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    TPIP issue register information removed February 2005

    Issue 1 Registration

    1.1 Once-off acquisition, no enterprise

    Some entities will make a once-off acquisition of an asset, then only hold the asset (these entities may include bare trusts and possibly some entities used as securitisation vehicles). Where these entities are not carrying on an enterprise and therefore cannot be registered for GST, how will input tax credits be claimed?

    An entity which does not carry on an enterprise cannot apply for registration. As a result, such an entity will not be part of the GST system. It will not be liable for GST on its supplies, nor will it be entitled to claim input tax credits for its acquisitions.

    1.2 How should a joint venture outside the scope of Division 51 be registered for ABN/GST? There seems to be provision for ABN registration, but not GST

    A true joint venture is not considered an entity for either ABN or GST purposes (see subsection 37(1A) of the A New Tax System (Australian Business Number) Act 1999 and subsection 184-1(1A) of the A New Tax System (Goods and Services Tax) Act 1999 (the 'GST Act'). Therefore, joint ventures cannot register for an ABN or for GST.

    Division 51 of the GST Act enables entities operating under joint venture arrangements to account for GST more easily by applying to the Commissioner to be approved as a GST joint venture. When approved as a GST joint venture, the joint venture operator deals with the GST consequences arising from the operator's dealings on behalf of the participants in the joint venture.

    A supply made by the joint venture operator of a GST joint venture to another participant of that GST joint venture is not a taxable supply, provided the participant acquired it for use or consumption in the course of conducting the joint venture (see paragraph 51-30(2) of the GST Act).

    The Commissioner can approve various joint ventures as GST joint ventures, including joint ventures for the exploration or exploitation of mineral deposits; research and development; agriculture; cultivation or exploitation of timber; design or building or maintenance of residential or commercial premises and civil engineering (see paragraph 51-5(1)(a) of the GST Act and regulation 51-5.01 of the A New Tax System (Goods and Services Tax) Regulations 1999).

    1.3 Are participants in a managed agricultural business such as grape, olive tree plantation required to register for an ABN and GST, or can the manager of these operations register on behalf of the individuals?

    It is typical for managed agricultural investments to be structured in a way whereby the participant engages in a business activity as a primary producer which would constitute an enterprise. Whether this is the case is a question that needs to be determined for each participant. However a product ruling may be sought by the investment promoters to clarify the tax status of the investor.

    If the participant is carrying on an enterprise it is entitled to an ABN. In such a case there is typically a contractual relationship between the individual participants and the manager entity to manage the investment on their behalf and to harvest and market any produce and account for the proceeds.

    Where the manager entity sells on behalf of participants, the manager can choose to quote its own ABN to the purchaser. In these circumstances the purchaser will not need to withhold. When the agent passes sale proceeds back to the participants this is not an event subject to the no ABN withholding rule. Participants do not need to quote an ABN merely to receive sale proceeds from their agent.

    Whether the individual investor is required to be registered for GST will depend on the investor satisfying the turnover test. There is no capacity for the manager to register for the participants.

    1.4 Registration and sale of input taxed properties

    If an entity has a number of properties which are being rented as residential premises and therefore input taxed, will it need to register for GST and charge the tax on their sale assuming that the properties have not been previously sold?

    ATO position

    A property which has only been used as a residential property and has never been sold will meet the definition of new residential premises unless:

    • used for residential accommodation before 2 December 1998;
    • the premises have only been used for making input taxed supplies pursuant to paragraph 40-35(1)(a) for the period of at least five years since they first became residential premises, or were last substantially renovated or were last built.

    The sale of those properties will, therefore, be input taxed. All other residential properties will, however, be taxable supplies by a person who is registered or required to be registered.

    1.5 GST registration and isolated transactions

    How do we handle a taxpayer that is below the GST registration threshold that has a one-off business transaction that takes him above the threshold?

    For example, a small business that sells its business premises or a substantial item of plant. If the enterprise is not registered can the Tax Office confirm that the business would need to register and charge GST on the one-off transaction? What happens thereafter? Having been registered, does the enterprise then have to include subsequent normal trading revenue; and does it have to include revenue derived prior to the registration being effected?

    Alternatively can a temporary registration or a special purpose transaction BAS that does not require ABN and GST registration, and then cancellation of it effect the isolated transaction?

    ATO response

    A business is required to calculate its current annual turnover and its projected annual turnover to determine if it is required to be registered for GST purposes. The GST-exclusive value of a sale of business premises or an item of plant is included in the calculation of current annual turnover. The current annual turnover also includes the GST-exclusive values of all those supplies that occur or are likely to occur in the month in which the calculation is made as well as the GST-exclusive value of supplies made in the 11 months prior to that month. However certain supplies (such as those that are input taxed or not made in connection with an enterprise) are excluded from the calculation of current annual and projected annual turnover.

    The GST-exclusive value of supplies made during that month and the next 11 months are also generally included in the calculation of projected annual turnover. However, section 188-25 allows businesses to disregard certain supplies in calculating their projected annual turnover. The supplies that can be disregarded are any supplies made or likely to be made;-

    a. by way of transfer of ownership of a capital asset, or

    b. solely as a consequence of either ceasing to carry on an enterprise or substantially and permanently reducing the size or scale of an enterprise.

    The sale of business premises or a substantial item of plant would generally be one of these types of transactions.

    An isolated or one off transaction that occurs in different circumstances, such as the sale of a block of land purchased for resale, is not covered by the exclusions contained in section 188-25. Where this supply results in the projected annual turnover being at or above the turnover threshold the entity is required to register for GST. Once a business is registered or required to be registered for GST, GST is included in all the taxable supplies the business makes from the date it became registered or was required to become registered.

    There is no temporary registration or special purpose BAS to allow isolated transactions to be recorded on an ad hoc basis.

    1.6 Supplies by overseas supplier made through an Australian resident agent

    Could the Tax Office provide clear instructions or ruling on when a resident agent is required to register for GST purposes?

    This question arises frequently and it can be answered fairly simply by the Tax Office publishing an answer in the form of a matrix below.

    Turnover Matrix prepared by NIA

     

    Resident agent

    Non-resident

    GST registration

    1

    Turnover

    (GST-free and taxable)

    $50, 000 plus

    section 23-5

    Turnover

    (GST-free and taxable)

    Less than $50 000

    Section 23-5

    Resident agent must register and account only on resident supplies

    2

    Turnover - Less than $50 000

    section 23-5

    Turnover - $50 000 plus

    section 23-5

    section 57-20

    Resident agent must register and account for GST on all supplies

    Section 57-20

    3

    Turnover - $50 000 plus

    section 23-5

    Turnover - $50 000 plus

    section 23-5

    Resident agent must register and account for GST on all supplies

    Section 57-20

    4

    Turnover - Less than $50 000

    section 23-5

    Turnover - Less than $50 000

    section 23-5

    No registration required.

    No GST to be accounted.

    Section 23-5

    Section 57-20

    ATO response

    Resident enterprise acting as agent for non-Resident Principal - Matrix

     

    Resident entity

    Non-resident Principal*

    GST implications

    1)

    Turnover in own right

    (GST-free and taxable)

    $50, 000 plus

    Required to be registered section 23-5

    Turnover

    (GST-free and taxable)

    Less than $50 000 after excluding supplies subject to Division 83

    Not required to be registered
    section 23-5,

    May choose to be registered
    section 23-10

    Resident must register and account only on the supplies that it makes.

    Resident agent not entitled to ITC's for acquisitions made on behalf of the principal 11-15(1).

    If non-resident chooses to register, resident agent must register and account for GST on all supplies.

    2)

    Turnover in own right

    Less than $50 000

    Not required to be registered section 23-5

    May choose to be registered
    Section 23-10

    Turnover

    Less than $50 000 after excluding supplies subject to Division 83

    Not required to be registered section 23-5

    No registration required.
    Section 23-5

    No GST to be accounted.
    Section 57-20

    No entitlement to ITC's

    If resident chooses to register, resident agent must account for GST only on supplies it makes.

    3)

    Once the turnover of the non-resident principal meets or exceeds the turnover threshold the resident entity is required to be registered. The resident entity's turnover is irrelevant.

    Resident agent required to be registered section 57-20

    Turnover

    $50 000 plus after excluding supplies subject to Division 83

    Required to be registered section 23-5

    Resident agent must register and account for GST on all supplies

    Section 57-20

    *Consideration should also be given to section 188-20 projected annual turnover

    Issue

    Could the Tax Office please provide clear instructions or ruling on when a resident agent is required to register for GST purposes?

    ATO response

    Clearance has been given for wider distribution of the matrix.

      Last modified: 22 May 2014QC 28063