Explanatory Memorandum
Circulated By the Authority of the Treasurer, the Hon Wayne Swan MpChapter 2 - Attribution of input tax credits
Outline of chapter
3.1 Schedule 2 to this Bill amends the goods and services tax (GST) law to clarify the rules in the GST law for attributing input tax credits to tax periods.
Context of amendments
Attribution of input tax credits
3.2 The rules for attributing input tax credits to particular tax periods play an important role in the operation of the GST. The A New Tax System (Goods and Services Tax) Act 1999 ( GST Act) provides that input tax credits (including reduced input tax credits) are attributable to the first tax period in which either any consideration is provided by the recipient, or an invoice is issued. If the taxpayer accounts on a cash basis, input tax credits will only be attributable when and to the extent that the recipient provides consideration.
3.3 Two exceptions exist to this basic rule. Firstly, input tax credits cannot be attributed to a tax period unless a relevant tax invoice is held by the taxpayer in that tax period. Such input tax credits will instead be attributable to the first tax period in which the taxpayer holds a tax invoice (see subsection 29-10(3) of the GST Act). Secondly, if the GST return for a tax period does not take into account an otherwise attributable input tax credit, the input tax credit is not attributable to that tax period. Such credits are attributable to the first tax period in which a return is provided taking the credit into account (see subsection 29-10(4) of the GST Act).
3.4 Concerns have been expressed by taxpayers that the way the latter exception is expressed in the law may be ambiguous and is open to an argument that it applies only to a limited category of input tax credits.
Summary of new law
3.5 This Schedule amends the present rules for attributing input tax credits. These amendments clarify that taxpayers are able to defer the attribution of input tax credits, subject to the four-year restriction on claiming input tax credits contained in Schedule 1 to the Tax Laws Amendment (2009 GST Administration Measures) Bill 2009.
3.6 This amendment addresses concerns by taxpayers that the present attribution rules may not give this outcome in all situations.
Comparison of key features of new law and current law
| New law | Current law |
| Input tax credits cease to be attributable to a particular tax period when they are not taken into account in the GST return for that period. Instead, the credits will be attributable to the first tax period in which they are taken into account in a return where the taxpayer holds a tax invoice.
This is subject to the four-year restriction on claiming input tax credits contained in Schedule 1 to the Tax Laws Amendment (2009 GST Administration Measures) Bill 2009. |
Input tax credits cease to be attributable to a particular tax period when they are not taken into account in the GST return for that period. Instead, the credits will be attributable to the first tax period in which they are taken into account in a return where a tax invoice is held by the taxpayer. However, concerns have been expressed about the effectiveness of the legislation in achieving this outcome in all cases.
This is subject to the four-year restriction on claiming input tax credits contained in Schedule 1 to the Tax Laws Amendment (2009 GST Administration Measures) Bill 2009. |
Detailed explanation of new law
Clarification of the input tax credit attribution rules
3.7 The amendments clarify the attribution rules for input tax credits contained in subsection 29-10(4) of the GST Act.
3.8 Subsection 29-10(4) was introduced in 2000 to enable taxpayers to attribute input tax credits to tax periods after the period in which they first held a tax invoice. The effect of this measure was to permit taxpayers to claim input tax credits in the current business activity statement (BAS) rather than revising a BAS for an earlier tax period.
3.9 Since the introduction of the measure, some taxpayers have expressed concern that the specific reference in subsection 29-10(4) to an earlier paragraph in the attribution rules (paragraph 29-10(3)(b)) may leave unclear the application of the provision to input tax credits not falling within this earlier paragraph.
3.10 This amendment resolves this ambiguity by revising subsection 29-10(4) to remove any reference to other provisions . [Schedule 2, item 1, subsection 29-10(4)]
Application and transitional provisions
3.11 These amendments will apply in relation to net amounts for tax periods commencing on or after 1 July 2010.