Dinners and Similar Events
Donations, Gifts, Tithes and Offerings
Evangelistic Courses (eg Alpha Courses)
Hire of Church Premises
Manses – ATO Examples
Sale of Church Real Estate
Sale of Equipment
Sale of Motor Vehicle
Sales and Hire of recording of Sermons
Seminars and Conferences
Specific Church Transactions
In the following pages, we have attempted to give some general guidance on the various types of transactions that are peculiar to churches and how they may be treated for GST purposes. This section is only relevant to churches that are registered for GST or required to be registered for GST. A church that is not registered for GST will simply not be entitled to claim input tax credits on acquisitions and does not charge GST on supplies.
Hereon, a church that is registered for GST will be referred to as registered church and a church that is not registered for GST is referred to as unregistered church.
Many churches pay administration and related fees or levies to their central denominational office. The Taxation Office’s view is that these fees are not GST-free religious services. Therefore, if the denominational office is registered for GST, it will need to charge churches GST on these administration fees.
Registered churches will be entitled to claim an input tax credit for the GST charged on these administration fees. However, the credit can only be claimed if the church holds a tax invoice. Some denominations charge fees on a percentage or fixed basis and do not issue an invoice or a receipt. Churches will need to ensure that they receive the required tax invoice before they make the input tax credit claim. The requirement to hold a tax invoice and claim input tax credits on administration fee charged by the denominational office is only relevant if the denominational office is registered for GST.
Some denominations have included all their GST registered churches in their GST religious group. GST does not need to be charged on transactions between members of a GST religious group. Therefore, if the church is in the same GST religious group as the denomination, no GST is charged on the denominational administration fees and the church will not be entitled to claim input tax credits.
Books, tapes, cards, etc sold by a registered church will prime facie be subject to GST unless it is a non-commercial transaction which is GST-free. If the item is sold for less than 50% of market value or less than 75% of its cost, it is considered to be a non-commercial transaction and no GST needs to be charged.
In determining market value, it may be possible to use the RRP on the back of the book. However, it is probably more accurate to compare prices with those used by the local Christian bookshop.
Churches rarely sell books for less than 50% of market value or 75% of cost. However, some marked down items may be GST-free. Given the administrative difficulty of applying the non-commercial test, many churches may choose to simply apply GST to all sales by the church bookshop.
It should be remembered that most commercial Christian bookshops will not qualify for the non-commercial transaction GST exemptions. Therefore a person buying an item from a commercial bookshop will normally pay GST for it.
If the bookshop operation is small and keeps its own accounting records it may be possible to treat the bookshop as an unregistered non-profit sub-entity (see chapter 3 on the eligibility to become a non-profit sub-entity). In this case, the bookshop will not be required to charge GST on its sales . However, it is important to note that this would also mean that the unregistered bookshop will not be entitled to claim the GST input tax credits on its purchases. Further, the bookshop will be treated as a separate unit from the church. Therefore, supplies from the registered church to the bookshop will be subject to GST. For example, if the bookshop occupies part of the church building and reimburse the church for the running cost associated with the space occupied, the reimbursement is subject to GST. Even if no actual reimbursement is made to the church, the bookshop will still be liable to pay GST on the deemed market value of the rent as the bookshop is considered to be an associate of the church.
Generally churches collect camp fees from all participants and then pay a lump sum amount to the camp owners. The payment to the camp owners will include GST and the church can claim an input tax credit for this amount.
In most instances, the church will on-charge the participants the camp fee, inclusive of GST. The church will remit the GST component to the Taxation Office. As the church will have claimed an input tax credit for the same amount, the net GST effect for the church is nil.
It may be possible for the church to treat part of the fee for the camp as a GST free religious service.
Most camps include a religious teaching and worship component and a recreational component. No guidance is available from the Taxation Office as to how extensive the religious teaching and worship component must be before the camp qualifies as a religious service. Alpha camps and spiritual retreats are likely to qualify for the exemption, but family and youth camps are unlikely to qualify. A leadership camp is also unlikely to be eligible on the basis that the teaching content is not integral to the practice of the religion. If you do treat a camp as a religious service, you must maintain documents showing why this conclusion was reached. For example, you might maintain a copy of the camp program and an analysis thereof. There needs to be a significant spiritual teaching and worship component to justify a treatment of the camp as a GST-free religious service.
Even if the camp includes a religious service, the components of the camp fee relating to non-religious services, such as accommodation and food, are likely to be taxable supplies.
Accommodation and food will only be GST free if they are non-commercial supplies.
Accommodation is GST free if the amount charged is less than 75% of market value. The fee for food will only be GST free if the amount charged is less than 50% of market value or 75% of cost.
The accommodation benchmarks in Appendix 1 cannot be used for camps. The church should compare the price charged with that of other camps in the same locality.
In reality, it would be rare for the fee for accommodation, food, etc at a camp to be GST free. As the religious service component of the camp fee is likely to be small, it is likely that most, if not all, of the camp fee will be a taxable supply.
The Taxation Office accommodation benchmarks for long term accommodation cannot be used for camps. The church should compare the price charged with that of other camps in the same locality.
Chocolate drive sales are usually made at a fixed price and therefore it is unlikely that the non-commercial exemption will apply. The GST basic food exemption does not apply to confectionary. Therefore, chocolate drive sales are subject to GST. Input tax credits can be claimed for the GST paid on purchasing the chocolate or confectionary.
The church’s liability to remit the GST collected arises in the period in which the sale is made. Therefore, the GST on chocolate sold in September should be remitted to the Taxation Office by 21 October. However, this may prove difficult for churches as the sales are often made by numerous church members and it may be several months before all members return funds collected to the church treasurer. The Taxation Office has issued a determination to vary the time in which to report and remit GST in the case where the entity relies on the agent for information required to account for their GST liability. As the church relies on the members for the information required to calculate the GST liability, the church is only required to remit GST on sales of the chocolate when it becomes aware of consideration it has received for the sales.
Provided the chocolate drive is not a regular event, the church could choose to treat the chocolate drive as input taxed under the fundraising rules. Churches can choose to treat fundraising activities as input taxed provided the item is sold for not more than $20 and the event is not run regularly or form part of series of similar events. Monthly events are not considered to be regular. The Taxation Office considers more than 15 of such similar fund-raising events in a year to be considered as regular.
For the chocolate drive to be treated as a fundraising event, an election must be made in writing before the event and kept as records for five years.
If this treatment is adopted, the church does not charge GST on the sales, but cannot claim input tax credits for the GST paid on purchases. Further, the proceeds from this event is not included in the calculation of the church’s GST turnover.
Alternatively, a church could choose to treat the chocolate drive as an unregistered non-profit sub-entity and not charge GST. However, the church cannot claim back the GST paid on the chocolate purchases.
The input tax treatment of a chocolate drive, whether as a fundraising event or as a non-profit sub-entity, is unlikely to be a significant disadvantage and could even increase the benefit of running the chocolate drive.
A minister may sometimes be responsible for more than one church. All churches in the circuit contribute to the minister’s salary. Occasionally, all the churches make their own payments directly to the minister and issue separate group certificates. In these circumstances, there are no GST consequences, as GST does not apply to salary and wages.
More commonly the individual churches make contributions to a nominated church within the circuit and that church will pay one salary payment to the minister each pay period. Under such circumstances if the nominated church is registered for GST, the payments from the other churches need to be grossed up for GST. The nominated church will need to remit GST, being 1/11th of the payment received, to the Taxation Office. If the individual churches making the payments are registered for GST, they are entitled to claim back input tax credits. For individual churches that are not registered for GST, no input tax credit can be claimed.
If the nominated church is not registered for GST, the payments do not need to be grossed up for GST. Individual churches making the payment will not be entitled to any input tax credits as there was no GST component charged on the payment.
It is also possible that all churches in the circuit belong to the same GST religious group. In this situation, no GST is charged on transactions between members of a GST religious group.
A church may establish a new church plant and provide funds to assist the new church’s operations. If the funds are provided with no specific use requirements, the payments will be treated as donations. Therefore no GST implications arise.
More commonly, the parent church places some restrictions on the use of the funds. The Taxation Office has ruled that payments with conditions as to the use of the funds may still be a gift provided that the obligations are not enforceable and there is no material benefit to the payer. Each situation will need to be considered separately to determine whether there is any material benefit or advantage to the parent church.
The methods and structures of church plants vary and the most appropriate treatment for GST purposes will also vary. The simplest treatment would be to have the church plant as a division of the parent church while it is being established and subsidised. This would eliminate the need for amounts paid across to potentially be subject to GST. Alternatively, if both churches are registered for GST, it may be possible for both churches to belong to the same GST religious group. Transactions between members of a GST religious group are not subject to GST.
Many churches run counselling services which will meet the less than 50% of market value rule. If the price charged for the counselling service is less than 50% of market value, the service is GST-free. Note that the market value needs to be based on supply of same or similar quality, quantity and conditions. Therefore, the market value of counselling services by a minister cannot be benchmarked against price charged on counselling services provided by say a qualified psychologist. But instead it needs to compared to another counselling service provided by another minister of similar quality.
If the price charged is 50% or more of the market price, the service may still be GST-free if it qualifies for the medical services exemption.
Counselling services must be provided by a recognised professional. This means that the practitioner must be approved or registered under the relevant state law or be a member of a professional organisation with uniform national registration requirements.
Therefore, counselling services provided by a registered psychologist will be GST exempt. Counselling services provided by other practitioners will be GST-free provided the practitioner is approved or registered as required.
Dinners and Similar Events
Payments to attend church dinners and similar events, such as auctions and trivia nights, are not donations as the person attending is considered to have received a material benefit, being the dinner. It is the Taxation Office’s view that this still applies even if the payment far exceeds the market value of the dinner.
GST will need to be remitted on funds raised from the dinner unless the amount charged for the dinner is less than 50% of market value or 75% of cost or unless the dinner is treated as an input taxed fundraising event.
Example 1 – A person pays $100 to attend a dinner worth $20. You cannot split the payment into $20 for the dinner and a donation of $80. The whole $100 will be consideration received by the church for the dinner.
Example 2 – A person attends an auction run by the church and pays $300 for a clock worth only $100. You cannot split the consideration into $100 for the clock and a donation of $200. The full amount is consideration for the sale of the clock. The church will need to remit GST on the full $300 unless it has chosen to treat the auction as an input taxed fundraising event or a non-profit sub-entity.
Example 3 – The church runs a men’s breakfast with a bowl set aside for donations to cover the cost of running the event. As the payments are to cover the cost of the breakfast, the payments are unlikely to be seen to be truly donations and therefore GST can apply.
If you wish part of the funds received to be treated as donations and therefore exempt from GST, you must clearly separate the consideration for the event from the donation.
Example 4 – The church runs a trivia night and charges $10 for admission. During the evening, the “hat is passed around” and further amounts are collected. These additional amounts are truly donations, as they are not related to the cost of attending the trivia night.
Example 5 – Your church runs a ball and sells tickets for $20. At the door, people are encouraged to donate a further amount for the work of the church. However, people with a ticket are admitted regardless of whether they make a donation. The $20 for the ticket will be consideration and subject to GST. However, the additional amounts collected are considered to be donations and will be excluded from GST.
If the purpose of the dinner or similar event is fundraising, the church can elect to treat the dinner as an input taxed fundraising event. This means that no GST is remitted on the funds raised but no input tax credits can be claimed for costs associated with the event. It may be necessary to apportion some costs between the main church and the fundraising event, eg rent, electricity, etc. and the GST portion of these costs that relates to the event will not be claimable.
Donations, Gifts, Tithes and Offerings
Donations, tithes, offerings and bequests are not subject to GST as they are not payment for any supply. No benefit flows to the payer as a result of the donation. However, the payment must be unconditional.
The Taxation Office has issued a ruling that considers donations to non-profit bodies. To be a donation, certain tests must be met:
1. The payment is made voluntarily;
2. The payer receives no material benefit for making the payment; and
3. The payment proceeds from the detached and disinterested generosity of the payer. Payments from governments generally do not meet this test.
A payment made in return for a material benefit or an enforceable obligation to use the funds for a specified purpose is not a gift. It is considered to be consideration for a supply. Therefore, GST may need to be remitted on the payment.
The Taxation Office has stated that specified gifts will meet the requirements of donations provided the payer has no legal right to enforce the payee to use the funds for the specified purpose. Most specified gifts to churches will meet these tests, eg donations to be used to purchase a new sound system or to be used for specific ministry areas such as youth.
The Charities Consultative Committee has stated that the following are not considered to be a material benefit:
- Listing of donors on a donor board
- A gift directed towards a specific benefit to a person who is not an associate of the donor
- A gift in response to a specific appeal for a specified purpose
- The provision of a mere acknowledgment or items of insubstantial value (eg cup of tea) as the result of a gift
- A thank you lunch or dinner to volunteers working for an organisation where there is no pre-existing agreement that such a provision will be made.
The following are considered to be material benefits:
- The recipient provides advertising to the giver, rather than providing a mere acknowledgment
- The giver receives an entitlement to discounted prices at functions or event organised by the recipient or on goods and services supplied by the recipient
- The giver receives an entitlement to use the recipient’s facilities.
Example – The following common receipts by churches are likely to be considered to be gifts and not subject to GST. However, the church should consider each situation separately and apply the principles outlined above.
- Tithes and offerings
- Gifts to specified people or events provided the giver receives nothing in return; eg specified gifts to missions, youth group, etc. The church has the right to use the funds where it pleases, even though in fact it always directs the funds to the area specified.
- Gifts to a specified appeal, eg Bibles for mission resources
However, care needs to be taken where the giver receives material benefits or the giver of a specified gift can enforceable right as to how the money is used.
- Your church runs a sausage sizzle and people can make a “donation” towards the cost by placing money in a bowl next to the barbeque. A material benefit, being the sausages, has been received.
- A local milk manufacture provides free flavoured milk at the church fete in exchange for a sign showing the company as a sponsor. This is considered to be advertising and GST applies. However, in this example the GST charged by the church on the supply of the advertising should equal the GST charged by the milk manufacturer on the supply of the milk. The effect of contra sponsorship is that the GST collected equals the input tax entitlement. However, the church needs to record both the supply and the acquisition and show them on the BAS. It also needs to hold the appropriate tax invoice for the supply of the milk.
- The church receives a gift for the provision of counselling services. However, there is a contractual obligation on the church to only use the funds for this purpose. The church has no discretion to alter the placement of the funds. In this situation, GST will apply.
Evangelistic Courses and Conference (eg Alpha Courses)
Fees charged for Evangelistic courses such as Alpha Course as well as annual conferences such as women’s conference are GST-free under the religious services exemption. The church is entitled to claim input tax credits for the GST paid on course materials and other expenses incurred in running the course.
However, the Taxation Office has ruled that a pastoral ministry course is not a GST-free religious service as it is not integral to the practice of the religion. Unless the amount charged meets the non-commercial supply test, GST must be charged on the course fee and remitted to the Taxation Office.
A registered church may be able to choose to treat fetes in one of several ways for GST purposes.
- Treat as an input taxed fundraising event
- Treat as a non-profit sub-entity
- Charge GST on certain sales, or
- Simplified accounting method.
Treat as Fundraising Event
Provided the fete is not a regular event or part of a series of similar events, the church can choose to treat the fete as an input taxed fundraising event. An annual fete is not considered to be a regular event. This is the simplest GST alternative for fetes. No consideration need be given to the type of sales made. The church simply does not need to charge GST on all sales made at the fete.
Further, it must be remembered that as the fete is treated as an input taxed fundraising event no input tax credits can be claimed on fete expenses, such as advertising and the rental of equipment. It may also be necessary to apportion expenses between the church’s general operations and the fete, eg power, rent, etc. and the no GST credits is claimable on the portion that relates to the fete.
The church must include a reference in its records that the fete has been treated as an input taxed fundraising event and keep it for five years.
Treat as a Non-profit Sub-entity
The church can choose to treat the fete as a non-profit sub-entity for GST purposes. Provided the turnover of this sub-entity is less than $150,000, the fete does not need to register for GST. Therefore, no GST need be charged on any sales made at the fete, but no input tax credits can be claimed. As for fundraising events, it may be necessary to apportion expenses between general church operations and the fete. In order to be eligible to be treated as a non-profit sub-entity, separate accounting records must be maintained for the fete and the church must recognise in its own records that the fete is a non-profit sub-entity.
Charge GST on Certain Sales
The church can consider each sale to be made at the fete and determine if GST needs to be charged. To do this, the church will need to determine whether any of the following GST exemptions apply:
Non-Commercial transactions – if the price at which the good or service is charged is less than 50% of market value, no GST need be charged. For example, many items at the bookstall will be sold at less than 50% of market value. It may be difficult to determine market value. There may need to be some research undertaken to determine market value – eg what is the usual price charged for a turn on the jumping castle or a pony ride and what prices are commonly charged for a sausage sizzle?
GST exemption for some food items – Although many basic food items sold at the supermarket are GST-free, most food sold at a fete is not. The GST exemption does not apply to food sold for consumption on the premises, hot takeaway food, most bakery products and confectionary. Therefore, cakes, doughnuts, hot dogs, etc sold at a fete will be subject to GST. However, the GST exemption will apply to fresh produce.
Sale of Second Hand Goods – the sale of second hand donated goods to a church provided the goods retain their character. This exemption will allow many items at a fete to be sold GST-free.
These three exemptions will ensure that the majority of transactions at a fete are GST-free. The main exceptions are likely to be most food items, games and events. Any GST paid on expenses to run the fete can be claimed back as an input tax credit, eg advertising, materials, etc, provided that it relates to taxable or GST-free supplies.
Given the administrative difficulties of examining each proposed sale at a fete, most churches are likely to choose the input taxed fundraising event method for fetes. Although the church cannot claim input tax credits on expenses associated with the fete, these amounts are likely to be small.
Churches can treat fundraising events as taxable supplies and charge GST. This treatment may be useful where there are significant input tax credits to be claimed.
Input Taxed Fundraising Events
Where the fundraising event involves different activities, it is often difficult to determine what supplies are taxable and what supplies are GST free. In order to limit the administrative difficulties of fundraising events, churches can choose to treat a fundraising event as an input taxed supply. This means the church does not need to charge GST on any supply but it cannot claim back any input tax credits. This is particularly attractive where there are numerous different supplies, eg fetes, or there are few input tax credits anyway, eg trivia night.
A church can use this alternative if:
- The church chooses to have all supplies that it makes in conjunction with the event treated as input taxed; and
- The event is referred to in the church’s records as an event that is input taxed.
A fundraising event must be conducted for the purpose of fundraising and does not form part of a series or regular run of like or similar events. A fundraising event can be held more often than annually and still considered to be irregular. The Commissioner has now issued a determination that the fundraising events can be held 15 times a year and still be treated as input taxed.
A fundraising event must be one of the following:
- A fete, ball, gala show, dinner, performance or similar event. A similar event may include a charity auction, a cake stall, or a fashion parade.
- An event comprising the sale of goods provided that each sale is for consideration that does not exceed $20 and selling those goods is not a normal part of the church’s business, eg flowers, chocolates, etc. However an event that involves the sale of items where the items include alcoholic beverages or tobacco products will not be considered a fundraising event.
Where fundraising activities fall outside the above exemptions, specific advice on taxable status may be sought from the Taxation Office.
In determining whether an event can be treated as input taxed, the church should remember the following:
- The purpose of the event must be fundraising. For example, if the purpose is evangelism, this input taxed treatment does not apply, eg. alpha dinner.
- If the event is treated as input taxed, all supplies associated with the event must be input taxed. For example, a church cannot apply the input taxed treatment only to the sale of food at a fete and not to the sale of donated second hand goods (usually GST-free).
- An event can be held up to 15 times in any one year and still be treated as input taxed.
- The church records must record the decision to treat an event as a fundraising event, eg minutes of the financial committee meeting.
Church can choose to treat fundraising events that do not meet the previous criteria as non-profit sub-entities. No GST is charged provided the non-profit sub-entity is not registered for GST (i.e. turnover of the event is less than $150,000). In order to qualify as a non-profit sub-entity, a separate accounting records needs to be maintained for the event and the church notes in its records that the event is a non-profit sub-entity.
As an unregistered non-profit sub-entity, no GST is charged and no input tax credit claims can be made for costs relating to the event.
No GST applies to unconditional grants. However, government grants are rarely unconditional. In this situation, 1/11th of the grant must be remitted to the Taxation Office as the GST component. Provided the entity making the grant is registered for GST, it can claim the same amount as an input tax credit.
The Charities Consultative Committee has advised that grants by philanthropic trusts will be gifts in certain circumstances. Few churches receive grants directly from philanthropic trusts. However, some churches have associated organisations that do receive such grants. The views of the Charities Consultative Committee are also helpful in the general consideration of what is a gift.
The Committee has said that a grant by a philanthropic trust to a non-profit organisation will be a gift where:
- The payment is made voluntarily and not as a result of a prior contractual obligation
- The trust does not receive an advantage of a material character by way of making the payment; and
- The payment essentially rises from benefaction.
The inclusion of conditions as part of the grant does not necessarily preclude the payment from being a gift. The following would not prevent the grant from being treated as a gift:
- Stipulate the project for which the funds are to be used
- Establish a project completion date
- Require the recipient to maintain separate records on how the grant has been used
- Require the recipient to acknowledge the philanthropic trust in any published or display material.
However, the following are considered to be material conditions and would usually result in the grant being a taxable supply:
- The grantor is given an interest in any resulting intellectual property that is generated from the research
- The grantor is provided with a share of income from the commercial exploitation of the research results
- The grantor is allowed to determine how the recipient is to acknowledge their assistance and this may extend beyond mere acknowledgment; or
- The recipient must repay the grant if the conditions of the grant are not satisfied.
This last condition is commonly found in documentation for the provision of grants from philanthropic trusts. For example, the documentation may say that the grant must be repaid if the funds are not spent on the agreed project. Non-profit organisations should carefully review documentation for grants to determine whether there is a GST liability.
In applying for grants that require the grant to be repaid if conditions are not met, the non-profit organisation should seek for the grant to be grossed up by 10% to cover the GST. Provided the philanthropic trust receives a tax invoice to enable it to claim an input tax credit, there should be no cost to the trust.
Hire of Church Premises
Hire of the church hall is generally subject to GST unless the amount charged is less than 50% of market value.
The hiring of a hall to hold a religious service such as youth service, wedding, funeral cannot qualify for the religious services exemption on the basis that the payment is made for the right to occupy and is not a payment for a service. In order to be entitled to the religious service exemption, the payment must first and foremost be for a service.
In determining whether the hall rent is less than 50% of market value, the market value methods should be applied. These are outlined in detail in Non-Commercial Activities. The hall rent should be compared to that charged for a hall with similar facilities in the same locality.
An honorarium is a payment made on a voluntary basis. It is usually given for professional services rendered without payment. The Taxation Offices states that it is not motivated by commercial considerations and generally has little or no relevance to the income producing activities of the recipient.
Churches often make payments to “volunteers” and to visiting speakers. Where such a payment is made, the church needs to determine whether the payment is to a religious practitioner. If it is, then the PAYG withholding rules for Religious Practitioners should be considered. For GST purposes, the activities of a religious practitioner in the pursuit of a vocation is considered to be the activities of the religious institution of which the religious practitioner is a member. Therefore, the payment to a religious practitioner may be subject to GST if the religious institution is registered for GST.
If the payment is to someone who is not a religious practitioner, then the church should determine whether the payment is assessable income to the payee or whether it is a genuine honorarium. Important considerations are the size of the payment and the regularity. Note that payments made to ministers, missionaries and other church workers are likely to be assessable income.
If the payment is assessable income, the church should then consider whether the recipient is an employee. If they are, the church should deduct any PAYG withholding required. The Taxation Office can impose penalties for failure to withhold.
Alternatively if the payment is assessable income but the recipient is not an employee or a religious practitioner, the ABN rules need to be considered. Where a church makes a payment in excess of $75 that is assessable income, the recipient needs to either provide an ABN or the church needs to withhold tax at 47%. If the recipient is registered for GST, they should provide the church with a tax invoice.
If the church concludes that the recipient is not an employee or a religious practitioner but is unsure whether the payment is assessable income, it may be possible to leave the decision to the recipient. If the recipient believes the payment is not assessable, they can complete the form “Statement by a supplier (Reason for not quoting an ABN to an enterprise)”. There is no need to withhold tax where an ABN is not provided and the payment was made to a tax exempt entity. However, the church will need to obtain the above mentioned form from the recipient to prove why tax was not withheld when no ABN was quoted.
In order to avoid the need to consider whether to deduct tax, it may be possible to pay the honorarium directly to the visiting speaker’s home church or governing body. GST will need to be considered if the home church (i.e. the recipient of the payment) is registered for GST. If the two churches are part of the same GST religious group, no GST liability arises. If the visiting speaker is participating in the service and the payment is to the speaker’s home church, the payment is likely to be a GST-free religious service.
If no GST exemption applies, you will need to obtain a tax invoice from the visiting speaker’s home church in order to claim back the GST input tax credit.
The impact of GST on an insurance claim depends on how the settlement is made. The church should inform the insurance company at or before the time the claim is made whether the church is entitled to full input tax credits on the insurance premium previously paid. Provided the church is registered for GST, it should be able to claim 100% of input tax credits on its insurance premiums.
As a result, if the insurance settlement is made in cash to the church, the insurance company will reduce the settlement amount by 1/11th. This is to allow for the input tax credit that the church will be entitled to claim when the replacement item is purchased. The church does not need to remit GST on the settlement amount received. The church is entitled to claim GST credits when the replacement item is purchased (provided that GST was charged on the replacement item).
If the insurance company simply replaces the insured item, the church is not entitled to any input tax credit on the replacement item.
Example – A church makes a claim for a stolen computer valued at $2,200. The church is registered for GST and claimed 100% of the input tax credits on the insurance premium previously paid. If the insurance company makes a cash settlement to the church, it will pay $2,000 only to the church. The church will then purchase the replacement computer for $2,200. On its next BAS, it will make an input tax credit claim of $200. The net effect to the church is nil, although there is a timing issue as the church must wait to claim its input tax credits.
The sales of church magazines and newsletters are GST-free if they are sold for less than 75% of cost or 50% of market value. If the less than 75% of cost method is used, cost includes direct and indirect costs. However, deemed costs such as volunteer labour or donated goods are excluded from the calculation of cost under the cost method as there were no actual outlay.
Capital assets that diminish in value overtime can be taken into account in calculating cost. Any reasonable apportion methodology can be used.
If the less than 50% of market value method is used, the Charities Consultative Committer has provided three methods in order of preference for calculating market value:
1. The price charged in the general market. However, there may be no comparable market. As such, this method can be used only if the publications are made available to public at large.
2. Use a suitable benchmark. This might be a publication of similar length that does not have a high level of advertising and that focuses on industry specific issues, eg an investment newsletter.
3. Where no commercial equivalent exists, the Taxation Office approved using ‘cost plus’ method to calculate the market value. The market value under this method is the sum of direct costs, reasonable apportionment of indirect costs, depreciation of assets used and deemed costs where voluntary labour or donated goods is used. This method can only be used if method 1 and 2 cannot apply. As such no mark-up should be applied to the market value determined under the cost plus method as there is no commercially realistic mark-up based on industry norms.
Methods 2 and 3 above will usually be sufficient to make the church’s magazine, newsletter or journal GST-free. A written self-assessment should be maintained and reviewed regularly to substantiate the market value.
Provision of Accommodation
The manse is considered to be residential accommodation provided by the Church to a member of the pastoral team. Rental of residential accommodation is input taxed unless the rent charged is less than 75% of market value. If the rent charged is less than 75% of market value, the provision of the manse is GST-free.
If the manse is GST-free, then the church can claim input tax credits for the GST included in expenses associated with the manse, eg insurance repairs, etc. Where a manse is built and will be used to provide GST-free accommodation, then input tax credits can be claimed for the GST included in the building costs.
If the manse is not provided at less than 75% of market value, it is treated as input taxed. The Church will not be able to claim back the GST input tax credits on the maintenance and refurbishment of the manse or on the construction of the manse.
The manse may be used for both residential purposes and for church purposes, such as meetings, church office, etc. However, the property will still be treated as residential if it used predominantly for residential purposes. Predominantly usually means more than 50%.
When is the manse GST free?
The Taxation Office states that whether or not the manse is GST-free depends on the arrangement between the minister and the church. The key question is whether the minister is providing consideration for the provision of the manse.
The Taxation Office’s position is that, if a church is obliged to provide accommodation to the minister regardless of the minister’s activities, then the minister has not provided any consideration for the manse. The provision of the manse is dependent on the minister’s status as a religious practitioner and does not relate to the provision of any particular activities. Even if the minister carries out no activities, the accommodation must still be provided.
The Taxation Office published an example of a situation when the provision of church accommodation would meet the above requirements and would therefore be GST-free. This example was clearly taken from the circumstances specifically relevant to the Catholic Church and is reproduced in Manse – ATO Example 1.
It appears from this example that the Taxation Office expects the minister to receive a base stipend irrespective of the provision of any accommodation. There should be an obligation on the church to provide the minister with accommodation because of the person’s status as a minister of religion and not because of any particular activities that the person performs.
The Taxation Office published a second example that is more relevant to most Protestant churches. In the example, the Taxation Office concludes that the accommodation is not provided to the minister merely because of the practitioner’s status but is dependent upon the minister carrying out certain duties. The example is reproduced in Manse – ATO Example 2.
In this example, the denomination sets salary package guidelines that include a housing amount if no manse is provided. Where a manse is provided, the Taxation Office concludes that this housing allowance amount is the consideration for the provision of the manse. The church must determine the market value rent it could receive if it rented the manse to an arm’s length unrelated partly. If the housing allowance is less than 75% of this market rent, the provision of the manse is GST-free. If the housing allowance is 75% or more of the market rent, the provision of the manse to the minister is input taxed.
Every church will need to determine how relevant are the Taxation Office examples to their church’s circumstances. However, it is our understanding that many Protestant denominations have salary package guidelines similar to those in the second example.
Many denominations set the same housing allowance regardless of where the church is located. The market rent on manses located in the inner suburbs of large cities will be high. It is likely that the housing allowance will be less than 75% of this market rent. However, the market rent on manses located in country areas is likely to be much lower and many country churches will not meet the 75% test.
If the provision of the manse is not GST-free, then no input tax credits can be claimed on costs associated with the manse. This affects not only expenses relating to the upkeep of a manse, but capital acquisitions as well. Therefore these churches will not be able to claim GST input tax credits associated with the building or renovation of manses.
Determining Market Value
The Taxation Office has provided market value benchmarks that can be used to determine whether the rest is less than 75% of market value.
There are different benchmarks within a capital city depending on the location.
The benchmarks can be found at Long Term Accommodation.
A church is not required to use the benchmarks. They can choose to obtain an independent market rent valuation.
Church Use of the Manse
In some instances, a part of the manse is used for church related purposes, eg preparation of sermons, hosting bible study groups, meetings with church members, etc. The Taxation Office takes the view that these areas of the manse are still considered to be residential if they are used predominantly for residential accommodation. Predominantly usually means more than 50%.
However, if there are areas within the manse that are used solely for religious activities and not for residential purposes, input tax credits relating to those areas can be claimed. This will mean that, if your manse is not ordinarily GST-free, some expenses, such as electricity, will need to be apportioned. Apportionment on the basis of floor area would be acceptable.
If there are rooms that are used more than 50% but less than 100% for religious activities, a portion of input tax credits, calculated on a time basis, can be claimed.
There may be one room, such as a study, that is used solely or predominantly for religious activities. The church will need to determine whether the extra administration costs calculating the input tax credits associated with that one room exceed the value of the credits claimed.
Sale of Manse
The sale of the manse will be the sale of property to be used predominantly for residential purposes. Therefore, the sale will be input taxed (unless it is the sale of new residential property). No GST is charged on an input taxed transaction. The church does not charge GST on the sale of the manse. However, it cannot claim input tax credits for the GST included in selling costs, such as commission, conveyancing, etc.
Similarly where the church purchases a property to be used as a manse, the transaction will be input taxed provided it is not new residential property. This means no GST will be charged by the seller on the purchase. Where the purchase is input taxed, no input tax credits can be claimed on purchase costs, such as conveyancing.
If the manse is a new residential property, then GST needs to be charged on the sale. New residential premises are premises that:
- Have not previously been sold as residential premises
- Have been created through substantial renovations
- Have been built to replace demolished premises.
Therefore if a church builds a manse or substantially renovates it, the church will need to charge GST when it sells the property.
There are two major exceptions to the rules for new residential premises, being the five year rule and residential accommodation before 2 December 1998.
Five Year Rule
New residential premises exclude premises that have been used for making input taxed residential rent for at least five years since the premises were acquired or built or since they were substantially renovated.
However, even if the property has been used for more than five years as a residential home by the ministers of the church, this GST exemption may not apply. Many churches are able to provide the manse as GST-free accommodation as it is provided at less than 75% of market value. Therefore the manse has not been used for making input taxed residential rent.
Residential Accommodation before 2/12/98
New residential premises exclude premises used for residential accommodation before 2 December 1998. However, if there has been a change to the premises after that date, eg substantial renovations, the premises will still become ‘new’.
Residential Premises Not Previously Sold
A change to the title of changes to the size of the property does not automatically make a residential property ‘new’.
The Commissioner accepts that the reduction in the size of the land does not cause premises to become new. The sale of the original building can still be input taxed.
For example, a church owns a church house that it acquired many years ago. It decides to subdivide the land in two and build a new residential property on one block. It then sells both properties. The sale of the existing house is considered to be input taxed. The sale of the newly constructed house will be subject to GST.
Where there is an increase in the size of the land, the Commissioner considers that the residential “package” is now made up of two parts. One part is the land and buildings on the original land. If this part has previously been sold as residential premises, then the sale of this part is input taxed. The other part, being the increased land area, will be subject to GST on sale. As the sale will have both a taxable and a non-taxable component, an apportionment of the proceeds on sale is required.
The process of strata titling of apartment blocks does not in itself create new residential premises.
Where a building is moved from one place to another on the same block of land, new residential premises do not arise. However, if a house is moved from one block to another block, then new residential premises are created. As the house and the new block of land have never been sold together, the residential premises are not considered to have been previously sold.
Many churches own houses that are old and have been renovated or altered over the years. Therefore, when the house is sold, there is a need to determine whether “substantial renovations” have occurred and whether GST needs to be charged.
Substantial renovations are defined in the GST Act to be “renovations in which all, or substantially all, of a building is removed or replaced. However, the renovations need not involve removal ore replacement of foundations, external walls, interior supporting walls, floors, roof or staircase”.
The Commissioner states that you need to consider the building in its entirety and not just certain rooms. Substantial renovations should directly affect most rooms in the building.
Generally, substantial renovations will involve the removal or replacement of structural components of the building, such as alterations to foundations, floors or supporting walls, modification of roofs or replacing doors in a way that alters the brickwork. However, substantial renovations can occur where there are changes to non-structural components with little alteration to structural components. This is particularly true of units and apartments. Non-structural work includes electrical wiring, alteration to non-supporting walls, plastering, plumbing, kitchen cupboards, bathroom fixtures and air conditioning. Cosmetic work by itself, such as painting and replacing curtains and light fittings, cannot give rise to substantial renovations.
Whether substantial renovations have occurred is a question of fact and degree. Taxation Ruling GSTR 2003/3 from the Taxation Office provides some examples that may be of assistance. In one example, substantial renovations occurred where there were removal and replacement of exterior walls, removal of some internal walls to create a more open plan house and the replacement of flooring and the kitchen.
In another example, there were no substantial renovations to a four bedroom, two story house. This was despite the fact that a new bathroom was constructed in an upstairs bedroom, the kitchen was renovated, including the removal of a wall and changes to the door and back window, and the replacement of the roof, ground floor floorboards and ceilings. The ruling states that the house in its entirety has not been substantially renovated (the four upstairs bedroom are untouched with the exception of one room that has become a bathroom). Consequently substantial renovations have not occurred.
Renovations undertaken by previous owners are ignored. However, if the church undertakes various renovations over a period of time, the renovations may eventually become substantial. Note that renovations that occurred before 2 December 1998 can be ignored.
Example – A church acquired a residential property on 1 July 2001 for $198,000. The seller was not registered for GST and no GST was included in the purchase price. Over a period of time the church undertakes substantial renovations. The total cost of renovation inclusive of GST was $55,000. The property was used as a manse for the minister for less than 75% of market value and therefore GST-free.
At the time it sells the property on 1 July 2019 for $550,000, the property is now considered “new” due to the extent of the renovations. The church must remit GST of $50,000 on the sale, being 1/11th of the sale price. However, it may be possible to use the margin scheme as discussed below.
Note that the church is entitled to claim $5,000 in input tax credits on the cost of renovation as the property was used to make GST-free supply.
Purchase of Manse
Generally there is no GST included in the price for the purchase of a manse, as residential accommodation is input taxed. However, if a church acquires a new residential property from someone registered for GST, eg a developer, the church will need to pay GST on the purchase. If the margin scheme is applied to the purchase, the church cannot claim input tax credits for any GST included in the purchase.
If GST is paid on the full purchase price, whether input tax credits can be claimed will depend on the use to which the premises are put. If the premises are provided to the minister as GST-free accommodation, then the church can claim an input tax credit for the GST included in the purchase. If the property is to be rented out or the provision of accommodation to your minister is not GST-free, it will be input taxed and no credits can be claimed.
If the property is initially used for GST-free accommodation, but is later rented out, there may need to be an adjustment made to input tax credits previously claimed. Adjustments are also required when the manse only meet the less than 75% market value rule for part of the time.
If the purchase price was less than $500,000, then adjustments must be considered for five adjustment periods. If the purchase price is $500,000 or more, then there are ten adjustment periods.
The first adjustment period is the period ending on 30 June at least 12 months after the period in which the acquisition is made.
Example – A church purchases a property in November 2019 for $400,000. The first adjustment period ends on 30 June 2021. It must consider any change of use of the property until 30 June 2025.
If the manse being acquired or sold is new residential premises, then GST needs to be included in the price. Generally, GST is 1/11 of the price. However, it may be possible to apply the margin scheme. The margin scheme is described in detail under Sale of Church Real Estate.
Example – Use the same facts as in the example under substantial renovations, but the church chooses to apply the margin scheme. Under this scheme, the church only needs to charge GST on the increase in value since purchase. As the increased value is $187,000, GST of only $17,000 is required to be remitted to the Taxation Office. This represents a substantial saving to the church.
The margin represents the increase in value of the original property. It does not take into account the cost of renovation of which the church would have been entitled to claim input tax credits.
GST Treatment of Manses – Taxation Office Examples
– “Under the governing rules of the church, the church is required to provide support to the religious practitioner to enable them to carry out their pastoral duties. This support is provided by way of a stipend and the provision of accommodation. The governing rules provide that the church is required to provide this support to all ordained religious practitioners of this denomination, regardless of the nature of the activities they perform or whether, in fact, they perform any activities. In addition, these rules require that the church must continue to provide accommodation to the religious practitioner on retirement for the remainder of their life or in the event of any long term absence from duties as a result of illness.”
For the above example the Taxation Office held that the provision of accommodation was GST-free.
– “The regional governing body of the Church issues guidelines which cover matters such as stipends, conditions associated with accepting a call and statements of understanding between the religious practitioner and the Church. These guidelines cover all Churches of the denomination within a region.
The guidelines recommend that the Church and the religious practitioner reach terms of agreement before a call is accepted and that this be documented. This statement clarifies the role of the religious practitioner, the terms and conditions of the call, and processes by which the ministry will be conducted in partnership together. The statement will include details such as the duration of the call, the role of the religious practitioner and the practitioner’s relationship to the Church, the total remuneration and how it is to be packaged, the process for decision-making, review of ministry, and dispute resolution and what happens when the ministry is concluded.
The guidelines set out that in calling and inducting a religious practitioner, the Church and the religious practitioner enter into an arrangement which invokes particular responsibilities and rights for the parties concerned. The guidelines stress the importance of ensuring that the incoming religious practitioner is aware of what the Church expects from the role. Therefore, the terms of agreement should include a role description that lists the main duties and accountabilities in the role.
It is recommended that the Church conduct on-going reviews of its collective life and ministry. This review will include the manner in which the religious practitioner is exercising the ministry of leadership.
A properly constituted special Church members meeting can conclude the religious practitioner’s call and engagement allowing three months notice. This will occur where the conclusion of the ministry is in the best interests of both the Church and the religious practitioner. Examples of where this may occur include where the emphasis or the direction in which the religious practitioner is attempting to lead the Church is no longer in accord with that which was agreed when the religious practitioner was called, where the religious practitioner is in conflict with the expectation of the Church and this cannot be easily reconciled, and where the religious practitioner no longer has the confidence and support of the Church leadership. For serious misconduct, a properly constituted Church members’ meeting may conclude a religious practitioner’s call without notice and with immediate effect.
The guidelines provide recommended remuneration levels. The majority of Churches pay their religious practitioners based on the recommended levels. However, it is open for the Church and the religious practitioner to negotiate a package different to the recommended levels. The guidelines provide a differing recommended stipend depending upon whether a manse is provided or not.
Based on the terms of engagement of the religious practitioner in these circumstances, the religious practitioner’s services are consideration for the supply of accommodation as there is a sufficient nexus between the two.
The acceptance of a call by a religious practitioner results in the entry into an arrangement between the church and religious practitioner that invokes responsibilities and rights for both parties. Therefore, the accommodation is not provided to the religious practitioner merely because of the practitioner’s status as it is dependent upon the practitioner carrying out those duties or responsibilities which arise from accepting the call.
In valuing the religious practitioner’s services, reliance is placed upon GSTR 2001/6. This ruling provides that the test for determining the market value of non-monetary consideration is an objective test.
The guidelines recommend a package including total stipend and benefits where a manse is not provided and a lower package where a manse is provided. By recommending that churches pay a lower package in those circumstances where a manse is provided, the regional governing body has effectively identified the value of that component of the religious practitioner’s services that represents consideration for the supply of the accommodation.
Where, in practice, the church follows the guidelines issued by the regional governing body in relation to the recommended level of religious practitioner’s stipends and benefits, we accept that the value of the non-monetary consideration for the supply of accommodation to the religious practitioner for the purposes of subparagraph 38-250(1)(b)(i) of the GST Act is currently the difference in stipend depending upon whether a manse is provided. Therefore, where this is less than 75% of the GST inclusive market value of the accommodation provided by the Church, the supply will be GST-free.”
In Example 2, the Taxation Office concluded that the housing component of the salary package is the consideration for the supply of the manse. If this amount is less than 75% of the market rental value, the provision of the manse is GST-free. If the 75% test is not met, the provision of the manse is input taxed and no GST input tax credits associated with the manse can be claimed.
Church lunches and dinners will be subject to GST unless the charge for the meal is less than 50% of market value or 75% of cost.
Market Value Methods
The market value methods can be used to determine a market value.
Where possible, the same or similar supply method should be used. The price charged for a meal should be compared to that charged for similar facilities in a nearby location. In practice this may be extremely difficult to obtain. Therefore, the cost plus method can be used if no same or similar supply can be found.
The costs under the cost plus method would include direct and indirect costs such as food, electricity, wages, etc. It also includes depreciation cost of equipment used and imputed costs such as volunteer labour and donated goods.
The cost plus method cannot be used for food purchased and then simply on sold as the market value can be determined using the same or similar supply methods.
Market Value Benchmarks
The Taxation Office has provided market value benchmarks that can be used for “Meals on Wheels”, charity soup kitchens and organisations that prepare and supply meals to the frail, homeless or needy. These benchmarks can be found at meals.
It would be rare that a church charged more than 50% of these benchmark amounts. Therefore meals to the frail, homeless or needy will usually be GST-free.
Input tax credits cannot be claimed for expenses, which are non-deductible entertainment. Entertainment includes entertainment by way of food, drink or recreation.
No specific guidance has been provided by the Taxation Office on what are non-deductible church meal entertainment expenses. However, the Taxation Office is unlikely to treat morning teas and finger food provided at church meetings as entertainment. Meals provided to the sick, disabled, poor or otherwise disadvantaged are not entertainment.
However, the provision of meals at church events, such as mission nights and social events, may need to be treated as non-deductible entertainment. The non-deductible entertainment rules can apply regardless of whether a fee is charged.
Some churches charge a fee for photocopied material, eg the church directory, or allow members to photocopy on a cents per copy basis. Where a church charges less than 50% of market value or 75% of cost then there would be no GST payable. However churches generally charges the market value and therefore GST will apply.
Churches generally do not charge for photocopying of materials by volunteers for ministry use. There will be no GST implications for the church under such circumstances as there is no payment made.
Where someone supplies a service voluntarily to the church and the church makes presentation or a “gift”, the church can claim an input tax credit for any GST included in the cost of the gift.
However, if the person receiving the gift is registered for GST they may need to remit 1/11th of its value as GST. This will occur if the “gift” is treated as non-monetary consideration for the supply of the service. In determining whether there is non-monetary consideration, you need to determine whether the “gift” is made in connection with or an inducement for the supply or whether it is merely a gesture of appreciation. If it is the latter, the gift will not be treated as consideration and no GST applies.
Where the payment is truly unconditional, it is not consideration for a supply and therefore no GST needs to be remitted. Gifts and presentations made by a church are usually unconditional and therefore unlikely to give rise to GST consequences.
The Taxation Office has released a determination regarding the GST consequences of providing a gift to a speaker. The determination states that where a speaker supplies speaking services for no consideration at a conference or similar event, and the conference organiser subsequently presents the speaker with a token of appreciation, that token will not be consideration. Therefore there is no GST liability.
A token of appreciation is a thing given as a mere gesture of thanks. It typically takes the form of a book, a bottle of wine, a bunch of flowers or some other small non-monetary item. The value of the item provided must reflect its purpose as simply a gesture of thanks.
Similarly, where accommodation, transport and meals are merely provided to enable a speaker to provide the speaking services, these items will not be consideration for a supply. However, where accommodation and meals are provided outside the period of the conference or they are provided to the speaker’s family, the accommodation and meals are likely to be consideration for a supply. Therefore the GST issues must be considered. If the speaker is registered for GST, they will need to remit 1/11th of the value of the consideration received.
The only circumstance in which a prize is subject to GST is when the winner of the event is registered for GST and they participate in the event as part of their business. Therefore, prizes that are subject to GST are generally those that are provided to a professional sportsperson or race horse winner.
Generally prizes given out in events held by churches such as trivia night or sports day are not subject to GST. This is because the participants of such event is unlikely to be registered for GST and have not participated in the event as part of their business.
The only GST implications that may arise from such events held by churches would be the entry fees charged. The entry fees are subject to GST unless:
- such events are for fundraising purposes and an election has been made to treat it as an input taxed fundraising supply
- treat the event as an unregistered non-profit sub-entity, or
- non-commercial supply exemption applies – fee charged is less than 50% of market value or less than 75% of cost.
The church is unlikely to ever be able to claim back any input tax credits for expenses incurred in running such social event.
Input tax credits on acquisitions made in relation to social event that was treated as an input taxed fundraising event or under an unregistered non-profit sub-entity will not be claimable as it is not in relation to making a taxable supply or GST-free supply.
Even when the event is fully taxable or a GST-free supply under the non-commercial supply exemption, it is unlikely for the church to recoup input tax credits on such acquisitions because the social event will most likely fall into the category of entertainment by way of food, drink or recreation. Any expenses incurred in respect of providing entertainment will be non-deductible and input tax credits not be claimable.
Sponsorship is considered in greater detail later in this chapter. But where a sponsor provides goods or services to a church that are then given as the prize, there is a supply by the sponsor to the church. Whether this is a taxable supply for GST purposes depends on whether the sponsor receives “consideration”.
If the church provides advertising, signage or naming rights, then consideration has been provided. Both the church and the sponsor will have a taxable supply. The church has supplied advertising and received the prize as consideration. The sponsor has supplied the prize and received advertising as consideration. In an arm’s length transaction, the net effect will be nil to both parties as the value of advertising and prizes will be the same and therefore the GST payable will be cancelled out by the equivalent amount of input tax credit.
Although it is a revenue neutral transaction, the church and the sponsor will still need to account for both transactions and give each other the relevant tax invoices.
Note that a brief acknowledgment of the church’s support for the organisation is not treated as consideration.
Raffles and bingo are exempt from GST provided they comply with government rules and regulations.
The exemption does not extend to activities, such as lotteries, that are subject to state taxes on gambling.
The provision of residential accommodation is usually input taxed. This means that no GST is charged to the tenant, but the landlord cannot claim input tax credits for the GST included in expenses, eg repairs, capital equipment, commission, insurance, etc.
Commercial Residential Accommodation
Commercial residential accommodation is not input taxed. It is subject to GST and the landlord can claim input tax credits. Commercial residential accommodation includes hotels, motels, inns, hostels, boarding houses, caravan parks, camping grounds and premises used to provide accommodation in connection with pre-schools, primary schools or secondary schools or anything similar to residential accommodation described above.
Some emergency accommodation and commercial housing will fall into this category.
Long Term Commercial Residential Accommodation
Different rules apply for long-term commercial residential accommodation. Long term means accommodation for a continuous period of 28 days or more.
Long term accommodation can be treated in one of two ways:
- The accommodation is input taxed. Therefore no GST is charged and no claim can be made for input tax credits; or
- Use the concessional GST treatment.
Under the concessional GST treatment method, input tax credits on expenses relating to the provision of these long term commercial residential accommodation can be claimed. Depending on whether the premises are ‘predominantly’ for long term accommodation, the GST is charged as follows:
- If at least 70% of the accommodation provided is long term, GST is charged on only 50% of the accommodation value;
- If less than 70% of the accommodation is long term, then GST is charged at the full rate for the first 27 days and the balance is charged at 50%.
Special Rules for Churches
The non-commercial transaction exemption for charities states that accommodation is GST-free if the charity charges less than 75% of the market value of the accommodation. The charity can still claim input tax credits for GST incurred on expenses.
Accordingly, provided the church charges less than 75% of market value, no GST is charged, irrespective of whether the accommodation is residential, commercial or long term.
The Taxation Office has provided market values for some types of accommodation. These values can be found at Long Term Accommodation.
For all other types of accommodation the general market value methods must be used. In considering what is similar accommodation, it should be in the type of premises supplied (eg camp site, boarding house, etc), the standard of facilities offered (eg one bedroom, etc) and the conditions of use or occupancy (eg per night, etc).
The types of accommodation covered by the benchmarks are:
- Supported accommodation and community housing (long term accommodation rates)
- Crisis care (short term and long term accommodation rates as appropriate)
- Residential housing (long term accommodation rates)
- Retirement villages (long term accommodation rates)
The rates cannot be used for the following:
- Campsite accommodation
- University halls and colleges
- Boarding schools
- Non-residential buildings such as halls and offices
Sale of Church Real Estate
Sale of commercial property by a GST registered entity is subject to GST. Therefore, the sale of the church building or church hall will include GST. If the buyer is also registered for GST, the buyer can claim the GST back as an input tax credit. However, as the GST involved may be significant, there may be significant cash flow timing issues for the buyer. Note that stamp duty is imposed on the GST inclusive price. Therefore the addition of GST to the price will increase the stamp duty assessed.
Alternatively, you may be eligible to calculate GST liability on sale of commercial property using the margin scheme.
The margin scheme is a very complicated area and we recommend that if you are intending to apply the margin scheme that you seek professional advice prior to entering into a contract of sale.
Basically, the margin scheme is intended to reduce GST payable on the sale of eligible real property by calculating the GST liability on the margin, rather than the full value of the property.
The margin is generally the difference between the sale price and the purchase price unless the property was acquired prior to 1 July 2000. Under that circumstance, the margin would be the difference between the sale price and
- market value on 1 July 2000 if the supplier is registered for GST from 1 July 2000; or
- market value at the time the supplier becomes registered if the supplier is registered for GST after 1 July 2000.
Note that development or construction costs as well as incidental acquisition costs such as stamp duty, legal fees, etc. are not included in the purchase price of the property when calculating the margin.
In order to be eligible to apply the margin scheme, the supply needs to first and foremost be a taxable supply of a real property. Margin scheme does not apply to supply of residential premises that are not new as such supply would be input taxed and not subject to GST anyway.
Secondly, in order to apply the margin scheme, the real property when acquired must not have been subject to GST under the general rule (i.e. GST applies on the full value of the property). The margin scheme can only be used when selling the property if:
- You acquired the property prior to 1 July 2000
- You acquired the property after 30 June 2000 but the margin scheme was applied to the purchase
- You acquired the property after 30 June 2000 but it was not a taxable supply. For example, the seller was not registered for GST.
If the church find itself in a position where it is considering to use the margin scheme but has acquired the real property under any of the following circumstances:
- from associates for no consideration
- from GST group members
- inherited from a deceased estate; or
- acquired as part of a GST-free going concern or farmland provisions
Then you must be aware that special rules may apply. Instead of looking at the time you acquired the property to determine whether you are eligible to apply the margin scheme, these special rules will generally require you to look at the preceding transaction. The special rules also require that the GST calculated reflects the full value added from the time the property was held by a registered entity in which no GST has been paid. If this time extends prior to 1 July 2000, then it will be the market value on 1 July 2000.
Example – Entity A purchase a land prior to 1 July 2000 for $200,000. The market value on 1 July 2000 was $250,000. Entity A then built a building on the land and sold it to entity B for $440,000. The sale was eligible to apply the margin scheme and it was agreed that the margin scheme would apply.
Entity B then sold the building and land together with the business to Entity C under the going concern exemption for $660,000 in September 2015. In July 2019, Entity C entered into a contract to sell the property to Entity D for $880,000. The transaction is eligible to access the margin scheme on the basis that the transaction prior to the GST-free going concern transaction was eligible to apply the margin scheme.
Under this circumstance, the margin is calculated looking through the going concern transaction and would be the difference between $880,000 and $440,000 rather than $660,000.
Further, in order to apply the margin scheme, the vendor and purchaser must agree in writing to the use of the margin scheme prior to settlement. The agreement to apply the margin scheme is usually included as a clause in the sale contract.
Consequences of Applying the Margin Scheme
If the margin scheme is applied, the purchaser will pay less GST on the supply of the real property. However, the purchaser cannot obtain an input tax credit for any GST included in the purchase price.
The seller can claim input tax credits on their selling costs, such as legal fees, agent’s commission, etc.
The margin scheme may be advantageous to a purchaser if:
- The purchaser is not registered for GST and therefore cannot claim input tax credits
- The purchaser is an input taxed supplier, eg a financial institution, and therefore again cannot claim input tax credits
- There has been little increase in the value of the property and therefore the GST charged under the margin scheme is small.
Application of the margin scheme can also reduce the stamp duty cost. As stamp duty is imposed on the GST inclusive price, the lower the GST amount the lower the stamp duty imposed.
Example – A church is buying a property for $500,000. The vendor purchased under the margin scheme for $495,000. If the seller does not now also apply the margin scheme, the seller would charge the church GST of $50,000. The church must pay that to the seller and at the end of the month or quarter, claim it back from the Taxation Office on its Business Activity Statement. The church has to finance this amount for a short period of time and wear the interest cost.
Alternatively, the church can ask the seller to apply the margin scheme. The GST is charged on the increase in value. Therefore the GST is only $500. The church cannot claim this GST back, but it is does not have to finance a large GST amount for a short period of time.
Without the application of the margin scheme, the stamp duty would be calculated on $550,000. However, if the margin scheme is applied the stamp duty would be less as it is calculated on $500,500.
Margin Scheme and Valuations
If the vendor acquired the property prior to 1 July 2000, it is not necessary that the vendor have a valuation at 1 July 2000 before the property is sold. However, the Taxation Office has stated that the valuation must be obtained by the due date for lodging the activity statement for the tax period in which the sale occurs. The Taxation Office may under limited circumstances exercise discretion to allow time extension to be given in obtaining a valuation.
Example – The Community Church sells its property and settlement occurs on 20 January 2019. If the Church lodges its Business Activity Statements quarterly, it has until 21 April 2019 to obtain a valuation of the property as at 1 July 2000. If it lodges its Business Activity Statements monthly, it only has until 21 February 2019 to obtain the valuation.
Valuation needs to be made in accordance to the Commissioner’s requirements in order for it to be an approved valuation. The requirements for an approved valuation differ depending on when the supply was made. The requirements is provided for in a collection of legislative instruments called the Margin Scheme Valuation Requirement Determinations (MSVs). It can be split into three broad categories:
- Supply made pre-1 December 2005 MSV 2000/1, MSV 2000/2 and MSV 2005/1
- Supply made on or after 1 December 2005
but prior to 1 March 2010 MSV 2005/2 and MSV 2005/3
- supply made on or after 1 March 2010. MSV 2009/1
Generally from 1 December 2005 onwards, there are three approved methods of valuation available:
- the market valuation in writing by a professional valuer
- the purchase price in a contract entered into before 1 July 2000 in an arm’s length transaction
- the most recent value set by a state or territory government department for rating or land tax purposes (made before the valuation date)
Note a professional valuer is a person registered to carry out valuations under State, Commonwealth or Territory Law or who is a member of the Australian Property Institute and is accredited as a Certified Practising Valuer. A valuation from a real estate agent is not sufficient.
If a valuation determined in accordance with the approved method cannot be produced to the Commissioner at request within a certain time frame or no valuation can be produced at all, the Commissioner may obtain its own approved valuation instead and determine your GST liability according to this valuation. This may result in additional GST payable and it is quite likely that you may not be able to recover this additional amount from the purchaser.
It is therefore important to obtain an approved valuation before the due date of lodging your Activity Statement for the tax period in which the sale of the property occurs.
It can become harder to obtain an accurate valuation of a property the longer time has lapsed. Accordingly, if your church owns property that it acquired prior to 1 July 2000 and has not obtained a valuation, we recommend that you consider obtaining such a valuation as at 1 July 2000. This valuation can then simply be filed until such time as the property is sold. At the time of sale, you can determine whether or not to apply the margin scheme.
Sale of residential premises are input taxed, unless the premise is new residential premise. No GST is included in the sale price, but the seller cannot claim input tax credits for GST included in selling expenses, eg advertising, agent’s commission, conveyancing, etc. The sale of the church manse or residential housing will fall into this category. The sale of residential property is discussed in more detail in this chapter under Manse.
The non-commercial rule is not considered here as it is unlikely that the church will sell its property for less than 75% of market value or cost.
If the sale is a sale of a new residential premise or a commercial residential premise it will be subject to GST. Margin scheme may be applied if the requirements to apply the margin scheme is satisfied, namely it is an eligible supply and both parties has agreed in writing before the supply is made for the margin scheme to apply.
New residential premises is defined under the section discussing treatment of Manse. Commercial residential premises is defined under the Residential Accommodation section.
Sale of Equipment
Churches sometimes dispose of second hand goods, such as computers, furniture, sound equipment and cars. The sale of second hand equipment is a taxable supply. Accordingly, the church must charge GST on the sale unless the amount charged is less than 50% of the market value for the second hand item or 75% of the cost. Most second hand items will be sold for less than 75% of original cost and therefore will be GST-free. However, the church should ensure that it maintains the appropriate documentation to prove that the test is met should the Taxation Office audit the church at a later date.
Example – The Community Church buys a photocopier for $2,000. Four years later it sells the photocopier to a church member for $500. As the sale price is less than 75% of the original cost, the Church does not remit any GST on the transaction.
Example – The Community Church buys a photocopier for $2,000 but finds it does not meet its needs. The church trades in the copier three months later on a better model and receives $1,650 trade in. A the trade in price is more than 75% of the original cost, the church must remit 1/11th of the trade in price of $1,650. Being $150.
Sale of Motor Vehicle
For most GST registered entities, the sale of a vehicle is a fully taxable supply. In this case the sale proceeds should be included at G1 on BAS and 1/11th of this amount included at A1. However, the sale of a vehicle by a church may be GST-free under the non-commercial supply rules. The sale will be GST-free if the payment or trade in price you receive is less than:
- 50% of the GST inclusive market value of the vehicle sold or
- 75% of the amount you paid (see below) to purchase the vehicle now being sold
You are unlikely to sell a vehicle for less than 50% of its market value but it is common for churches to sell vehicles for less than 75% of their cost.
The amount you paid to purchase the vehicle includes:
- the original cost of the vehicle, including GST and any luxury car tax and before any reduction for a trade-in
- the GST inclusive cost of optional extras
- the GST inclusive cost of any modifications made to the vehicle
- the GST inclusive cost of delivery
However, the purchase cost does not include:
- stamp duty
- motor vehicle registration fees
- compulsory third party insurance
You should maintain the appropriate documents, such as purchase invoices, to be able to show the cost of the vehicle. You will also need to provide your ABN to the car dealer to prevent the dealer withholding 46.5% tax from the trade-in value.
GST-free sales should be shown at G1 and at G3 on the BAS. No amount will be included at 1A.
Trade in subject to GST
If the trade in price is 75% or more than the original amount paid to purchase the motor vehicle, then the sale will be subject to GST. You will need to remit GST 1/11th of the trade in price to the Taxation Office and will need to issue a tax invoice to the dealer within 28 days from the day the dealer ask for it.
Under certain circumstances, the dealer being the recipient of the goods may raise a tax invoice instead of you the supplier. This type of tax invoice is called a Recipient Created Tax Invoice (RCTI). In order for the dealer to issue such invoice, it need to obtain an agreement from you in writing. If an RCTI has been issued by the dealer, you will not be required to issue another tax invoice for the same supply and you will be required to remit GST to the Taxation Office shown on the RCTI.
If you finance a vehicle by way of a loan or a hire purchase, the calculation of the amount paid to purchase the vehicle remains unchanged. However, if you lease a vehicle, you do not actually own the vehicle until such time as you complete the contract and pay the residual. Therefore the purchase cost of the vehicle is only the residual plus any purchase related costs. It does not include the lease payments.
Usually a car dealer can claim an input tax credit on the trade in price they pay to a customer. Due to the special rules for second hand goods, this input tax credit claim is available regardless of whether or not the customer is registered for GST. However, the dealer cannot make an input tax credit claim where the transaction is GST-free due to the non-commercial supply rules.
Therefore, if the trade in price is less than 75% of the amount you originally paid to purchase the vehicle now being sold, you should advise the dealer that the transaction is GST-free. Any invoice provided to the dealer should clearly show the trade-in price is GST-free. The dealer is not entitled to claim an input tax credit.
Sales and Hire of Recording of Sermons
The sale and hire of church recording such as sermon messages is a supply of good and not a supply of service. Therefore the sale or hire cannot be GST-free under the religious service exemption and GST will need to be charged unless the price is less than 50% of market value or 75% of cost.
In determining a market value, the church will need to consider prices charged by other churches for similar goods.
Seminars and Conferences
Seminars and conferences run by churches may qualify for the religious services exemption. In an Interpretative Decision, the Taxation Office has held that in order for a conference to be a religious services it must be integral to the practice of the religion. In order to determine whether the conference is integral to the practice of the religion, the content and nature of the conference needs to be examined. Conference activities that involve prayer, worship, lecture, presentation, etc. focusing on the moral or ethical belief of the religion will satisfy this requirement.
However, be careful to exclude food and accommodation from the conference fee. Including food and accommodation will result in only a portion of the fee being GST-free. The church is required to reasonably apportion the fee to those components relating to GST religious services as well as those components relating to food and accommodation. Some food may be GST-free but most food provided at a conference is take away or hot food, confectionery, savoury snacks or bakery products and therefore subject to GST.
If a church charges a fee for arranging the accommodation for its conference attendants, it will generally be subject to GST.
Example – Praise Church is having an annual conference. The conference fee is $100. Further, the church can arrange accommodation for interstates and overseas delegates for a fee of $11. The Church found a hostel that can accommodate these delegates for $55 a night. The conference fee qualifies for the religious service exemption and therefore the church does not need to remit GST.
The fee for arranging accommodation for the delegates will be subject to GST and the church will be required to remit 1/11th of of amount received in relation to that service to the Taxation Office.
The church does not need to pay GST on the accommodation fee as the supply was not made by the church but rather it was made by the hostel operator. The church is simply acting as an agent in the transaction. The church also cannot claim input tax credits for the accommodation fee. The church will simply collect the accommodation fee from the delegates and pass the whole amount on to the hostel operator.
If the church did not charge any fee for arranging accommodation, it will not have to remit any GST at all.
CDs and DVDs of the conference should also be sold separately and not form part of the conference fees. CDs and DVDs of sermons are not eligible for the religious services exemption and are subject to GST unless the amount charged is less than 50% of market value or 75% of cost.
The fee charged for a social event will be subject to GST unless the amount charged is less than 50% of market value or 75% of cost. It is unlikely the amount will be less than 75% of cost as churches usually set the entrance fee at an amount sufficient to recover costs.
The market value methods should be used to determine a market value. It may be possible to compare the event to a similar event being running by another local body. For example, in determining the market value of a trivia night, there may be a similar event being run by a local sporting club.
It is important that the entrance fee for the event covers similar items, include food and drink, etc. The entrance fee for a video night at the church cannot be compared to the price of a movie ticket at the local theatre.
No input tax credits can be claimed for expenses incurred in running social events to the extent that the expenses are non-deductible entertainment expenses. Entertainment includes entertainment by way of food, drink or recreation. The Taxation Office has not published anything specifically on what it considers to be non-deductible church entertainment. However, it appears to be that most social events are non-deductible entertainment.
In some circumstances, the social event may qualify as an input taxed fundraising event. Refer to the discussion on Fundraising for more details.
One other option to avoid needing to charge GST on entry fees is to treat the event as an unregistered non-profit sub-entity. The requirements for an activity to be a non-profit sub-entity are discussed in Non-profit Sub-entities.
Even if the social event is advertised as entry by donation, the funds raised will not be GST free donations as the donor receives a material benefit, being the social event. See the earlier discussion on Donations, Gifts, Tithes and Offerings and on Dinners and Similar Events. Therefore, for donations to be exempt from GST, the entrance fee and the donation must be clearly separated.
The only circumstances in which a prize is subject to GST is when the winner of the event is registered for GST and they participate in the event as part of their business. Therefore, prizes that are subject to GST is generally those that are provided to a professional sportsperson or race horse winner.
Generally prizes given out in social events held by churches such as trivia night or sports day are not subject to GST. This is because the participant of such an event is unlikely to be registered for GST and has not participated in the event as part of their business.
Sponsorship to a church is usually provided in exchange for services, such as promotion or acknowledgments. Therefore there is a taxable supply and GST applies.
An organisation may pay an amount to a church in exchange for an acknowledgment of its donation. The church must remit 1/11 of this amount as GST to the Taxation Office. The organisation that provided the amount can claim an equivalent amount as an input tax credit.
Example – An organisation provides $1,100 to the church building fund in exchange for plaque acknowledging its sponsorship. The church must remit $100 to the Taxation Office. The organisation can claim an input tax credit of $100.
An organisation might provide goods or services to a church in exchange for other goods or services, usually advertising. Under this arrangement, there is a taxable supply by both parties. The organisation supplies goods or services. The church supplies advertising. The Taxation Office describes this transaction as “contra sponsorship”.
If the parties are unrelated, the value of both transactions will be the same. The church has a GST liability equal to 1/11th of the value of the advertising provided. However, it can claim an input tax credit of 1/11th of the value of the goods acquired. The net effect is nil provided tax invoices are held.
Example – A local soft drink company provides cans of soft drink to the church’s family fun day in exchange for substantial signage acknowledging its sponsorship. The market value of the soft drink is $550. As the parties are unrelated, the value of the advertising provided by the church is also $550.
The church has a GST liability of $50 for the supply of the advertising. However, it is also entitled to an input tax credit of $50 for the soft drink acquired. Therefore there is no GST payable or refundable. The same net effect applies to the soft drink company.
However, if the parties are related, eg the church and a church member, it is necessary to calculate the market value of each supply. For example, the value of the goods provided by the church member might have a greater value than the advertising provided by the church.
Sponsorship of Prizes
Where a sponsor provides goods or services to a church that are then given as the prize, there is a supply by the sponsor to the church. Whether this is a taxable supply for GST purposes depends on whether the sponsor receives “consideration”.
If the church provides advertising, signage or naming rights, then consideration has been provided. Both the church and the sponsor will have a taxable supply. The church has supplied advertising and received the prize as consideration. The sponsor has supplied the prize and received advertising as consideration. The church and the sponsor need to account for both transactions and give each other the relevant tax invoices. Note that a brief acknowledgment of the sponsor’s support such as a brief mention of thanks in the church event’s program is not treated as consideration.
Fees charged by a Sunday school will generally be GST-free under the religious services exemption. However, it is unclear whether this extends to Sunday School outings. It is likely that GST will need to be charged for these events unless the fee is less than 50% of market value or 75% of cost. It is unlikely for Sunday School outings to qualify for religious services exemption as it is more likely to be for recreational purposes.
Some churches run particular groups as a separate centre. Sunday schools often fall into this category. These groups have their own budgets and their accounting records are kept separately. The church treasurer may have little involvement in the financial aspects of these groups. Some churches have expressed concern about the need to re-centralise all operations so that the GST return can be prepared.
As an alternative, the church can choose to treat these groups as non-profit sub-entities. If the group does not register for GST, it cannot claim input credits for GST paid on materials and resources. If the input credits forgone are small, this may be an acceptable option for the church. Alternatively, the group could choose to register separately for GST and prepare its own GST return each month or quarter.
The Taxation Office has said that most religious teaching and evangelistic activities will be GST free under the religious services exemption. From the church’s perspective, the primary purpose of the youth group may well be religious teaching and outreach. However, the actual content of the youth program may be largely social. Although little guidance has been provided by the Taxation Office, it is unlikely that all youth group activities will qualify for the religious services exemption.
In some instances, the youth group fee may be less than 50% of market value or 75% of cost and therefore will be GST free under the non-commercial exemption. However, generally youth groups on charge people for the cost of running or attending the activity and this exemption may not apply. Therefore, in many instances, fees for youth group activities will be subject to GST.
The church should consider whether all input tax credits associated with the youth group can be claimed. Input tax credits cannot be claimed for expenses incurred in running activities to the extent that the expenses are non-deductible entertainment expenses. Entertainment includes entertainment by way of food, drink or recreation. The Taxation Office has not publicly stated what it considers to be non-deductible church entertainment. However, its appears to be that most social events are non-deductible entertainment. As many youth group activities are largely social, these rules can apply.
Example – The youth group has a ten pin bowling night. Each attendee is charged $11, which covers the bowling and supper. The church must remit $1 GST to the Taxation Office. It may be able to claim input credits for the GST paid to the bowling alley and for any GST paid on the food for supper provided the youth group activity is not considered to be non-deductible entertainment.
However, it is most likely in the Taxation Office’s view that the youth group activity is a non-deductible entertainment, as such the church cannot recouped any input tax credits and is still liable to remit GST on the fee charged.
Under such circumstances, it would be preferable for each attendee to pay their money directly to the ten pin bowling club.
The youth group may be run as entirely separate centre. It may have its own budget and separate accounting records and there may be little involvement from the church treasurer.
To prevent the need to re-centralise the operations of the youth group, the church can choose to treat the youth group as a non-profit sub-entity. If the group does not register for GST, it cannot claim input credits for GST paid on materials and resources. If the input credits forgone are small, this may be acceptable. Alternatively, the youth group could choose to register for GST and prepare its own GST return each month or quarter.