Many churches rent their property spaces – commercial, residential & Halls.
Some churches rent these properties at full market rate, to support the work of the ministry of the church. Many churches choose to rent their properties at a low rate as part of their ministry strategy.
Very few of the over 500 churches we have worked with since GST was introduced in 2000 understand the GST concessions the ATO provides in it’s GST Concession for Non-Commercial Activities.
I hope the following will help you check that you are doing the right thing in regards to the GST on your rental properties. You may even increase income or decrease expenses for your church after you check and implement the points below.
The commercial activities of an endorsed charity, gift deductible entity or government school are taxable (GST) but the non-commercial activities of these organisations may be GST-free dependent upon whether certain threshold tests are met .
Rent of Commercial Properties & other spaces eg halls etc
The ATO states that “The term ‘non-commercial activities’ refers to sales made when the payment received for the sale is less than a specified amount. The sale is GST-free if the amount charged is either of the following:
- less than 50% of the GST-inclusive market value, or
- less than 75% of the amount paid to purchase the item that is subsequently sold.”
Therefore, the rental will be classified as GST Free if you can justify that your (non residential) property is rented at less than 50% of the market rate or 75% of your costs.
The result is that you no longer need to remit 1/11th of the amount paid to the ATO. Thereby potentially increasing your income by 10/11%. This means that the organisation can keep as income 100% of the amount charged.
Rent of Residential/Accommodation properties
Normally the supply of residential accommodation is classified as Input Taxed.
GST cannot be charged on the sale of Input Taxed items.
Also GST cannot be claimed back on expenses incurred. Therefore, GST paid on expenses on the maintenance or management of residential properties cannot be claimed back from the ATO.
The table below may explain this more clearly
Collecting and claiming GST on different types of sales
| Type of sale | Do you collect/charge GST on your sales? | Can you claim GST credits on your purchases? |
| GST | Yes | Yes |
| GST-Free | No | Yes |
| Input Taxed | No | No |
However, ATO’s GST Concession for the supply accommodation – changes the tax from Input Tax to GST Free, provided the sale is a supply of accommodation (Residential Rent) by a NFP. The sale is GST-free if the amount charged is either of the following:
- less than 75% of the GST-inclusive market value of the accommodation
- less than 75% of the cost of providing the accommodation.
This means that GST is not charged on the sale of the residential rent but the GST paid in the expenses incurred is claimable, essentially reducing the expenses of these properties by 10%.
Proof that the GST Concessions apply
Documented evidence must be available should the ATO question your use of the GST Concessions. The ATO has provided a detailed Tax Ruling that provides methods to test the comparison between the price you are charging and the current market rate.
Charities are required (by section 38-250) to compare the consideration it receives for a particular supply against the market value, or cost of the supply.
To compare the current price being charged to the market rate, the comparison must satisfy the ‘same supply’ test. This means, like must be compared to like. The comparison must be made like same/similar properties.
“41. The same supply test requires a charity to work out whether a supply, the same as the one it makes, exists within the market they operate in. That is, in applying the same supply test, the charity compares its supplies to those in the market. The comparison is made between the supplies made by the charity and those by other suppliers. It is not made between the recipients of the supply or the suppliers.”
44. Charities needs to take into account the following when making the comparison:
- identifying the market
- the locality of the supply or area of the market
- the quality or nature of supply
- the size, quantity or duration of supply
- the conditions of supply
- other charitable or commercial suppliers, and
- the number of comparisons.
Click here for the link to the ruling for more detailed explanation.
When you have evidence as defined above that your price:
- for “commercial” property rentals is less than 50% of the market rate, or
- for residential property is less than 75% of the market rate
We recommend that your church or organisation parish council, management committee or wardens ratify and minute that it agrees with this evidence and decision to declare these rentals as GST free.
We hope you have found this article helpful. Please contact us if you would like to discuss this article or you need any help with your financial management processes at [email protected] or 1300 138 627
© Benkorp Management Services Pty Ltd 2018