Charging GST – General Rules

Charging GST – General Rules
Taxable Supplies
Is your registered church required to charge GST on a transaction?
Tax Invoices
Real Estate & the Margin Scheme

Charging GST – General Rules

If a church receives income from any source, it needs to consider whether the transaction is subject to GST. If the church should have charged GST, but did not, it will still need to remit 1/11 of the funds received to the Taxation Office. The liability remains with the church, even if it fails to collect GST.

Below is a checklist to determine whether the church should charge GST. The following pages explain the various aspects of this checklist. However, the most important principle is that a church that is registered for GST should start from the premise that GST must be charged on each transaction. Then the church can look to see whether there is any GST exemption available.

Transaction Checklist for Churches

A church must charge GST on the supply of a good or service unless any of the following apply:

  • The church or the church activity (non-profit sub-entity) is not registered for GST
  • No supply is provided in return for consideration received (eg tithes)
  • No consideration, whether in money or in kind, has been received by the church (donations)
  • The supply is to a member of the church’s GST group or GST religious group
  • The transaction is GST-free, for example:
    • Religious services
    • Non-commercial (ie. Consideration is less than 50% of market value or 75% of cost)
    • Retirement village
    • Education
    • Medical – eg counselling
    • Raffles and bingo
    • Exports
  • The transaction is input taxed, for example:
    • Residential rents
    • Sale of residential premises, other than new residential property
    • Certain fundraising events

Taxable Supplies

GST is only charged on taxable supplies. A taxable supply is defined below.

Definition of Taxable Supply

To be a taxable supply, on which an organisation must charge GST, all of the following criteria must be met:

  • The organisation must be registered for GST
  • There must be a supply of some kind
  • The supply must be made in connection with the business or organisation
  • The supply must be connected with Australia. There must be consideration paid or payable by the buyer
  • The supply must not be GST-free, an
  • The supply must not be input taxed.

The first four requirements are relatively straightforward for a church and are only discussed briefly. However, the last three requirements present more of a challenge to churches and should be carefully considered.

GST Registered Church

A church, which has not registered for GST and is not required to register, cannot charge GST.

All churches that have registered or should be registered must charge GST on applicable transactions.

It is possible for a registered church to treat part of its activities as separate from the main church by declaring that part to be a non-profit sub-entity. The activity must be clearly identifiable and must keep its own accounting records. The separate GST status of the non-profit sub-entity must be recorded in the church’s records. For example, a church may choose to treat a fete as a separate activity from the church. Provided the non-profit sub-entity e.g. the fete does not register for GST, no GST need be charged on any fete revenue.

Whether or a church should register or not is discussed in Registration.

Supply of Goods or Services

Supply is very widely defined. It specifically includes:

  • A supply of goods
  • A supply of services
  • Provision of advice or information
  • Grant, assignment or surrender of real property
  • Creation, grant, transfer, assignment or surrender of any right
  • A financial supply
  • An entry into or release from an obligation to do anything or refrain from an act or to tolerate an act or situation, and
  • Any combination of the above

Almost any transaction is a supply. If unsure, assume it is a supply and seek professional advice where necessary.

There may be some circumstances where there is no supply. For example tithes and offering are not subject to GST because there was no supply provided in return for tithes and offering received.

Connected to the Church

A supply must be made in connection with the supplier’s business or organisation. What this criterion is saying is that private transactions are not subject to GST. However, a church cannot have private transactions. Therefore, any supply made by a church is sufficiently connected to the church to meet this criterion.

Connection with Australia

GST only applies to the consumption of goods and services in Australia. Therefore, to be a taxable supply, the supply must be connected with Australia. In effect, the export of goods and services are usually not subject to GST. Most churches will rarely, if ever, export goods or services.

Consideration paid

There is no taxable supply and no GST need be charged if the buyer pays no consideration.

Consideration can be in forms other than money. The consideration can also be paid for by a third party, rather than the recipient of the good or service.

Churches supply many goods and services for no charge. No implicit GST needs to be calculated on the supply of these items.

Similarly no GST applies to donations, tithes or offerings. However, a donation must be completely free of obligation. A dinner with “entry by donation” is not a true donation. The characteristics of a donation are discussed in detail in Donations, Gifts, Tithes and Offerings.


There are special provisions for transaction between associates. Transactions between associates can be deemed to occur at market value consideration even if no consideration is actually paid. As such a supply is not exempt automatically from GST simply because it was provided free of charge to associates. These rules will only apply when no consideration or inadequate consideration is provided by associates and the associate receiving the supply is not registered for GST or did not use the supply solely for creditable use. Non-profit sub-entities are treated as associates of the main church body. Therefore the deemed consideration rules can apply to transactions between the church and its non-profit sub-entities.

GST-Free Transactions

A GST-free transaction is not subject to GST. However, the supplier can still claim input tax credits for all GST paid on goods and services purchased and used in relation to that supply.

Therefore, there is no hidden GST included in the price to the buyer.

GST-Free Transactions

These include the provision or sale of the following goods or services:

  • Medical
  • Education
  • Basic food
  • Childcare
  • Exports
  • Non-Commercial Activities of charities, including churches
  • Second hand goods by charitable institution
  • Retirement village accommodation and related supplies by charitable institution
  • Religious services
  • Raffles and bingo conducted by charities
  • Water and sewerage
  • International travel
  • Sales through inwards duty free shops
  • Crown land
  • Farmland
  • Cars for disabled persons

The majority of supplies made by churches will be GST-free as the supplies will be covered by either of the exemptions for religious services or non-commercial activities of charities.

Exemptions available to churches are discussed in detail in Exemptions for Churches. Various examples of church transactions are outlined in Specific Church Transactions.

Input Taxed

A small number of transactions are input taxed. This means that no GST need be charged on the transaction. However, the supplier cannot claim input tax credits for GST it has paid on its purchases of goods and services.

Generally GST is only a cost to an end user. Only the end user cannot claim back GST on purchases because the end user is not registered for GST. However, where a transaction is input taxed, the supplier cannot claim back the GST. Therefore, the GST is a real cost to the organisation. In this situation, the organisation can either absorb the GST cost or, more likely, seek to recover the GST paid by increasing the selling prices.

Input Taxed Transactions
These include the provision or sale of the following:

  • Financial services
  • Residential rents
  • Sale of most residential premises, and
  • Some fundraising activities of charities

Some churches may provide residential accommodation. For example, student accommodation, emergency housing, etc.

When providing input taxed residential accommodation, churches must ensure that they do not claim input tax credits for the GST paid on goods and services relating to the accommodation, eg insurances, repairs and maintenance, etc.

If a transaction falls into both the input taxed category and the GST-free category, the GST-free treatment applies. Therefore, if residential accommodation qualifies for the non-commercial exemption for charities, credits for GST paid can still be claimed.

Churches can choose to treat various fundraising activities as input taxed, eg chocolate drives. Fundraising activities are discussed in more detail in Exemptions for Churches > Fundraising Event and Specific Church Transactions > Fundraising.

Is your registered church required to charge GST on a transaction?

Tax Invoices

The church should issue a tax invoice for any transaction where the church charges GST. The church must issue the tax invoice within 28 days of the purchaser actually asking for one (unless the invoice is for less than $75 excluding GST). In practice, most suppliers will provide the required tax invoice at the time of supply.

It is recommended that each church adopt the practice of always issuing a tax invoice for any amount over $82.50 where the amount charged includes GST.

The specific format required for the tax invoice is set out in Record Keeping > Tax Invoices

Real Estate and the Margin Scheme

The sale of real estate is generally subject to GST unless it is residential property. The sale of church building or church hall will attract GST if the church is registered for GST. Residential property that is new residential property is also subject to GST.

If GST applies to the sale of the real estate, the church might have two options in calculating the GST:

  • normal rule: 1/11th of sale price; or
  • margin scheme: 1/11th of margin.

The margin is generally the difference between the sale price and the acquisition price. However, if the property was acquired prior to 1 July 2000, the margin will be the difference between the sales price and the market value at 1 July 2000 unless the church is registered for GST after 1 July 2000. Under that circumstance, the margin will be the difference between sale price and the market valuation at the date of effect of the church’s GST registration.

The acquisition cost when calculating the margin does not include any improvements or development costs and incidental costs such as stamp duty, legal fee, etc.

The market value needs to be an approved valuation. An approved valuation is a valuation made in accordance with the requirements in the relevant legislative instruments. These requirements are set out under a series of Margin Scheme Valuations Determinations also know as MSVs. The valuation must generally be made by the due date of the activity statement for the tax period to which the supply is attributed.


The margin scheme is only available for real property transactions which meet the eligibility criteria. In order to apply the margin scheme:

  • he supply needs to be a taxable supply;
  • the supply must not be an ineligible supply; and
  • the vendor and purchaser have agreed in writing on or before making the supply that margin scheme applies.

A supply of a real property will be ineligible for the margin scheme if it was previously acquired subject to GST under the normal rule (i.e. 1/11th of sales price). For example, if a real property was acquired by the church from a private vendor who was not registered for GST or if it was acquired from another registered vendor but the margin scheme was applied at the time of acquisition, the church can choose for the margin scheme to apply when it subsequently disposes of the property.

There are special rules governing the application of the margin scheme when the property was acquired from an associate for no consideration, acquired from GST group members, inherited from a deceased estate or acquired under the GST-free going concern or farmland provisions. Basically these special rules prevent an ineligible supply to become eligible again for margin scheme. Further, these special rules also provide a look through mechanism to ensure that the increase in value of the supply that is eligible for margin scheme is not reduced by interposing a transaction such as a transferring to an associate for no consideration before selling it to a third party.

Although a registered church that purchases a real property under the margin scheme pays GST of 1/11th on the margin to the vendor, the amount of GST paid is not claimable as input tax credits.

Costs and benefits of using the margin scheme

The margin scheme mainly benefits unregistered entities as an unregistered entity will not be entitled to claim back input tax credits and GST will therefore be a real cost to such entity. GST of 1/11th on the margin will be significantly lesser than 1/11th of the sales price.

On the other hand, for a registered entity purchasing a real property, it will be entitled to claim input tax credits for the purchase of the property if GST is calculated under the normal method. As such, using the margin scheme will be a cost to a registered entity as it cannot claim back 1/11th of GST paid on the margin.

ExampleA church is registered for GST. It bought an empty land adjacent to the current church’s building for $550,000 for the purpose of extension. The transaction is eligible for the the margin scheme. The vendor originally purchase it back in April 2002 for $330,000.
Under the normal method, the church will be entitled to claim back GST of $50,000 (1/11 of $550,000). Therefore, the net cost of the land to the church will be $500,000. The vendor will need to remit $50,000 to the Taxation Office. Therefore, the net profit to the vendor will be $170,000, being $550,000 – $330,000 – $50,000.

If on the other hand both parties agree to apply the margin scheme, the church will not be entitled to claim back any GST. The net cost of the land to the church will be $550,000. The vendor will need to remit $20,000 to the Taxation Office ($550,000 – $330,000 x 1/11). The net profit to the vendor would therefore be $200,000, being $550,000 – $330,000 – $20,000.
The church would therefore prefer to calculate GST under the normal method but the vendor on the other hand would prefer the margin scheme. The church and the vendor will need to come to an agreement as to whether to apply the margin scheme or not and that agreement must be in writing before the supply is made.

Another benefit of using the margin scheme is that stamp duty on the acquisition of a real property is calculated on the GST inclusive price of the property. Under the margin scheme the GST inclusive price will therefore be less as there is a reduction in the stamp duty payable.