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  • Issue 12 Attribution

    12.1 Attributing GST on your taxable supplies

    Section 29-5(1) states that, for businesses which account for GST on an accrual basis, GST payable on a taxable supply is attributable to the earlier of the tax period in which any of the consideration is received for the supply; or the tax period in which the invoice is issued.

    For membership organisations, the issuing of renewals does not represent an invoice as there is no obligation to pay; merely an invitation to renew. By default the issuing of renewals will not trigger a GST liability until receipt of moneys for the renewal. If the renewal had all the requirements of a tax invoice this should not change the above situation. Is this treatment correct?

    An invoice is a document that notifies an obligation to make a payment, whereas a tax invoice is a document that contains certain information required by the GST Act about a taxable supply. However, one document can be both an invoice and a tax invoice.

    GSTR 2000/17 deals with tax invoices. Paragraph 26 of that ruling deals with a document that is merely an offer:

    26. In some situations, you may issue a document to a prospective recipient that is an offer to make a supply. Examples are subscriptions to trade magazines, access to online legal research and membership of professional associations. You will not know whether there will be a supply when you issue the document. Because a tax invoice is a document that relates to a taxable supply, the offer document cannot be a tax invoice when it is issued. To save suppliers from having to issue another document if the offer is accepted, the Commissioner will treat the offer document as a tax invoice that satisfies subsection 29-70(1) when payment is made if it includes the following or similar statement:

    'This document will be a tax invoice for GST when you make a payment.'

    In a situation where a document notifies a liability which is conditional on acceptance of an offer, it will ordinarily become an invoice on communication of the acceptance to the offerer.

    12.2 Section 29-10(2) ANTS(GST)Act 1999 states the attribution rules that apply if you account on a cash basis

    Timing is an important factor in determining in which period a taxpayer is able to claim the input tax credit. When does "you provide all of the consideration" or "you provide part of the consideration" occur? Is it:

    (a) the date the cheque for payment is drawn?

    (b) the date the cheque for payment is posted or handed over to the provider? Or

    (c) the date the cheque is presented against the drawer's bank account?

    GSTR 1999/D7 dealing with the attribution of GST and input tax credits and adjustments, does not specifically deal with this issue.

    When payment is by way of cheque, the recipient of the supply will have provided consideration when the cheque is either handed or posted to the supplier. Consideration will be received by the supplier when the cheque is received, not when it is banked, or cleared.

    When a payment is made by way of a post-dated cheque, consideration will be both provided and received on the date on the cheque, unless the cheque is still in transit, in which case consideration will be received when the cheque is received.

    Explanation

    Courts have considered the issue of when consideration in the form of a cheque is received in the income tax context, and have decided that when the cheque is received is the time that payment is received.

    When the cheque leaves the possession of the recipient of the supply, either when it is handed to the supplier, or the supplier's agent, or when it is posted, is the time the recipient provides the payment.

    GSTR 2000/23 deals with when consideration is provided or received for various payment instruments.

    A cheque is not invalid by reason only that it is post-dated, nor is it incomplete or irregular on its face for that reason only.6 A post dated cheque is, therefore, a legal instrument and can be negotiated as soon as it is drawn, however a bank is not entitled to pay on a post-dated cheque before the date on the cheque.7 On the date on the cheque the banker is entitled to pay the drawee and debit the drawer's account, so this is the time at which consideration is both provided and received.

    12.3 GST treatment of hire purchase agreements when accounting on a cash basis

    Contributed by ICAA

    The current position for the claiming of input tax credits on hire purchase payments is treated as a sale by way of instalments, while the sale of goods is taken to occur when the HP agreement is entered into by the hirer and financier. Where the cash basis of GST accounting is adopted, sec 29-10(2)(b) attributes the ITC to the tax period in which the payment is made, but only to the extent consideration is provided in that tax period.

    It is submitted that this treatment gives rise to a number of anomalies, including a fundamental contradiction in the treatment of the asset and HP liability for taxpayers accounting for GST on a cash basis and the treatment of same for income tax purposes. For income tax purposes, the asset is treated as effectively "owned" by the taxpayer from the commencement of the HP period and deductions allowable for depreciation purposes. Similarly, the HP liability is treated as incurred for income tax purposes from the date of inception with interest deductible on the relevant tax period's HP payments.

    In summary, for income tax purposes no distinction is made between the treatment of taxpayers on the cash or accruals basis - they are both entitled to the same deductions in the same year of income and HP transactions are given the same tax treatment as assets acquired using loan finance.

    This is in direct contrast to the position for taxpayers claiming ITCs on HP payments when using the cash basis of attribution for GST purposes.

    It is submitted that the HP Finance contact should be treated analogously to the use of loan finance to acquire an asset and the "acquirer" of the plant (the hirer), if registered for GST, should be entitled to claim an ITC for an amount equivalent to the GST charged on the sale of the asset to the financier.

    Commercially, and particularly with smaller businesses which are more likely to be on a cash basis for GST attribution purposes, lease finance/HP finance/loan finance are simply seen as different forms of funding the acquisition of an asset(s). If the position is taken that a full ITC is obtained on the purchase of the asset if you use loan finance, an ITC on the full lease rental if you use lease finance but a GST credit on only the principal portion of HP payments if you use HP, it will create an artificial differentiation driven by tax policy and make HP clearly less favourable. It is submitted that it is not good tax policy for differential tax treatment of essentially the same product to create an artificial influence in the market place.

    Consequently, it is submitted that a full ITC representing the GST embedded in the financed amount should be claimed at the inception of the HP agreement, regardless of whether cash or accrual accounting is adopted.

    ATO response

    Different methods of finance have different GST consequences. It is expected a purchaser will choose the most appropriate method to suit their circumstances.

    A section 29-25 determination can only be made if the application of the basic or any special attribution rules is inappropriate. It is entirely appropriate that a recipient accounting on a cash basis is entitled to claim input tax credits on the consideration actually provided during a period. (It is noted that where a large amount is paid on entering the agreement, the input tax credit will be proportionately large.)

    It would be inappropriate to allow a recipient who accounts for GST on a cash basis to claim the full input tax credit on entering a HP agreement when he has only paid a proportion of the purchase price.

    While it may be simpler for those accounting on a cash basis to claim full input tax credits 'up front', it is not equitable and is unsupported by the legislation. "The Commissioner must not make a determination under section 29-25 unless satisfied that it is necessary to prevent the provisions of Division 29 and Chapter 4 applying in a way that is inappropriate" (subsection 29-25(2)). Because the general attribution rules apply appropriately, the Commissioner is prohibited from making a determination to attribute differently.

      Last modified: 22 May 2014QC 28063