Private ruling: GST and valuation of supplies
Published: July 2012

Ruling: Q1: What is an acceptable methodology to value the services, function costs and membership for goods and services tax (GST) purposes? Advice: The parties, when dealing at arm's length in a transaction, must determine the consideration for the supply (or supplies) by using a reasonable valuation method that is agreed to by both parties.


Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999, Section 9-5 | A New Tax System (Goods and Services Tax) Act 1999, Paragraph 9-5(a) | A New Tax System (Goods and Services Tax) Act 1999, Division 72

Reasons for decision: Summary: GST is payable on a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states: You make a taxable supply if: you make the supply for *consideration; and the supply is made in the course or furtherance of an *enterprise that you *carry on; and the supply is *connected with Australia; and 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. (* denotes a defined term in section 195-1 of the GST Act) One of the necessary elements of a taxable supply is that you make the supply for consideration. Paragraphs 11 and 12 of Goods and Services Tax Ruling GSTR 2001/6 state: 11. Under section 195-1, 'consideration, for a supply or acquisition, means any consideration, within the meaning given by section 9-15, in connection with the supply or acquisition.' Subsection 9-15(1) provides that consideration includes: (a) any payment, or any act or forbearance, in connection with a supply of anything; and (b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything. Under subsection 9-15(2), it does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply. 12. A 'payment' is not limited to a payment of money. It includes a payment in a · non-monetary or in an 'in kind' form, such as: · providing goods; · granting a right or performing a service (an act); and · entering into an obligation, for example to refrain from selling a particular product (a forbearance). … The amount of GST on a taxable supply is 10% of the value of the taxable supply. As provided in paragraph 19 of GSTR 2001/6, we consider that, in most circumstances, when the parties to a transaction are acting at arm's length, the goods, services or other things being exchanged are of equal market value. This value can be determined by using a reasonable valuation method that is agreed to by you and the other party. However, this method must produce a reasonable GST inclusive market value of the things exchanged. Furthermore, paragraphs 31, 138, 139 and 141 of GSTR 2001/6 state: | Detailed Reasoning - Consideration expressed as an amount of money: 31. You need to establish whether the consideration provided for a taxable supply is monetary or non-monetary to decide whether paragraph 9-75(1)(a) or 9-75(1)(b) applies to it. Where parties are dealing at arm's length and the consideration is wholly monetary (that is, 'expressed as an amount of money'), you do not need to establish the market value of the consideration to work out the price. If the consideration is wholly (or partly) non-monetary, you need to establish the GST inclusive market value of the non-monetary portion of the consideration (and add it to the monetary amount) to work out the price of the supply. | Detailed Reasoning - Reasonable valuation of non-monetary consideration: 138. Where the consideration for a supply is non-monetary, the GST inclusive market value of that consideration is used to work out the price and value of the supply. In most circumstances where parties are dealing at arm's length, we are of the view that the goods, services or other things exchanged are of equal GST inclusive market value. 139. As the GST inclusive market value of consideration will be shown as the price on any tax invoice that the supplier issues, the onus for determining the GST inclusive market value of the consideration rests with the supplier. 141. Market value is regarded as the price that would be negotiated at a specified time between a knowledgeable and willing but not anxious buyer and a knowledgeable and willing but not anxious seller acting at arm's length in an appropriate market. It is an objective test and not the subjective view of any one party. Accordingly, when dealing at arm's length, we are of the view that the goods, services or other things exchanged are of equal GST inclusive market value, and the parties must determine the consideration for the supply (or supplies) by using a reasonable valuation method that is agreed to by both parties. | Detailed Reasoning - Additional information: Division 72 - associates Where there is no consideration or inadequate consideration Division 72 of the GST Act may apply. Division 72 of the GST Act ensures that a supply to an 'associate' without consideration will be taxable if, except for the lack of consideration, the supply would otherwise be taxable. Division 72 of the GST Act also provides that supplies for inadequate consideration are properly valued. Section 72-70 of the GST Act addresses the value of taxable supplies for inadequate consideration, and states: (1) If a supply to your *associate for *consideration that is less than the *GST inclusive market value is a *taxable supply, its value is the *GST exclusive market value of the supply. (2) Subsection (1) does not apply if: (a) your associate is *registered or *required to be registered; and (b) your associate acquires the thing supplied solely for a *creditable purpose. For the definition of associate, refer to subsection 318(1) of the Income Tax Assessment Act 1936 (ITAA) which can be accessed on the Australian Taxation Office (ATO) website at www.ato.gov.au You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire the thing for a creditable purpose to the extent that: · the acquisition relates to making supplies that would be input taxed, or · the acquisition is of a private or domestic nature. Supplies that would be input taxed include financial supplies; supplies of residential rent and premises; and fund-raising events conducted by charitable institutions. Market value guidelines Although the Goods and Services Tax Industry Issue - Charities Consultative Committee : Non-commercial activities of charities, cost of supply and market value tests publication is in relation to charities, the general principles covered in this publication in Section B - Market value guidelines (such as market value; 'same supply test'; 'similar supply' test; and other methods) may be of some assistance. This publication can be obtained from the ATO website.

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. | Relevant facts: An Australian entity (you) has entered into an agreement with another Australian entity (AusE), that contains a number of components. | Amongst other things, the agreement states that AusE will provide a number of services, namely: | · Secretarial services provided to you in perpetuity; | · Discounted function costs provided to you in perpetuity; and | · Perpetual membership to the AusE provided to your members. | You have been advised by AusE that the estimated annual present value of secretarial services is approximately $XXX, being a percentage of the estimated salary (hours spent) of administrative staff member(s) of AusE that is attributed to you. | You have calculated the present value of a XX% discount in function costs by calculating a percentage of the average annual function costs paid by you to AusE, based on a period. | You have been advised that AusE would charge $XXX in return for perpetual membership. At the time of the agreement, it was agreed that you have XXX individual members, and therefore the deemed perpetual membership for your members will be valued at $XXX. | You and AusE are registered for GST | You do not believe that the parties are associates. Both entities are managed by different and separate individuals.