Changes to CGT discount and its potential impact
Client alertExplores proposed CGT discount and negative gearing reforms and what they could mean for investors.
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Taking a fresh look now can help ensure your compliance approach is both accurate and you are well positioned for the year ahead.
Endorsed charities
If your residential college is an endorsed charity, you may be eligible to treat certain supplies – such as student accommodation and meals – as GST-free under the GST Act. This can result in a significantly lower GST liability, however, eligibility depends on meeting specific criteria.
To qualify, the fees you charge must be considered nominal, meaning they must fall below the thresholds set out in section 38-250 of the GST Act. For endorsed charities, this generally means charging less than 75 per cent of the GST-inclusive market value for accommodation, or less than 50 per cent for other supplies such as meals.
Why does it matter?
If your fees exceed these thresholds:
This shift can significantly affect your financial position.
The ATO recognises that determining the correct GST treatment can be particularly complex for residential colleges, as these institutions typically provide a mix of supplies including accommodation, meals, pastoral care, and educational support.
Disaggregated fee approach
PCG 2022/3 outlines a practical method for residential colleges to break down student fees into components such as accommodation, meals, and other services and assess each for GST treatment. This allows GST-free treatment where applicable (e.g. under section 38-250), while ensuring that non-qualifying components are correctly accounted for.
The approach under PCG 2022/3 offers flexibility and can help colleges more accurately reflect the GST treatment of their services. However, it also comes with specific responsibilities.
While residential colleges may choose to rely on the methodology outlined in PCG 2022/3, they are not required to do so and may adopt an alternative approach provided it is fair, reasonable, and supported by appropriate documentation.
Taxpayers who have claimed an input tax credit for acquisitions with a GST-exclusive value over $1,000 should assess whether a Division 129 adjustment is required in their June BAS. This applies where the actual use of an asset has changed from its intended use at the time the credit was claimed – for example, shifting from taxable or GST free use to an input taxed use.
Division 129 is particularly relevant for residential colleges, where the proportion of taxable, GST-free, and input taxed supplies can vary from year to year.
Key points to consider:
Division 129 is easy to overlook; but forgetting it can lead to an unexpected GST liability – often catching taxpayers off guard when it is too late.
If you’re unsure about your GST treatment, please get in touch with Grant Thornton’s Indirect Tax experts who can assist with tailored advice and compliance support.
Article contributed to by Christopher Lillis - Senior Manager, Indirect Tax
Explores proposed CGT discount and negative gearing reforms and what they could mean for investors.
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