for the supply of the premises. Although relating to retirement villages, ATO Interpretative Decision 2009/103 Goods and Services Tax: GST and services related to accommodation in a retirement village operated by an endorsed charitable institution or trustee of a charitable fund that are GST-free (ATO ID 2009/103) states: Yes, building and garden maintenance services (including cleaning of the residential premises and communal facilities) supplied by a charitable retirement village operator to a resident are related to the supply of the accommodation in a retirement village (and GST-free) under subparagraph 38-260(c)(i) of the GST Act. … Based on these paragraphs of the Explanatory Memorandum, the Commissioner considers that for the purposes of subparagraph 38-260(c)(i) of the GST Act, a service is related to the supply of the accommodation if the service is for the maintenance of the residential premises or communal facilities. Accordingly, since services included in the Residence Agreement such as building and garden maintenance services are for the maintenance of the residential premises or communal facilities, they are GST-free under subparagraph 38-260(c)(i) of the GST Act. Goods and Services Tax Ruling 2012/4 Goods and Services tax: GST treatment of fees and charges payable on exit by residents of a retirement village operated on a leasehold or licence basis (GSTR 2012/4) is also relevant for the purposes of explaining what services are/are not integral, ancillary or incidental to a lease or licence arrangement. Attachment A to GSTR 2012/4 contains a non-exhaustive list of things which may be incidental services, depending on the legal arrangements in place. It includes services such as: maintenance of units to ensure that they are fit for habitation and in good repair; maintenance of common areas; maintenance of fittings and fixtures; safety and security and general administrative services (to the extent that they relate to the previously mentioned services). Attachment B to GSTR 2012/4 contains a list of things which may be non-incidental services. It includes services such as: preparation of meals for residents; cleaning of the interior of the resident’s unit; provision of laundry and ironing services to residents; assistance with showering, hygiene, dressing, mobility, communication, shopping; etc. In conclusion, the supplies of accommodation/accommodation related services are the supply of accommodation by way of a licence. The portion of the fortnightly fee representing these two components in the “initial period” (licence fee component plus accommodation related costs component) will need to be added to determine whether they are GST-free under section 38-250 of the GST Act. The portion of the fortnightly fee in the “second period” that relates to the supply of accommodation and accommodation related services will only include the accommodation related costs component for reasons given below. | Detailed Reasoning - Capital repayment of a loan: In the “second period”, the capital repayment of a loan component is not for the supply of accommodation. As previously discussed, this component of the fortnightly fee represents a principal repayment of a loan, which is a consequence of a financial supply and input taxed under section 40-5 of the GST Act and sub regulation 40-5.09(3) of A New Tax System (Goods and Services Tax) Regulations 1999. No GST will be payable in respect of this component. | Detailed Reasoning - Supplies for nominal consideration: The supply of residential accommodation can be input taxed pursuant to section 40-35 of the GST Act where all of the requirements of that provision are met. However section 38-250 provides that the supply of accommodation is GST-free where relevantly the supplier is an endorsed charity and the consideration for the supply is less than 75% of the GST inclusive market value of the supply. Where a supply is found to be both GST-free and input taxed, subsection 9-30(3) of the GST Act provides that 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. In relation to section 38-250 of the GST Act, you have asked us to only consider whether your supplies of accommodation/accommodation related services, evening meals and ingredients for breakfasts and lunches for would be GST-free under subsection 38-250(1). Subsection 38-250(1) of the GST Act states as follows: (1) A supply is GST-free if: (a) The supplier is an *endorsed charity, a *gift-deductible entity of 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. As you are an endorsed charity for GST purposes, you meet the requirements of paragraph 38-250(1)(a) of the GST Act. To meet the requirements of paragraph 38-250(1)(b) of the GST Act, where you supply accommodation, the consideration for your supply must be less than 75% of the GST inclusive market value of your supply; and where you supply something other than accommodation, the consideration for your supply must be less than 50% of the GST inclusive market value of your supply. For the purposes of subsection 38-250(1) of the GST Act, you have asked us to only consider the benchmark market values contained in the ATO fact sheet titled GST and non-commercial rules – benchmark market values (Fact Sheet) for the purposes of determining whether your supplies of accommodation/accommodation related services, evening meals and ingredients for breakfasts and lunches are GST-free. The use of the benchmark market values contained in the Fact Sheet is limited to certain types of organisations (and supplies by those organisations), including supported accommodation and community housing (long-term accommodation rates), residential housing (long-term accommodation), ‘meals on wheels’, charity ‘soup kitchens’ and organisations that provide or supply meals to the frail, homeless or needy (food guidelines), etc. The Fact Sheet provides a number of exclusions (campsites, university halls, etc.) which do not apply to the accommodation you supply. Therefore, you qualify to use the benchmark market values. In relation to long-term accommodation, the Fact Sheet provides that the benchmarks allow for either of the following: ● differing standards of accommodation ● other locations and regional areas ● seasonality of market rates. Table 5 of the Fact Sheet sets out the weekly long-term accommodation benchmark market values for different localities and for accommodation with differing numbers of bedrooms. The rates are specifically also applicable to boarding house rooms. In relation to type of accommodation that you supply, the benchmark market value in Table 5 of the Fact Sheet would thus be appropriate. The Fact Sheet provides further that a supply of long-term full board is made up of two components – accommodation and meals, and as the non-commercial supply rules apply differently to each of these components, you need to apply the appropriate benchmark market value to each of these components independently. The Fact Sheet also states as follows in relation to one fee being charged for both food and accommodation: Because one fee is charged for both the food and accommodation, you need to apportion the fee to accommodation and food components. You then compare the individual components to the benchmark market values for accommodation and food respectively to determine whether either or both the supply of accommodation or food is GST-free. You can use any reasonable method to apportion the fee between the food and accommodation components. However, we have set out a method below that you may choose to use: ● add together the applicable benchmark market values for food and accommodation to obtain a total benchmark market value ● calculate the benchmark market value for accommodation and the benchmark market value for food as a percentage of the total benchmark market value ● use these same percentages to apportion the total fee charged between meals and accommodation. Based on figures you have provided, the component of the fortnightly fee relating to the supply of accommodation/accommodation related services in the “initial period” is below 75% of the relevant market value benchmark for the weekly rent of a one bedroom unit. This component of the fee is not subject to GST. The accommodation related component of the fortnightly fee in the “second period” is also below the relevant market value benchmark, and therefore also not subject to GST. | Detailed Reasoning - Evening meals: Based on the figures you have provided, the component of the fortnightly fee relating to the supply of evening meals, both in the “initial period” and in the “second period” is below 50% of the relevant market value benchmark for an evening meal. Ingredients for breakfasts and lunches Section 38-2 of the GST Act provides that a supply of food is GST-free. Section 38-4 of the GST Act provides the meaning of food and section 38-3 of the GST Act lists the circumstances in which the supply of food is not GST-free under section 38-2 of the GST Act. To the extent that the breakfast and lunch ingredients are the supply of food as defined in section 38-4 of the GST Act and the supply of packaging in which food is supplied (to the extent that the packaging is necessary for the supply of the food/of a kind in which food of that kind is normally supplied) and section 38-3 of the GST Act does not apply, then the breakfast and lunch ingredients component of the fortnightly fee will be a GST-free supply. Otherwise the supply of breakfast and lunch ingredients will be a taxable supply. Further, in relation to the breakfast and lunch ingredients, we do not consider that paragraph 38-3(1)(a) of the GST Act would prevent the supply of breakfast and lunch ingredients in your particular case from being the supply of food. That is, given the facts and circumstances of your particular case, the supplies of the breakfast and lunch ingredients are not supplies of food for consumption on the premises from which the food is supplied. Goods and Services Tax Determination 2000/4 Goods and Services Tax: what does the word ‘premises’ mean in the expression, ‘a supply of food for consumption on the premises from which it is supplied’? (GSTD 2000/4) states as follows: 6. In some situations it is important to consider from which premises the supply of food is made. Where food is provided under catering arrangements the food may be prepared in a commercial kitchen and transported to a location where it is to be consumed. In these circumstances food is supplied from the premises where the catered event takes place. In contrast food that is home delivered (for example, milk, water, pre-ordered takeaway food and supermarket items) is not a supply of food for consumption on the premises from which it is supplied. In these circumstances the delivery service is a separate supply from the supply of food which may be consumed at any location. In relation specifically to food, the Fact Sheet states as follows: Where your organisation purchases food and then provides it to someone else, the market value is the cost of the food you purchased, rather than the benchmark market values. This component of the fee will thus be GST-free to the extent that the ingredients are the supply of food in accordance with subdivision 38-A of the GST Act; to the extent that this is not the case, the supply of the ingredients will be taxable. | Detailed Reasoning - Summary of GST treatment of each component of the fortnightly fee: Accommodation and accommodation related services – “initial period” The component of the fortnightly fee relating to the supply of accommodation in the form of the licence fee and accommodation related services in the “initial period” will be GST-free if it is below 75% of the relevant market value benchmark in the ATO fact sheet titled GST and non-commercial rules – benchmark market values (the Fact Sheet). Accommodation and accommodation related services – “second period” The characterisation of the fortnightly fee in this period is necessarily different to above as one of the components of the fortnightly fee in this period is for a loan repayment rather than for a right to occupy. The component of the fortnightly fee relating to the supply of accommodation comprising accommodation related services in the “second period” (which excludes the loan repayment component) will be GST-free if it is below 75% of the relevant market value benchmark in the Fact Sheet. | Detailed Reasoning - Capital repayment: The repayment of principal of a loan is a consequence of a financial supply. No GST will be payable in respect of this component as it is input taxed under section 40-5 of the GST Act and sub regulation 40-5.09(3) of A New Tax System (Goods and Services Tax) Regulations 1999. | Detailed Reasoning - Supply of evening meals: The component of the fortnightly fee relating to the supply of evening meals in both periods will be GST-free if it is below 50% of the relevant market value benchmark in the Fact Sheet. Supply of ingredients for breakfasts and lunches This component of the fee will be GST-free to the extent that the ingredients are the supply of food in accordance with subdivision 38-A of the GST Act; to the extent that this is not the case, the supply of the ingredients will be taxable. | Detailed Reasoning - Retention of records: Charities must keep and maintain records that adequately document the process and information collected in working out the relevant market values which the consideration of the supplies the charity makes is to be compared to. Charities should also monitor the market they make the supply in to ensure they will respond promptly to any material changes in the market (refer to paragraphs 124 and 127 of the GST Industry Issues Charities Consultative Committee: Non-commercial activities of charities cost of supply and market value tests (CCC)).