Common GST categories
Non-commercial activities
Non-commercial activities of charities and similar organisations, such as selling goods or services well below market value, can be GST-free, which reduces GST on genuine community support.
Non-commercial activities is a concept used for certain non-profit bodies in the GST law. For eligible organisations, such as charities, gift-deductible entities and some other endorsed bodies, supplies made as part of non-commercial activities can be GST-free. The idea is that when an organisation provides goods or services to the community for a price well below what a commercial business would charge, the transactions are not really commercial.
The most commonly used test looks at the price charged. A supply may be treated as non-commercial if the consideration is less than a set percentage of the market value of the supply or of the cost of providing it. The percentage thresholds are set out in the GST law, and they are such that heavily subsidised supplies, such as meals at nominal prices or goods in a charity op shop, can qualify.
Donated second-hand goods are another common example. When a charity sells donated goods through its shops, the supplies can be GST-free in many cases. This lets the charity run its shops without charging GST on sales, which also makes the pricing simpler for customers. The charity can still claim credits for GST on many of its costs that are directly related to its GST-free supplies.
Organisations should keep clear records. Evidence of how prices are set, how market value is determined, and what the supplies cost to provide are all relevant. If the ATO asks questions, the organisation should be able to show that its pricing meets the requirements. The classification of each activity should be reviewed regularly because pricing policy or services may change.
Common misunderstandings include assuming that any charity activity is automatically non-commercial. A charity that sells goods at full market price, runs a commercial cafe, or hires out its premises at market rates is generally making taxable supplies, and it will need to register once it passes the relevant threshold. Another mistake is overlooking that the concession is not available to ordinary businesses, even if they offer discounts.
If you manage a charity or non-profit, record the pricing basis for each activity and speak to an adviser about endorsement, registration and reporting. This page is general information only, so confirm your position with the ATO or a registered tax professional.
Worked example
A registered charity runs a meals program charging $4 per meal. A comparable commercial meal would cost $15 (market value) and the charity's cost to provide it is $9. Because $4 is less than 50% of market value ($7.50) and less than 75% of cost ($6.75), the meals can be treated as GST-free non-commercial supplies, so no GST is charged on the $4.
Practical tips
- Document market value and cost for any activity you treat as non-commercial, and review them when prices change.
- Treat commercial sidelines, such as hall hire at market rates, separately because they are likely to be taxable.
- Review your price list at least yearly, since rising costs or market prices can move an activity above the non-commercial thresholds.