Getting the most from GST concessions
While a host of GST related concessions are available for not-for-profit charities, we have found that not all organisations take full advantage of them.
Where a charity supplies goods for less than 50 per cent of their market value, or sells them for less than 75 per cent of what they cost, the supply is classified as GST-free. GST is not payable on a GST-free supply and input tax credits can be claimed for things acquired or imported to make the supply.
Most charities are familiar with these provisions in the context of their routine operations, and accordingly find themselves in net GST refund positions.
However, it is our experience that many organisations are unaware the above rules extend beyond their day-to-day charitable activities and can often apply to asset disposals and trade-ins. Specifically, we have noted that some charities routinely classify the sale of capital items (e.g. motor vehicles and office equipment) as taxable, even though these supplies satisfy the GST-free ‘less than 75 per cent of cost’ test.
The risk of this occurring is higher when goods, especially motor vehicles, are traded in, because the GST related documentation is often completed by the dealer.
For this reason, we recommend charities assess the GST classification of asset disposals and trade-ins as a matter of course, particularly in the context of the ‘less than 75 per cent of cost’ test. You could achieve real and legitimate savings by correctly reporting supplies of this nature as GST-free.
While the above concessions apply to non-commercial and altruistic activities of not-for-profit organisations, we note that changes to this system were announced in the 2011 Federal Budget. Specifically, unrelated commercial activities undertaken by not-for-profit entities will no longer have access to these concessions.