Adjustments to GST Claimed
Types of GST Claimable Transactions
Imports of Goods
Claiming Input Tax Credits
A church buys many goods and services, most of which will include GST in their price. The church must pay this GST when it buys goods or services regardless of whether it is registered for GST or not. The church can then claim back that GST paid from the Taxation Office if it is registered for GST. The claim is made either on a monthly or quarterly basis in accordance with the election made on their registration form.
A church can claim back the GST credits it pays on a good or service provided:
- The church is GST registered
- The acquisition was for a creditable purpose
- The transaction is not input taxed or GST-free
- The input tax credits on the acquisition is not specifically prohibited by the legislation
- The expense is not specifically non-deductible for income tax purposes; and
- The church holds a tax invoice.
A church must register if its turnover exceeds a certain registration threshold. A church may register if its turnover is less than the threshold. Most churches do not have to register, however most churches choose to do so in order to obtain a refund of GST paid on their purchases. Registration is discussed in detail in Registering for GST.
Where a church activity is being treated as a non-profit sub-entity, input tax credits cannot be claimed unless the non-profit sub-entity itself has also registered for GST. Where expenses such as rent relate to both the main church operations and a non-profit sub-entity, it may be necessary to apportion the expense. GST input tax credits can only be claimed on that portion that relates to the main church operations.
An acquisition is made for a creditable purpose if it was acquired in the carrying on of an enterprise and does not relates to making input taxed supply or used for private purposes. As a church is unable to make private purchases, all its acquisition would meet the criteria of creditable acquisitions except for acquisitions relating to making an input taxed supply.
Churches rarely makes input taxed supply. But the two most likely input taxed supplies made by churches are input taxed fundraising event and renting or selling of a residential premises. There would be no input tax credits entitlement for acquisition that is used to make input taxed supplies.
Example – If the church owns a residential property that was used as a manse. It was provided to its minister for lesser than 75% of market value and therefore the rent was GST-free. Any expenses incurred relating to providing the accommodation to the minister such as repair and maintenance in which GST was charged can be claimed back as input tax credits by the church.
The church subsequently decides to sell the property. Selling cost such as agent fees may include a GST component. However, as they relates to the sale of a residential property which is an input taxed supply, the church will not be able to claim the input tax credits on such costs.
Input Taxed and GST-Free Transactions
No GST is charged on input taxed or GST-free transactions. Accordingly, no input tax credits can be claimed as the church will not have paid GST.
An explanation of input taxed and GST free transactions is provided in Taxable Supplies.
A church will buy few input taxed and GST-free goods and services, but they may include:
- Financial services, such as bank charges, interest, loan fees, etc
- Basic food
- Water rates
- Rent or purchase of a residential property
- Purchases from other members of the GST religious group.
Expenses that are excluded from GST
Some expenses are excluded from GST. Examples of such expenses are:
- Superannuation payments
- Purchases from other members of the GST group or GST religious group
- State and Federal taxes such as council rates, stamp duty, FBT, etc.
No GST can be claimed on purchases that would be specifically made non-deductible for income tax purposes. Although a church does not pay income tax, the same rules apply to churches.
Once again a church will incur very few such expenses. Non-deductible expenses include:
- Club and leisure facilities
- Relative’s travel
- Entertainment; and
Note that if relative’s travel or entertainment is provided to an employee, then it will be a fringe benefit. Fringe benefits remain tax deductible and therefore the input tax credits can still be claimed.
Entertainment expenses are generally not deductible. Entertainment includes entertainment by way of food, drink and recreation. However, not all entertainment is non-deductible.
Morning tea provided after the service is not likely to be seen as non-deductible entertainment. Therefore, the church can claim the GST incurred on biscuits, etc. Similarly, a light meal provided as part of a working lunch can also be claimed. A light meal would include sandwiches and other finger food.
Entertainment provided free to members of the public who are sick, disabled, poor or otherwise disadvantaged is income tax deductible. Therefore the church can claim GST input tax credits on expenses incurred in providing this type of entertainment, eg soup kitchens.
Other forms of meal entertainment such as social events, youth group activities and church lunches generally fall under non-deductible entertainment expenses and therefore input tax credits cannot be claimed in relation to such expenses. It appears that lunches provided to church members and visitors after church service to encourage socialisation would also fall within the category of non-deductible entertainment expenses unless it is a light meal.
Meals provided to visiting speakers are also considered to be non-deductible entertainment expense unless it is provision of light lunches or morning/afternoon tea.
Church cafes are becoming more common. Church cafes are sometimes operational only on the weekends to provide food and drinks to members of the church. Some church cafes though may be opened during weekdays to provide food and drinks to staff as well as community members.
Church cafes may be operated independently of the church. Under such circumstances, expenses incurred by the cafe are not seen as entertainment expenses but general business expense and would be deductible. Input tax credits associated with these expenses will be claimable.
A claim cannot be made for GST credits on a good or service purchased unless the church holds a tax invoice. The requirement to hold a tax invoice is exempt if the GST-inclusive price for the purchase was less than $82.50. This requirement to hold a tax invoice can result in significant administration requirements for a church.
Example – The church pays $100 to a visiting speaker. If the speaker is not registered for GST, the church cannot claim a GST refund, as no GST is included in the $100. If the speaker is registered for GST, 1/11th of the payment is GST, being $9.09. The church will need to receive a tax invoice from the speaker in order to be able to claim back the GST. Without the tax invoice, the church is not entitled to claim GST credits and furthermore it might not be aware that GST has been paid.
A tax invoice need not be the same as the sales invoice. However, for most sales the invoice and the tax invoice will be one and the same. The requirements for a tax invoice are set out in Tax Invoices.
When to claim input tax credits
The church is only entitled to claim input tax credit for an acquisition when it holds then tax invoice. Further, the timing of when a church can claim its input tax credits is also dependent on whether it:
- lodges BAS on a quarterly or monthly basis; and
- reports its GST obligations on a cash or accruals basis.
Adjustments to GST Previously Claimed
It may be necessary to adjust claims for GST previously made. This will occur if:
- Goods are returned
- Purchases are cancelled
- There is a partial refund
- There is an increase in price
- Payment is never made, eg bad debt
- There is a change of use; or
- Registering or deregistering for GST.
An adjustment event is an event which has the effect of:
- cancelling a supply or acquisition
- changing the consideration for a supply or acquisition; or
- causing a supply or acquisition to be or stop being subject to GST.
Only adjustment events as mentioned above require an adjustment note. Adjustments arising for other circumstances such as change of use, bad debts, etc. do not require an adjustment note.
If the adjustment event results in an increase in the amount of input tax credits claimed, an adjustment note must be held. Adjustment notes contain similar information to tax invoices. No adjustment note is required for the increase in GST claimed if the GST inclusive sale price of a supply (and not the adjustment) is less than $82.50.
No adjustment note is required if the adjustment event results in a decrease in the amount of input tax credits claimed, for example trade rebate given to reduce the price paid for a supply.
Supplier will need to issue an adjustment note within 28 days from when the purchaser request for it unless the price of the supply is less than $82.50.
The adjustment is made at the time the adjustment event occurs. There is no need to amend prior period GST returns.
If an amount has been overdue for 12 months or more, a bad debt adjustment is required to adjust for the amount of input tax credits that has already been claimed or for the GST that has already been paid. Naturally, bad debts adjustment will only apply to entities that is registered for GST on an accruals basis as under a cash basis the unpaid amount would not have been taken up yet and therefore no need for adjustment.
Change of Use
A change in use of a good could result in a change to a claim for GST paid. Although this is not a common occurrence for churches, it can occur where a church changes the use of a good from a general purpose to an input taxed purpose.
Example – A refrigerator is used by the church office, but is then placed in a property rented for residential purposes. There is a change of use from a fully creditable purpose to an input taxed purpose.
Example – A manse was originally built to provide GST-free accommodation to the minister. At a later date, no minister is living in the manse so it is rented out. The manse is now being used for input taxed transactions resulting in a change of use.
Where there is a change of use, you need to determine whether any input tax credits need to be repaid or whether additional credits can be claimed. Note that no adjustment is required if the GST-exclusive purchase price of the good was $1,000 or less.
The change of use must be considered at the end of each adjustment period. The first adjustment period in relation to an acquisition is the June tax period at least 12 months after the period in which the acquisition occurs. For example, if a church buys a new sound system during August 2006, the first adjustment period for the expense is the quarter ended 30 June 2008.
Adjustments are only made in the GST return ending on the 30 June. The calculation for input tax credit adjustment is to be made on a time basis. The time period for which you must consider change of use depends on the dollar value of the acquisition, as follows:
GST Exclusive Value
|$1,000 or less
|$1,001 to $5,000
|$5,001 to $499,999
|$500,000 or more
Example – A church buys new curtains for its manse on 1 July 2015 for $2,200. On 1 July 2017, the minister purchases his own home to live in and therefore the church rents out the manse as a residential premise to an external party.
The church claimed an input tax credit of $200 in its September 2015 BAS. As the purchase is between $1,000 and $5,000, the church must consider changes in use for two adjustment periods.
The first adjustment period is the June 2017 quarter, being the first June quarter at least twelve months after the purchase date. At 30 June 2017, there has been no change of use. The manse and therefore the curtains are still being used for GST free purposes.
The second and last adjustment period is the June 2018 quarter. As there was a change of use on 1 July 2017, an adjustment is required. The curtains have been owned for three years. For the first two years they were used for GST-free purposes and the last year for input taxed purposes. Therefore, the church must repay one-third of the input tax credits, being $67.
Adjustments for changes in use can be very complicated especially when it involves residential property. At the time of writing the Government is considering reforming the changes of use adjustment provisions, particularly in relation to new residential property. The reform is also considering changing the number of adjustment period thresholds and that a change in use adjustment is only required when the change in creditable purpose is 10% or more.
Examples of GST Claimable Transactions
Almost all church purchases of goods and services will include GST. Some of the possible types of purchases are listed below:
- Rent (only if there is GST component charged)
- Books, tapes and CDs
- Administration fees to the denominational head office
- Equipment, such as photocopiers, computers and sound equipment
- Building, Improvements or extensions to buildings (only if it is not related to making an input taxed residential supply)
- Reimbursements to member for expenses incurred on behalf of the church
- Sponsorships and advertising
- Accounting and audit fees
- Catering; and
- Imports of books or CDs.
However, if the above purchases were acquired from an unregistered entity, there would be no GST. Generally, the tax invoice will provide all the information required to determine how much GST was charged on the purchase.
GST credit is only claimable in a BAS where the tax invoice relating to the credit is held at the time that BAS is lodged.
Input Tax Credits and Reimbursements
A church can still claim the GST where it reimburses a member or volunteer for expenses incurred. However, the church must ensure that it holds the tax invoice, unless the GST inclusive amount is less than $82.50.
The GST on reimbursements to employees can also be claimed. The Taxation Office has issued a ruling on how GST applies to fringe benefits. In that ruling it confirms that employers are entitled to claim GST on the reimbursement of specific expenses incurred by employees, including private expenses that are fringe benefits. Obviously no GST can be claimed if the expense being reimbursed has no GST component, eg school fees, health insurance, etc.
Where possible, the church should pay church related expenses rather than the employees or members.
Example – The minister pays their denominational dues, and the price includes GST. The minister is not registered for GST and therefore cannot claim back the GST. If the church paid the dues, the church could claim back the GST. Thus the cost to the church is less than to the minister. If required, the cost can be included as part of the minister’s salary package.
Sometimes members pay for church expenses from their own resources. The church can only claim back the GST if it reimburses the member or pays the expense directly. For this reason, it may be advantageous for the member to increase their tithe to the church and allow the church to purchase the item.
Example – A member buys Sunday school material for $550 and does not seek reimbursement from the church. The cost is therefore $550.
Alternatively, the member could give the $550 to the church. The church buys the Sunday school material for $550 but claims $50 back from the Taxation Office. Therefore the cost to the church is only $500. This leaves the church with an additional $50 for other resources.
Credit Card Reimbursements
Where the church reimburses a minister’s credit card, it is important that the statement is used to show the specific expenses being reimbursed. Where a church simply reimburses the total on the statement and only checks the statement to ensure that there are no cash withdrawals, this rule is not satisfied. As such the church cannot make a claim for the input tax credit included in the expenses on the statement. There needs to be an agreement or some understanding as to the type of expense the church will reimburse.
Similarly, where a church pays the outstanding balance of the minister’s credit card at the end of each month, irrespective of what form of acquisitions were made to increase the balance, the church cannot claim the input tax credits.
It is unclear exactly what a church must do to satisfy the Taxation Office requirements. However, we suggest that the following be considered:
- A careful check of the credit card statement is undertaken before payment is made and a statement and signature is recorded on the credit card statement or cheque requisition form that the credit card has been checked
- Indicating in the statements items that are being reimbursed
- Making an exact payment of the amount being reimbursed
- Holding the tax invoices for expenses being reimbursed
- Having written policy on the type of expenses it will reimburse from a minister’s credit card.
Extreme care needs to be taken where the credit card is simply paid from the minister’s fringe benefits account. If no external check of the credit card statement is undertaken, input tax credits cannot be claimed.
Where the church provides a corporate credit card, the rules regarding the review of credit card statements and holding a tax invoice do not apply. Tax invoices are also not required provided the corporate credit card statement meets certain Taxation Office requirements. If you are unsure whether your corporate credit card complies, you should contact your financial institution.
Credit Card Tax Invoices
It may be difficult to obtain tax invoices where the church is reimbursing the minister’s credit card. The Taxation Office will allow input tax credits to be claimed for expenses on a “corporate credit card” statement even though the church does not hold the tax invoices. If the corporate credit card is used for private or personal expenditure, the church must have an effective regulated policy of making adjustments for such expenses and have supplementary documentary evidence supporting each acquisitions that has a private portion. It is evident that the records keeping requirements becomes more onerous as soon as there is private acquisitions. As such we recommend that the church have a regulated policy that the card cannot be used for private or personal expenditure.
The statement must contain the following information:
- The entity’s name
- The name of the entity’s employee who made the purchases
- The entity’s ABN or address
- The date of purchase of each supply
- The supplier’s name and ABN
- The supplier’s Branch Registration Number, where applicable
- A brief description of each supply or, if unavailable, a brief description of each supplier’s industry
- The amount of GST paid for each supply; and
- The total price paid for each supply.
VISA, American Express, Diners Club and MasterCard, Cabcharge Australia, Custom Service Leasing, Airplus International, Mining Construction Card Company, Wex Fuel Cards Australia and Qantas Airways can currently provide corporate card statements meeting the requirements. Note these details are not provided on personal credit cards. Only corporate cards qualify.
If some items listed on your corporate credit card are mixed supplies (i.e. a supply that is partly subject to GST and partly exempt from GST) or where GST is not 1/11th of the price, a tax invoice is still required to be held in order to claim input tax credits for those items.
Imports of Goods
GST applies to the consumption of goods and services in Australia. Therefore, imports can be subject to GST.
The GST on goods imported over $1000 is collected by customs. The GST is payable at the time of importation as is customs duty. A church that imports goods in this way can claim a GST input tax credit in its next BAS.
Goods under $1,000 that do not come through customs will be subject to GST if sold to a consumer and the supplier is registered for GST. Churches are not consumers if they are registered for GST. The church should provide its ABN and advise it is registered for GST at the time of purchase. If the church fails to do this, it may find it has been changed GST. As the overseas supplier cannot issue a tax invoice, the church is unable to claim the input tax credit.
Input Tax Credits and Motor Vehicles
Generally churches that are registered for GST are entitled to claim input tax credits for the GST that was charged on the purchase of a motor vehicle unless it was purchased from a private seller. Acquisition from a private seller will have no GST charged on the sale price and therefore no GST credit entitlement will arise.
However, for a supply of a motor vehicle that is subject to GST, the input tax credits claimable on motor vehicle are capped at the luxury car limit. The luxury car limit is updated each year. The luxury car limit for the 2019-20 financial year is $57,581.
If the church purchases a car exceeding the luxury car limit of $57,581, the maximum input tax credit that is claimable will be 1/11th of $57,466 which is equals to $5,235.
However, input tax credits claimable on a car specifically fitted out for transporting disabled people seated in a wheelchair are not be subject to the luxury car limit.
The 1/11th luxury car limit cap on input tax credits applies to motor vehicle hire purchase arrangements.
Under a hire purchase arrangement, entities that accounts for GST under the accruals basis can claim all input tax credits upfront at the time of entering into the hire purchase arrangement (provided that the tax invoice is held). For cash basis entities, this input tax credit is attributable to the tax periods in which payments are made (i.e. claimed over the term of the contract).
Unlike hire purchase, the amount of input tax credits claimable on lease payments for a motor vehicle is not limited to 1/11th of the luxury car limit. The reason for this is that the supply under a leasing arrangement is taken to be a supply of a lease and not the supply of the actual motor vehicle. Therefore, a registered church can claim all the GST included in each lease payments even if the total lease payments exceeds the luxury car limit.
Each periodic lease payment is taken to be a separate supply. Hence, regardless of whether an entity is on a cash or accruals basis, the input tax credits claimable in each tax period for a leasing arrangement are determined by the periodic payments made in that period.
A registered church is entitled to claim input tax credits on the GST charged on motor vehicle registration fees. However, the GST portion of the registration fee is not normally 1/11th of the premium payable as the fee includes a stamp duty component which is exempt from GST.
Therefore, the church should refer to the registration/renewal notice for the actual amount of GST charged to determine its input tax credit entitlement.