GST issues registers

Primary production industry partnership

20 Sundry

20.1 Cash back payments

20.1.1 - Cash back payments

Question

What are the GST implications of a cash back payment offered by a supplier to a farmer?

Non-interpretative - straight application of the law

Answer

An adjustment note may need to be issued by the supplier to the farmer if the consideration for the taxable supply has changed.

Explanation

An example of a cash back payment arrangement is an early order programs used by farmers. In such programs the farmer orders products (for example, chemicals) from a supplier to be delivered approximately six months later. When the order is filled by the supplier and payment is received the farmer is entitled to a cash back payment.

The refund is a cash payment and is made during the current quarter or in the following quarter. For GST purposes this will be an adjustment event.

Adjustment events

Where a farmer has taken advantage of cash back discounts offered by a supplier of a kind described above, this will result in an adjustment event as the consideration paid by the supply has altered. You will need to hold an adjustment note (if the value of the purchase was over $75) from your supplier before completing your Business Activity Statement (BAS).

Subsection 19-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), provides an adjustment event is any event which has the effect of:

•

cancelling a supply or acquisition; or

•

changing the consideration for a supply or acquisition; or

•

causing a supply or acquisition to become, or stop being, a taxable supply or creditable acquisition.

Adjustment notes

A document is an adjustment note if it satisfies subsection 29-75(1) of the GST Act, which provides:

An adjustment note for an adjustment that arises from an adjustment event relating to a taxable supply:

•

must be issued by the supplier of the taxable supply in the circumstances set out in subsection (2); and

•

must set out the Australian Business Number (ABN) of the entity that issues it; and

•

must contain such other information as the Commissioner determines in writing; and

•

must be in the approved form.

However, the Commissioner may treat as an adjustment note a particular document that is not an adjustment note.

The supplier of the taxable supply, as provided in subsection 29-75(2) of the GST Act, must:

•

within 28 days after the recipient of the supply requests the supplier to give an adjustment note for the adjustment relating to the supply; or

•

if the supplier has issued a tax invoice in relation to the supply ( or the recipient has requested one) and the supplier becomes aware of the adjustment before an adjustment note is requested - within 28 days after becoming aware of that fact;

•

give to the recipient an adjustment note for the adjustment, unless any tax invoice relating to the supply would have been a recipient created tax invoice (in which case it must be issued by the recipient).

If the farmer receives:

•

A cash back discount paid in a different tax period - the farmer will need to make an adjustment to his BAS in the period he received the discount. For the farmer to do this he would require an adjustment note from the supplier.

•

A cash back discount in the same tax period - the farmer still requires an adjustment note reflecting the change in consideration, and to claim the correct reduced Input Tax Credit entitlement.

20.2 Education and food

20.2.1 - Boarding schools

Question

Is food supplied by boarding schools subject to GST?

Non-interpretative - other references (see GSTR 2000/30 - Goods and services tax: supplies that are GST-free for pre-school, primary and secondary education courses)

Please refer to - Goods and services tax: supplies that are GST-free for pre-school, primary and secondary education.

20.3 Penalties

20.3.1 - Late lodgment by tax agent - penalties where taxpayer at fault

Non-interpretative - straight application of the law

Question

Who is responsible for late lodgment penalties where a taxpayer lodges a GST return through a tax agent and the return is lodged late because the taxpayer did not get their records to the tax agent on time?

Answer

The taxpayer is liable for all penalties.

20.3.2 - Late lodgment by tax agent - penalties where tax agent at fault

Question

Who is responsible for late lodgment penalties where a taxpayer lodges a GST return through a tax agent and the return is lodged late due to the tax agent?

Non-interpretative - straight application of the law

Answer

For lodgments due on or after 1 March 2010 safe harbour provisions apply. Where you engage a registered agent you may not be liable for an administrative penalty for failing to lodge a document on time under certain circumstances.

For further explanation see:

•

Safe harbour from Failure to lodge on time penalty on ato.gov.au, and

•

PS LA 2011/19 - Administration of penalties for failing to lodge documents on time.

This answer previously stated:

The taxpayer is liable for the late lodgment penalties but may sue the tax agent under common law or contract law.

The GST Act does not specifically provide for the situation where a GST return is late due to the Tax Agent's error.

Tax agents may be sued at common law or contract law for breach of contract or negligence. To successfully sue for damages, a taxpayer must prove that the agent's negligence caused it loss.

Explanation

Section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides definitions of terms used in the GST Act.

It provides in the definition of 'you' that:-

if a provision of this Act uses the expression you, it applies to entities generally, unless its application is expressly limited.

Division 31 of the GST Act deals with returns, payments and refunds.

Section 31-10 of the GST Act provides that:

(1)

You must give your GST return for a tax period to the Commissioner:

(a)

on or before the 21st day of the month following the end of that tax period; or

(b)

within such further period as the Commissioner allows.

(2)

However, if the tax period ends during the first 7 days of a month, you must give the GST return to the Commissioner:

(a)

on or before the 21st day of that month; or

(b)

within such further period as the Commissioner allows.

Subdivision 286-C of the Taxation Administration Act 1953 requires that:-

Subdivision 286-C Penalties for failing to lodge documents on time

286-75 Liability to penalty

(1)

You are liable to an administrative penalty if:

(a)you are required under a taxation law to give a return, notice, statement or other document to the Commissioner in the approved form by a particular day; and

(b)you do not give the return, notice, statement or document to the Commissioner in the approved form by that day.

(2)

Subsection (1) does not apply to a return, notice, statement or other document under any of these Acts:

(a)

the Superannuation Contributions Tax (Assessment and Collection) Act 1997;

(b)

the Superannuation Guarantee (Administration) Act 1992; or

(c)

the Superannuation (Self Managed Superannuation Funds) Supervisory Levy Imposition Act 1991.

286-80 Amount of penalty

(1)

The amount of the penalty is worked out in this way:

(a)

work out the base penalty amount under subsection (2); and

(b)

work out whether the base penalty amount is increased under subsection (3) or (4).

(2)

The base penalty amount for failing to lodge a return, notice or other document on time or in the approved form is one penalty unit for each period of 28 days or part of a period of 28 days starting on the day when the document is due and ending when you give it to the Commissioner (up to a maximum of five penalty units).

(3)

The base penalty amount is multiplied by two if:

(a)

the entity concerned is a medium withholder for the month in which the return, notice or other document was required to be given; or

(b)

the entity's assessable income for the income year in which the return, notice or other document is required to be given is more than $1 million but less than $20 million; or

(c)

the entity's current GST turnover worked out at a time in the month in which the return, notice or other document was required to be given is more than $1 million but less than $20 million.

(4)

The base penalty amount is multiplied by five if:

(a)

the entity concerned is a large withholder for the month when the return, notice or other document was required to be given; or

(b)

the entity's assessable income for the income year in which the return, notice or other document is required to be given is $20 million or more; or

(c)

the entity's current GST turnover worked out at a time in the month in which the return, notice or other document was required to be given is $20 million or more.

(5)

In working out the base penalty amount, the amount of a penalty unit is the amount applying at the start of the relevant 28 day period.

(6)

The fact that you have not yet lodged the relevant return, notice or other document does not prevent the Commissioner notifying you that you are liable to an administrative penalty under this Subdivision. That penalty may be later increased under this section.

Therefore, 'you', the entity which is registered for GST is required to give a GST return to the Commissioner by a specified date. If you fail to give the Commissioner a return on time, you will be liable to a penalty.

20.4 Food

20.4.1 - Dual purpose test for food

Question

Are products that can be consumed as 'food' but also have other uses, considered to be food?

For the source of the ATO view refer to Detailed food list.

Answer

Yes, if the supply of a product is food for human consumption as defined in Section 38-4 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

For further information please refer to Issue 1 of the Food industry partnership - issues register

Explanation

A supply of a product that is food for human consumption as defined in Section 38-4 of the Act is GST-free (provided that it is not excluded by another part of the food provisions). However, some GST-free food products have alternative non-food uses.

There is no requirement for the supplier to ascertain how the purchaser will use the product. The GST status of the product depends on whether it is a supply of food for human consumption as defined in the GST Act.

Example 1

Rice flour can be consumed as an ingredient for food (for example, added to bakery products) and satisfies the definition of food in paragraph 38-4(1)(b) of the GST Act. However, rice flour can also be used in the processing of aluminium. If rice flour that is supplied as an ingredient for food for human consumption is purchased by an aluminium processor, it remains GST-free. It does not matter that the purchaser intends to use the food product for purposes other than food for human consumption.

However, a product with a GST-free food use will not retain its GST-free status if, in the course of its supply, the supplier differentiates it from the GST-free food product.

Example 2

A butcher supplies soup bones for sale. Soup bones are 'ingredients for food for human consumption' pursuant to paragraph 38-4(1)(b) of the GST Act. If a customer purchases soup bones with the intention of feeding them to her dog, the status of the product supplied has not changed. The butcher has supplied food for human consumption that is GST-free. It does not matter that the customer will use the bones for an alternative use.

If the butcher finds that soup bones are not selling well and re-labels them as 'pet food', the product has been differentiated by the supplier. When a supply of pet bones is made to a customer, it is not a supply of 'food for human consumption'. As a result the supply of pet bones is a taxable supply.

To be GST-free under the food provisions of the Act, the product must be a supply of food for human consumption as defined in the Act. The mere fact that a product is edible is not sufficient for it to qualify as GST-free food.

Example 3

Saltco refines a batch of raw salt to cooking salt specifications. This batch complies with food standards. One portion of this batch is to be sold as cooking salt. Supplies of this product are supplies of an ingredient for food that is GST-free.

Saltco could have chosen to sell this entire batch of refined salt as cooking salt since it complies with food standards. However, the second portion of the batch is designated 'swimming pool salt'. As such, it no longer has to meet food standards or to be packaged and stored hygienically. Although the salt may be edible (and may also be stored to food grade standards), it is no longer a supply of an ingredient for food for human consumption. It is a supply of pool salt. A supply of pool salt is not a supply of food as defined in the Act and is therefore not GST-free.

It cannot be said that a supply of a product, which is indicated to be other than food, is a supply of food, even if it is identical in substance to the GST-free food product.

In determining whether a supply is a supply of GST-free food, it is not only the physical characteristics of the product that are important but also the nature of the supply.

Some of the ways in which a dual-purpose food product could be considered to be differentiated for non-food use are:

•

designation as something other than food

•

pre-delivery storage in conditions or containers that are unsuitable for food

•

packaging in a non-food type of package or container

•

labelling, invoicing or marketing as a non-food product

•

delivery in a manner unsuitable for food

Example 4

Vinegar is processed to meet food standards. Part A of the batch is designated for supply as an ingredient for food. Part B of the batch is designated for supply as a household cleaner. Part A is placed in hygienic bottles with tamper-proof seals. The labels indicate use of the vinegar in food. A supply of this product is a GST-free supply of food for human consumption for the purposes of the Act.

Part B of the batch is placed in plastic containers that do not satisfy standards for supply of a food product. The Part B product is labelled as cleaning vinegar. The products have been differentiated by the manner of their packaging and labelling. A supply of cleaning vinegar is not a supply of food for human consumption as defined in the Act. Therefore the supply is a taxable supply.

Example 5

Flour to be supplied as an ingredient for food is stored in stainless steel silos that are fumigated in accordance with standards for the storage of food. The flour is packed into hygienic paper bags. A supply of this product is a GST-free supply of food.

Flour milled to the same specifications, but to be supplied for use in manufacturing glue, is stored in sheds. It is fumigated with chemicals that render it unsuitable for use in food. It is delivered in bulk bins that are not subject to any hygiene standards. These products have been differentiated by the manner of their storage, packaging and delivery. In this case, a supply of the product for use in glue manufacture is not a supply of food for human consumption as defined in the Act. Therefore the supply is a taxable supply.

20.4.2 - Rotten fruit and vegetables

Question

How are rotten fruit and vegetables defined in relation to food?

Non-interpretative - straight application of the law

Answer

Under the definition of food, food that is unfit for human consumption is not considered food for human consumption and therefore not GST-free.

20.4.3 - Rotten grapes:

20.5 Deposits

20.5.1 - Security deposits

Question

Where a commitment to purchase equipment is made and a security deposit is paid, when does the GST liability in relation to the sale arise? The agreement is that the deposit may be forfeited if the customer does not complete the purchase.

Non-interpretative - other references (see GSTR 2006/2 - Goods and services tax: deposits held as security for the performance of an obligation).

Answer

Upon the assumption that the deposit is not forfeited the GST liability arises when the deposit is applied as part of the consideration. This may be at the time of delivery. However, if the deposit is forfeited GST arises in relation to the deposit at the time of forfeiture. A relevant example is contained in Taxation Determination GSTD 2000/1 Goods and Services Tax: is the scope of Division 99 of the A New Tax System (Goods and Services Tax) Act 1999 limited to holding deposits?

Explanation

Division 99 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides a special rule about attribution for security deposits.

Goods and Services Tax Ruling GSTR 2006/2 - Goods and services tax: deposits held as security for the performance of an obligation provides additional information.

The issue of security deposits and land sales is discussed further at Issue 6.2.12.

20.6 In kind

20.6.1 - Payment in kind

Question

Do payments in kind represent two supplies in the following situation?

Taxpayer 1 grows a grain crop on Taxpayer 2's property. In return for the use of Taxpayer 2's property, Taxpayer 1 gives him a percentage of his grain crop which Taxpayer 2 sells at a later date. Both taxpayers are registered for GST.

For the source of the ATO view refer to general principles in - Goods and services tax: non-monetary consideration.

Answer

The grain and the right to use the property represent two taxable supplies. The consideration of each supply is the value of the other supply.

Explanation

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides:

You make a taxable supply if:

(a)

you make the supply for consideration; and

(b)

the supply is made in the course or furtherance of an enterprise that you carry on; and

(c)

the supply is connected with the indirect tax zone; and

(d)

you are registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Supply

The definition of supply as provided in section 9-10 of the GST Act is very broad and includes the supply of goods, services and the grant of a right by a business.

The provision of grain and the right to use the property would fall within this definition, because a thing that forms non-monetary consideration is itself a supply made for consideration (see GSTR 2001/6 paragraph 16).

Most transactions involve one entity supplying an item with the other entity supplying the money or digital currency. However section 9-10(4) of the GST Act specifically excludes money or digital currency from the definition of a supply. Section 9-10(4) of the GST Act states:

However, a supply does not include a supply of money or digital currency unless the money or digital currency is provided as consideration for a supply that is a supply of money or digital currency.

If money or digital currency was not specifically excluded from the definition of supply, it could satisfy the definition of a taxable supply and be subject to GST.

Consideration

A taxable supply must be for consideration which includes everything that the supplier has received for the goods and services. Section 9-15 of the GST Act states that it includes any payment, act or forbearance done in connection with the supply of the thing.

Payment is not restricted to payments of money or digital currency. It includes 'in kind' payments, that is, payments made otherwise than in money or digital currency (see GSTR 2001/6 paragraph 12).

Therefore, the payment of the grain will be the consideration for the right to use of the property. The right to use the property will be the consideration for the supply of grain.

Provided section 9-5 of the GST Act is satisfied, each of the supplies in kind will be taxable supplies.

Liability for GST and entitlement to input tax credits

Each taxpayer will be required to account for GST on the taxable supplies they make and will be entitled to claim input tax credits on creditable acquisitions.

Taxpayer 1 makes a taxable supply of grain and a creditable acquisition of the use of the property on which to grow the crop.

Taxpayer 2 makes a taxable supply of the right to use the property and a creditable acquisition of grain. The later sale of the grain will also be a taxable supply.

Both parties will need to include these taxable supplies and creditable acquisitions on their Business Activity Statement (BAS) in the normal way.

Where both supplies are taxable supplies, each party will be liable to GST on the supply it makes. The amount of GST is based on the GST inclusive market value of the consideration, which is the market value of the consideration without any discount for GST payable on the other supply. Where there is an arm's length transaction between the parties, the value of each consideration will be the same unless the things swapped as part of the transaction have an unequal market value. No net GST will be payable where the consideration for the relevant supplies are made in the same tax period and have the same GST inclusive market value.

For further details please refer to .

20.7 Prizes

20.7.1 - Prize money

Question

What are the GST implications for payment of prize money by agricultural show societies?

For the source of the ATO view refer to general principles in GSTR 2002/3 - Goods and services tax: prizes

Answer

If the recipient of the prize money is registered for GST, they would make a taxable supply (for example, exhibiting their animal) for which the prize money is consideration.

Explanation

There are two supplies to be considered, that is, both the agricultural show society ('the society') and the participants make supplies to each other.

Each participant pays an entry fee for the right to enter the competition. As the society is registered for GST it would be making a taxable supply. The entry fee will include GST which must be remitted to the Australian Taxation Office by the society.

It is considered that the exhibiting of the animal is a supply of services. The prize money is provided by the society as consideration for this supply.

The supply of services by the participant will be a taxable supply where:

•

the supply is made for consideration (that is, the participant receives a prize for providing the service);

•

the supply is made in the course or furtherance of an enterprise (this would have to be an enterprise carried on by the participant);

•

the supply is connected with Australia (where the competition takes place in Australia, the supply will be connected with Australia); and

•

the participant is registered or required to be registered (a person engaging in a hobby or recreational pursuit is not carrying on an enterprise in relation to that activity and will, therefore, not be entitled to be registered in relation to that hobby or recreational pursuit).

The participants provide services to the society (for example, exhibiting their animal). Whether the supply is a taxable supply will depend on whether the participant is registered for GST and whether the supply is made in the course or furtherance of an enterprise. It is the supply of services by the participant for which consideration (the prize money) is received.

If the supply of services is a taxable supply, the prizewinner will become liable for GST in relation to the consideration received for the supply. The consideration for the supply is the prize, and the price of the supply is determined in accordance with section 9-75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

GST consequences of the competition for the show society and winners

•

Where the recipient of the prize is registered for GST, it is considered that a taxable supply has been made for which the prize money is the consideration. The recipient will have a GST liability of 1/11th of the consideration. Prize winner will be required to issue the society with a tax invoice if requested by the society, unless the society is entitled to issue a recipient created tax invoice.

The society would have made a creditable acquisition and may be entitled to claim input tax credits which would be equal to the GST component of the prize money.

•

Where the recipient of the prize is not registered for GST, there are no GST consequences as a supply has been made, but not a taxable supply.

The society would not have made a creditable acquisition and therefore would not be entitled to input tax credits.

Note:

A cash prize, as discussed above, is consideration for a service provided by the participant. In itself it cannot be a supply by a society as subsection 9-10(4) of the GST Act prevents this as follows:

'A supply does not include a supply of money or digital currency unless the money or digital currency is provided as consideration for a supply that is a supply of money or digital currency'.

20.8 Employees

20.8.1 - Food and accommodation supplied to jackaroos, jillaroos, station hands and their associates.

Question

Does GST apply on supplies by employers to jackaroos, jillaroos, station hands and similar employees, of:

•

food and drink, or

•

accommodation?

For the source of the ATO view refer to general principles in

•

GSTR 2001/3 - Goods and Services Tax: GST and how it applies to supplies of fringe benefits and

•

GSTR 2012/6 - Goods and Services Tax: commercial residential premises

Answer

GST will apply where an employer is registered or required to be registered for GST and makes a supply of food or drink ('meals') to a jackaroo, jillaroo, station hand and similar employees (to be referred to as 'station hands' from herein), for consumption on the premises, and the station hand makes a payment for the supply. The GST is one-eleventh (1/11th) of the payment made.

Accommodation typically provided to station hands during their term of employment will be non-commercial residential accommodation and accordingly input taxed. This means that GST will not apply to the supply of such accommodation, nor will input tax credits be available for expenses related to supplying the input taxed accommodation.

Explanation

Section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides, broadly, that a supply is a taxable supply if it is for consideration, in the course of the employer's business, connected with Australia, and the employer is registered or required to be registered for GST. However, it is not a taxable supply to the extent it is GST-free or input taxed.

Meals

Although the supply of food for human consumption is GST-free in many circumstances, it is not GST-free if it is food for consumption on the premises from which it is supplied (paragraph 38-3(1)(a) of the GST Act). Food includes beverages.

Station hands may be provided with meals in a kitchen or dining room, either formal or informal, or in the open air. Because the supply is intended for consumption at the place where it is provided, it is not GST-free.

Employers will not always require a monetary payment for meals, as a station hand may be entitled to meals as a condition of employment (for example, an industrial award) or the employer may, as a matter of policy, provide meals free of charge. Some employers will provide the meals at only a nominal charge. Other employers will seek to recover the cost of meals at a full commercial rate.

The definition of supply in the GST Act is broad and includes the supply by an employer to an employee of a fringe benefit (including an exempt fringe benefit). Subsection 9-75(3) of the GST Act provides a special method for calculating the taxable value of such a supply. To determine the taxable value, it is necessary to examine the definition of 'recipients contribution' in the Fringe Benefits Tax Assessment Act 1986. Paragraph (a) of that definition refers to 'consideration paid'.

It follows that a supply of meals to a station hand has a GST inclusive price equal to the amount, if any, paid by the station hand for the meals. (Note that the work the employee performs is an indirect form of consideration, and is not 'consideration paid' for the purpose of ascertaining the amount of GST on the fringe benefit. This is discussed at paragraphs 18 to 20 of Goods and Services Tax Ruling GSTR 2001/3 Goods and services tax: GST and how it applies to supplies of fringe benefits.)

Under the provisions of subparagraph 9-75(3)(a)(ii) of the GST Act, the GST inclusive price of the supply of the meals will be the amount the station hand pays for the meals. Hence a GST registered employer will be liable to remit GST of one-eleventh (1/11th) of what the station hand pays for the meals.

The employer will also be able to claim input tax credits in the usual way for creditable acquisitions that have a connection with the supplying of the meals, in the course of the employer's enterprise. It does not matter if the employer does not make a monetary charge for the meals supplied to the station hand, or charges only a nominal amount.

Note that the GST Act contains a special provision, section 72-70 of the GST Act, for supplies made to family members and other associates for less than market value. It is considered that this provision has no application in relation to the supply of meals to a station hand who is an associate, provided that the employer treats the associate the same in relation to the supply of meals, as they would an unrelated employee.

Accommodation

Goods and Services Tax Ruling GSTR 2012/6 Goods and Services Tax: commercial residential premises, discusses the question of whether accommodation should or should not be regarded as accommodation of residential premises. In particular, paragraph 124 of GSTR 2012/6 states:

Paragraph 37 of Goods and Services Tax Ruling GSTR 2000/20 sets out the former view that accommodation provided by an employer in premises controlled by them or their associate is usually residential premises. However, paragraph 39 of GSTR 2000/20 modified this general position in providing that short-term accommodation provided by an employer in specific circumstances was not a supply of residential premises, nor accommodation provided in commercial residential premises. A supply of this type of accommodation was considered to be subject to the basic rules. This view is not replicated in this Ruling. Under the views set out in this Ruling, a supply of accommodation made to an employee or contractor may be an input taxed supply by way of lease, hire or licence of residential premises to be used predominantly for residential accommodation or a taxable supply of accommodation in commercial residential premises depending upon the circumstances.

The supply of accommodation to station hands is typically in the nature of residential accommodation. The question then arises under section 40-35 of the GST Act whether it is 'commercial'. The GST Act definition of 'commercial residential premises' includes a hotel, motel, inn, hostel or boarding house. Persons running such establishments may need to apply the special provisions that relate to the supply of long-term commercial accommodation. However, GSTR 2012/6 discusses what characteristics give the commercial character. In particular, these characteristics are identified at paragraph 150 of GSTR 2012/6 as follows:

The main characteristics are:

•

Commercial intention

•

Multiple occupancy

•

Holding out to the public

•

Accommodation is the main purpose

•

Central management

•

Management offers accommodation in its own right

•

Provision of, or arrangement for, services

•

Occupants have status as guests.

These characteristics are typically lacking where accommodation is provided to a station hand. Rather the accommodation is for the purpose of providing the station hand with a place to stay, in connection with their employment. It is considered that the accommodation supplied to station hands will generally be input taxed as it will be the supply of residential premises that are not commercial residential premises. The employer will have no GST liability on a supply by lease, hire or license of such premises to a station hand.

The accommodation is being supplied to the station hand because of the employment of the station hand, and it will generally be part of the enterprise of the employer to supply that accommodation (whether or not the employer requires any, a partial, or a full monetary payment).

The question arises whether the employer is entitled to claim input tax credits. Section 11-5 of the GST Act provides that an acquisition is not for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed. Therefore, a GST registered employer providing non-commercial, residential accommodation to a station hand will need to ensure that input tax credits are not claimed in the employer's Business Activity Statement, to the extent that the employer's acquisitions relate to making supplies of accommodation that would be input taxed.

Example - meals and accommodation supplied to station hands

Two station hands are engaged as full-time employees under the Pastoral Industry Award 1998. One employee chooses to live with relatives nearby. This employee is paid at the 'without keep' rate of pay. By agreement, this employee pays the employer, a GST registered entity, $55 a week towards food and drink the employer provides for consumption on the premises each week. The amount of GST the employer is liable to remit in relation to this employee is $5 a week (being one-eleventh of the amount the employee pays for his meals). However, this will be offset by any input tax credits to which the employer may be entitled (for example, GST included in the price the employer pays for electricity used to cook the meals).

The other station hand is employed on a 'with keep' basis under the Award, entitling this employee to 'good and sufficient rations of sufficient quantity, sound, well-cooked and properly served'; as well as 'good and sufficient living accommodation'. This employee resides in a small cottage adjacent to the station homestead and takes his meals in the homestead. The rate of pay prescribed in the Award for 'with keep' employment is lower than for 'without keep' employment. However, for GST purposes in calculating the GST on fringe benefits, the amount of 'consideration paid' in this situation will be nil as all the employee does is perform his normal duties - no separate payment is made by the employee. Hence the amount the employer is liable to remit in respect of this employee in relation to the meals is nil. The employer may nonetheless be entitled to input tax credits on creditable acquisitions (for example, electricity used to cook this employee's meals).

The accommodation supplied (the cottage) does not exhibit the characteristics of commercial residential premises. It qualifies under the GST Act as non-commercial residential accommodation and will be input taxed. This means the employer has no GST liability in supplying the accommodation to the station hand. However, it also means that the employer is not entitled to GST input tax credits on acquisitions, to the extent they relate to the supply of the accommodation to the station hand (for example, electricity for the cottage).

20.9 Financial arrangements

20.9.1 - Commodity derivatives agreement

20.9.2 - Hire purchase and GST

Question

When will entitlement to an input tax credit arise for a hire purchaser?

For the source of the ATO view refer to GSTR 2000/29 - Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25

The hire purchaser will be liable to pay GST on goods acquired under a hire purchase agreement where the supply of the goods is a taxable supply. Where the hire purchasers are registered for GST, and the goods are for use in their business, they may be able to claim an input tax credit for any GST paid on the purchase of the goods. However when entitlement arises is dependent on how GST is accounted for:

For hire purchase agreements entered into before 1 July 2012:

Cash basis

If the hire purchaser accounts for GST on a cash basis and the item purchased is a creditable acquisition, the hire purchaser is entitled to an input tax credit on the principal component in a tax period, but only to the extent of payment made.

Non-cash basis

Where the hire purchaser accounts for GST on a non-cash basis and the item purchased is a creditable acquisition, the hire purchaser is entitled to the entire input tax credit on the principal, in the tax period in which the invoice is received or in which any payment is made, whichever is earlier, subject to the usual requirements to hold a tax invoice.

Example

Bridget owns the Bay Venture, a fishing boat, and requires a freezer to store part of the Bay Venture's catch. Bridget is registered for the goods and services tax (GST) and accounts on a cash basis. Bridget purchases a freezer from Patrick's Freezer Store for $33 000 through a hire purchase agreement. The agreement is made and the freezer delivered on the 24 April 2001 with a tax invoice. Under the terms of the agreement the interest charge is separately disclosed, and Bridget will repay $670 per month ($550 principal and $120 interest) for five years. The total payment will be $40 200 ($33 000 plus $7,200 interest).

As Bridget accounts for GST on a cash basis, she is only entitled to claim an input tax credit of $50 (1/11th of $550) for each instalment in the period she actually makes the payments.

Bridget cannot claim an input tax credit for the interest component ($120). This is because the interest is for a financial supply and is input taxed.

If Bridget were registered for GST on a non-cash basis, she would attribute the claim to the tax period in which the invoice is received or in which any payment is made. So, for the tax period ending 30 June 2001, she would claim an input tax credit of $3,000 (1/11th of the $33,000).

Bridget has divided her monthly payments into components of principal and interest using the same methodology as she uses for income tax purposes.

For hire purchase agreements entered into on or after 1 July 2012:

All components of the supply under these agreements are taxable regardless of whether the credit component is separately disclosed.

Cash basis

If the hire purchaser accounts for GST on a cash basis and the item purchased is a creditable acquisition, the hire purchaser is entitled to claim input tax credit on both the principal and the credit component in a tax period, as if they are accounting for GST on a non-cash basis.

Non-cash basis

Where the hire purchaser accounts for GST on a non-cash basis and the item purchased is a creditable acquisition, the hire purchaser is entitled to the entire input tax credit on both the principal and the credit component, in the tax period in which the invoice is received or in which any payment is made, whichever is earlier, subject to the usual requirements to hold a tax invoice.

More information

See the Fact Sheet Hire purchase, leasing and GST (NAT 3491) for more details.

Goods and Services Tax Ruling GSTR 2000/29 provides further information on hire purchase and the attribution of GST.

20.10 ATO Rulings

20.10.1 - Class rulings

Question

Can an industry organisation request a GST class ruling on behalf of its members?

Non-interpretative - straight application of the law.

Answer

Yes. From 1 July 2010, we will issue class rulings on indirect tax matters.

Explanation

Previously the class ruling system did not apply to the A New Tax System (Goods and Services Tax) Act 1999. However, from 1 July 2010 the general rulings system includes excise, GST and other indirect taxes. Therefore, we can issue a class ruling under Division 358 of Schedule 1 to the Taxation Administration Act 1953.

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