Taxpayer Alert TA 2007/1: Lease by a charitable institution to an associated endorsed charitable institution designed to gain input tax credits.
Date of issue: 6 March 2007
Status: Current


Description: The alert applies to arrangements that exhibit some or all of the following features. | 1. Entity A, a charitable institution, owns land and buildings from which it makes or could make supplies of residential accommodation. | 2. Supplies of residential accommodation by Entity A would be input taxed as they are made for consideration that is 75% or more of the GST inclusive market value of the supply and 75% or more of the cost to Entity A of providing the accommodation (sections 40-35 and 38-250 of the A New Tax System (Goods and Services Tax) Act 1999) (GST Act). | 3. Entity A enters into a lease to supply the land and buildings to Entity B, an associated endorsed charitable institution. | 4. The lease payments from Entity B to Entity A are recorded as book entries and no actual payments are made. | 5. Entity B then provides the accommodation to residents. | 6. The lease payments recorded from Entity B to Entity A serve to increase the cost to Entity B of providing the accommodation, so that the consideration to Entity B falls below 75% of the cost to the supplier of providing the accommodation. | 7. Entity B treats the supplies of accommodation to residents as GST-free and claims input tax credits. | FEATURES WHICH THE TAX OFFICE CONSIDERS GIVE RISE TO TAXATION ISSUES | The Tax Office considers that the arrangement outlined above gives rise to taxation issues that include whether: (a) Entity B's supply of accommodation to residents is GST-free under section 38-250 of the GST Act; and (b) The anti-avoidance provisions of Division 165 of the GST Act apply, as the arrangement appears artificial and contrived in its design and execution. | (a) Entity B's supply of accommodation to residents is GST-free under section 38-250 of the GST Act; and (b) The anti-avoidance provisions of Division 165 of the GST Act apply, as the arrangement appears artificial and contrived in its design and execution. | The Australian Taxation Office is examining these arrangements. | Date of Issue: 6 March 2007 | Date of Effect: 6 March 2007 | Related Rulings/Determinations: GSTR 2001/1 | Related Practice Statements: PS LA 2005/13 - Taxpayer Alerts | Subject References: charitable institutions Goods and Services Tax GST-free supply input taxed supply accommodation | Legislative References: A New Tax System (Goods and Services Tax) Act 1999 Subdivision 38-G Subdivision 40-B Division 165 | Contact Officer: Walter Hadeed Business Line: Goods and Services Tax Section: GST Aggressive Tax Planning Phone: (03) 9275 4595





Related documents: GSTD 2007/2. | GSTR 2001/1 | PS LA 2005/13 - Taxpayer Alerts | Subdivision 38-G | Subdivision 40-B | Division 165

This Taxpayer Alert describes arrangements designed to gain entitlement to input tax credits by treating otherwise input taxed supplies of residential accommodation as GST-free. These arrangements involve charitable institutions leasing land and buildings to associated endorsed charitable institutions in an attempt to increase the cost of making supplies of accommodation to residents and thereby satisfying a concessional GST provision.