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Help Sheet

Charities and Their Publications

Author - the ATO

The Treasurer has requested the ATO to consider a ruling, to provide certainty to charitable entities, which deems that newsletters, magazines and journals which are not commercial sales be GST-free.

The following points are addressed in this regard:

  1. Does the provision of newsletters, magazines and journals (publications) by a charity registered for GST constitute a taxable supply for the purpose of the GST legislation?
  2. Under what circumstances would the supply of a publication be GST-free?
  3. In connection with (2) above, how can a charitable institution determine the market value of its publications?

    For the purposes of these guidelines and application of method 3 'the cost plus' rule (detailed below), publications would include newsletters, magazines and journals that are not marketed in a commercial context. The term publication does not apply to books and the ISN will be used as a basis for determining whether a publication is a book. For books the 'general' rule (detailed below) would apply to determine the market value. Similarly the 'general' rule would apply to all sales of publications where there is a market.

    Issue (1):

    Does the provision of a publication by a charity registered for GST constitute a taxable supply for the purpose of the GST legislation?

    Where the GST registered charity makes a supply in return for consideration, this will be a taxable supply, unless it is provided for nominal consideration (see question 2). In this instance, the charity is supplying a good (the newsletter, magazines and journals) in return for consideration. The requirements for a taxable supply are therefore met, and the sale of the publication is subject to GST.

    Issue (2):

    Under what circumstances would the supply of a publication be GST-free?

    Under the GST legislation, if a charity makes a supply for less than 50% of the market value of the supply or less than 75% of the costs the charity incurred in making the supply, the supply will be GST free.

    For example, if a publication has a market value of , and costs to make, it will be GST-free if it is sold for less than .50 (under the market value rule) or less than .25 (under the cost rule). Only one of the tests need be satisfied in order to render the supply of the publication GST-free.

    Issue (3):

    In connection with (2) above, how can a charitable institution determine the market value of its publications?

    To simplify the compliance burden placed on charitable organisations, they will be permitted to use any of the following methods in determining a market value for their publications, where there is no commercial market. For sales of books and publications where there is a market the 'general' rule should be used to determine their market value

    Method 1: the 'general' rule.

    The market value of an item is the price that a willing but not anxious buyer would have to pay to a willing but not anxious seller for the item. Put differently, it is the best price that may reasonably be obtained for the items if sold in the general market.

    If there is no general market, (ie. There is a small number of potential buyers), then this limited market is used as a substitute for the general market, and the price these buyers are willing to pay becomes the market value. On this basis, the market value of newsletters sold by a charity would naturally equal the amount the arm's length market (however limited it may be) is willing to pay for the item.

    Method 2: the 'benchmark' rule

    Charities will be permitted to adopt a suitable benchmark as a substitute for market value. A suitable benchmark would be a publication of similar length, that does not have a high level of advertising, and that focuses on industry specific issues. An example is an investment newsletter. Given the prices charged for investment newsletters, this would effectively make the sale of most newsletters by charities GST free.

    Method 3: the 'cost plus' rule

    Where no commercial equivalent exists, a charity could calculate its own market value, based on the costs it incurs in producing each publication and applying a standard markup to these costs. Where a charity relies on voluntary labour in producing its publications, it would be reasonable to determine a 'deemed' cost of labour and add this to the actual costs of production before applying the markup in determining market value. The costs of production would be based on full absorption costing, incorporating direct material and labour, and direct and indirect manufacturing overhead. A markup of 100% on cost would be considered reasonable for the purposes of calculating the 'deemed' market value of publications.

    Given many charities price their publications on a cost recovery basis, the ability to determine market value in this manner (incorporating a 100% markup) would effectively render the sale of publications GST-free.

    Issue (4):

    In connection with (2) above, how can a charitable institution determine the cost of supplying its publications?

    A charity may employ full absorption costing in determining its costs of supply. Accordingly, direct materials and labour and direct and indirect manufacturing overhead may be included in the calculation.

    Under the GST legislation, only those costs paid or payable may be included in the cost calculation. As volunteer labour does not involve an actual outlay of monies by the charity, it cannot be included in the calculation of the cost of supply.

    Substantiation
    Where a charity seeks to apply the nominal consideration provisions (s38-250) it should keep appropriate records to substantiate the market value it has calculated. Appropriate records would include a written self-assessment that is reviewed regularly for example, yearly or when prices or costs change.

    The treatment of advertising
    Please note that a supply of advertising in a newsletter is distinct from the supply of the newsletter itself. The provision of advertising by a charity will be subject to GST unless either the 50% of market value, or 75% of cost of supply rule is satisfied.

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