GST Treatment for Non-Commercial Activities
A religious institution that is registered by the ACNC and endorsed by the Australian Taxation Office (ATO) can access the following GST charity concessions.
- GST religious groups
- Non-commercial activities
- Donated second-hand goods
- Raffles and bingo
- Fundraising events
- Accounting on a cash basis
- Reimbursement of volunteer expenses, and
- Retirement villages.
Charities that are endorsed by the ATO to access income tax exemption and which belong to the same religious organisation can form a GST religious group, provided they meet certain requirements. This means no GST is payable and no credits can be claimed on transactions between group members. However, each member of the GST religious group must be individually registered for GST and account for all its transactions with parties outside of the GST group by lodging individual activity statements.
The Synod of NSW & the ACT is endorsed by the ATO as a charity and as a member of a ‘UCA GST religious group’. Please contact the Uniting Resources, Employment & Industrial Relations to confirm that your Church Entity is a member of the UCA GST religious group.
The non-commercial activities of some non-profit organisations are GST-free. These non-profit organisations include:
- Endorsed charitable institutions (including religious institutions)
- Endorsed trustees of charitable funds
- Gift deductible entities
- Government schools
- Non-profit sub-entities of one of the above.
Non-commercial activities may include selling goods or services for less than cost or less than market value. The sale is GST-free if the amount charged is less than either:
- 50% of the GST-inclusive market value of the good or service.
- 75% of the amount you paid to purchase the good or service that you then sell.
When the sale is a supply of accommodation, the sale is GST-free if the amount charged is either:
- Less than 75% of the GST-inclusive market value of the accommodation.
- Less than 75% of the cost of providing the accommodation.
Church entities may also be able to claim GST credits for the GST included in the price of purchases to make these sales.
GST will apply to most of the commercial activities of Church entities; GST may not apply to some activities for other reasons.
The ATO’s market value guidelines provide methodologies which allow charities to determine a market value that is acceptable to the ATO, when applying the non-commercial supply rules. A supply made by a charity is GST-free if the supply is either:
- A supply of accommodation and the consideration for the supply is less than 75% of the GST-inclusive market value of the supply, or
- A supply of something other than accommodation and the consideration for the supply is less than 50% of the GST-inclusive market value of the supply.
The market value guidelines address the following matters:
- Market value
- The ‘same supply test’
- The ‘similar supply test’
- Other methods approved by the Commissioner
- The use of the successive tests
- Market value benchmarks
- Record keeping, and
- Reviewing the application of the non-commercial supply rules.
The term ‘market value’ is not defined in the GST Act. For the purposes of the non-commercial supply rules, the ATO consider that the market value of a thing is the price that would be negotiated between:
- A knowledgeable, willing and not anxious buyer, and
- A knowledgeable, willing and not anxious seller acting at ‘arm’s length’ in an appropriate market.
In determining the market value of a supply, a Church entity must apply the following successive tests:
- The Church entity must work out whether the same supply exists within the market they operate in – referred to as the ‘same supply test’.
- If no ‘same supply’ exists, the Church entity must then work out whether a similar supply exists within the market they operate in – referred to as the ‘similar supply test’
- If no ‘same supply’ or similar supply’ exists, the Church entity in conjunction with Uniting Resources, Finance, may seek approval from the Commissioner to use another methodology to calculate the market value of the supply.
These tests are successive tests for working out the market value of a supply, they are not alternative tests. If a Church entity identifies a ‘same supply’ in the market, the price charged by this other suppler is then the market value of the Church entity’s supply. The Church entity cannot calculate the market value of the supply it makes by reference to the second or third tests. The ATO considers that the first two tests would generally establish a market value and the last test would be rarely used.
When working out a market value (for the purpose of subsection 38-250(1)), Church entities do not have to obtain a professional valuation by a licensed valuer. However, if a Church entity chooses to use the service of a licensed valuer, the valuer must apply the market value guidelines when working out the market value.
Church entities need to take into account the following when making the comparison:
- Identifying the market
- The locality of the supply or area of the market
- The quality or nature of supply
- The size, quantity or duration of supply
- The conditions of supply
- Other charitable or commercial suppliers, and
- The number of comparisons.
The ATO link: GST and non-commercial rules – benchmark market values provides the market values of a range of supplies that Church entities can use as a reference point. Church entities making the following supplies can use the benchmark market values to work out their market values:
- supported accommodation and community housing (long term accommodation)
- crisis care (short term and long term accommodation as appropriate)
- retirement villages (long term accommodation)
- other residential housing (long term accommodation)
- 'meals on wheels', charity 'soup kitchens', and other charities that provide or supply meals to the frail, homeless or needy (food guidelines).
The accommodation benchmarks do not apply to accommodation supplied by Church entities at:
- university halls and colleges
- boarding schools, and
- non-residential buildings, such as halls and offices.
Church entities 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.
For example, the market values established and the methods used may be documented or minuted in the Church entity's financial accounts. This information should be captured in a way that will allow cross-referencing to accounting statements. It should also correspond to what is recorded on the charity's business activity statements.
Church entities using subsection 38-250(1) of the GST Act, the non-commercial supply rules, should monitor the market they make the supply in to ensure they will respond promptly to any material changes in the market.
Changes in market conditions include, amongst other things:
- suppliers entering or leaving the market
- changes in the quality of the supplies as a result of different consumers' expectations
- changes in input costs, and
- changes in prices charged.
For more information on the non-commercial rules, refer to subsection 38-250(1) of the GST Act.
Q: As a Congregation we have always worked on the basis that the Minister’s accommodation is GST- free. Can you please confirm what the appropriate GST treatment is?
A: The supply of the Minister’s accommodation continues to be GST-free because the supply is less than 75% of the cost of providing the accommodation. (See relevant information below).
Q: Part of our church hall is currently used by some local mothers to run a playgroup. The group meets for 4 hours each Wednesday during school term and in return for the use of the space pays us a notional rent of $5.00 per hour. There is no formal agreement in place governing the rental. By way of commercial comparison, the local council charges $9.50 per hour (inclusive of GST) for use of a space in one of their Community Centres for playgroup type activities. Could you please confirm what the appropriate GST treatment is?
A: The hire of the church hall continues to be GST-free because the supply is less than 75% of the GST-inclusive market value of the accommodation, determined after:
- Using the ‘supply test’ to determine the GST-inclusive ‘market value’ the UCA Church entity compares its supplies to those in the market, i.e. the local council charges $9.50 per hour (inclusive of GST) for use of a space in one of their Community Centres for playgroup type activities
- Calculate 75% of the determined GST-inclusive ‘market value $9.50 x 0.75 = $7.13
- Compare the 75% determined GST-inclusive ‘market value’ amount to amount charged by Church entity, if lower than the 75% amount, supply is GST-free $5.00 < $7.13, therefore GST-free supply (see relevant information below)
Q: Can I claim back the GST on expenses relating to the rental of our Manse to the general public?
A: The extent to which a Church entity can claim back the GST on expenses relating to the rental of a Manse is dependent on whether the supply of accommodation is determined as being either a taxable, GST-free or Input-taxed supply. If the Church entity has determined that the supply of accommodation is:
- Taxable – then GST on expenses relating to the rental of the Manse can be claimed.
- GST-free – then GST on expenses relating to the rental of the Manse can be claimed.
- Input-taxed – then the GST cannot be claimed.
Note: Providing residential accommodation is treated as an Input-taxed supply under the GST legislation. It is recommended that if a Church Entity is thinking of leasing their property that they first contact Uniting Resources, Finance in order to determine the correct GST treatment.