Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)CHAPTER 6 - SPECIAL RULES
This chapter tells you about the special rules that modify the central concepts in particular cases.
CHAPTER SUMMARY
6.1 The special rules modify the general rules in Chapter 2 of the bill. The special rules tailor the operation of the GST to particular situations or provide concessions.
6.2 The special rules are dealt with in Chapter 4 of the Bill. Each special rule is discussed below.
GST GROUPS -- DIVISION 48
6.3 Companies with common ownership or common membership of a non-profit association often operate as a group. they often supply things to, or acquire things from, other members of the group. the company making a taxable supply to another company will generally pay gst on that supply. The other company will generally have an input tax credit for the acquisition. If both companies are owned by the same entity all of these transactions could be viewed as being internal with the entity charging itself gst and claiming input tax credits on the same internal transaction. the cost of accounting for intra-group transactions could be reduced by ignoring these transactions for GST. This is what the gst grouping provisions provide.
6.4 Companies are allowed to form a GST group if they are a member of the same 90% owned group. Paragraph 48-10(1)(b) .
6.5 Division 190 defines 90% owned group. The following diagrams are an example of the application of the definition.
6.6 A GST group can also be formed by some or all of the non-profit bodies that are members of the same non-profit association. The 90% beneficial ownership requirement does not apply to GST groups formed by non-profit bodies. Subsection 48-10(2) .
6.7 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 central concepts.
6.8 One company ( the representative member ) of the GST group becomes responsible for paying all the GST and is entitled to all the input tax credits that the members of the GST group have that relate to supplies and acquisitions made outside the GST group. The representative member makes the GST return on behalf of the members of the group. Subdivision 48-B . The representative member does not have to be the holding company of a group.
6.9 All the members of a GST group are jointly and severally liable for the GST payable by the GST group. New section 50 of the Taxation Administration Act 1953 .
6.10 As the GST group is effectively a single entity the adjustment provisions apply to the group as a whole. The representative member is responsible for any adjustments -- section 48-50 . The change in creditable purpose provisions of Division 129 apply to the GST group as a whole. For example, one company acquires something from outside the GST group and uses it to make taxable supplies to entities outside of the group. It was acquired solely for a creditable purpose. The representative member is entitled to and receives a full input tax credit in relation to the acquisition. However, later the thing is supplied to another company within the GST group, and that second company uses the thing to make input taxed supplies. The change in creditable purpose provisions apply. The representative member makes an adjustment under Division 129 . See 6.216 for change in creditable purpose adjustment.
6.11 The representative member is entitled to any input tax credits that relate to creditable importations made by a member of the group. If the GST on the importation is payable at the time customs duty is paid, the GST is payable by the member of the GST group making the importation. Otherwise, a member would make the importation, pay the customs duty, but the representative member would have to pay the GST on the importation. Paragraph 48-40(2)(b) . See 7.27.
6.12 To be able to be or become a member of a GST group, a company must:
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- be registered for GST;
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- be an Australian resident for income tax purposes;
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- be the holding company or a company of which the holding company has 90% or more beneficial ownership;
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- have the same tax periods as the members or other proposed members of the GST group -- see 4.7 for tax periods; and
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- account for GST on the same basis as the members or other proposed members of the GST group -- see 4.22 for GST accounting bases.
Subsection 48-10(1) .
6.13 The same eligibility criteria apply except that 90% beneficial ownership is not required. Instead, for non-profit bodies to form a GST group they must be a company and be a member of the same non-profit association as the other members or proposed members of the GST group. Subsection 48-10(1).
6.14 To set up a GST group at least two companies must apply jointly to the Commissioner. The companies have to satisfy the eligibility criteria and nominate one of them to be the representative member of the GST group. Subsection 48-5(1) .
6.15 All the thresholds for GST purposes that are linked to annual turnover apply to the GST group as a whole. See 7.33 for annual turnover. In calculating the current and projected annual turnover for the GST group, the value of the supplies of all the members of the GST group are taken into account. As for the usual method of calculating the amount of current or projected annual turnover the following supplies are excluded from the amount:
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- supplies that are input taxed;
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- supplies that are not for consideration and are not taxable supplies under Division 72 ; and
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- supplies that are not connected with an enterprise carried on by a member of the GST group.
6.16 In addition to excluding the value of such supplies from the amount of annual turnover, the value of supplies that are made to another member of the GST group are not included. Sections 188-15 and 188-20 .
6.17 One of the effects of this is that even if all the members of a GST group immediately before the GST group was formed were accounting on a cash basis because they were below the cash accounting turnover threshold, the representative member for the GST group will not be able to account on the cash basis for the GST group if the annual turnover of the GST group exceeds the cash accounting turnover threshold. However, the representative member may still be able to account on a cash basis if it has the Commissioners permission to do so under section 29-45 . See 4.24 for when you can account on a cash basis.
Changing membership on application
6.18 The representative member of a GST group can apply to the Commissioner to approve another company to join the GST group, remove members from the GST group, or approve another member of the GST group as the representative member. The Commissioner must approve another company joining the GST group if the company satisfies the eligibility criteria discussed above. The Commissioner must approve the removal of a member from the GST group or a change in representative members. Subsection 48-70(1) .
Changing membership without application
6.19 The Commissioner can remove a member from a GST group even without an application if the member does not satisfy any of the eligibility criteria discussed above. Subsection 48-70(2) .
6.20 The representative member can apply to the Commissioner to revoke the approval of the GST group as a whole. If the representative makes such an application, the Commissioner must revoke the approval of the GST group as a whole. Subsection 48-75(1) .
6.21 The Commissioner can revoke the approval of a GST group as a whole even if the representative member has not applied for revocation of the GST group. The Commissioner can do so if he or she is satisfied that no member or only one member of the GST group satisfies the eligibility criteria. Subsection 48-75(2) .
Effect of leaving or joining a GST group
6.22 If you join a GST group you cease to be responsible for accounting for your own taxable supplies, certain taxable importations, creditable acquisitions and creditable importations and adjustments unless you are the representative member. For example, if you made an acquisition before you were a member of the GST group and an adjustment arises after you joined, the representative member of the GST group is responsible for the adjustment. If you made a taxable supply before you were a member of a GST group, and only part of the GST on a taxable supply was attributed to a tax period before you joined, the representative member accounts for the rest of the GST.
6.23 If you leave a GST group, you again become responsible for accounting for your own taxable supplies, taxable importations, creditable acquisitions, creditable importations and adjustments. For example, if you made an acquisition whilst you were a member of the GST group and an adjustment arises after you leave, you are responsible for the adjustment. If you made a taxable supply while you were a member of a GST group, and only part of the GST on a taxable supply was attributed to a tax period before you left, you account for the rest of the GST.
Example
The TTT group of companies forms a GST group. WWW Co. is the representative member. WWW can account on a cash basis for the GST group. Another member of the GST group, HHH Co., makes a taxable supply to someone outside of the GST group. The payments for that taxable supply are to be made once a month for six months. Two and a half months after the first payment is received HHH leaves the GST group. WWW has already accounted for the GST on the first three payments for the supply. HHH must account for the GST on the last three payments under the accounting rules applying to it.
Example
Another company, RRR Inc, joins the TTT GST group. After joining the GST group, an adjustment arises in relation to an acquisition RRR had made before joining the GST group. WWW accounts for that adjustment.
GST JOINT VENTURES -- DIVISION 5.
6.24 Companies may operate together in mining activities in a joint venture with the aim to achieve certain things. For example, several mining companies may jointly survey for mineral deposits. The companies that are members of the joint venture may supply things to each other within the joint venture. Under the general rules, one company would pay GST on the supply of the thing and another participant of the joint venture would be entitled to the input tax credit for the acquisition of the thing. Such supplies and acquisitions are therefore akin to transactions made within an entity. For this reason Division 51 gives you the opportunity to separately register a joint venture for GST purposes. Separately registered joint ventures are GST joint ventures .
6.25 One participant (the joint venture operator ) of the joint venture pays the GST and is entitled to the input tax credits that relate to supplies, acquisitions and importations it makes for the purposes of the joint venture on behalf of the other participants of the GST joint venture. Supplies made by the joint venture operator to another participant of the GST joint venture are not treated as being subject to GST. The joint venture operator also has the adjustments that relate to those supplies, acquisitions and importations. The joint venture operator makes the GST return of the GST joint venture on behalf of the participants of the joint venture. The joint venture operator makes payments or receives refunds of the GST joint ventures net amount for each tax period. Subdivision 51-B .
6.26 To be able to be or become a participant of a GST joint venture, each company must:
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- participate, or intend to participate, in a joint venture for the exploration of exploitation of mineral deposits. This includes petroleum, natural gas and related hydrocarbons, sands and gravels;
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- be part to a joint venture agreement with the other participants, or intended participants, of the joint venture;
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- be registered;
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- be an Australian resident for income tax;
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- be, or intend to be, engaged in a joint venture;
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- not be a member of a GST group;
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- not be in partnership with the other participants, or intended participants;
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- use the same accounting basis for GST; and
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- have the same tax periods.
6.27 Joint ventures for other purposes may be eligible to form GST joint ventures if the regulations allow. Paragraph 51-5(1)(a) .
Changing participants on application
6.28 The joint venture operator of a GST joint venture can apply to the Commissioner to approve another company to join the GST joint venture, remove participants from the GST joint venture, or approve another participant of the GST joint venture as the joint venture operator. The Commissioner must approve another company joining the GST joint venture if the company satisfies the eligibility criteria discussed above. The Commissioner must approve the removal of a participant from the GST joint venture or a change in joint venture operators. Subsection 51-70(1) .
Changing participants without application
6.29 The Commissioner can remove a participant from a GST joint venture even without an application if the participant does not satisfy any of the eligibility criteria discussed above. Subsection 51-70(2) .
Dissolving a GST joint venture
6.30 The joint venture operator can apply to the Commissioner to revoke the approval of the GST joint venture as a whole. If the representative makes such an application, the Commissioner must revoke the approval of the GST joint venture as a whole. Subsection 51-75(1) .
6.31 The Commissioner can revoke the approval of a GST joint venture as a whole even if the joint venture operator has not applied for revocation of the GST joint venture. The Commissioner can do so if he or she is satisfied that no participant or only one participant of the GST joint venture satisfies the eligibility criteria. Subsection 51-75(2) .
Effect of leaving a GST joint venture
6.32 If you join a GST joint venture you cease to be responsible for accounting for your own taxable supplies, taxable importations, creditable acquisitions, creditable importations that you make for a purpose of the joint venture. You also cease to be responsible for the adjustments that relate to such supplies, acquisitions and importations. For example, if you made an acquisition before you were a participant of the GST joint venture and an adjustment arises after you joined, the joint venture operator of the GST joint venture is responsible for the adjustment. If you made a taxable supply before you were a participant of a GST joint venture, and only part of the GST on a taxable supply was attributed to a tax period before you joined, the joint venture operator accounts for the rest of the GST.
6.33 If you leave a GST joint venture you again become responsible for accounting for your own taxable supplies, taxable importations, creditable acquisitions and creditable importations that are for the purpose of the joint venture. You also become responsible for the adjustments relating to such supplies, importations and acquisitions. For example, if you made an acquisition whilst you were a participant of the GST joint venture and an adjustment arises after you leave, you are responsible for the adjustment. If you made a taxable supply while you were a participant of a GST joint venture, and only part of the GST on a taxable supply was attributed to a tax period before you left, you account for the rest of the GST.
GST BRANCHES -- DIVISION 54
Commercial accounting practice
6.34 Some entities operate through a divisional or branch structure. Their normal commercial accounting practice may be to account on a divisional or branch basis. They may only amalgamate their accounts once a year. Rather than requiring them to amalgamate their accounting for GST across their divisions or branches every tax period they are allowed to register their branches separately for GST purposes. Division 54 provides for the separate registration of GST branches.
6.35 GST branches account for GST separately from their parent entity. They make separate GST returns and payments of GST. They also receive refunds of GST separately.
6.36 You do not have to register all of your branches separately as GST branches. You can choose to register one, some or none of your branches separately as GST branches. Subsection 54-5(2)
6.37 Generally, you will be able to register one of your branches separately as a GST branch if the Commissioner is satisfied that:
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- the branch has an independent system of accounting;
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- the branch can be separately identified either because the activities of the branch are distinct from the other activities of the entity, or because the branch is in a distinct location from the other parts of the entity; and
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- you are or intend to carry on an enterprise through the branch.
6.38 You cannot register one of your branches separately if you are a member of a GST group. See 6.3 for GST groups. This is because, generally, if you are a member of a GST group, you do not account for GST. The representative member of the GST group accounts for the GST and is entitled to the input tax credits for all group members. Subsection 54-5(3) .
Effect of separate registration
6.39 If you register one of your branches separately, the GST branch will account for the GST on the taxable supplies and taxable importations it makes. The GST branch will account for the input tax credits on the creditable acquisitions and creditable importations that it makes. The GST branch will account for the adjustments that relate to the supplies, importations and acquisitions that it makes. Sections 54-40 and 54-45 .
6.40 Effectively the GST branch operates as a distinct entity for GST. However, you, the parent entity , still bears legal responsibility.
6.41 As a consequence of separately registering one of your branches, if it transfers anything to you as parent entity, that transfer is treated as a taxable supply. The GST branch accounts for GST on the transfer and you are entitled to an input tax credit in relation to the transfer. If you transfer anything to one of your GST branches, that transfer is treated as a taxable supply. You account for GST on the transfer and the GST branch is entitled to an input tax credit in relation to the transfer. Sections 54-40 and 54-45 .
6.42 If a GST branch transfers anything to another of your GST branches, that transfer is also treated as if it were a taxable supply or creditable acquisition. Sections 54-40 and 54-45 .
6.43 All the general rules relating to taxable supplies and creditable acquisitions apply to your GST branches as if those transfers were taxable supplies and creditable acquisitions. Sections 54-40 and 54-45 .
6.44 If you have one or more GST branches, you have a separate net amount for each of them. You also have a separate net amount for your enterprise as parent entity for those things that are not included in the net amount of your GST branches. Sections 54-40 and 54-45 .
6.45 If you have GST branches, you have to make separate GST returns for each them. You also have to make a separate GST return for your enterprise as parent entity for those things that are not included in the returns of your GST branches. Section 54-55 .
6.46 If you have GST branches you pay, or the Commissioner pays to you, the net amounts of those GST branches. Sections 54-60 and 54-65 .
Application for separate registration
6.47 If you want one of your branches to be separately registered you apply to the Commissioner for registration of that branch as a GST branch. The Commissioner will register the branch as a GST branch if you meet the eligibility criteria discussed above. Section 54-5 .
Cancelling separate registration of your GST branches
6.48 The general rule for cancellation of registration in Subdivision 25-B does not apply. Instead the rules in Division 54 apply. Section 54-85 .
6.49 You can apply to have the separate registration of one of your GST branches cancelled. The Commissioner must cancel the separate registration unless the GST branch has been separately registered for less than twelve months. Even if the GST branch has not been separately registered for at least twelve months the Commissioner must cancel the separate registration if he or she is satisfied that:
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- you are not carrying on an enterprise through the branch; and
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- you will not carry on an enterprise through the branch in the next twelve months.
6.50 The Commissioner can still cancel the separate registration of one of your branches even if you do not apply for cancellation of separate registration of a branch if he or she is satisfied that:
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- you are not carrying on an enterprise through the branch; and
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- you will not carry on an enterprise through the branch in the next twelve months.
RESIDENT AGENTS FOR NON-RESIDENTS -- DIVISION 57
6.51 Non-residents can register for GST if they are carrying on an enterprise or intend to carry on an enterprise from a particular date. The enterprise the non-resident carries on does not have to be located in Australia. Section 23-10.
6.52 If a non-resident entity is registered for GST and has a resident agent, the resident agent is required to be registered from when he or she starts acting as agent -- sections 57-20 . The agent must notify the Commissioner within 14 days of ceasing to act as agent for a non-resident -- section 57-30 . The Commissioner must cancel the agents registration if satisfied that the agent is not acting as agent for a non-resident and is not otherwise required to be registered under the general registration rules in Division 23 .
6.53 The agent is required to be registered because the agent is liable for the GST on taxable supplies and taxable importations made by the non-resident through the agent. The agent is entitled to input tax credits on creditable acquisitions and creditable importations that the non-resident makes through the agent. The agent also has any adjustments that relate to those supplies, acquisitions or importations. The non-resident is not liable for the GST or entitled to the input tax credits. The non-resident does not have the adjustments that relate to those supplies, acquisitions or importations. Sections 57-5, 57-10 and 57-15 .
6.54 The reason for this is that if a non-resident is acting through an agent there is someone in the Australian jurisdiction on whom liability can be placed. Placing the liability on someone who is in jurisdiction decreases the compliance risk.
6.55 If a non-resident only makes taxable supplies or taxable importations through an agent the non-resident does not have to lodge a GST return. Section 57-40 .
6.56 If you are an agent for a non-resident and your net amount for a tax period is zero you must lodge a return if the non-resident made taxable, GST-free or input tax supplies through you. You must lodge a return in the way you would if your net amount had not been zero even though subsection 31-15(2) would otherwise allow you to lodge your return in another way, such as by telephone, that the Commissioner allows. See 7.14 for lodging returns.
PRE-ESTABLISHMENT COSTS -- DIVISION 60
What would happen without this special rule
6.57 Under the general rules for creditable acquisitions in Division 11 if you are not registered and you set up a company, you personally will not be entitled to input tax credits for the GST included in the costs of setting up the company. This is because you are not entitled to input tax credits if you are not registered or required to be registered. Without a special rule, the company would not be entitled to input tax credits in relation to those set up costs because the company did not provide and was not liable to provide the consideration for those cost.
6.58 If you are registered and you set up a company, but setting up the company is not done for a creditable purpose of your enterprise, you will not be entitled to an input tax credit for the costs of setting up the company. This is because you are only entitled to input tax credits that you make for a creditable purpose. The company did not make the acquisitions so without a special rule it would not be entitled to the input tax credit.
6.59 Division 60 modifies the general rule to allow the company to be entitled to input tax credits for acquisitions and importations that are made before incorporation in certain circumstances. Such input tax credits are only allowed in relation to pre-establishment acquisitions and pre-establishment importations .
6.60 An acquisition or importation you make for a creditable purpose -- see 3.23 -- that only relates to a company that does not yet exist will be a pre-establishment acquisition or importation if:
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- the company comes into existence and becomes registered within 6 months after the acquisition or importation would have been first attributable if it had been creditable; and
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- you become a member, officer, or employee of the company; and
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- you have been fully reimbursed by the company for the consideration you provided for the acquisition, or you have been fully reimbursed by the company for the GST on the taxable importation and the cost of acquiring or producing the thing.
Subsection 60-15(1) .
6.61 However, an acquisition or importation cannot be a pre-establishment acquisition or importation if you are entitled to an input tax credit for the acquisition or importation -- paragraph 60-15(2)(a) . If you are entitled to an input tax credit, the general rules apply to allow you the input tax credit and there is no need for the special rule in Division 60 .
Example
Lee is an accountant. Lee incorporates companies to hold as trading stock for the purpose of his enterprise. Lee would be entitled to the input tax credits for the incorporation costs. Therefore the acquisitions relating to incorporation of the companies are not pre-establishment acquisitions. The companies are not entitled to an input tax credit.
6.62 If the company acquires the things you acquired before it existed, the general rules apply and there is no need for this special rule -- paragraph 60-15(2)(b) .
Example
Shirley, is registered and carries on an enterprise as a garden tool wholesaler. She decides to expand her field of operation and sets up a company to operate a nursery making retail sales of garden tools, plants, and other garden items. Before she sets up the company she acquires garden tools as stock for the company. After the company is set up she supplies it with the garden tools. That supply is a taxable supply. The company is entitled to an input tax credit for the acquisition of the garden tools. Therefore the acquisition of the garden tools by Shirley is not a pre-establishment acquisition.
6.63 Creditable purpose for Division 60 is different from the usual creditable purpose rules. For Division 60 you have a creditable purpose to the extent that you acquire or import a thing before a company exists for the purpose of establishing the company or for the purpose of the company carrying on an enterprise after it exists. Subsection 60-20(1) . You do not have a creditable purpose in relation to an acquisition or importation to the extent that it is of a private or domestic nature or relates to the company making input taxed supplies. Subsection 60-20(2) .
6.64 If you make a pre-establishment acquisition or an importation that is a pre-establishment importation, you are not entitled to the input tax credit for it. The company is entitled to the input tax credit after it comes into existence. Section 60-5 .
6.65 An input tax credit for a pre-establishment acquisition is attributable to the tax period applying to the company in which you were fully reimbursed for it -- subsection 60-30(1) . However, the company must hold a copy of a tax invoice that you or your agent has for the acquisition before it can attribute the input tax credit, unless there is no need for the company to hold a tax invoice -- subsection 60-25(2) .
6.66 Input tax credits for pre-establishment importations are attributable to the tax period applying to the company in which you were fully reimbursed for the GST on the importation and the costs of acquiring or producing the things.
6.67 The adjustment for change in creditable purpose provided for in Division 129 applies in respect of input tax credits that a company is entitled to in relation to pre-establishment acquisitions or importations. Section 60-35 . See 6.216 for change in creditable purpose adjustment.
SECOND-HAND GOODS -- DIVISION 66
6.68 If you acquire second-hand goods from an unregistered entity the supply to you will not be a taxable supply. Even if you acquire the goods for a creditable purpose you would not be entitled to an input tax credit under the general rules because the supply to you was not taxable. This also applies if you acquire second-hand goods from someone who is registered but the supply is not taxable, such as the supply of a car that has only been used privately.
6.69 If you acquire second hand goods from an unregistered entity, that entity has paid GST on the supply of the goods to them. They were not entitled to an input tax credit. There is therefore some GST included in the price you pay for those second hand goods. If you subsequently supply those goods in a taxable supply, GST is payable on the supply. This would mean that there is GST charged on GST.
6.70 Division 66 allows you an input tax credit in such situations to offset the GST included in the price paid for acquisitions.
6.71 Generally, if you are registered and:
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- you acquire second-hand goods; and
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- you subsequently supply those goods in a taxable supply;
you are entitled to an input tax credit on the acquisition -- section 66-5 . However, you are not entitled to an input tax credit on the acquisition in the circumstances outlined in subsection 66-5(2) .
The amount of the input tax credit
6.72 The amount of the input tax credit for the second-hand goods is the lesser of:
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- 1/11 of the consideration for the acquisition; or
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- the amount of the GST payable on your subsequent taxable supply of second-hand goods.
Which tax period is the input tax credit attributable to?
6.73 The credit is attributable to:
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- the tax period in which you receive any part of the payment for the supply; or
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- the tax period when you issue an invoice for the supply.
6.74 However, if the value of your acquisition of the second-hand goods is less than $300, you attribute the input tax credit to the tax period in which you provide the consideration or receive an invoice for the acquisition.
6.75 If you account on a cash basis you attribute your input tax credit for the supply according to the rules in subsection 66-15(2) .
6.76 The general rule for claiming input tax credits is that you must have a tax invoice at the time you claim the credit. This rule does not apply to input tax credits for second-hand goods where your acquisition was not a taxable supply. Subsections 66-15(3) and (4) .
NON-DEDUCTIBLE EXPENSES -- DIVISION 69
6.77 Some provisions of the Income Tax Assessment Acts prevent you from deducting certain amounts, or limit the amount you can deduct. Generally this is because they have a private element. This category includes certain relatives travel, club and leisure facilities or boats, entertainment and non-compulsory uniform expenses. It also includes certain business benefits and car parking expenses that the Income Tax Assessment Act 1936 prevents you from deducting.
6.78 In most cases, an input tax credit is not allowed for acquisitions to the extent that you cannot deduct the expense for income tax because of these provisions. Section 69-5 .
6.79 If you are exempt from income tax, an acquisition that you make that would be a non-deductible expense if the provisions of the Income Tax Assessment Acts that deny deductions applied to you, is not a creditable acquisition.
6.80 A further rule in some of the deduction provisions is that you are not stopped from deducting an expense you incur in providing a fringe benefit. Division 69 does not stop an acquisition being a creditable acquisition where you provide it as a fringe benefit.
6.81 The Income Tax Assessment Act 1997 limits the cost of a car for working out the amount you can deduct for depreciation.
6.82 The car depreciation limit also applies for working out the amount of your input tax credit for a creditable acquisition of a car -- section 69-10 . For the 1998 income year the car depreciation limit is $55,134. If the GST applied in 1998, the input tax credit on a car which cost this amount or more would be $5,012.
6.83 If your acquisition of a car is partly creditable, you work out your input tax credit under this Division before you work out your input tax credit under Chapter 2. Subsection 69-10(2) .
6.84 The car depreciation limit also applies to cars for the personal use of disabled veterans and other disabled people. See 5.138.
Example
You purchase a car for $88,000 including $8,000 GST. You acquire the car 50% for use in your enterprise, and 50% for private use. Your input tax credit under division 432 would be $5,012 (if the 1998 car depreciation limit still applied). Because the acquisition is partly creditable, your input tax credit worked out using the formula in subsection 9-50(3), is 50% of $5,012, which is $2,506.
6.85 The car depreciation limit applies to your creditable acquisition of a car even if you cannot claim depreciation for example because you are exempt from paying income tax.
ASSOCIATES -- DIVISION 72
6.86 Special rules apply to supplies between associates. Essentially, these rules ensure that supplies to your associates without consideration are brought within the GST system and that supplies to your associates for inadequate consideration are properly valued for GST purposes.
6.87 Associates is defined widely for these purposes and will include people and entities closely associated with you such as relatives, or closely connected companies or trusts. The definition of associate is the same definition adopted in the Income Tax Assessment Act 1997 . Section 195-1 .
Supplies without consideration
6.88 Supplies between associates are brought into the GST system if the recipient of the supply is not entitled to a full input tax credit. The recipient will not be entitled to a full input tax credit if he or she is not registered or required to be registered or if her or his acquisition was not solely for a creditable purpose. Section 72-5 .
6.89 If you make such a supply without consideration, the value of the supply is the tax exclusive market value of the supply -- section 72-10 . The tax exclusive market value is the market value of the consideration or thing, reduced by the amount of GST (if any) payable on the supply.
6.90 If you are the recipient of the above supply and you did not acquire the supply solely for a creditable purpose, your input tax credit is the input tax credit you would have been entitled to if the consideration for the supply had been the tax inclusive market value. See 3.31. Sections 72-40 and 72-45 .
6.91 The GST and input tax credit for these transactions are attributed to the tax period in which the supply first becomes a supply that is connected with Australia -- sections 72-15 and 72-50 . This will generally be the time of delivery of the supply. See 3.11 for connected with Australia.
Example
Karen is a carpenter and is registered for GST. Karen supplies a dining suite to her sister Sarah. Sarah is also registered. The market value of the suite is $1,650.
Sarah paid Karen no consideration for the supply and intends to use the suite for a 50% creditable purpose.
Karen accounts for $150 ($1,650 divided by 11) GST. Sarah is entitled to an input tax credit of $75 ($150 \ 50%).
The GST and the input tax credit are attributable to the tax period in which the table is delivered.
Supplies for inadequate consideration
6.92 If the consideration for the supply is less than the tax inclusive market value, GST is payable on the tax exclusive market value of the supply. Section 72-70 .
Example
If in the example at 6.91, Sarah had not been registered for GST and had paid $1,100 for the supply, Karen attributes $150 ($1,650 divided by 11) GST. The GST is attributed to a tax period under the general rules. Sarah is not entitled to an input tax credit.
When the special rule does not apply
6.93 You do not need the special rule, even though there is no consideration or inadequate consideration, if the acquirer is entitled to a full input tax credit for the acquisition. This is because the recipient of the supply would get a full input tax credit entirely offsetting the GST included in the price of the supply.
Example
If in the example at 6.91, Sarah paid $1,100 for the table and acquired it solely for a creditable purpose, she would be entitled to an input tax credit of $100 ($1,100 divided by 11). This entirely offsets the $100 ($1,100 divided by 11) of GST that Karen accounts for.
SALE OF FREEHOLD INTERESTS -- DIVISION 75
6.94 There is no GST payable when land is sold by private individuals, or on the sale of an existing family home -- subdivision 40-C .
6.95 If you are registered, the construction, sale and leasing of all real property and buildings, whether new or used, will be subject to GST. GST will generally be calculated on the full value of the real property and input tax credits can be claimed for real property purchased by a registered entity from another registered entity.
6.96 Real property includes:
- •
- any interest in or right over land; or
- •
- a personal right to call for or be granted an interest in or right over land; or
- •
- a licence to occupy land or other contractual right exercisable over or in relation to land. Section 195-1 .
6.97 If you are registered you may choose to calculate GST on the supply of real property and premises on the margin of that supply or under the usual rules. The margin is the value added by your business. For example, the supply of new residential premises by a property developer. Division 75, subsection 75-5(1)
Margin scheme
6.98 The margin scheme applies to supplies of real property and premises that are held at 1 July 2000 and subsequent supplies of real property. Under the margin scheme, you calculate GST on the supply as 1/11 of your margin on the sale of the real property and premises. Subsection 75-10(1) .
6.99 Generally, your margin is your tax inclusive sale price less your original purchase price. Subsection 75-10(2) . However, if you held the real property and premises at 1 July 2000, your margin is the sale price less the value of the real property and premises at 1 July 2000 if:
- •
- you are holding real property and premises when the GST commences (1 July 2000);
- •
- you obtain a valuation of the real property and premises at 1 July 2000; and
- •
- it is the first supply of the real property and premises
Subsection 75-10(3) .
6.100 This will ensure that GST is only payable on the value added after the commencement of the GST system. See 6.110 for a discussion of the requirements for valuation of real property and premises at 1 July 2000.
6.101 If your original purchase price is less than your sale price, or if the value of the real property and premises held on 1 July 2000 has decreased, there is no GST payable because there is no positive margin -- subsections 75-10(2) and (3) .
6.102 You should not include the cost of any improvements made since 1 July 2000 to the real property and premises when calculating the original purchase price. You will have already received an input tax credit for GST paid on the improvements. If the value of the improvements was added to the original price or the value of the real property or premises at 1 July 2000, the amount of GST payable would be reduced by an amount equal to the input tax credit available on the improvements. In other words, you would receive a double benefit.
6.103 If you acquired real property that was purchased as a taxable supply on which GST was calculated on the full value of the supply, it cannot be resold under the margin scheme -- subsection 75-5(2) .
6.104 However, if you purchase real property GST-free you will be able to resell it under the margin scheme. If the real property you acquired GST-free was to be excluded from the margin scheme, the effect would be that tax would be payable on the value added to the land before 1 July 2000.
6.105 If you purchase real property and premises where GST on the supply to you was calculated on the margin, you cannot claim input tax credits on the supply -- section 75-20 .
6.106 In certain circumstances, your margin is the sale price less the value of the real property and premises at a specified date -- subsection 75-10(3) . This will ensure that GST is only payable on the value added after the commencement of the GST or after you become registered for GST.
6.107 If you hold real property and premises at 1 July 2000 you will need to get a valuation of the real property and premises to be able to supply the real property and premises using the margin scheme. Item 1 of subsection 75-10(3).
Commonwealth, a State or a Territory
6.108 Where the Commonwealth, a State or a Territory holds unimproved land at 1 July 2000 that is subsequently improved, it is able to be sold under the margin scheme. In this case, GST will be charged on the difference between the sale price and the value of the unimproved land at the date of sale -- Item 4 of subsection 75-10(3) . The effect is that the value of the land is not subject to GST (that is, it is consistent with subdivision 38-L which provides that the sale of unimproved land held by an Australian government agency will be GST-free).
Unregistered entity becoming registered
6.109 If you were an unregistered entity holding real property and premises at 1 July 2000 and you subsequently become registered or required to be registered, you need to obtain a valuation of the real property and premises at that time -- Item 2 of subsection 75-10(3) . In these circumstances, you will need to charge GST only on the value added by you after you became registered for GST.
6.110 If you require a valuation of your land, you may obtain a professional valuation. You will need to have other land and buildings professionally valued as at 1 July 2000, if you wish to supply the land under the margin scheme. The Commissioner can determine the requirements for a valuation of land. Paragraph 75-10(3)(b)
Subdivision of land
6.111 When you subdivide land and subsequently supply it, you will be able to calculate GST on the supply under the margin scheme or on the full value of the supply. When you supply subdivided land, the price for acquisition will be apportioned appropriately. Section 75-15 . See 5.134 for the subdivision of agricultural land by farmers.
INSURANCE -- DIVISION 78
6.112 If you take out an insurance policy, GST is charged on the insurance premium. If the insurance policy is a creditable acquisition, you are entitled to an input tax credit.
6.113 When an insurance company makes a payment under an insurance contract, the insured entity gives up the right to recover amounts from the insurance company. If the insured entity is registered, giving up the right to recover would be a taxable supply by accepting the insurance payout. The insured entity would have to remit GST on the supply of that right. The insurance company would be entitled to an input tax credit on the payout because the acquisition of that right would be a creditable acquisition.
6.114 Subsection 78-5(1) ensures that the insurance company is able to claim input tax credits on payouts under insurance policies regardless of whether the insured entity is registered or unregistered.
6.115 The result is the same as for any other entity that charges GST on its taxable supplies and is entitled to an input tax credit for its creditable acquisitions.
6.116 The credit under subsection 78-5(1) only applies where the supply of the contract of insurance is a taxable supply, or would have been a taxable supply, if the contract had been made after 1 July 2000. That is, the premium was taxable -- subsection 78-5(2) . For example, health insurance is GST-free and so the premium is not taxable. See 5.32.
6.117 An insurance policy is defined in subsection 78-5(3) . An insurance policy is a policy of insurance or a guarantee to the extent that it is a policy or guarantee against loss, damage, injury or risk of any kind. It does not include a life insurance policy.
6.118 Certain insurance transactions are not taxable supplies or creditable acquisitions. Such transactions are excluded insurance transactions.
6.119 Excluded insurance transactions in relation to goods are defined in paragraph 78-10(3)(a) . Excluded insurance transactions in relation to rights are defined in paragraph 78-10(3)(b) .
Florence runs a flower shop and is registered. Her delivery van was involved in an accident and was written off. Florence receives an insurance payout in exchange for giving up her right to recover amounts from the insurance company. The insurance company claims an input tax credit in relation to the payment. Florence accounts for GST of 1/11 of the insurance payment.
The insurance company takes possession of the wrecked van. This is an excluded insurance transaction. Paragraph 78-10(3)(a) provides that this supply is not taxable supply or a creditable acquisition. Otherwise, Florence would have to account for GST and the insurance company would be entitled to an input tax credit on the value of the wreck.
Arto is registered and carries on an enterprise of renting out residential properties. Residential rent is input taxed under subdivision 40-B . This means that acquisitions made that relate to the renting of the residential premises are not for a creditable purpose and hence Arto is not entitled to an input tax credit.
When Arto acquires an insurance policy for the residential premises, he was not entitled to an input tax credit. Under the insurance policy the premises are insured against events such as storm damage and fire.
One of Artos rental houses is gutted by fire and becomes untenanted for six months. Arto receives an insurance payout in exchange for giving up his right to recover amounts from the insurance company in relation to the house. However, the payout is in relation to Arto making input taxed supplies. The surrender of the right to be indemnified by the insured is an excluded insurance transaction paragraph 78-10(3)(b) . While, the insurance company is not entitled to an input tax credit for the payment, Arto does not account for GST on the insurance payment.
6.120 Section 78-15 provides for the situation where payouts are partly excluded insurance transactions.
PAYMENT OF TAXES -- DIVISION 81
6.121 Paying or discharging a liability to pay taxes imposed under a law of a State, a Territory or the Commonwealth is consideration for a taxable supply -- subsection 81-5(1) and section 195-1 . This means that GST is included in such a tax. An example would be where a government fee to enter a park is framed as a tax. The payment of the fee, a tax, is consideration for a supply from the government of the right for you to enter the park.
6.122 Some of these taxes may not be within the meaning of in connection with Australia, which is one of the requirements for a supply to be a taxable supply. Section 81-10 therefore provides that it does not matter whether the supply to which the payment of tax relates is connected with Australia.
6.123 For example, visas supplied in Australian embassies may not be supplied strictly within the meaning of in connection with Australia.
6.124 Not all taxes are paid in return for the supply of something from the government concerned. For this reason, subsection 81-5(2) allows such taxes to be excluded from GST by specifying them in a determination by the Treasurer.
6.125 If a tax is not excluded by the Treasurers determination, the supply to which it relates is a taxable supply.
offshore supplies of other than goods or real property -- Division 84
6.126 One of the requirements for a supply to be a taxable supply, and hence subject to GST, is that the supply is connected with Australia -- paragraph 9-5(c) . Under subsection 9-25(5) supplies of things other than goods or real property are connected with Australia if the thing is done in Australia or the supplier makes the supply through an enterprise the supplier carries on in Australia. Under these rules a supply of a thing that is not goods or real property, such as an intellectual property right, could be made from outside of Australia when the thing is for consumption in Australia, such as an intellectual property right that is to be exercised in Australia, and the supply would not be connected with Australia. The supply would not be taxable. The supply would not be taxable even if the other requirements of section 9-5 are met.
6.127 There would be no GST on the thing under the GST on importation provisions because GST is charged on the importation of goods. See 3.45.
6.128 There should be GST on the supply if the thing is going to be used in Australia other than solely for a creditable purpose. That is, if the thing is going to be used solely or partly for a private or domestic purpose, or partly or solely for making input taxed supplies. See 3.23 for creditable purpose.
6.129 Division 84 ensures that there will be GST on such supplies.
6.130 You will pay GST if you are registered or required to be registered and you acquire, in a supply that is not connected with Australia, things other than goods or real property for a purpose of an enterprise you carry on in Australia. GST is not payable if you acquire the things solely for a creditable purpose. This is because, if you acquire the things solely for a creditable purpose and the supply was taxable, you would be entitled to an input tax credit equal to the GST. Paragraphs 84-5(1)(a) and 84-5(1)(c) .
6.131 The supply has to have been for consideration. Paragraph 84-5(1)(b) . Note however that the associates provisions in Division 72 may apply. See 6.86.
6.132 The supplier may not be in the Australian GST system so the GST is payable by the recipient of the supply rather than the supplier. See 2.6 for who is in the GST system. This is a reverse charge . Section 84-10 .
6.133 If you acquired the thing solely for a creditable purpose the supply is not a taxable supply -- section 84-5 . However, if you later use the thing other than solely for a creditable purpose, the adjustment for change in creditable purpose provisions in Division 129 apply. See 6.216.
LONG TERM COMMERCIAL ACCOMMODATION -- DIVISION 87
6.134 If long term accommodation was input taxed like the supply of residential rent (see 5.164), the supplier of the accommodation would have to apportion input tax credits between that part that relates to the residential accommodation and that part that relates to services.
6.135 To avoid this and make the calculations easier, a concessionary treatment of long-term commercial accommodation is given under Division 87 .
6.136 If you supply accommodation to an individual for more than 27 days and your premises are predominantly for long term accommodation (see 6.141), the value of the supply of commercial accommodation is 50% of the price if this Division did not apply, from the start of the stay. Section 87-5 .
6.137 If you supply accommodation to an individual and your premises are not predominantly for long term accommodation, GST is payable on the full value of the supply for the first 27 days. During the remainder of the stay (if any), the value of the supply of commercial accommodation is 50% of the price if this Division did not apply. Section 87-10 .
What is commercial accommodation?
6.138 The reduced value of the supply applies only to supplies of commercial accommodation. Commercial accommodation is:
- •
- the right to occupy the premises; and
- •
- any of the following if they are provided as part of that right:
- •
- cleaning and maintenance;
- •
- electricity, gas, air-conditioning or heating; and
- •
- telephone, television, radio or any other similar thing.
6.139 You must charge GST on the full value of supplies of incidental goods and services such as meals, drinks, laundry and service charges.
What are commercial residential premises?
6.140 Section 195-1 defines commercial residential premises as, amongst other things, hotels, motels, inns, hostels, boarding houses or camping grounds. Premises used to provide accommodation in connection with primary or secondary schools only are also included in the definition.
When are commercial residential premises predominantly for long term accommodation?
6.141 Subsection 87-15(3) sets out when commercial residential premises are predominantly for long term accommodation. You provide commercial residential premises predominantly for long term accommodation where at least 70% of the individuals who you provide with commercial accommodation in the premises are provided with commercial accommodation for a period of 28 days or more.
Example
Mary McCallum stays for 40 days at the Commercial Hotel. The accommodation charge is $77 per night. Mary consumes a small amount of food from the mini-bar and uses the dry cleaning services supplied by the hotel. These are not part of the accommodation charge.
The GST charged on Marys stay is calculated as follows:
- •
- GST on the first 27 days of Marys stay is calculated on the full value of the supply.
- •
- The next 13 days of Marys stay GST is calculated on the long-term accommodation basis, which is 10% of the reduced value of the supply.
- •
- The reduced value is 50% of the tax exclusive 27 day rate, which is $77 x 50% = $38.50.
- •
- GST is 10% of the reduced value, that is, $38.50 x 10% = $3.85.
- •
- The rate that Mary pays for the 13 days is the tax exclusive value plus the GST of $3.85.
- •
- If the tax exclusive value is the same as for the first 27 days ($70) the charge to Mary is $73.85 per night.
Marys account at the end of her stay is:
Accommodation: 27 days @ $77 (incl. GST) $2,079.00 13 days @ $73.85 (incl. GST) $960.05 Food (incl. GST) $330.00 Laundry (incl. GST) $165.00 ---------- Total $3,534.05
COMPANY AMALGAMATIONS -- DIVISION 90
6.142 Division 90 refers to amalgamating companies and amalgamated companies. Amalgamating companies are the companies that exist before they amalgamate to become the new amalgamated company. In the discussion below, companies A and B are the amalgamating companies. Company C is the amalgamated company.
6.143 If companies amalgamate they become one entity. This is not the same as when one entity acquires something. A and B become a new entity, C. A and B cease to exist. Rather than have A and B charge GST on the supply of all of their assets to C, and then have C entitled to an input tax credit for the acquisition of those assets, the supplies from A and B are not to be subject to the GST. The reason for this is that it would be like making a supply to yourself taxable and creditable at the same time. By removing such supplies and acquisitions from the GST system, the chance to manipulate the timing of the attribution of the GST and the input tax credits is removed and unnecessary accounting costs are avoided. For this reason such supplies are not taxable supplies. Section 90-5 .
6.144 C is required to be registered immediately after amalgamation if, immediately before amalgamation, the combined turnovers of A and B meet the registration turnover threshold.
A and B not registered, C registered
6.145 If A and B are not registered or required to be registered immediately before amalgamation, the supplies of their assets to C at amalgamation are not taxable supplies. It does not matter if C is registered or required to be registered immediately after the amalgamation. Even if C is registered or required to be registered immediately after amalgamation, Cs acquisitions of the assets of A and B are not creditable acquisitions. Sections 90-5 and 90-15 .
A and B registered, C not registered
6.146 If C is not registered or required to be registered, C is not entitled to an input tax credit under the general rules. The need for the special rule therefore does not arise.
6.147 If A and B are registered or required to be registered immediately before amalgamation, but C is not registered or required to be registered immediately after amalgamation, the supplies by A and B of their assets to C are taxable supplies. A and B account for the GST in their concluding tax periods. The value of this supply is the tax exclusive market value of the supply. Section 90-10 .
A and B registered, C registered
6.148 The supplies by A and B of all their assets to C are not taxable supplies if:
- •
- A and B are registered, or required to be registered before the amalgamation; and
- •
- C is also registered or required to be registered after the amalgamation. Section 90-5 .
6.149 C is treated as liable to GST and entitled to input tax credits that A and B were liable for, or entitled to, but have not yet accounted for. Sections 90-20 and 90-25 .
6.150 If C uses the things acquired from A and B for a different purpose from that for which A and B acquired the things, the change in creditable purpose provisions apply -- see 6.216. C also makes adjustments arising from adjustment events in relation to the things it acquired from A and B -- see 3.73. C makes adjustments for bad debts of A and B written of or recovered after amalgamation as if it were A or B -- see 3.84. Section 90-30 .
6.151 If A and B used a different accounting basis from C, GST and input tax credits arising from supplies, acquisitions and importations from before the amalgamation will be treated differently in Cs first tax period after amalgamation.
A or B on cash basis, C not on cash basis
6.152 A (or B or both) accounted on a cash basis before the amalgamation and C does not account on a cash basis after the amalgamation, the following attribution takes place. C attributes any GST, input tax credit or adjustment that has not been accounted for, or fully accounted for before the amalgamation, but would have been had A accounted on a cash basis, to the first tax period that ends after the amalgamation. C attributes the GST, input tax credit or adjustment to the extent it was not accounted for before. Section 90-35 .
Example
A accounts on a cash basis and uses monthly tax periods. Before the amalgamation A makes a creditable acquisition of some goods solely for a creditable purpose. A is to pay for the goods in six monthly payments. As A accounts on a cash basis, the input tax credit for the acquisition is attributable to each tax period in which a payment is made to the extent that the payment is made. That is, 1/11 of each payment is attributable as an input tax credit to the tax period in which the payment is made. After the third payment, A and B amalgamate to form C. C does not account on a cash basis. C attributes the input tax credit that relates to the remaining three payments to its first tax period that ends after amalgamation. That is, C attributes 1/11 of the amount of the remaining three payments to that tax period as an input tax credit.
RETURNABLE CONTAINERS -- DIVISION 93
6.153 A special rule is required to prevent the cascade of GST (GST on GST) that would otherwise occur under the general rules for certain statutory refund schemes in relation to returnable containers such as bottles. Under such schemes something like the following transactions occur:
6.154 The manufacturer pays the collector $X per number/weight of bottles plus a handling fee. The collector goes to the bottle yards and pays them the $X per number/weight of bottles plus some of the handling fee. The bottle yard pays the consumer the $X for the number/weight of bottles. The consumer had paid $X to the retailer as a deposit on the bottle. The $X is GST inclusive. The $X is the amount that the bottle yard is obliged under the terms of the scheme to pay the consumer for the return of the container.
6.155 To remove the cascade of GST, the tax embedded in the $X has to be removed at some point in each cycle.
6.156 The embedded GST is removed from the $X that the bottle yard pays the consumer when the registered bottle yard supplies the bottle to the collector by allowing a special input tax credit. The input tax credit is equal to the embedded GST, that is, 1/11 of the price paid to the consumer. As a compliance measure, the input tax credit is delayed until the bottle yard has supplied the bottle to the collector.
6.157 Therefore, if you acquire a returnable container and the supply of the container to you was not a taxable supply, you may be entitled to an input tax credit for the acquisition. You will be entitled to an input tax credit if that acquisition meets all the other requirements for being entitled to input tax credits -- see 3.19 -- subsection 93-5(1) . You attribute the input tax credit to the tax period in which you receive any consideration, or an invoice is issued, for the supply of the container in a taxable supply -- subsection 93-15(1) .
6.158 The input tax credit for GST embedded in a supply from a non-registered person is limited to returnable containers under a statutory scheme. Subsection 93-5(2) tells you what is a returnable container.
SUPPLIES PARTLY CONNECTED WITH AUSTRALIA -- DIVISION 96
6.159 Section 9-25 provides for when supplies are connected with Australia. See 3.11. Whether or not a supply is taxable can depend on whether or not the supply is connected with Australia -- paragraph 9-5(c) . See 3.5. For the purposes of deciding whether a supply is connected with Australia a distinction is made between supplies of goods, supplies of real property, and supplies of things other than goods or real property. However, a supply may be a mixture of any of these three things, such as a mixture of goods and services. This can mean that part of a supply is connected with Australia under section 9-25 and another part of the supply is not connected with Australia. The result of this is that part of a supply will be taxable and part will not be. Division 96 provides for what to do in such circumstances.
6.160 If a supply is a mixture of goods or real property, or anything other than goods or real property, and only part of the supply is connected with Australia, the supply will be treated as separate supplies. Subsection 96-5(1) .
6.161 The amount of GST or input tax credits in respect of a supply are calculated under the general rules in relation to the value of the supply -- subdivision 9-C and section 11-25 . See 3.13 and 3.30. In the circumstances to which Division 96 applies, the GST or input tax credit should not be calculated in relation to the whole value of the supply, only to the value of the supply that is connected with Australia.
6.162 Section 96-10 provides how to work out the value of the part of the supply that is connected with Australia. The value of the part of the supply that is connected with Australia is the proportion of the whole supply that is connected with Australia, multiplied by the value of the whole supply.
6.163 If a supply is partly connected with Australia and partly not connected with Australia, part of the supply may be merely incidental to another part of the supply. A part is merely incidental if it is minor relative to the other part of the supply. If it is incidental, it is treated in the same way as that other part rather than treating the two or three parts of the supply as separate supplies. Subsection 96-5(4) .
SECURITY DEPOSITS -- DIVISION 99
6.164 If you make a security deposit, the intention is usually that it will be refunded to you when you meet the obligations to which the deposit relates. The deposit may be consideration for a taxable supply. However, it would be pointless for the supplier to charge GST on the deposit if the deposit is to be refunded, in which case the GST would have to be refunded to the supplier.
6.165 However, some security deposits later become incorporated in the consideration for a taxable supply. At some point the deposit ceases to be held as a security deposit and is offset against the remaining consideration that is payable. GST should be charged on such deposits if they become part of the consideration for the taxable supply.
6.166 Also, if a security deposit made in relation to a taxable supply is forfeited, GST should be payable on the deposit.
6.167 For these reasons, Division 99 provides special rules in relation to security deposits.
6.168 If a security deposit is made it is treated as not being consideration for a supply (and hence not subject to GST) unless the deposit is forfeited or is applied towards the consideration for the supply. Section 99-5.
6.169 If the deposit is forfeited or is applied towards the consideration for the supply, GST is paid on the amount of the deposit. The GST is attributed to the tax period in which the deposit is forfeited or is applied towards the consideration. Section 99-10.
Example
Rex the home handyman hires a floor sander on Saturday morning. He pays $88 for hiring the sander. This is consideration for the taxable supply of the sander to him. GST of $8 is included in the hire fee. He also pays a security deposit of $50. The deposit will be returned to him when he returns the sander. He returns the sander Saturday afternoon and his security deposit is returned to him.
Example
Jo-anne runs a small business and is registered. She orders $10,000 worth of widgets for the business. The supplier requires a $990 deposit from Jo-anne before filling the order. That deposit will be refunded to Jo-anne if the supplier is unable to fulfill the order. Jo-anne will forfeit the deposit if she later decides to cancel the order. Jo-anne cancels the order and forfeits the $990 deposit. The supplier accounts for $90 GST on the deposit for the tax period in which Jo-anne cancels the order. Jo-anne is entitled to an input tax credit of $90.
CANCELLED LAY-BY SALES -- DIVISION 102
6.170 If you are registered and you make lay-by sales, they will generally be taxable supplies and you charge GST on them. If a lay-by sale is cancelled you will generally keep lay-by payments that you have already received. You may recover further payments after the sale was cancelled. Division 102 ensures that when a lay-by sale is cancelled GST is charged on the lay-by. Section 102-5 .
6.171 If you make a taxable supply by lay-by sale which is cancelled and you keep part or all of the payments, or you receive payments later, you account for GST on the full amount kept, or received later. You attribute the GST to the tax period in which the amount is retained or recovered. Section 102-10 .
6.172 If you make a creditable acquisition by lay-by sale which is cancelled and an amount is retained or recovered, you have an input tax credit in relation to the amount retained or recovered by the supplier. The amount of the input tax credit you are entitled to is the tax fraction, that is, 1/11 of the amount of the payments kept by the supplier. The input tax credit is attributable to the tax period in which the amount was retained or recovered. If the supplier later recovers further payments from you, you attribute the input tax credit for those payments to the tax period in which you make those payments. Section 102-10 .
SUPPLY IN SATISFACTION OF A DEBT -- DIVISION 105
6.173 If you supply another registered or required to be registered entitys (the debtor) things to satisfy a debt you may be liable for GST on the supply even if you are not registered or required to be registered. The supply may be a taxable supply even if you are not registered or required to be registered. For example, you supply goods that you repossessed under a hire purchase agreement. Division 105 .
6.174 You will be liable for GST on such a supply if the supply would have been a taxable supply if the debtor had made it.
6.175 This is because when you make a supply in satisfaction of a debt, you are in effect making the supply for the debtor. Therefore, a supply is a taxable supply when made by you if it would have been taxable if it had been made by the debtor.
6.176 Not all supplies in satisfaction of debt are taxable, only those that would have been taxable if made by the debtor.
6.177 It does not matter if the things you supply in satisfaction of a debt are things that the debtor did not originally acquire from you.
When supplies in satisfaction of debt are not taxable
6.178 The supply is not a taxable supply (and a special return is not required) if:
- •
- the debtor advises you in writing, with reasons, that the supply would not be taxable if the debtor made the supply; or
- •
- if you are unable to obtain such a statement, you conclude on the basis of reasonable information that the supply would not have been taxable if it had been made by the debtor.
Liability for GST on taxable supplies in satisfaction of debt
6.179 You, whether you are registered or not, are liable for the GST on the supply. You are liable even if you have relied on a statement from the debtor that the supply would not have been taxable if she or he had made it.
6.180 Even if you are not registered or required to be registered, the Commissioner can require you to furnish a return if you supply things in satisfaction of a debt. If you are registered, the Commissioner is able to require you to lodge a return for the supply in satisfaction of debt in addition to the return you would otherwise be lodging.
6.181 The debtor can object to such returns.
VALUATION OF SUPPLIES IN BOND -- DIVISION 108
6.182 Things that are held in bond under the Customs law have not been subject to excise or customs duties. Such things can be supplied while they are in bond. For example; alcohol manufactured in a bonded warehouse may be sold while it is still inside the warehouse and in bond.
6.183 This special valuation rule is aimed at ensuring the correct amount of GST is collected when supplies in bond are made and the recipient of the supply has a private or domestic purpose for making the acquisition or the acquisition is solely or partly for the purpose of making input taxed supplies. The special rule will generally not apply if you are registered.
6.184 GST on a taxable supply of things that have been subject to excise or customs duty, is generally calculated on the value of the things including any duty charged. This is because the GST is a tax on consumption, and the value to the consumer includes any excise and customs duty paid. See 3.14 and 3.53. To ensure that GST applies in the same way to things that are supplied while still in bond Division 108 provides a special valuation rule.
6.185 The effect of the special valuation in subsection 108-5(1) is that GST is calculated on the value of the supply plus the amount of any customs or excise duty that the goods would have been subject to if they had been entered for home consumption.
6.186 However, if the person acquiring such things is registered or required to be registered and acquires them solely for a creditable purpose, the person would be entitled to an input tax credit equal to the GST on the supply so they are not required to use this valuation rule. See 3.23 for creditable purpose. At some point before the things are supplied other than solely for a creditable purpose they will generally be entered for home consumption and subject to excise or customs duty. The general rules will then apply.
IMPORTATIONS WITHOUT ENTRY FOR HOME CONSUMPTION -- DIVISION 114
6.187 Under the general rules, importations of goods are taxable if they are entered for home consumption within the meaning of the Customs Act 1901 -- section 13-5 . Certain goods that come into Australia are not entered for home consumption . Because such goods are effectively imported, they are subject to the GST. The table in section 114-5 provides what goods that are not entered for home consumption are taxable and for who pays the GST.
VALUATION OF EXPORTS MADE FOR REPAIR OR RENOVATION -- DIVISION 117
6.188 If you import goods that were sent overseas for repair or renovation, those goods would have been subject to GST already. If the general rule for importations applied, GST would be calculated on the whole value of the goods, including the previously paid GST. This would be GST on GST. Division 117 ensures that GST only applies to the value of the repair or renovation by providing for a lower value than the general rule.
6.189 This special rule applies to repair or renovation of goods generally and also to repair or renovation that is part of a batch repair process. What is a batch repair process is defined in subsection 117-5(2) .
6.190 The value of the goods is:
- •
- the value of the repair or renovation, calculated in accordance with section 117-10 ; plus
- •
- the amount paid to transport and insure the goods (not apportioned to the value of the repair); plus
any customs duty, other than GST, payable on the importation,.
6.191 This does not apply to goods exported for repair where the importation is a non-taxable importation. See 5.169.
DIESEL FUEL CREDITS -- DIVISION 123
6.192 The Diesel Fuel Rebate administered by the Australian Customs Service allowed a rebate of some of the customs or excise duty included in the price of diesel fuel for certain uses of the fuel. A similar concession replacing and expanding this rebate has been incorporated in the GST. This has been achieved by allowing a diesel fuel credit , which can be offset against your GST liabilities in the same way as input tax credits.
6.193 Diesel fuel credits arise in relation to certain acquisitions and importations of diesel and like fuels. There are two rates of diesel fuel credit. The full credit entirely offsets the excise or customs duty included in the price of the fuel. The reduced credit reduces the excise or customs duty you pay to 18 cents per litre. Section 123-40 .
6.194 You may be entitled to such credits if:
- •
- you are registered or required to be registered;
- •
- you acquire or import diesel or like fuel for creditable diesel fuel consumption; and
if, you acquired diesel or like fuel, you provide or a liable to provide the consideration.
Creditable diesel fuel consumption
6.195 Consumption of diesel fuel in carrying on your enterprise for land transport is creditable diesel fuel consumption. You are entitled to the reduced credit for such consumption. Land transport is one of two uses:
- •
- use on a public road by a vehicle designed for transporting goods (including livestock) or passengers. The vehicle must have a gross vehicle weight exceeding 3.5 tonnes; and
- •
- transport by rail.
Sections 123-15, 123-40 and 123-55.
6.196 However, transport by rail for the beneficiation of ores or minerals is not land transport. Such use entitles you to the full rate of the diesel fuel credit. This means you are entitled to the full credit for the transport and mining operations for minerals and ores. Section 123-55.
6.197 Consumption of diesel or like fuel in carrying on your enterprise for other than land transport is creditable diesel fuel consumption. You are entitled to the full credit for such consumption. This includes off-road uses such as remote area power generation and farm machinery. Section 123-15 .
6.198 Your diesel fuel credit for land transport is calculated under section 123-40 item 2 . The amount of your diesel fuel credit is the number of litres of diesel fuel used in land transport, multiplied by the difference between the rate of customs or excise duty you paid and 18 cents. This results in you paying 18 cents per litre excise or customs duty on that fuel.
Example
Rick runs a livestock transport business in outback Queensland and the Northern Territory using a semi-trailer. In one tax period, Rick uses 20,000 litres of diesel. The diesel is used only for creditable diesel fuel consumption. Rick is entitled to the reduced credit because the consumption was on public roads and the semi-trailer has a gross vehicle mass over 3.5 tonnes.
Rick calculates his amount of diesel fuel credit for the tax period by multiplying the amount of fuel he has used by the reduced rate. Assuming that the rate of excise on the fuel was 43 cents per litre, the reduced rate is 43 18, which equals 25 cents diesel fuel credit per litre. The effect of this is that Rick pays 18 cents per litre excise.
Ricks diesel fuel credit is 20,000 x 25 cents, which equals $5,000. Rick includes this amount in calculating his net amount, just like an input tax credit.
6.199 Your diesel fuel credit for other than land transport is calculated under section 123-40 item 1 . The amount of your diesel fuel credit is the number of litres of diesel or like fuel used in other than land transport multiplied by the rate of excise or customs duty you paid on the fuel.
6.200 You may consume diesel fuel in land transport and other than in land transport. You are entitled to the full credit for that part of the consumption that is for other than land transport use and you are entitled to the reduced credit for that part of the consumption that is for land transport use. Item 3 of section 123-40 provides for how you work out your diesel fuel credit for mixed use.
Partly creditable diesel fuel consumption
6.201 You may consume diesel or like fuel partly in carrying on your enterprise and partly for other uses. In this situation you are only entitled to diesel fuel credits in relation to the use that is in carrying on your enterprise. Sections 123-45 and 123-50 provide for how to calculate your diesel fuel credit in these circumstances.
Example
Matt uses a five tonne truck for his building enterprise. His use of the truck for his enterprise is creditable diesel fuel consumption. In one tax period he uses it two weekends to help friends move house. This is private consumption, not creditable diesel fuel consumption. Matt is not entitled to a diesel fuel credit for this use. Matt is only entitled to the reduced diesel fuel credit for the fuel used in his enterprise.
GAMBLING -- DIVISION 126
6.202 GST applies to gambling conducted by registered or required to be registered entities. This includes gambling in casinos, gaming machines in clubs and hotels, lotteries, raffles, betting on racing and other events -- subsection 126-35 .
6.203 However, determining individual bets or ticket sales (wagers) and prizes and then applying GST and input tax credits would be difficult. For example, a casino operator would have to apply GST on every spin of the roulette wheel for every player for every square on the table. For this reason, the GST on gambling is applied to the margin of the person providing the gambling opportunity (for example, the casino operator). Applying the margin to gambling activities achieves the same result as applying GST to individual wagers and allowing input tax credits in relation to prizes paid out.
6.204 GST on gambling is 1/11 of the GST inclusive margin. The GST inclusive margin is the total wagers less the total amount paid or payable in money (including casino chips) as prizes. This is your global gambling GST amount . Division 126 . Effectively this adds all the wagers together and all of the prizes together and applies GST to the difference between these totals. Section 126-10 .
6.205 Gambling operators are entitled to input tax credits on things that they acquire to make gambling supplies . Gambling operators are not entitled to input tax credits in respect of prizes payable in money. Such prizes are included in the calculation of the margin.
6.206 If you acquire a gambling supply you are not entitled to an input tax credit on it. This is because GST on the supply to you was charged on the margin of the supply. Input tax credits are not available for acquisitions where the GST on the supply was charged on the margin. Section 126-30 .
6.207 The value of non-money prizes, such as a car, are not included in the calculation of the margin. As stated above at 6.204, only prizes paid or payable in money are to be deducted from the total wagers placed. The reason for this is that if the value of the non-money prize is included, the input tax credit for the acquisition of the non-money prize would have to be disallowed. This is because including the value of the non-money prize in the calculation of the margin reduces the amount of GST on the margin by an amount equivalent to the input tax credit for the acquisition of the prize. The input tax credit would therefore have to be disallowed because otherwise the amount of the input tax credit would be double counted. This is shown in the following example:
Example
A casino acquires a car to give away as a prize. Three scenarios are discussed below.
The first two scenarios are not what Division 126 provides. The third scenario is how Division 126 applies.
The first is the situation where there is no input tax credit for the non-money prize. The second is where there is an input tax credit for the non-money prize. The third is where the non-money prize is not included in the margin and there is an input tax credit for the acquisition of the non-money prize. This third scenario is the effect of Division 126 .
Non-money prize included in margin and input tax credit denied:
- Acquire car for consideration $22,000
- Total wagers = $44,000
- Margin = $22,000
- GST = $2,000
- Net amount = $2,000
Non-money prize included in margin and input tax credit allowed:
- Acquire car for consideration $22,000
- Total wagers = $44,000
- Margin = $22,000
- GST = $2,000
- Input tax credit = $2,000
- Net amount = 0
Non-money prize not included in the margin and entitled to input tax credit
- Acquire car for consideration $22,000
- Total wagers = $44,000
- Total cash prizes = $0
- Margin = $44,000
- GST = $4,000
- Input tax credit = $2,000
- Net amount = $2,000
6.208 As can be seen from the example, not including the non-money prize in the margin has the same effect as including it but disallowing the input tax credit to prevent double counting.
6.209 If the non-money prize is donated, no input tax credit will be available. A valuation rule is also not required. The result is the same as it would be if the value of the prize was included in the margin and input tax credit was denied.
Example
A profit making sporting organisation, Good Sports Inc, organises a raffle. A car dealer donates as the prize a car that would sell for $22,000 including GST. Assume the donation is not a taxable supply. The car dealer is entitled to an input tax credit in relation to the acquisition of the car (assuming the donation is for a creditable purpose). No GST is charged on the supply of the car to Good Sports Inc because it is not a taxable supply. As it is not a taxable supply Good Sports Inc is not entitled to an input tax credit for the acquisition. GST for the raffle is on the margin, which is total ticket sales less money paid in prizes. Here the margin equals total ticket sales because the prize is not in money.
Accounting by the car dealer:
Dealer acquires the car for consideration of $15,000.
Dealer is entitled to an input tax credit of $1,364.
Accounting by Good Sports Inc:
- Total ticket sales = $44,000
- Total money prizes = 0
- Margin = $44,000
- GST = $4,000
- Net amount = $4,000
This means that the revenue has received $2636 ($4,000 less $1,364).
This achieves the same result as if Good Sports Inc had bought the car. If Good Sports Inc had bought the car for $22,000 and the supply of the car to it was a taxable supply, Good Sports Inc would remit $2,000 ($4,000 less its input tax credit of $2,000 for the acquisition of the car) and the car dealer would remit $636 ($2,000 GST on the supply to the Good Sports Inc less $1,364 input credit). The revenue would receive $2,636.
If the car dealer sold the car to Good Sports Inc at cost, Good Sports Inc would remit $2,636 ($4,000 less its input tax credit of $1,364 for the acquisition of the car). The car dealer would have a net amount of zero in relation to the car ($1,364 GST on the taxable supply to Good Sports Inc less $1,364 input tax credit on its acquisition of the car).
The result for the revenue is the same.
Net amount if you make gambling supplies
6.210 The GST on gambling is calculated on your margin for those gambling activities. This means that your net amount for a tax period is the sum of:
- •
- your global gambling GST amount. (See 6.204)
- •
- other GST; and
- •
- input tax credits;
that are attributable to the tax period. Subsection 126-5(1) .
6.211 Your global gambling GST amount for a tax period is zero if your total monetary prizes exceeds your total amount wagered for the tax period. Subsection 126-15 . You have no GST on your gambling activities to add to your net amount for that tax period.
6.212 If your total monetary prizes exceeds your total amount wagered for the tax period you carry forward the difference to your next tax period. You add the difference to your total monetary prizes for that tax period. That is, you offset gambling losses against your next gambling profit. This ensures that overall you are only taxed on your net profit.
6.213 Bad debts are similar to losses. If you write off as a bad debt all or some of the consideration for a gambling supply, you add the amount to your total monetary prizes for the next tax period -- subsection 126-20(2) . This achieves the same result as the usual bad debt adjustment under section 21-5 does in relation to supplies subject to GST under the general rules. See 3.84.
6.214 If you recover all or some of a bad debt that you had previously written off and carried forward as discussed at 3.88, you add the amount recovered to the total amounts wagered with you for the next tax period -- subsection 126-20(3) . This achieves the same result as the usual bad debt adjustment under section 21-10 does in relation to supplies subject to GST under the general rules.
6.215 GST is included in prizes paid by racing clubs. This means that if you are a registered owner of a horse that wins a prize, and the horse was raced in carrying on your enterprise, you pay GST of 1/11 of the prize. Racing is not limited to horse racing.
ADJUSTMENTS FOR CHANGES IN CREDITABLE PURPOSE -- DIVISION 129
6.216 If you make a creditable acquisition you are entitled to an input tax credit for it. The amount of input tax credit you are entitled to depends on your extent of creditable purpose. See 3.23. When you attribute the input tax credit, the amount you attribute depends on your intended extent of creditable purpose.
Example
Noel buys a van in June for making deliveries for his enterprise. Noel intends that 25% of the vans use will be private. Noels intended extent of creditable purpose is therefore 75%. Noel attributes 75% of the full input tax credit.
6.217 Your actual use of what you acquire may be different from your intended extent of creditable purpose. If your actual use of something you acquire is different from your intended extent of creditable purpose you will not have received the input tax credit you should have.
Example
During the twelve months after acquiring the van, Noel has used the van 35% privately. The input tax credit Noel should have received is 65% of the full input tax credit rather than 75%. Noel therefore has an increasing adjustment to his net amount.
6.218 Division 129 provides for an adjustment if your actual use of a thing is different from your intended extent of creditable purpose. This is an adjustment for change in creditable purpose. Note that for income tax you must determine the extent to which your assets are used in carrying on a business or earning assessable income, such as working out business use of a motor vehicle. You do this every year for your income tax return. The adjustment in Division 129 is similar.
6.219 You may have to make more than one adjustment depending on the value of the thing that you acquired. You make adjustments in adjustment periods . The adjustment is an adjustment to the input tax credit that you were entitled to on the acquisition. This means that your actual use of the thing is calculated on your use since acquisition .
6.220 You usually make the adjustments once a year. The tax period in which you make the adjustment is your adjustment period -- subdivision 129-B . An adjustment period is usually your tax period that ends on 30 June or the closest to 30 June, to align with your income tax year. If one of your tax periods in a year is your concluding tax period -- see 4.21 -- that tax period is also an adjustment period -- sections 129-20.
Acquisitions or importations of $50,000 or less
6.221 If you make an acquisition or importation with a tax exclusive value of $50,000 or less, you only make one adjustment for change in creditable purpose. That adjustment is required in the first adjustment period that occurs at least twelve months after you made the acquisition. Paragraph 129-20(2)(a). This first adjustment period is also your last adjustment period for the thing acquired or imported.
Acquisitions or importations of $50,000 to $500,000
6.222 If you make an acquisition or importation with a tax exclusive value over $50,000 and less than $500,000, you may have to make five adjustments for change in creditable purpose. Your first adjustment period is the adjustment period that occurs at least twelve months after you make the acquisition and you make adjustments in the next four adjustment periods after that. Paragraph 129-20(2)(b). The fifth adjustment period is usually your last adjustment period for the thing acquired or imported. In some circumstances your last adjustment period will be earlier. See 6.238.
Acquisitions or importations of $500,000 or more
6.223 If you make an acquisition or importation with a tax exclusive value of $500,000 or more, you may have to make ten adjustments for change in creditable purpose. Your first adjustment period is the adjustment period that occurs at least twelve months after you make the acquisition and you make adjustments in the next nine adjustment periods after that. Paragraph 129-20(2)(c). The tenth adjustment period is also your last adjustment period for the thing acquired or imported. In some circumstances your last adjustment period will be earlier. See 6.238.
6.224 Note that if there has been no change in creditable purpose in relation to a particular adjustment period you will not have to make an adjustment in that adjustment period. See 6.228.
6.225 Tax exclusive value is defined in the Dictionary . For acquisitions it is 10/11 of the price of the supply of the thing to you. For importations with entry for home consumption it is the value of the importation. For importations without entry for home consumption it is what would have been the value if there had been entry for home consumption.
6.226 If, for an adjustment period, the extent you actually apply the thing for the purpose of your enterprise (actual application) is less than the extent to which you acquired, imported, or previously applied the thing for the purpose of your enterprise (intended or former application), you have previously received too much input tax credit for the thing. You have an increasing adjustment to your net amount for that adjustment period. This adjustment will increase your net amount by an amount equivalent to the extra input tax credit you received. Effectively, this is like repaying the extra input tax credit. Net amount is discussed at 4.1.
6.227 If, for an adjustment period, the extent you actually apply the thing for the purpose of your enterprise (actual application) is more than the extent to which you acquired, imported, or previously applied the thing for the purpose of your enterprise (intended or former application), you have previously received too little input tax credit for the thing. You make a decreasing adjustment to your net amount for that adjustment period. This adjustment will reduce your net amount by an amount equivalent to the extra input tax credit you are entitled to. Effectively, this is like being paid the extra input tax credit. Net amount is discussed at 4.1.
No change in extent of creditable purpose
6.228 If, for an adjustment period, the extent you actually apply the thing for the purpose of your enterprise (actual application) is the same as the extent to which you acquired, imported, or previously applied the thing for the purpose of your enterprise (intended or former application), you have no adjustment for that adjustment period.
Unconditional gifts to charities
6.229 The extent to which you apply a thing is taken not to have changed just because you supply it to a charity as a gift. You do not have an adjustment for change in creditable purpose in such circumstances. Section 129-45 . Gifts are unconditional. If you give it to a charity in exchange for something else it will be consideration rather than a gift.
6.230 Your actual application of a thing you acquired or imported is the extent -- expressed as a percentage -- you have applied the thing for a creditable purpose between when you acquired or imported it and the end of the adjustment period -- subsection 129-40(1), step 1 and subsection 129-5(2) .
6.231 Creditable purpose is defined in section 129-50 and discussed at 3.23.
6.232 Apply is defined in section 129-55 .
Intended or former application
6.233 Your intended or former application of a thing you acquired or imported depends upon whether you have previously had an adjustment in relation to the thing because of a change in creditable purpose. If you have not previously had an adjustment, your intended or former application is the extent -- expressed as a percentage -- you acquired or imported the thing for a creditable purpose -- subsection 129-40(1), step 2 (a) and subsection 129-40(2) . That is, it is the extent you intended to apply the thing for a creditable purpose.
6.234 If you have previously had an adjustment, your intended or former application for the current adjustment is your actual application of the thing the last time you made an adjustment in relation to it -- subsection 129-40(1), step 2 (a) . That is, it is the extent you formerly (or previously) applied the thing for a creditable purpose.
Interaction with adjustment events
6.235 If you have an adjustment event and an adjustment for change in creditable purpose in relation to the same acquisition, you adjust the amounts of GST and input tax credits to take account of adjustment events and then you adjust for change in creditable purpose. This means that your intended or former application includes your adjustment for adjustment events. Section 129-80.
Amount of increasing adjustment
6.236 Section 129-70 provides a formula for working out the amount of your increasing adjustment. The formula results in an amount of adjustment that is equivalent to the difference between:
- •
- the input tax credit you already received for the thing based on your intended or former application of it; and
- •
- the smaller input tax credit you would have been entitled to if the input tax credit had been based on your actual application.
As your actual application is less than your intended or former application you would have received too much input tax credit for the thing. Therefore your net amount is increased.
Amount of decreasing adjustment
6.237 Section 129-45 provides a formula for working out the amount of your decreasing adjustment. The formula results in an amount of adjustment that is equivalent to the difference between:
- •
- the input tax credit you already received for the thing based on your intended or former application of it; and
- •
- the bigger input tax credit you would have been entitled to if the input tax credit had been based on your actual application.
As your actual application is greater than your intended or former application you would have received too little input tax credit for the thing. Therefore your net amount is decreased.
Example
Louise buys a truck for her enterprise for $220,000 for the truck ($200,000 + $20,000 GST). Louise has five adjustment periods in relation to the acquisition. The full input tax credit for the acquisition is $20,000. Louise acquires the truck for 60% creditable purpose. In her return for the tax period to which the acquisition is attributable, Louise is entitled to an input tax credit of $12,000.
At her first adjustment period her actual application since acquisition is 70%. Her intended application is 60%. She has a decreasing adjustment of:
$20,000 x 10% = $2,000.
At her second adjustment period her actual application since acquisition is 75%. Her former application is 70%. She has a decreasing adjustment of: $20,000 x 5% = $1,000.
At her third adjustment period her actual application since acquisition is 60%. Her former application is 75%. She has an increasing adjustment of: $20,000 x 15% = $3,000.
At her fourth adjustment period her actual application since application is 55%. Her former application is 60%. She has an increasing adjustment of: $20,000 x 5% = $1,000.
At her fifth and last adjustment period her actual application since application is 65%. Her former application is 55%. She has a decreasing adjustment of: $20,000 x 10% = $2,000.
Louises use of the truck since acquisition has been 65% for a creditable purpose (her actual application at her fifth adjustment period) for a creditable purpose over the whole of those five years. The total input tax credit Louise should be entitled to in relation to the acquisition of the truck is 65% of $20,000, which is $13,000. The total input tax credit Louise actually received over the five years can be determined by adding Louises adjustments to her original input tax credit:
$12,000 + $2,000 + $1,000 - $3,000 - $1,000 + $2,000 = $13,000.
Thing is lost, stolen, disposed of or expires
6.238 If the thing that is subject to adjustments for change in creditable purpose is lost, stolen, disposed of, or expires (such as a lease) before what would otherwise be your last adjustment period for the thing -- see 6.220 -- the adjustment period immediately after the thing is lost, stolen, etc is your last adjustment period for the thing. Section 129-25.
6.239 If, before what would otherwise be your last adjustment period for a thing, you dispose of it in a taxable supply, the amount of the adjustment in the adjustment period immediately after the supply is not worked out as usual. Rather, the amount of the adjustment is worked out as for other things disposed of after you have used them in your enterprise.
SUPPLIES OF THINGS ACQUIRED OR IMPORTED TO MAKE SUPPLIES -- DIVISION 132
6.240 Input tax credits are generally available so that you do not pay GST on things that you use for a creditable purpose. Some of the assets that you have used in your enterprise may have lost value. This is value used in your enterprise. Your input tax credit for things you use in your enterprise should relate to value used in your enterprise for a creditable purpose. This is the input tax credit you should have received.
6.241 If you supply something that you have used in your enterprise, the input tax credit you have received, taking into account adjustments, at the time you supply it may not accurately reflect the input tax credit you should have received. Division 132 provides for an adjustment to ensure you receive the input tax credit you should have.
6.242 You will have a decreasing adjustment if the amount of input tax credit you have previously received in relation to the thing (taking into account previous adjustments in relation to the thing) is less than the amount you should have received. You will have an increasing adjustment if you have previously received too much input tax credit.
6.243 You do not have to make this adjustment if the consideration for your taxable supply of the thing is less than $50,000.
6.244 You make this adjustment in the tax period in which you make the taxable supply of the thing or the tax period to which the supply would have been attributable if it had been a taxable supply.
6.245 You work out your adjustment as follows.
Supply consideration less than acquisition consideration
6.246 If the consideration for your supply of the thing is less than the consideration for your acquisition of the thing, you do this:
| 1. | work out the total input tax credit you have had so far: |
| = 1/11 x consideration for acquisition x your actual application at your most recent adjustment period; | |
| 2. | work out the total input tax credit that you should have received: |
| = 1/11 x (consideration for acquisition less consideration for supply) x your actual application at the time immediately before you supply it. |
6.247 The 1/11 of (consideration for acquisition less consideration for supply) in 1. is the amount of input tax credit that relates to the amount of value used in your enterprise.
6.248 If 2. is greater than 1., you have not received all the input tax credit that you should have. You have a decreasing adjustment to reduce your net amount. The amount of the decreasing adjustment is the difference between 1. and 2.
6.249 If 1. is greater than 2., you have received too much input tax credit. You have an increasing adjustment to increase your net amount. The amount of the increasing adjustment is the difference between 1. and 2.
Supply consideration more than acquisition consideration
6.250 If the consideration for your acquisition of the thing is equal to or less than your consideration for the supply of the thing, you do this:
| 1. | work out the total input tax credit you have had so far: |
| = 1/11 x consideration for acquisition x your actual application at your most recent adjustment period; | |
| 2. | work out the total input tax credit that you should have received: |
| = 1/11 x consideration for acquisition x your actual application at the time immediately before you supply it. |
6.251 If 1. is greater than 2., you have received too much input tax credit. You have an increasing adjustment to increase your net amount. The amount of the increasing adjustment is the difference between 1. and 2.
6.252 If 2. is greater than 1., you have not received enough input tax credit. You have a decreasing adjustment to decrease your net amount. The amount of the decreasing adjustment is the difference between 1. and 2.
6.253 The adjustment when the consideration for the supply is equal to or more than the consideration of the acquisition is limited by the consideration for the acquisition. See step 2 in 6.252. above. The reason for this is that the adjustment on disposal is made to take account of the value of the thing that you have used in your enterprise. If the thing has not lost value, that is, the consideration for supply is the same or more than the consideration for acquisition, no value has been used in the enterprise. If the consideration for the supply is more than the consideration for the acquisition, value has been added by the enterprise. This additional value is taken into account through the GST that is charged on the supply.
6.254 This adjustment does the following:
- •
- works out the total amount of input tax credit that you have received since you acquired a thing (taking into account all the change in creditable purpose adjustments that have applied to it);
- •
- works out the total input tax credit that you should have received in relation to the thing (taking into account its value at disposal);
- •
- works out the difference;
- •
- adjusts your net amount in the tax period of your supply so that you have received what you should have received.
Example
Continuing the example from 6.237, Louise buys a truck for her enterprise. She pays $220,000 for the truck ($200,000 + $20,000 GST). Louise has five adjustment periods applying to that acquisition. Her actual application of the thing at her last adjustment period was 65%. The full input tax credit for the acquisition is $20,000. Louise sells the truck 8 years after she bought it. The sale is a taxable supply. She sells if for $110,000. Her actual application since acquisition is 80%.
The consideration for the supply is less than the consideration for the acquisition.
Louise works out:
1. the total input tax credit she has had so far = 1/11 of consideration for acquisition x actual application at most recent adjustment period = 1/11 x $220,000 x 65% = $13,000. 2. the total input tax credit she should have had = 1/11 of (consideration for acquisition less consideration for supply) x actual application since acquisition. = 1/11 x ($220,000 $110,000) x 80% = $8,000.
As 1. is greater than 2., Louise has an increasing adjustment. The increasing adjustment is the difference between 1. and 2., which is $5,000.
Louise has used $110,000 worth of value of the truck in her enterprise. She has used it 80% for a creditable purpose. She should have received an input tax credit of $8,000. She has in the past received a total input tax credit in respect of the thing of $13,000. She has received too much input tax credit. She therefore has an increasing adjustment of the difference between what she has received and what she should have received.
Example
Big Bank acquires a building to use in carrying on its banking and its travel agency enterprises. BB acquires the building for $55 million. The full input tax credit on the acquisition is $5 million. BBs extent of creditable purpose at the acquisition was 60%. At BBs tenth adjustment period its actual application was 54%. 15 years after acquiring the building, BB sells it in a taxable supply. BB sells it for $66 million. Its actual application since acquisition is 62%. BB works out its adjustment for disposal as follows.
Consideration for the supply exceeds the consideration for acquisition.
BB works out:
1. the total input tax credit it has had so far = 1/11 of consideration for acquisition x actual application at most recent adjustment period = 1/11 x $55 million x 54% = $2.7 million. 2. the total input tax credit it should have received = 1/11 of consideration for acquisition x actual application since acquisition = 1/11 x $55 million x 62% = $3.1 million.
As 2. is greater than 1., BB has a decreasing adjustment. The amount of the decreasing adjustment is the difference between 1. and 2., which is $0.4 million.
SUPPLIES OF GOING CONCERNS -- DIVISION 135
6.255 Under the general rules for supplies there will be GST included in the price for an acquisition. If the acquisition is not entirely for a creditable purpose you are not entitled to a full input tax credit for it. This means that you bear some of the cost of the GST on the acquisition in proportion to your private or input taxed use. However, if the thing you acquire is GST-free and you use it only partly for a creditable purpose there is no GST for you to bear. This applies to acquisitions of going concerns that are supplied GST-free.
6.256 Division 135 provides for an adjustment to ensure that you account for GST in proportion to the private or input taxed use of a going concern that you acquire. The adjustment increases your net amount by an amount equal to the GST you would bear on the acquisition if it had been a taxable supply to you. The adjustment is equivalent to the difference between what would have been the GST on the supply and the input tax credit you would have been entitled to for the acquisition if the supply had been a taxable supply. This is the effect of section 135-5 .
6.257 This means that you only get a going concern GST-free to the extent that you intend to make taxable supplies with it.
Adjustment for change in creditable purpose
6.258 If what you actually use the going concern for is different from what you intended to use it for when you acquired it, you will have an adjustment for change in creditable purpose under Division 129 . See 6.216.
CESSATION OF REGISTRATION -- DIVISION 138
6.259 The tax period in which you cease to be registered is your concluding tax period. You attribute any amounts of GST, input tax credits or adjustments that you have not yet accounted for but would account for later if you were not ceasing to be registered to your concluding tax period. Section 138-15 .
6.260 You also have an increasing adjustment to your net amount in relation to any input tax credits you have or are entitled to in respect of assets you have immediately before you cease to be registered. The adjustment is attributed to the tax period in which cessation occurs. Subsection 138-5(1) and section 138-10 .
6.261 The reason for the adjustment is that the assets are being taken out of the GST system, which is like going into final consumption. No input tax credits are available in respect of things outside of, or taken out of, the GST system. As the assets are not being used in the GST system, you should not have an input tax credit in respect of those assets. The adjustment operates to take back any input tax credits you have.
6.262 Some of the assets that you have used in your enterprise may have lost value. This is value used in your enterprise while the thing was in the GST system. You should be entitled to an input tax credit in relation to value used in your enterprise for a creditable purpose. The adjustment takes account of this value and so only relates to value you have not used while in the GST system.
6.263 The amount of the adjustment is:
- •
- 1/11 of the applicable value (lessor of consideration for your acquisition of the asset and market value); multiplied by
- •
- your actual application of the thing since you acquired it (see 6.230 for actual application).
Subsection 138-5(2) .
6.264 This leaves you with an amount equal to the amount of input tax credit on the value used in your enterprise that was used for a creditable purpose.
Example
Bill and Ben run a terracotta garden pot supply business. They wind up the business and cancel their registration. The only asset left when they cease to be registered is the truck they have used to deliver the pots. They acquired the truck for $55,000. The truck was used solely for a creditable purpose. They had no adjustments in relation to the truck. The total input tax credit in respect of the truck is $5,000. The GST inclusive market value of the truck at cessation is $33,000. They have used $22,000 value of the truck for a creditable purpose while in the GST system. They should be left with $2,000 worth of input tax credit. The amount of the adjustment is 1/11 of actual application (here 100%) multiplied by the applicable value (here $33,000), which equal $3,000. They had previously received $5,000 input tax credit. The adjustment takes back $3,000 of this, leaving them with $2,000.
Cessation of registration and supply of a going concern
6.265 If you supply a going concern and doing so means that you are no longer required to be registered and you cancel your registration, you will supply the assets of the going concern before you cease to be registered.
6.266 You have an increasing adjustment under Division 138 in relation to the assets you do not supply as part of the going concern but keep. See 6.255 for supplies of going concerns.
TAXI DRIVERS -- DIVISION 144
6.267 In other countries that introduced a GST there were problems with taxis. The problems arose because many taxi drivers only drove taxis some of the time and hence were below the registration threshold. This led to the situation where there were taxis that charged a GST inclusive price and taxis that were able to charge a lower fare because they did not have to charge GST. Unregistered taxi drivers could also charge a fare as if it included GST, but without the obligation to remit it.
6.268 One of the consequences of this was that if you acquired taxi travel from an unregistered driver in the course of your enterprise you would not be entitled to an input tax credit even though you may have paid a GST equivalent fare.
6.269 Other countries have addressed these problems by requiring all taxi drivers to register for GST.
6.270 This is the approach adopted in Division 144 . Taxi travel is defined in the Dictionary to include transporting passengers, by train or limousine, for fares.
REPRESENTATIVES FOR INCAPACITATED ENTITIES -- DIVISION 147
6.271 If you are registered and you become bankrupt, or go into receivership or liquidation, the person who conducts your enterprise on your behalf is, generally, personally carrying on the enterprise. This person (the representative) could be a trustee in bankruptcy, receiver, receiver and manager or a liquidator -- section 195-1 . The Administration Act provides for what happens to your GST liabilities if you die.
6.272 The representative is personally liable for the GST payable and for the other requirements of the Bill. The representative is liable from the date on which he or she becomes entitled to act for you (the principal) until he or she ceases to be so entitled. The representative is liable for GST, entitled to input tax credits and has any adjustments attributable to that period.
6.273 During that period the effect of Division 147 is that the representative rather than the principal is carrying on the enterprise. The representative is not personally liable for GST attributable before he or she becomes entitled to act for the principal.
6.274 The representative must become registered in relation to the relevant enterprise from the date on which he or she becomes entitled to act for the principal -- section 147-5 . When the representative ceases to be entitled to act for the principal, she or he ceases to be required to be registered in relation to the enterprise. The representative must notify the Commissioner within 21 days of ceasing to be entitled to act for the principal -- section 147-15 .
6.275 The general rules for tax period apply to the representative. The representatives first tax period as representative commences on the day he or she becomes entitled to act for the principal. The end of the day before the representative becomes entitled to act for the principal is the end of the concluding tax period for the principal -- section 27-40 . See 4.7 for a discussion of tax periods. The representatives concluding tax period ends at the end of the day on which the representative ceases to be entitled to act for the principal.
6.276 Another representative may become entitled to act for the principal, either taking the place of the previous representative, or joining the existing representative. The new representative is jointly and severally liable for GST payable and other requirements of the Bill from the time that the original representative became entitled to act for the principal. New section 50C of the Taxation Administration Act 1953 .
AGENTS -- DIVISION 153
6.277 If you make supplies through agents the general law of agency applies. That is, a thing done by your agent as agent for you is a thing done by you. You are liable for the GST on taxable supplies and importations made through your agent. You are entitled to the input tax credits on creditable acquisitions and importations you make through your agent. Your agent is not liable for the GST and is not entitled to the input tax credits.
6.278 If you make a supply, or acquisition through someone else who is not acting as your agent there are two transactions. One between you and the other person, and one between the other persons and the person they supply it to or acquire it from.
6.279 If your agent makes supplies, importation or acquisitions on your behalf, you have made those supplies acquisitions and importations. You attribute any GST or input tax credits to when they become attributable under the general attribution rules. See 4.22. However, under those general rules you have to have a tax invoice to be able to claim input tax credits. Therefore, section 153-5 provides that you can claim input tax credits when either you or your agent holds a tax invoice in relation to the acquisition when you lodge your return.
Adjustment notes for decreasing adjustment
6.280 The general attribution rules also require you to hold an adjustment note at the time you lodge your return for a tax period for you to be able to make a decreasing adjustment for that tax period. Section 153-10 provides that you can make a decreasing adjustment if you or your agent holds an adjustment note in relation to the adjustment when you lodge your return.
6.281 You are obliged to issue adjustment notes in relation to decreasing adjustments under the general adjustment note rules. See 4.39. This obligation is met if either you or your agent issues the adjustment note. However, you and your agent cannot both issue an adjustment note in relation to the same adjustment. Section 153-20 .
Tax invoices for taxable supplies
6.282 The general rules for tax invoices require you to issue a tax invoice if you make a taxable supply and the recipient of the supply requests it. See 7.2. If you make a supply through an agent, the tax invoice can be issued by either you or your agent. However, only one tax invoice can be issued for the supply. You and your agent cannot both issue a tax invoice for the one taxable supply. Section 153-15 . There is a penalty if both of you issue a tax invoice for one supply -- new section 45 of the Taxation Administration Act 1953 .
PROGRESSIVE SUPPLIES -- DIVISION 156
6.283 Under the other than cash accounting basis you would be required to attribute all the GST on a supply to the tax period when you received the first payment, or an invoice for the supply. The same applies to input tax credits for acquisitions. Without a special rule you would be required to do this even if the acquisition and the consideration occur periodically or progressively. For example, a supply of maintenance services that spans two years and is paid for one month at a time.
6.284 Division 156 provides a special rule to enable you to attribute GST or input tax credits in the same way that you would attribute them if you use the cash basis of accounting. See 4.29 for how you attribute GST and input tax credits under the cash basis of accounting.
Partly connected with Australia
6.285 If a supply is being made periodically or progressively, not all of it may be connected with Australia. Section 156-15 provides that the part that is not connected with Australia is treated as a separate supply. The effect of this is that GST is not paid, and input tax credits are not available, in relation to that part of the supply that is not connected with Australia.
Adjustments for changes in extent of creditable purpose
6.286 Adjustments for change in creditable purpose relate to your input tax credit for the acquisition of a thing. If you acquire something periodically or progressively, such as a building lease, you have a separate input tax credit for each part of the progressive supply under Division 156 . Therefore, your adjustment for change in creditable purpose has to separately relate to each input tax credit. This is the effect of section 156-20 .
CHANGING ACCOUNTING BASIS -- DIVISION 159
Criteria for changing accounting basis
6.287 If your annual turnover is under $500,000 you can choose to use the cash basis of accounting. The Commissioner can also approve your use of the cash basis in certain circumstances. See 4.25. Otherwise you use the other than cash basis of accounting. To change to the cash basis you have to meet the requirements for accounting on the cash basis. See 4.24.
6.288 If you change accounting basis:
- •
- there will be some supplies or acquisitions that you have already attributed under your former basis that you would be required to attribute under the new basis as well;
- •
- there will be some supplies or acquisitions that you have partly attributed under the old basis but cannot attribute under the new basis.
6.289 To ensure that you can attribute all your GST and input tax credits, Division 159 provides special attribution rules for the tax period at the start of which you change basis. This is your transition tax period .
Accounting for input tax credits
6.290 If you are changing from the cash basis:
- •
- you will not have attributed an input tax credit for a creditable acquisition that you have not paid for but are liable to pay for; and
- •
- you will have attributed input tax credits for that part of a creditable acquisition that you have paid for.
6.291 Under the other basis, input tax credits for the whole value of an acquisition are attributed when you are liable to provide the consideration rather than when you actually provide the consideration. This means that, without a special rule, once you have changed from the cash basis it will be too late to attribute the input tax credits or remaining part of input tax credits.
6.292 If an input tax credit on a creditable acquisition:
- •
- was not attributable to any extent in a previous tax period; but
- •
- it would have been attributable to an earlier tax period if you had not been using the cash basis;
that input tax credit is attributable to the transition tax period . Subsection 159-5(1).
6.293 If an input tax credit was attributable to some extent to a previous tax period, the remaining amount of it is attributable to the transition tax period. Section 159-10.
6.294 If you are changing from the cash basis:
- •
- you will not have attributed the GST on a taxable supply for which you have not yet been paid but are already entitled to receive consideration;
- •
- you will not have attributed all the GST on a taxable supply if you have not received all of the payment for the supply.
6.295 Under the other basis GST is attributable once you become entitled to receive consideration for a supply rather than when you actually receive the consideration. Without a special rule, once you have changed to the general rules it will be too late to attribute that GST, because your entitlement to the consideration will have arisen in an earlier tax period.
6.296 If the GST for a taxable supply:
- •
- was not attributable to any extent in a previous tax period; but
- •
- it would have been attributable to an earlier tax period if you had not been using the cash basis;
that GST is attributable to the transition tax period. Subsection 159-5(1).
6.297 If the GST for a taxable supply was attributable to some extent to a previous tax period, the remaining amount of it is attributable to the transition tax period. Section 159-10.
6.298 If an adjustment for a taxable supply or a creditable acquisition:
- •
- was not attributable to any extent in a previous tax period; but
- •
- it would have been attributable to an earlier tax period if you had been using the general rules;
- that adjustment is attributable to the transition tax period. Subsection 159-5(1).
6.299 If an adjustment for a taxable supply or creditable acquisition was attributable to some extent to a previous tax period, the remaining amount of the adjustment is attributable to the transition tax period. Section 159-10 .
6.300 If you are changing to the cash basis:
- •
- you will already have attributed to a tax period GST on taxable supplies for which you have not yet been paid;
- •
- you will already have attributed to a tax period input tax credits on creditable acquisitions for which you have not yet paid.
Without a special rule, when you have changed to the cash basis, you would attribute that GST to the tax period in which you are paid for those taxable supplies, and you would attribute those input tax credits to the tax period in which you pay for the creditable acquisitions.
6.301 To avoid attributing the GST and input tax credits twice, section 159-20 provides that GST and input tax credits that have already been attributed to a tax period are not attributable to any tax period after you change to the cash basis.
6.302 There is no need for special attribution rules for creditable importations because under both accounting bases the input tax credit for the importation is attributable to the tax period in which you paid the GST on the importations. GST on importations is paid at the same time as customs duty. See 3.43.
ANTI-AVOIDANCE -- DIVISION 165
6.303 Division 165 operates to deter avoidance schemes that are designed to obtain GST benefits by taking advantage of the GST law in circumstances other than that intended by the GST law.
6.304 This Division applies to schemes which seek to reduce or delay paying GST, or increase or bring forward a refund of GST.
6.305 The Division allows the Commissioner to make any such scheme ineffective where it is concluded that the scheme was entered into, or carried out, for the dominant purpose of an entity obtaining a GST benefit, or the scheme had the principal effect of an entity obtaining a GST benefit.
6.306 Where the Division applies, the Commissioner can negate the entitys GST benefit, and the entity obtaining the GST benefit may also be liable to a penalty.
6.307 The general anti-avoidance provision (GAP) is a key component in maintaining the integrity of the GST base.
Background
6.308 The best way to reduce tax avoidance is to design the rules in a way that prevents avoidance possibilities. However, it is not always possible to cover the field using this approach, as many tax avoidance schemes are difficult to foresee at the time of drafting a law.
6.309 Aside from this, tax avoidance can either be dealt with using a general anti-avoidance provision (GAP) or by inserting specific anti-avoidance measures to counteract particular schemes.
6.310 GAPs are common in other countries that have adopted a GST or a Value Added Tax (VAT). Examples include New Zealand, Canada and South Africa.
6.311 The United Kingdom VAT law does not have a GAP. Instead, there are a range of specific anti-avoidance measures. Nevertheless, an increase in the range of specific anti-avoidance provisions has now prompted the United Kingdom to consider a more general anti-avoidance provision.
6.312 Using an effective GAP to deal with avoidance is preferred to using specific anti-avoidance provisions. Specific provisions are reactive and do not provide a timely response to deal with avoidance. They can also be complex.
6.313 Division 165 reflects the policy underlying the income tax general anti-avoidance provisions found in Part IVA of the Income Tax Assessment Act 1936 . However, Division 165 has been designed to meet the needs of a transaction based tax, such as a GST, and accordingly it has its own peculiar features. These features are discussed in greater detail in the specific explanation of the provisions below.
Explanation of the provisions
6.314 Division 165 can be divided into two parts. They are:
- •
- the criteria for the application of the GAP -- subdivision 165-A ; and
- •
- the provisions dealing with the consequences of the GAP applying -- subdivisions 165-B and 165-C.
When will the GAP apply? (Subdivision 165-A)
6.315 Division 165 applies where an entity (referred to in this Chapter as the avoider) has obtained a GST benefit from a scheme , and it is concluded that the dominant purpose of the scheme (or part of a scheme) is to give any entity a GST benefit, or a principal effect of a scheme (or part of a scheme) is to give the avoider the GST benefit -- subsection 165-5(1) .
6.316 By considering the dominant purposes of principal effect of a scheme, Division 165 will cover what is commonly considered to be tax avoidance. Bona fide supplies, acquisitions and importations do not come within the ambit of the test.
6.317 For example, a financial institution which has economic reasons for bringing its legal and accounting services in-house will not be caught by Division 165, even though the financial institution will get a GST benefit from that scheme in the form of additional input tax credits.
6.318 Another example of a scheme that will not be caught by Division 165 is where an exporter elects to have monthly tax periods in order to bring forward the entitlement to input tax credits.
6.319 Three requirements must therefore be satisfied before Division 165 applies:
- •
- there must be a scheme ;
- •
- an entity must obtain a
GST benefit
from the scheme;
- -
- the concept of a GST benefit will cover reducing GST payable, increasing a refund, delaying payment of GST and bringing forward a refund of GST; and
- •
- it is reasonable to conclude, taking into account a list of relevant factors, that:
- -
- the sole or dominant purpose of an entity that entered into or carried out the scheme (or part of the scheme) was to obtain a GST benefit for any entity; or
- -
- a principal effect of the scheme (or part of the scheme) was to obtain a GST benefit for the avoider.
What are the consequences of the GAP applying? (Subdivisions 165-B and 165-C)
6.320 If Division 165 applies, the Commissioner can make the scheme ineffective for GST purposes. The Commissioner can do this by making a declaration that has the effect of negating the GST benefit obtained by the avoider under the scheme see generally subdivision 165-B .
6.321 The Commissioner can also make a declaration that has the effect of compensating an entity that is disadvantaged by the scheme or part of the scheme, if:
- •
- a declaration has been made against the avoider in relation to the scheme or part of a scheme; and
- •
- the Commissioner considers it fair and reasonable that the disadvantage be negated or reduced.
6.322 In making any declaration in this Division, the Commissioner can disregard the scheme and reconstruct the events that took place.
6.323 An avoider may also be subject to penalties see subdivision 165-C .
6.324 Decisions made under Division 165 will be reviewable GST decisions, and will be subject to rights of objection under the Taxation Administration Act 1953 .
Explanation of the specific rules Subdivision 165-A: Application of the GAP
6.325 There are three requirements that must be satisfied before Division 165 will apply (see 6.319).
Requirement 1: There must be a scheme
6.326 Scheme is defined by subsection 165-10(2) to mean:
- •
- any express or implied arrangement, agreement, understanding, promise or undertaking -- paragraph 165-10(2)(a) . (An arrangement, agreement, understanding, promise or undertaking will still come within the definition of scheme even if it is not, or is not intended to be, enforceable by legal proceedings); or
- •
- any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise -- paragraph 165-10(2)(b) .
Requirement 2: An entity must get a GST benefit from a scheme
6.327 The concept of an entity getting a GST benefit from a scheme is defined in subsection 165-10(1) .
6.328 An entity gets a GST benefit when it:
- •
- does not pay GST or pays less GST -- paragraph 165-10(1)(a) ;
- •
- obtains payment or increased payment of a refund -- paragraph 165-10(1)(b) ;
- •
- pays GST later -- paragraph 165-10(1)(c) ; or
- •
- gets a refund earlier -- paragraph 165-10(1)(d) .
6.329 A key aspect of the GST benefit concept is that it covers timing benefits -- paragraphs 165-10(1)(c) and 165-10(1)(d) .
6.330 An amount includes a nil amount see the definition of amount in section 195-1 . As a consequence:
- •
- paragraph 165-10(1)(a) covers cases where an amount payable by an entity is reduced to zero or nil because of a scheme;
- •
- paragraph 165-10(1)(b) covers cases where an amount payable to the entity is increased from zero or nil because of a scheme.
6.331 Together, paragraphs 165-10(1)(a) and 165-10(1)(b) cover the cases where, because of a scheme, a net amount payable by the entity to the Commissioner turns into a refund payable by the Commissioner to the entity:
- •
- paragraph 165-10(1)(a) deals with that part of the GST benefit involving the actual amount payable by the entity to the Commissioner (that is, zero or nil) being reduced from the amount that should have been paid.
- •
- paragraph 165-10(1)(b) deals with that part of the GST benefit involving the actual amount payable by the Commissioner to the entity being increased from the amount that should have been paid (that is, zero or nil).
6.332 A reduction in consideration on a transaction under a scheme which leads to paying less GST is covered by paragraph 165-10(1)(a) .
What connection does there need to be between the GST benefit and the scheme?
6.333 Subsection 165-10(1) provides that an entity will get a GST benefit from a scheme if a GST benefit would not have arisen, or could not reasonably be expected to have arisen, apart from the scheme or part of the scheme.
6.334 This involves an enquiry into what would have occurred if the scheme or part of the scheme had not been entered into or carried out. That enquiry will be in relation to the most economically equivalent transaction to the scheme or part of the scheme actually entered into or carried out.
6.335 An entity that gets a GST benefit from a scheme, even if the entity claims it would not have entered into any type of transaction had the actual scheme not been entered into can still have that GST benefit negated under subdivision 165-B -- subsection 165-10(3) .
An entity can get GST benefits from part of a scheme
6.336 GST is a transaction based tax. GST benefits may arise from a single transaction. To ensure Division 165 applies appropriately and effectively to a GST benefit arising from a single transaction, subsection 165-10(1) provides that a GST benefit can arise from part of a scheme.
6.337 The fact that a GST benefit can arise from part of a scheme is reflected throughout Division 165 .
Requirement 3: The purpose or effect of the scheme was to obtain a GST benefit
6.338 The final requirement for the application of Division 165 is that either the purpose or the effect of the scheme or part of the scheme was to obtain a GST benefit -- paragraph 165-5(1)(b) .
6.339 This requires only one of the two tests to be satisfied either the purpose test or the effect test .
6.340 This third requirement is satisfied if it is reasonable to conclude an entity entered into or carried out the scheme or part of the scheme with the sole or dominant purpose of that entity or another entity getting a GST benefit from the scheme -- subparagraph 165-5(1)(b)(i) .
6.341 For the purposes of this test, the entity whose purpose is determined:
- •
- is the entity which entered into or carried out the scheme or part of the scheme, alone or with others; but
- •
- need not be the avoider.
6.342 The dominant purpose is the ruling, prevailing or most influential purpose.
6.343 Alternatively, this third requirement is satisfied if a principal effect of the scheme or part of the scheme is that the avoider got the relevant GST benefit -- subparagraph 165-5(1)(b)(ii) .
6.344 This test is different from the purpose test in that it applies specifically to the avoider and the GST benefit obtained by the avoider.
6.345 For this test, a principal effect is an important effect, as opposed to merely an incidental effect.
What matters are to be considered in determining purpose or effect?
6.346 The matters below are taken into account in coming to a reasonable conclusion about the purpose or effect of the scheme or part of the scheme -- subsection 165-15(1) .
6.347 The matters apply to parts of a scheme in the same way as they apply to a scheme -- subsection 165-15(2) .
6.348 The matters to be considered are:
- •
- the manner in which the scheme or part of the scheme was entered into or carried out -- paragraph 165-15(1)(a) . The terms manner , entered into and carried out are terms that allow various matters to be taken into account. The terms are not given any restricted meaning. Manner would include consideration of the way in which, and method or procedure by which, the particular scheme or part of the scheme in question was established. The scheme or part of the scheme for these purposes would be the particular means adopted by an entity to obtain the GST benefit;
- •
- the form and substance of the scheme or part of the scheme -- paragraph 165-15(1)(b). This matter will specifically include considering the legal rights and obligations involved in the scheme or part of the scheme -- subparagraph 165-15(1)(b)(i) and the economic and commercial substance of the scheme or part of the scheme -- subparagraph 165-15(1)(b)(ii) . Both of these issues will be important in considering the purpose or effect of the scheme or part of the scheme;
- •
- the purpose or object of this Act, the
Customs Act 1901
(to the extent it is relevant) and any relevant provision in either of those Acts --
paragraph 165-15(1)(c).
Benefits are derived under avoidance schemes contrary to the purpose or object of the law. The purpose or object of the law is therefore a relevant consideration.
- -
- Whether or not the purpose or object of the Act or any relevant provision is expressly stated will not affect the relevance of this matter.
- -
- The Customs Act 1901 is mentioned in paragraph 165-15(1)(c) because many GST issues involved with importations are dealt with under that Act.
- •
- the timing of the scheme or part of the scheme -- paragraph 165-15(1)(d) . This matter may be particularly relevant in cases where the GST benefit involves timing benefits;
- •
- the period over which the scheme or part of the scheme is entered into or carried out -- paragraph 165-15(1)(e) ;
- •
- the effect that the Bill has in relation to the scheme or part of the scheme -- paragraph 165-15(1)(f) ;
- •
- any change in the avoiders financial position that results, or may reasonably be expected to result, from the scheme or part of the scheme -- paragraph 165-15(1)(g) ;
- •
- any change in the financial position of an entity connected to the avoider that results, or may reasonably be expected to result, from the scheme or part of the scheme -- paragraph 165-15(1)(h) . A connected entity is an entity that has or had a connection or dealing with the avoider, whether or not that connection or dealing is or was of a family, business or other nature;
- •
- any other consequence for the avoider or a connected entity of the scheme or part of the scheme having been entered into or carried out -- paragraph 165-15(1)(i) ;
- •
- the nature of the connection or dealing between the avoider and a connected entity -- paragraph 165-15(1)(j) . This matter will include considering whether any dealing between the avoider and the connected entity was at arms length;
- •
- the circumstances surrounding the scheme or part of the scheme -- paragraph 165-15(1)(k) . This allows an enquiry into matters and events prior to an entity entering into or commencing a scheme or part of a scheme; and
- •
- any other relevant circumstances -- paragraph 165-15(1)(l) . This ensures any relevant circumstance not otherwise covered is taken into account.
Does it matter where the scheme is entered into or carried out?
6.349 The fact that any part of a scheme is entered into or carried out outside of Australia does not affect the application of Division 165 -- subsection 165-5(2) .
Explanation of the specific rules Subdivision 165-B: Commissioner may negate effects of schemes
6.350 Subdivision 165-B makes the outcome of scheme to which this Division applies ineffective.
The Commissioner can make declarations making an avoiders GST benefits ineffective
6.351 If Division 165 applies to a scheme, the Commissioner can make a declaration negating the avoiders GST benefit -- section 165-40 .
6.352 There are two ways a Commissioners declaration can negate a GST benefit:
- •
- the declaration can state that the avoiders net amount (see generally Part 2-4 of the Bill) for a specified tax period is, and at all times has been, a particular amount -- paragraph 165-40(a);
- •
- the declaration can state that the amount of GST on a taxable importation (see generally Division 13 of the Bill) made by the avoider is, and at all times has been, a particular amount -- paragraph 165-40(b) .
6.353 These two approaches are required because GST on taxable importations is not taken into account in calculating an entitys net amount for a tax period.
6.354 The Commissioner makes a declaration under section 165-40 to increase an avoiders net amount for a tax period or tax periods (which may involve reducing a refund), or increase GST on a taxable importation or taxable importations made by the avoider, so as to negate the GST benefit.
6.355 Where the GST benefit involves timing benefits (that is, GST benefits covered by paragraphs 165-10(1)(c) and 165-10(1)(d) ), the Commissioner can also adjust an avoiders net amount for another tax period, or GST for an importation made by the avoider, in a way that reduces the GST liability or increases the refund of an avoider for that particular period or reduces GST on that importation. This ensures the appropriate treatment of the GST benefit.
6.356 Declarations made by the Commissioner under this section will be reviewable GST decisions. Objections can be lodged against the declaration as set out in Division 3 of Part IVC of the Taxation Administration Act 1953 .
The Commissioner can make declarations compensating an entity other than the avoider
6.357 The Commissioner can also make a declaration compensating an entity other than the avoider for a GST disadvantage that entity has got from the scheme -- section 165-45 .
6.358 Three conditions must be satisfied before the Commissioner can make such a declaration for a particular entity (referred to in this Chapter as the loser):
- •
- the Commissioner must have made a declaration in relation to the avoiders GST benefit -- paragraph 165-45(1)(a) ;
- •
- the Commissioner considers the loser gets a GST disadvantage from the scheme -- paragraph 165-45(1)(b) (A GST disadvantage from a scheme is defined in subsection 165-45(2) ); and
- •
- the Commissioner considers it fair and reasonable to adjust the losers net amount for a tax period or tax periods, or GST on a taxable importation or taxable importations, so as to compensate for the GST disadvantage -- paragraph 165-45(1)(c) .
6.359 There are two ways a Commissioners declaration can compensate for the GST disadvantage:
- •
- the declaration can state that the losers net amount for a specified tax period is, and at all times has been, a particular amount -- paragraph 165-45(3)(a) ;
- •
- the declaration can state that the amount of GST on a taxable importation made by the loser is, and at all times has been, a particular amount -- paragraph 165-45(3)(b) .
6.360 The declaration cannot have the effect of placing the loser in a more favourable position for GST than it would have been in apart from the scheme or part of the scheme -- subsection 165-45(4) . A reference to a net amount under the declaration not being less than the net amount would have been apart from the scheme or part of the scheme covers the case of a refund not being greater than it would have been apart from the scheme or part of a scheme.
6.361 An entity can request in writing that the Commissioner make a compensating declaration for that entity. The Commissioner must decide whether to grant the request, and give the entity written notice of the decision. Paragraph 165-45(5).
6.362 Any declaration made, as well as any decision not to make a declaration by the Commissioner, is a reviewable GST decision. Objections can be lodged against the declaration as set out in Division 3 of Part IVC of the Taxation Administration Act 1953 .
The Commissioner can disregard any part of the scheme in making declarations
6.363 The Commissioner can disregard the scheme or any part of the scheme in making a declaration to negate an avoiders GST benefit, or to negate or reduce a losers GST disadvantage, arising from that scheme or part of that scheme -- section 165-55 .
6.364 The Commissioner may do all or any of the following:
- •
- treat an event that actually happened as not having happened at all -- paragraph 165-55(a) , as having happened at a particular time or as having involved particular action by a particular entity -- paragraph 165-55(c) ;
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- treat an event that did not actually happen as having happened, and if appropriate, as having happened at a particular time or as having involved particular action by a particular entity -- paragraph 165-55(b) .
6.365 This allows the Commissioner to disregard the scheme or part of the scheme and reconstruct the events that took place. The reconstruction is linked to finding the most economically equivalent transaction to the scheme or part of the scheme, discussed at 6.352.
Amounts are payable in accordance with the declaration
6.366 A declaration negating a GST benefit, or negating or reducing a GST disadvantage has effect according to its terms -- section 165-50 .
6.367 Declarations either adjust an entitys net amount for a tax period or tax periods, or adjust GST payable by an entity on a taxable importation or taxable importations -- section 165-40 and subsection 165-45(3) see explanations in 6.351 and 6.357. The amount stated by the declaration to be the net amount or the GST is taken to have always been the case for the particular tax period or taxable importation in question.
6.368 Under either section 165-40 or subsection 165-45(3) , a declaration can adjust GST payable on a taxable importation that the Commissioner has treated as having happened under section 165-55 .
6.369 Section 165-50 operates in conjunction with section 165-40 and subsection 165-45(3) to ensure that adjustments made under Division 165 are given the appropriate administrative treatment. It also ensures that collection and recovery provisions can apply to adjustments involving amounts payable to the Commissioner.
6.370 Adjustments to amounts payable by the entity to the Commissioner because of a declaration are payable under Division 33 of the Bill, which deals with payments by an entity of net amounts for a tax period and GST on taxable importations to the Commissioner.
6.371 Adjustments to amounts payable by the Commissioner to the entity because of a declaration are payable under Division 35 of the Bill, which deals with refunds by the Commissioner of net amounts to an entity.
6.372 More specifically, interest is payable on under-payments or over-payments of GST as a result of a declaration under this Division. Section 165-40, subsection 165-45(3) and section 165-50 ensure that new Part VI of the Taxation Administration Act 1953 (in the case of under-payments) and the Taxation (Interest on Overpayments and Early Payments) Act 1983 (in the case of over-payments) applies in determining the amount of interest payable.
One declaration can cover several tax periods or importations
6.373 Statements relating to various tax periods and taxable importations can be included in a single declaration -- section 165-60 . The Commissioner does not have to make a separate declaration for every adjustment to a net amount or GST made for a scheme to which Division 165 applies.
A copy of a declaration must be given to the entity affected
6.374 The Commissioner must provide a copy of a declaration to the entity whose net amount for a tax period or GST liability on a taxable importation is stated in the declaration -- subsection 165-65(1) .
6.375 Failure to satisfy this requirement does not affect the validity of the declaration -- subsection 165-65(2) . The requirement is formal in nature and does not nullify the operation of the Division to any scheme or part of a scheme.
Explanation of the specific rules Subdivision 165-C: Penalties for the avoider
6.376 Imposing a penalty on the avoider is a key component in ensuring that a GAP is an effective deterrent.
In what circumstances is the penalty imposed?
6.377 A penalty is payable when this Division applies to a scheme or part of a scheme, and is imposed on the avoider identified in section 165-5 -- subsection 165-80(1) .
What is the amount of the penalty?
6.378 The amount of penalty payable by an avoider is calculated under the Method Statement in subsection 165-80(2) .
6.379 The penalty is double the sum of:
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- all of the increases a declaration makes to the avoiders net amounts. (This includes both increasing an amount payable by the entity to the Commissioner for a tax period and reducing an amount payable by the Commissioner to the entity for a tax period); and
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- all of the increases a declaration makes to the GST the avoider is liable for on taxable importations.
The payment of the penalty is in addition to other payments
6.380 The payment of the penalty under subsection 165-80(1) is in addition to any other payments an avoider makes under the Bill, the Taxation Administration Act 1953 and the Taxation (Interest on Overpayments and Early Payments) Act 1983 -- subsection 165-80(3) .
Remission, payment and recovery of the penalty
6.381 The remission, payment and recovery of the penalty is dealt with in Part VI of the Taxation Administration Act 1953 -- subsection 165-80(4) .
tourist refunds
6.382 Tourists may buy goods in Australia that they will take home with them when they leave for use outside Australia. This is like exporting the goods. If you leave Australia with accompanied goods you may be entitled to a refund of all or some of the GST included in the price of the goods -- section 168-5 . The regulations can specify for what acquisitions a refund can be made and how the refund will be paid.
GST and customs security payments
6.383 GST on taxable importations is payable at the same time as customs duty on the importation -- section 33-15 . In some situations, an import may only be made temporarily, that is, the goods are brought into Australia with the intention to take them out of Australia again. In these situations, customs duty may be able to be delayed if the importer gives a security or undertaking to the Australian Customs Service for payment of the duty. GST on such importations is delayed until the customs duty becomes payable. This means that there will be no GST unless customs duty becomes payable. Section 171-5 .
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