GST issues registers

Charities consultative committee resolved issues

Part 10 - Religious institutions and services

Issue 1: What is a religious service?

Non-interpretative - straight application of the law

Principle

A supply of a religious service is GST-free if it is a supply of a service that:

•

is supplied by a Australian Charities and Not-for-profits Commission (ACNC) registered religious institution, and

•

is integral to the practice of that religion.

The courts have determined that, for a body to be regarded as a religious institution:

•

its objects and activities must reflect its character as a body instituted for the promotion of some religious object, and

•

the beliefs and practices of the members of that body must constitute a religion.

The two most important factors for determining whether a particular set of beliefs and practices constitute a religion are:

•

belief in a supernatural being, thing or principle, and

•

acceptance of canons of conduct which give effect to that belief, but which do not offend against the ordinary laws.

Religious institution is not confined to the major religions.

Some examples of a religious service would include, worship, Sunday School, a wedding, funeral or baptism service, religious retreats, bible study groups etc.

The Vos report considered this issue and stated that 'where the services were purely religious and there is no commercial equivalent then it was appropriate for this to be GST-free'.

The following are examples of services that have a commercial equivalent and thus are not GST-free, provision of administrative and financial services, engagement of a minister of religion, the civil or secular elements of religious services etc. Civil or secular elements of a service would include, flowers, music, reimbursement of travel expenses, accommodation and food at a religious retreat, library loan or hire and items for private use in devotion.

Donations and offerings would not be subject to GST as the donation or offering is not payment in return for the supply of a good or a service.

Specific questions and answers

Question 1. In what circumstances is the supply of the following religious services GST-free?

•

Spiritual retreats

•

After school catechism

•

Adult education in the faith

Non-interpretative - other reference (see TR 92/17 Income tax and fringe benefits tax: exemptions for 'religious institutions')

Spiritual retreats, after school catechism and services with the purpose of religious devotion and instruction in the faith (for example bible studies and religious pre marital instruction) would be considered to be integral to the practice of that religion and would therefore be GST-free under section 38-220 if supplied by a religious institution.

Where these activities are not integral to the practice of a religion then they may still be GST-free where supplied by an endorsed charity or a gift deductible entity and for consideration (payment, act or forbearance) which is less than either 50% of the GST inclusive market value of that supply or 75% of the cost to the supplier of making the supply (section 38-250). Religious institutions are considered to be charitable under point three of the common law definition.

Question 2. To what extent will 'religious service' be applied where it occurs outside a place of worship? For example, would religious residential retreats be classified as GST-free?

Non-interpretative - straight application of the law

If the residential retreat is considered integral to the practices of the religion and is supplied by a religious institution then it will be GST-free. It does not matter that those practices occur outside a place of worship.

Question 3. Does expenditure incurred have to be integral to the religious service to allow entitlement to an input tax credit? What supplies are considered to be integral to the provision of religious services like weddings and funerals and will therefore be GST-free?

Non-interpretative - straight application of the law

Expenditure incurred does not have to be integral to the provision of a religious service to allow entitlement to an input tax credit. However the expense does have to be incurred in the course or furtherance of your enterprise, meeting the normal requirements for a creditable acquisition. Creditable acquisitions may include hymnbooks, candles, religious icons and flowers to decorate the church. Note: supplies of flowers or other goods by a religious institution will not be GST-free. Supplies of flowers etc are not supplies of 'religious services' integral to the practice or religion, they are supplies of goods.

Question 4. Religious houses such as vicarages, monasteries and the like undertake a number of activities which are integral to the practice of that religion including the preparation of sermons, hosting bible study groups, meeting with confirmation candidates and new parishioners, etc. To what extent can these religious houses claim input tax credits? Would it be possible, for example, to allow GST credits to be claimed based on a percentage of total floor area which is considered to be used by clergy solely for the purposes of religious service related activities?

Non-interpretative - straight application of the law

The supply of residential accommodation (other than commercial residential premises) is generally input taxed. This means that the supplier is not required to remit GST on the rent received, but is not entitled to input tax credits for the GST included in expenses incurred in providing the accommodation.

The supply of the accommodation is input taxed to the extent that it is used predominantly for residential accommodation. Therefore, if there are areas within these establishments which are devoted solely for these religious activities, a proportion of the input tax credits would be available. Apportionment of these input tax credits on a reasonable basis, such as floor area, would be appropriate.

Where the supplier of accommodation is an endorsed charity, a gift-deductible entity or a government school, the supply of accommodation may be GST-free under section 38-250 of the GST Act.

Where the supply of accommodation constitutes a fringe benefit (including exempt benefits), the consideration for the supply in determining whether it is GST-free under section 38-250 may include services provided by the employee. See question 7 in part 3 for further details on this issue.

Question 5. How will the clergy be treated for PAYG purposes?

Non-interpretative

From 1 July 2002, PAYG withholding has been extended to cover certain payments made to religious practitioners. For more information, refer to Religious practitioners guide to PAYG withholding.

Question 6. Will payments made for the accommodation and support of retired clergy within church owned aged care facilities be subject to GST?

Non-interpretative - straight application of the law

The answer to this question depends on the type of accommodation and care provided, and the circumstances. Where the supply is made in the course of providing residential care (section 38-25), it would be GST-free. Where the accommodation is residential, it would generally be input taxed. Where the accommodation is supplied by an endorsed charitable institution for less than 75% of the market value, or less than 75% of the cost of supply, it will be GST-free (section 38-250).

Question 7. How will GST apply for charities such as scripture unions and the like whose function it is to further the practice, study and teaching of religious beliefs and whose publications are sourced overseas but printed in Australia? These publications are either distributed as individual products or as annual subscriptions. Organisations also publish books and booklets printed in Australia and import books printed overseas for distribution in Australia and in the Pacific. How will GST apply when distribution occurs via churches and similar bodies?

Non-interpretative - straight application of the law

Publications offered for sale by scripture unions and similar organisations will generally be considered taxable supplies. That is because the sale of the publications is considered to be a commercial activity. Therefore the normal GST rules will apply, that is:

•

the organisation will pay GST on publications printed in Australia to the supplier, or to Customs in relation to books and other printed matter imported into Australia, and

•

the organisation will be entitled to an input tax credit in relation to the creditable acquisition or importation provided that the organisation is registered for GST purposes.

If the scripture unions are endorsed charitable institutions (there is insufficient information to determine one way or the other) and sell the books for less than 50% of the GST inclusive market value, the supply would be GST-free. The market value could be determined from the cost of a similar publication in a bookshop. Alternatively the supply of the publications would be GST-free if sold for less than 75% of their cost of production.

The same principles would apply where the distribution is by churches or other charitable organisations registered for GST.

Question 8. How would payments be treated under GST when made under maintenance contracts for the repair of sisters/nuns/convent or clergy houses?

Non-interpretative - straight application of the law

If the contractor is registered, GST will be included on payments made under a maintenance contract. Where the supply of accommodation is input taxed, the religious organisation would not be entitled to claim the GST as an input tax credit. Where the supply of accommodation is GST-free under section 38-250, the input tax credits can be claimed.

If there are areas within these buildings that are used predominately for non-residential purposes such as meeting rooms or administration, a proportion of the input tax credits would be available. Apportionment of these input tax credits on a reasonable basis, such as floor area, would be appropriate. See question 7 in part 3 for more details on this issue.

Question 9. Within diocesan operations activities are conducted that would possibly fall within the definition of financial supplies and as such would be Input Taxed. These activities occur to support parishes, clerics, parishioners and other Anglican entities. Activities include: Anglican Development Fund (equivalent to a small credit union), Investment funds management, Motor Vehicle loans for clerics, and Trust Management. Can guidelines be provided for what constitutes a financial supply and whether it is possible to use a proportional basis to determine what portion of GST paid is not eligible to be claimed as credits? Are transactions internal to the diocese GST free, specifically relating to a financial supply and a non-financial supply activity?

Non-interpretative - other reference (see GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions.)

The regulations list the categories of financial supplies that are to be input taxed.

It appears from the limited information supplied that the supplies mentioned in the above question would be considered financial supplies.

GST groups and GST religious groups are effectively treated as a single entity. Supplies and acquisitions made wholly within a GST group or a GST religious group are taken out of the GST system. Supplies and acquisitions that are made outside the GST group or GST religious group fall within the general rules. In determining the extent to which an acquisition or importation made by a member of a GST group or a GST religious group is for a creditable purpose, you look at the creditable purpose of the group as a whole.

In principle, where a supply is made by an endorsed charitable institution and is for consideration less than 50% of the market value or 75% of the 'cost of supply' it would be GST free and the charity would be entitled to full input tax credits for all its acquisitions that relate to that supply. However, in practice the 'non-commercial rule' for charities may not be easily applied to financial supplies because the predominant reason financial supplies are input taxed is that there is no readily agreed identifiable value for supplies consumed by customers of financial services.

You can be entitled to input tax credits for acquisitions relating to financial supplies (even though financial supplies are input taxed) provided you do not exceed the financial acquisitions threshold. You exceed the financial acquisitions threshold if either, or both of the following apply:

the amount of all the input tax credits to which you would be entitled to for those acquisitions is more than $150,000;

the amount of the input tax credits for the financial acquisitions would be more than 10% of the total amount of input tax credits to which the entity would be entitled.

© AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).