Tax Ruling Over Spilt Milk!
Monday, 16th February 2004 at 12:02 pm
The Pauls Collect-A-Cap fundraising program has been very successful in the eastern states…but it has raised some questions regarding the GST, which the Australian Tax office has now made a ruling on.
Under the Pauls Collect-a-Cap program, Pauls makes a payment to a participating organisation for every specially marked Pauls milk bottle cap collected by the organisation. A participating organisation must register in advance and be endorsed by Pauls.
The Tax Office has ruled that where the organisation is goods and services tax (GST) registered, the provision of the caps may be a taxable sale. If the sale is taxable, the organisation is required to remit GST of 1/11th of the payment to the Tax Office.
However, if the organisation is a charity, gift-deductible entity or government school the sale will be GST-free because it is the sale of donated second-hand goods. These organisations are not required to remit GST to the Tax Office.
Most income tax exempt Not for Profit organisations can choose to treat their Collect-a-Cap activities as a non-profit sub-entity for GST purposes. The organisation must record the choice before making the sale of caps. This choice means that the sale of the caps is not taxable, provided that the activities turnover less than $100,000. No GST is remitted to the Tax Office on these sales. However, GST credits cannot be claimed for purchases made by the organisation in carrying out these activities.
Here are some examples provided by the ATO:
Big Milk Drinkers State School collects $3,300 dollars worth of Pauls milk product caps that are donated by the school community as part of a fundraiser. The school spends $550 on printing flyers promoting Pauls Collect-a-Cap to the school community. As the school is an endorsed Collect-a-Cap school, Pauls pays the school $3,300 when it presents the caps to Pauls.
The school is a government school and the sale of caps is GST-free because it is a sale of donated second-hand goods by a government school. The school is not required to remit any GST on the sales to the Tax Office. The school can claim a credit of $50 for the GST included in the price of printing the flyers.
Strong Bones Sports Club is a GST registered income tax exempt sports organisation. It chooses to treat its Pauls Collect-a-Cap activities as a non-profit sub-entity. It also spends $550 on printing flyers for its members promoting Pauls Collect-a-Caps.
The club receives $3,300 from Pauls for the caps it has collected. The club is not required to remit any GST to the Tax Office on the sale but it is not entitled to claim a GST credit on the cost of printing the flyers.
If the club did not choose to treat its Pauls Collect-a-Cap activities as a non-profit sub-entity it would be required to remit $300 GST on the sale of the caps to Pauls but could claim a GST credit of $50 on the cost of printing the flyers.
More information on the GST treatment of the sale of caps under the Collect-a-Cap program can be obtained from www.ato.gov.au or by phoning 1300 130 248.