Private ruling: Goods and services tax - Charities and non-profit
Date of advice: 4 September 2015
Published: September 2015

Ruling: Q1: Are you entitled to rely on the benchmark market value for supplies of long term accommodation for the purposes of applying section 38-250 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)? | A1: Yes, you can use the benchmark market values in respect of the supplies of long term residential accommodation. | Q2: Will payments other than rent (such as water usage and repair and maintenance costs) be ignored for the purposes of the 75% test in section 38-250 of the GST Act? | A2: If you use the benchmark market value rates, the reimbursement that you receive for the additional services is not consideration for your supply of residential accommodation and is excluded when calculating whether the consideration for the accommodation is less than 75% of the GST inclusive market value of the supply. The consideration for the accommodation component (the rent amount) is compared to the relevant benchmark market value rate in Table 5 of the Charities Document. Where the rent amount is less than 75% of the benchmark market value, the supply of the accommodation will be a GST-free supply.

Relevant facts and circumstances: You are registered for GST effective from 1 July 2000 and were granted concessionary GST status with effect from 1 July 2005 as a result of being endorsed as a charitable institution in accordance with Division 426 of Schedule 1 of the Tax Administration Act 1953 . You have also received concessionary fringe benefits tax status and are an endorsed gift-deductible entity under item 1 of the table in section 30-15 of the Income Tax Assessment Act 1997. With effect from YYYY you have been granted registration with the Australian Charities and Not-for-profits Commission, as well as being registered under the National Regulatory System for Community Housing. The process of being allocated a property, and as a result, becoming a tenant, is detailed in your factsheet. You cover a wide geographic area. The criteria you use in the allocation of housing to prospective tenants are explained in this fact sheet. Other factsheets are available. Once a tenant has been placed in suitable housing the tenant has rights and responsibilities to you. The annual rent will be less than 75 percent of the market value of the supply of accommodation and long term social and affordable housing using benchmark market values as published by the ATO in the Charities Consultative Committee Resolved Issues Section C - Benchmark Market Values for Charities ('the Benchmarking Guidelines'). You have historically relied on the Benchmarking Guidelines for long term accommodation so that the accommodation can be provided GST-free to the tenants pursuant to section 38-250 of the GST Act. You also claim full input tax credits in relation to expenditure incurred in connection with providing this GST-free accommodation due to the accommodation being GST-free, as opposed to being input taxed residential rent under section 40-35 of the GST Act. As with most rental properties, damage can occur from time to time, due to either intentional or negligent acts of the tenants. In order to clarify the difference between the two, you provide a fact sheet. This fact sheet details the most common issues or matters that result in disputes between you and the tenants, such as: • TV Aerials - 'In matters where it is our tenant's TV which is responsible for poor quality reception, tenants can be charged for the cost of the visit by the technician'; • Keys and Locks- 'If the keys provided are stolen or lost and need to be replaced, you will charge tenants for the costs of a locksmith attending…'; • Cleaning of gutters- 'tenants are responsible for the cleaning of gutters in separate houses that have their own roof line'; • Pest control - 'the following problems are considered the responsibility of the tenants: black ants; cockroaches; bees; rats and mice…'; • Removal or trimming of trees - 'the trimming of trees less than 5 metres in height is the responsibility of our tenant'; • Light globes - 'once a tenant has moved in…responsible for changing their own light globes; • Smoke alarms - '…changing the smoke alarm battery is … a tenant responsibility; • Grounds maintenance - 'The upkeep of private yards … the responsibility of the tenants. In situations where repairs and maintenance are required for any intentional or negligent damage caused to the premises by tenant themselves or their visitors, you will invoice the tenant for the cost of repairing same (at cost with no mark-up). You also pass on to the tenants (at cost with no mark-up) the water and electricity usage charges attributable to their accommodation.

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

Reasons for decision: Summary: In this reasoning, unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Section 38-250 of the GST Act provides that (1) A supply is GST-free if: (a) the supplier is an *endorsed charity, a *gift-deductible entity or 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. (2) A supply is GST-free if: (a) the supplier is an *endorsed charity, a *gift-deductible entity or 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 cost to the supplier of providing the accommodation; or (ii) 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.' The Charities Consultative Committee Resolved Issues Document (Charities Document) provides guidance in respect of the market value test under subsection 38-250(1). The Charities Document explains that: For supplies of accommodation only costs incurred in providing the accommodation can be included in the calculation. The market value of a supply may be determined using the following methods: • Actual market value for a supply • Market value of the same supply or a similar supply • Other methods approved by the Commissioner • Market value benchmarks Charities that provide long term residential housing are eligible to use the benchmark market values. Charities that are eligible to use the benchmark market values for their supplies will only need to use another method as listed above, if they choose not to use the benchmark market values. The accommodation benchmark rates in Table 5 of the Charities Document lists the market value for the supply of long-term residential accommodation. The benchmarks provided allow for either of the following: • differing standards of accommodation • other locations and regional areas • seasonality of market rates. The benchmark rate may be used across all regions for the relevant state. You are entitled to use the benchmark market value for the purposes of subsection 38-250(1) of the GST Act because you are a charity and you make supplies of long term residential accommodation. Your supply is GST-free if the consideration for the supply is less than 75% of the GST inclusive market value of the supply. Where you choose to apply the benchmark market value rates to determine whether the supply of accommodation is GST-free under section 38-250 of the GST Act, the following methodology applies. The benchmark market value rates only apply in respect of the supply of long term residential accommodation. These rates do not include consideration that is not in respect of the supply of accommodation. You charge tenants a rental amount for the supply of the accommodation and you also charge for additional services such as water, electricity, repairs and replacement of keys. Paragraph 1 of Goods and Services Tax Determination GSTD 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) explains that a supply of premises under a commercial property lease together with the services required by the tenant to use the premises will, subject to paragraph 5, be a single supply of real property. This principle applies equally to a supply of residential accommodation. Paragraphs 5 and 6 of GSTD 2000/10 state: 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. 6. Other obligations imposed under the lease for the tenant to reimburse the landlord, or pay costs for which the landlord is liable, will also form part of the consideration for the supply of the premises. Examples are insurance, promotional levies, and reimbursement of the landlord's costs of repairs and maintenance. If the tenant is liable for an expense regardless of the terms of the lease, the payment of the expense will not form part of the consideration for the supply of the premises For example, based on the information provided, each of the following costs which you charge a tenant is consideration for a supply which is not a supply of residential accommodation, as it is provided in addition to the premises. It is a separate supply from the supply of premises. The costs are for matters which are the responsibility of the tenant and for which they are liable to reimburse the landlord. The supply is a taxable supply which is not GST-free or input taxed. • The visit by a technician, in the matter where the tenants' TV is responsible for poor quality reception; • The cleaning of gutters in separate houses that have their own roof line; • A locksmith attending the property because the keys provided were stolen or lost and need to be replaced; • Pest control of specified problems; • Trimming of trees; • Changing light globes; • Changing the smoke alarm battery; • Maintenance of all the yards and gardens in separate houses and duplexes; If you use the benchmark market value rates, the consideration that you receive for the additional services is excluded in order to calculate whether the consideration for the accommodation is less than 75% of the GST inclusive market value of the supply. The consideration for the accommodation component (the rent amount) is compared to the relevant benchmark market value rate in Table 5 of the Charities Document. Where the rent amount is less than 75% of the benchmark market value, the supply of the accommodation will be a GST-free supply.