Private ruling: GST and non-commercial activities
Published: March 2015

Ruling: Q1: Is the method used for determining the cost of making a supply of a ticket by you 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) for the 2015 annual event | A1: Yes | Q2: By applying the cost of supply method in question 1 is the supply of the tickets for the 2015 annual event GST-free under sub-paragraph 38-250(2)(b)(ii) of the GST Act? | A2: The supply of a ticket is GST-free when the consideration received for the ticket is less than 75% the cost of supply calculated in accordance with the method in question 1.

Relevant facts and circumstances: • You are an endorsed charity and is registered for goods and services tax (GST). • You are eligible for GST concessions including sub-paragraph 38-250(2)(b)(ii) of the GST Act. • The primary activity that you carry out to achieve your objective is the annual event. Your cost allocation methodology 1. first identify all of the supplies to be made by you, and the prices that will be charged for each supply. 2. use a projected budget as the basis for allocating costs you identify, the costs of all acquisitions budgeted to be made for the event 3. determine the cost of acquisitions that are directly attributable to specific events, where possible {e.g. the cost of hiring a venue to present the event to an audience), and allocate those costs accordingly to cost centres 4 determine a fair and reasonable methodology to allocate the cost of acquisitions that are not directly attributable to a particular event, across the costs of all of the supplies to be made. All costs have been allocated to supplies 5. determine the total cost of acquisitions made to make a class of the supplies, being directly allocated costs plus apportioned indirect costs 6. estimate number of supplies which include paid tickets, complimentary tickets and give-away tickets. The number is based on the on the actual capacity of each venue multiplied by the estimated percentage of the capacity that will be sold. The estimated percentage of the capacity tickets sold is based on the actual capacity percentage for last year's event. NOTE This Private Binding Ruling is given on the basis of the facts stated above. Any material variation from these facts (including any matters not stated in the description, or any departure from these facts) may mean that the Private Binding Ruling has no effect. Therefore if you advise that you • charge a fee as the selling price of a ticket, or • incur a particular type of expenditure, or • estimate the number of tickets We will determine how the GST law applies to the facts as provided. That is, we will determine whether you have: • a GST liability for the selling price (but not the amount of the liability), or • an entitlement to an input tax credit (but not the amount of the entitlement). The Commissioner does not consider himself to be bound by a PBR where - for the purposes of subsection 105-60(2) of Schedule 1 of the Taxation Administration Act 1953 - he is satisfied that an entity has misstated or suppressed a material fact or facts. Therefore, if, there are different or other material facts which you have not made known or disclosed to the Tax Office, or those facts change over the course of time and those facts vary or alter this ruling, then you should advise the Tax Office in writing of those facts and request a revised ruling. It is not the role of the PBR to determine the accuracy of the facts, e.g. • the amount of a fee charged, or • the amount of GST payable, or • the amount of a cost incurred, or • the amount of input tax credits entitled, or • the estimated number of sales. However, we may comment on whether the use of a particular method in apportioning an amount of cost to a particular type of expenditure is in accordance with our view.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Subparagraph 38-250(2)(b)(ii)

Reasons for decision: Summary: (a) Yes, your methodology used in determining the cost of supplying tickets for the event is in accordance with the Cost of Supply Guidelines provided in section E of the GST Industry Issues Charity Consultative Committee Non-commercial activities of charities, cost of supply and market value tests. (b) You can use the methodology described in question 1 for future years provided that material facts remain unchanged (see Reasons for decisions) | Detailed Reasoning - Detailed reasoning: Commercial activities of charities will generally be taxable or input taxed. However, the non-commercial activities by charities will be GST-free. As question 1 relates to the supply of tickets to the event (a supply other than the supply of accommodation), subparagraph 38-250(2)(b)(ii) of the GST Act is of relevance. This sub-paragraph provides that a supply of anything (other than accommodation) by an endorsed charity will be GST-free if the payment, or consideration for the supply is less than 75% of the consideration the charity provided or is liable to provide, for acquiring the thing supplies.. | Detailed Reasoning - Cost of supply guidelines: The GST Industry Issues Charity Consultative Committee Non-commercial activities of charities, cost of supply and market value tests (which is a public ruling) (CCC) contains the ATO view on the methodology to determine the cost of making a supply ( cost of supply) for sub-paragraph 38-250(2)(b)(ii) purpose. In determining the consideration the charity provided or was liable to provide in acquiring the thing supplied, the ATO considers: When working out the cost of providing something, the charity should include: • all direct costs incurred - for example materials and direct labour, and • a reasonable apportionment of indirect costs incurred - for example, marketing, administration, office expenses, electricity, telephone, insurance. Cost of providing supplies - other than accommodation For supplies other than 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 for 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. Charities cannot include the imputed costs of things in the calculation as they do not involve an actual outlay by the charity. The imputed costs for things like volunteer labour, donations and free rent do not involve an actual outlay by the charity where the charity has not actually provided any consideration or incurred any real costs. However, Goods and Services Tax Determination 2013/4 (GSTD 2013/4) further provides that the consideration the supplier provided for acquiring those assets that diminish in value over time can be taken into account in determining whether a supply in that period is GST-free under subparagraph 38-250(2)(b)(ii) of the GST Act to the extent the consideration provided reasonably relates to that supply. In this instance the supply of a ticket will be GST-free if it is made for consideration that is less than 75% of the consideration you provided or is liable to provide, for acquiring the thing supplied or things to make the supply. Section E of the GST Industry Issues Charity Consultative Committee Non-commercial activities of charities, cost of supply and market value tests provides the approved methodology for applying the cost of supply test for use by charities in the cultural and performing arts sector that cannot establish their actual costs at the time of supply. This methodology is within the scope of the GST legislation and uses the principles explained in the cost of supply guidelines. It simplifies the administrative and compliance requirements for the sector. | Detailed Reasoning - Step 1: working out the cost of making the supply: • Estimate the projected costs for a season of performances, exhibition or event. Do this when the actual costs will not be known until after the supplies have been made. However, if actual costs are available they must be used. • Estimate the total number of tickets (of all classes) that will sell. • Divide the projected costs by the total number of tickets to obtain the cost of supplying a ticket. We accept that when applying the cost of supply test, charities can include all direct costs and a reasonable apportionment of indirect costs. However, costs used must be real costs. Things like voluntary labour, donations, and other imputed costs cannot be included. All projected costs must be realistic and must be aligned with other costing conducted when the charity determines ticket prices and the costs of holding an event or performance. | Detailed Reasoning - Step 2: working out whether a supply is GST-free: • For each class of ticket, the charity should divide the price that is charged for a ticket in that class by the cost of supplying a ticket, worked out in step 1. • If the price charged for that ticket is less than 75% of the cost of supplying the ticket, it will be GST-free. • If the price charged is at or more than 75% of the cost of supplying the ticket, it will be subject to GST. • All tickets in a class of tickets will be treated in the same way. | Detailed Reasoning - Classes of tickets: You provide that there are four different types of tickets. Each class of ticket is a separate cost centre for working out the cost of supply for each ticket in a class. | Detailed Reasoning - Budgeted costs of all acquisitions: • In determining the cost of supplying a ticket for the event, you will use the projected budget as the basis for allocating costs. • The Projected Budget (GST-inclusive) figures are allocated to different cost areas. | Detailed Reasoning - Allocation of costs: The total projected costs of acquisitions for all programs are $XXXXX • You work out the direct costs of the four classes of tickets from the projected budget. • Then you work out the indirect costs of the classes of ticket by eliminating direct costs for the classes of tickets and the costs of other programs. • The outcome is further adjusted by deducting the costs which have been allocated directly to the non-event activities. The purpose of this adjustment is to determine the value of the indirect costs that only relate to the event and the special events. | Detailed Reasoning - Apportionment of indirect costs to the classes of ticket: You allocate the indirect costs for each class of ticket by apportion the total indirect costs of the four class of ticket on the total number of projected supplies. | Detailed Reasoning - Estimate the number of supplies: The estimate number of supplies made consists of the following: • the estimated tickets to be sold based on the actual capacity of each venue multiplied by the estimated percentage of the capacity that will be sold. The estimated percentage of the capacity tickets sold is based on the actual capacity percentage for last year. • Pass redemptions the estimated of supplies made includes all redemptions made by staff. • Complimentary tickets include tickets that have been provided under contracts to sponsors, government agencies etc. or where it is considered important to the event that such persons attend the event. Some complimentary tickets for the special events are provided to staff. These have all been included in the complimentary ticket figures. • Tickets that have been given away under no contractual obligation to students or charities are also included in the projected number of supplies. (c) Indirect costs for each of the class of ticket Your methodology described above in determining the cost of supplying tickets for the event is in accordance with the Cost of Supply Guidelines provided in section E of the GST Industry Issues Charity Consultative Committee Non-commercial activities of charities, cost of supply and market value tests . Can you use the same methodology described in question 1 for future years ? You can use the approved methodology in question 1 in calculating the cost of supply for a ticket in each class. However, as provided in the Note above, where the material facts change over the course of time and those facts vary or alter this ruling, then you should advise the Tax Office in writing of those facts and request a revised ruling. | Summary: Yes, by applying the costing methodology described above, the supply of tickets (of a class) by you will be GST-free where the consideration for a ticket is less than 75% of the cost of supply that ticket under subparagraph 38-250(2)(b)(ii) of the GST Act. | Detailed Reasoning - Detailed reasoning: The Cost per supply of a ticket is determined by the following formulae. In return for the ticket: Total consideration for a class of ticket (direct + indirect costs) provided for supplying a ticket Total number of supplies for that class of ticket By applying the formulae above to each class of ticket, you can determine the cost of supply of each ticket in each class. Where the consideration for a ticket is less than 75% of the cost of supply that ticket, the supply of that ticket is GST-free under paragraph 38-250(2)(b)(ii) of the GST Act.