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Help Sheet

Religious Institutions and Services and the GST

Issue

What is a religious service?

Principle

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

  • is supplied by a 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

  1. 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?

    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.

  2. 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?

    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.

  3. 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 then considered to be used by clergy solely for the purposes of religious service related activities?
  4. A supply of residential accommodation (other than commercial residential premises) is generally input taxed under the GST legislation. This means that GST is not charged on the supply, and input tax credits are not available in respect of GST paid on goods and services acquired in providing the supply.

    A supply of accommodation by a charitable institution (including a religious institution) is GST-free provided at least one of the following tests is satisfied;

    1. The supply is for consideration that is less than 75% of the market value of the supply.
    2. The supply is for consideration that is less than 75% of the cost to the supplier of providing the accommodation.

    Where a supply is GST-free, no GST is charged on the supply, but the supplier is entitled to input tax credits in respect of any GST paid on goods and services acquired in providing the supply. As full input tax credits are available, it will not have any effect if part of the property is set aside as a home office.

    If a charity (including a religious institution) fails to satisfy either of the above tests, the general rules pertaining to residential rent ill apply and the supply of residential accommodation will be input taxed.

  1. How will the clergy be treated for PAYG purposes?

    Consultations are currently taking place with religious practitioners and institutions to clarify the operation of the PAYG provisions to religious practitioners from 1 July 2000. An announcement is expected in June 2000.

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

    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 provision of residential care (s 38-25), it would be GST-free. Where the accommodation is residential, it would generally be input taxed. Where the accommodation is supplied by a charity for less than 75% of the market value, or less than 75% of the cost of supply, it will be GST-free.

  3. 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?

    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. 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 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.

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

    If the contractor is registered, GST will be charged on payments made under a maintenance contract. Input tax credits may then be available to the religious organisation making the payment.

  5. 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?
  6. 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 are effectively treated as a single entity. Supplies and acquisitions made wholly within a GST group are taken out of the GST system. Supplies and acquisitions that are made outside the GST group fall within the general rules. In determining the extent to which an acquisition or importation made by a member of a GST 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 a charity 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.

    If your annual turnover of financial supplies does not exceed the lesser of $50 000 or 5% of your annual turnover (including financial supplies), you will still be entitled to input tax credits on acquisitions relating to those supplies.

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