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  • GST States and Territories Industry Partnership minutes 20 September 2017

    Record of meeting

    Host: Department of Treasury and Finance, Tasmania

    Date: 20 September 2017

    Start: 10:00am Finish: 12:00pm

    Attendees

    Name

    State/Territory

    Desley Croker

    ACT

    Christine Havas

    CWLTH

    Joanne Staples

    NT

    Daniel Fielding

    QLD

    Justyna Carlier

    SA

    Tracey Scott

    SA

    Rachel Johnston

    TAS

    Mauria Cover-Sutherland

    ATO

    Attending via phone

    Name

    State/Territory

    Robert Enright

    ACT

    Adam McIntosh

    NSW

    Joan Cram

    NSW

    Harold Glenwright

    NT

    Jenni Skyner

    WA

    Martyn Lyons (Secretariat)

    ATO

    Margaret Lake (Minutes)

    ATO

    Apologies

    Name

    State/Territory

    Peter Stibbard

    VIC

    Key messages

    Notional GST – Unimproved land – The ATO has received neutral evaluations on 15 April 2015 and 24 May 2017 in relation to unimproved land and the application of section 38-445 of the GST Act and item 4 of the table in subsection 75-10(3). The ATO will be updating GSTR 2006/6 Goods and services tax: improvements on the land for the purposes of Subdivision 38-N and Division 75 and will consult with external stakeholders through the public rulings process.

    Machinery of government changes and tax invoice discretions – In relation to certain machinery of government changes the Commissioner may exercise discretion to treat particular documents as tax invoices under subsection 29-70(1B) of the GST Act. Determinations held by Government jurisdictions or entities will only relate to machinery of government changes pursuant to the relevant instruments specified in that determination and which are generally notified by an Administrative Arrangements Order (AAO) or a Proclamation. If a machinery of government change is implemented under other Acts or legislation not specified in the determination, then the jurisdiction or the entity will need to apply for a separate determination to request exercise of the Commissioner’s tax invoice discretion.

    Improving the integrity of GST on property transactions – On 9 May 2017 the Government announced that it will strengthen compliance with the GST law by requiring purchasers of newly constructed residential properties or land in new subdivisions to remit the GST directly to the ATO as part of settlement. This new measure is scheduled to commence from 1 July 2018.

    Agenda items

    Disclaimer

    GST States/Territories Industry Partnership meeting, agendas, minutes and related papers are not binding on the Tax Office or any of the States or Territories referred to in these papers. While every effort is made to accurately record the views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.

    1. ATO updates

    Unimproved land

    The ATO received a neutral evaluation on 15 April 2015 which supported the Commissioner’s position in relation to notional GST and unimproved land and the application of section 38-445 of the GST Act.

    A second neutral evaluation involving notional GST and unimproved land was received on 24 May 2017. It considered the application of item 4 of the table in subsection 75-10(3).

    The ATO will be updating GSTR 2006/6 Goods and services tax: improvements on the land for the purposes of Subdivision 38-N and Division 75 and will consult with external stakeholders through the public rulings process.

    Meeting discussion

    A member asked if the rewrite of GSTR 2006/6 would address situations where a professional has been engaged to value land and determines there are no improvements despite there being useful human interventions on the land. ATO responded by explaining that the first Neutral Evaluation addressed this issue and the principles will be incorporated into the update of GSTR 2006/6. The first Neutral Evaluation provided that, in addition to human interventions which increase the value of the land, human interventions which increase the usefulness of the land to an occupier are improvements. The concept of ‘highest and best use’ is relevant to a professional valuer when valuing land but these concepts are not relevant in determining if land has improvements for the application section 38-445 of the GST Act. The focus should be on the usefulness to an occupier of human interventions on the land in its current state compared to the land in its natural state. This is not assessed from the perspective of a purchaser who may have no use for the existing human interventions.

    Tax invoice discretions – Machinery of government changes

    A review has been undertaken of the determinations held by jurisdictions in relation to the Commissioner’s tax invoice discretion under subsection 29-70(1B) of the GST Act. There were some instances where it was found that the discretions were not current. The ATO has been in contact with impacted jurisdictions with the view to confirming the ATO analysis and encouraging them to request updated determinations if the discretions are not current.

    Meeting discussion

    There was discussion on the Commissioner’s determination for tax invoice discretion and the situations in which they apply following machinery of government changes. The ATO advised that a determination for tax invoice discretion held by a jurisdiction will not apply to every machinery of government change. A determination will only relate to machinery of government changes pursuant to the relevant instruments specified in that determination and which are generally notified by an Administrative Arrangements Order (AAO) or a Proclamation. If a machinery of government change is implemented under other Acts or legislation not specified in the determination, then the jurisdiction or the entity will need to apply for a separate determination to request exercise of the Commissioner’s tax invoice discretion.

    Improving the integrity of GST on property transactions

    On 9 May 2017 the Government announced that it will strengthen compliance with the GST law by requiring purchasers of newly constructed residential properties or land in new subdivisions to remit the GST directly to the ATO as part of settlement.

    This new measure is scheduled to commence from 1 July 2018 and will affect purchasers of newly constructed residential premises, or vacant land in new subdivisions.

    Under the current law (where the GST is included in the purchase price and the developer remits the GST to the ATO), some developers are failing to remit the GST to the ATO despite having claimed GST credits on their construction costs. As most purchasers use conveyancing services to complete their purchase, they should experience minimal impact from these changes.

    Legislation is currently being developed for this measure and it is expected that Treasury will publish more information about the proposed changes to the GST law in due course. 

    More information on the new measure can be found at 2017-18 Budget Paper No. 2 - Revenue Measures page 38External Link.

    2. Cancellation of ABN

    Issue

    Issues resulting from the cancellation of an ABN

    Questions

    1. Is the recipient of a supply required to withhold from payment of an invoice submitted by a supplier where the supplier has quoted their ABN that has been cancelled?

    2. If a withholding is required in respect of question 1, is a withholding required if the date of the invoice is prior to the ABN being cancelled?

    3. Where the supplier has requested their ABN to be reinstated, does the recipient of the supply need to withhold from the payment if the payment is made prior to the ABN being reinstated?

    4. Where the supplier has requested restoration of their ABN and GST registration and has issued a tax invoice, is the recipient of the supply entitled to an input tax credit if payment is made prior to the ABN being reinstated and GST registration restored?

    Background

    Question 1: Is the recipient of a supply required to withhold from payment of an invoice submitted by a supplier where the supplier has quoted their ABN that has been cancelled?

    A supplier submits an invoice to the recipient of a supply made by them and quotes their ABN. The invoice exceeds $75 excluding GST. A check of the ABR by the recipient shows the ABN had been issued to the supplier but has been cancelled.

    Section 12-190 of Schedule 1 to the Taxation Administration Act 1953 (TAA) requires a payer to withhold from a payment made to another entity for a supply made in the course of carrying on an enterprise unless one of the exceptions provided at section 12-190 applies. Subsection 12-190(2) provides an exception where the payer has an invoice or some other document relating to the supply which quotes the supplier's ABN.

    Section 8 of the A New Tax System (Australian Business Number) Act 1999 (ABN Act) provides an entity an entitlement to an ABN if that entity is carrying on an enterprise in Australia or makes supplies that are connected with the indirect tax zone.

    Miscellaneous taxation ruling MT 2006/1 confirms the entity is carrying on an enterprise in Australia and would be entitled to an ABN. The fact that the entity had been issued with an ABN supports this.

    In this case the supplier does quote their correct ABN on their invoice notwithstanding that their ABN had been cancelled for reasons unknown.

    Taxation ruling TR 2002/9 deals with the withholding from payments where the recipient of the payment does not quote their ABN to the payer. Paragraph 6 of this ruling states 'Section 12-190 is not designed to be another general withholding collection mechanism - it should only operate where suppliers that are carrying on an enterprise fail to quote their ABN number to the payer.' This ruling does not consider a situation where an entity’s ABN has been cancelled.

    Paragraph 8 of Practice Statement Law Administration PS LA 2016/3 states 'When an entity's registration is cancelled in the ABR, regardless of the reason, the entity ceases to have an active ABN.' The entity still has an ABN but it is not an active ABN. TR 2002/9 does not distinguish between an active and an inactive ABN.

    Paragraph 8 of the PSLA also states 'The previously active ABN must not be quoted by the entity after the date of effect of the cancellation of the registration.' However, the supplier may not be aware their ABN has been cancelled and submits an invoice quoting their former ABN in good faith.

    Paragraph 8 of the PSLA further states 'Where an entity or its associate misuses an ABN by holding themselves out and identifying themselves by using a cancelled ABN they commit an offence under the ABN Act, which can incur 2 years imprisonment.' However, the identification offences contained in section 23 of the ABN Act refer to a number that is not an ABN or an ABN that is not that of the supplier. This would not apply where the supplier quotes their own ABN which is a valid ABN number that was issued to themselves.

    Paragraph 9 of PSLA 2016/3 provides for an ABN to be reinstated if satisfied it should not have been cancelled. The date of reinstatement is the date of cancellation. This recognises that an ABN may have been cancelled in error.

    Conclusion of STIP member

    The No-ABN withholding would not apply because the supplier has quoted their own ABN which is a valid ABN number which is all that is required for an exemption to the withholding requirement of section 12-190 of Schedule 1 to the TAA.

    Question 2: If a withholding is required in respect of question 1, is a withholding required if the date of the invoice is prior to the ABN being cancelled?

    The situation in this case is the same as question 1 but the invoice is dated prior to the cancellation date of the ABN. If it is concluded for Question 1 that the withholding requirement applies, the requirement to withhold may only apply to invoices issued during the period the ABN was cancelled.

    Section 12-190 of Schedule 1 to the TAA requires a payer to withhold from a payment made to another entity for a supply made in the course of carrying on an enterprise unless one of the exceptions provided at section 12-190 applies. The supplier was carrying on an enterprise and held an active ABN at the date the invoice was issued. Subsection 12-190(2) of the TAA provides an exception where the payer has an invoice or some other document relating to the supply which quotes the supplier's ABN.

    Conclusion of STIP member

    A withholding would not be required because the conditions for exemption are satisfied.

    Question 3: Where the supplier has requested their ABN to be reinstated, does the recipient of the supply need to withhold from the payment if the payment is made prior to the ABN being reinstated?

    The situation in this case is the same as question 1 but the invoice is dated after the cancellation date of the ABN. If it is concluded for Question 1 that the withholding requirement applies, the requirement to withhold may apply to invoices issued during the period of cancellation.

    The supplier having been advised that their ABN is cancelled requests the reinstatement of their ABN from the date it was cancelled. The supplier advises the recipient of the supply that their ABN had been cancelled in error and they have requested reinstatement of their ABN.

    Whilst the supplier may have been carrying on an enterprise and entitled to an ABN at the time they issued the invoice, section 25-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) requires the Commissioner to decide the date the registration takes effect. The recipient of the supply does not have the authority to make the decision as to when the registration takes effect.

    Conclusion of STIP member

    Section 190 of Schedule 1 to the TAA requires a withholding to be made at the time of payment to the supplier. A withholding would not be required if the supplier and payer agree to delay payment until the ABN has been reinstated.

    Question 4: Where the supplier has requested restoration of their ABN and GST registration and has issued a tax invoice, is the recipient of the supply entitled to an input tax credit if payment is made prior to the ABN being reinstated and GST registration restored?

    ATO Interpretative Decision ATO ID 2002/529 clarifies a situation where the recipient of a supply makes acquisitions prior to becoming registered for GST. In this case the entity commenced carrying on its enterprise and met the registration turnover threshold before the date specified in the entity’s application for GST registration.

    This ATO ID confirmed that the GST registration is back-dated to when the entity commenced carrying on an enterprise because its projected GST turnover exceeded the threshold from that date rather than the later date nominated in the GST registration application. It follows from this that the entity is required to attribute GST to all transactions from that date if accounting for GST on a non-cash basis.

    Pursuant to section 25-15 of the GST Act, GST would be attributable to transactions from the date of GST registration calculated in accordance with subdivision 9-C of the GST Act whether or not GST had been included in the invoice. It follows that an input tax credit would be available to the recipient of any acquisition subject to the requirement to hold a compliant tax invoice.

    Conclusion of STIP member

    In this case, the supplier provided a tax invoice although their ABN and GST registration had been cancelled at the time. The recipient of the supply should be entitled to an input tax credit on the basis that the GST registration would be back-dated to the date it was cancelled.

    Reference to other States and Territory

    Similar situations most likely arise nationally

    Technical references

    TR 2002/9

    MT 2006/1

    PS LA 2016/3

    Taxation Administration Act 1953

    A New Tax System (Australian Business Number) Act 1999

    A New Tax System (Goods and Services Tax) Act 1999

    Impact on clients?

    Loss of input tax credits and possible penalties for failing to withhold for no ABN

    Priority?

    Low

    Has previous advice been sought from the ATO?

    No

    Has this issue been discussed at any other consultative forum?

    Not to the knowledge of STIP member

    ATO response

    Question 1: Is the recipient of a supply required to withhold from payment of an invoice submitted by a supplier where the supplier has quoted their ABN that has been cancelled?

    In the situation described the recipient of the supply has checked the ABR which shows that the ABN quoted on an invoice by the supplier has been cancelled. The ABR will show the date of effect of cancellation. The reasons for cancellation of the ABN are not known. It is also assumed that the payer has sufficient reason to believe that the supply has been made in the furtherance of an enterprise being carried on by the supplier.

    Section 12-190 of Schedule 1 to the Taxation Administration Act 1953 (TAA) requires a payer to withhold from a payment made to another entity for a supply made in the course of carrying on an enterprise unless one of the exceptions provided at section 12-190 applies. TR 2002/9 deals with the withholding from payments where the recipient of the payment does not quote their ABN to the payer and paragraph 51 details the exceptions that may apply in subsections 12-190(2) – (6). A supplier will not satisfy any of the exceptions, including the quotation of their ABN on an invoice, if the supplier does not have an ABN as it has been cancelled. The A New Tax System (Australian Business Number) Act 1999 (ABN Act) explains that, if your registration is cancelled, you cease to have an ABN (see note 1 under subsection 18(1)).

    Paragraph 120 of TR 2002/9 discusses false or incorrect ABNs and explains that the payer is not required to check the validity of an ABN on the ABN register but where the payer has reasonable grounds to believe that the supplier does not have an ABN, then they must withhold.

    There are two different potential scenarios that may apply in these circumstances:

    1. If the supplier has quoted their ABN at the time of issuing the invoice and their ABN was not cancelled at that time – as per section 12-190(2)(a) the payer of the invoice does not need to withhold at the time of payment, as they would have received the invoice which quoted the suppliers ABN at the time.
    2. If the supplier has quoted their ABN at the time of issuing the invoice and their ABN was cancelled at the time (i.e. issued the invoice on or after the day the ABN cancellation took effect) – as their registration would be cancelled they would have ceased to have an ABN, and therefore s12-190(2)(a) would not apply. Therefore in this scenario the payer of the invoice should withhold.

    Question 2: If a withholding is required in respect of question 1, is a withholding required if the date of the invoice is prior to the ABN being cancelled?

    No. As above, in a case where the invoice relating to the supply is issued and given to the payer prior to the date of effect of the cancellation of the ABN, and quotes the supplier’s ABN, the payer need not withhold an amount according to the exception provided in paragraph 12-190(2)(a).

    Question 3: Where the supplier has requested their ABN to be reinstated, does the recipient of the supply need to withhold from the payment if the payment is made prior to the ABN being reinstated?

    Refer to the response in question 1. The supplier should make a decision to withhold based on the advice provided in the ABR at the time of payment. In this scenario, as the date of cancellation was before the date of invoicing, the recipient should withhold.

    However, in this scenario, the supplier has also advised the recipient that the ABN was cancelled in error and that they have requested the ABN be reinstated. Under subsection 19(3) of the ABN Act, if an entity’s registration is reinstated, the reinstatement has effect on and from the day on which the registration was cancelled.

    As such, prior to any payment of the invoice, the payer may, for example, contact the supplier and discuss the proposed withholding due to cancellation of the supplier’s ABN. The supplier and the recipient may agree to delay payment until the ABN is reinstated; at which time the payer need not withhold as the supplier’s ABN would be valid at the time of invoicing.

    If the payer chooses to pay before the ABN is reinstated they should withhold. See further the response to question 4 below.

    Question 4: Where the supplier has requested restoration of their ABN and GST registration and has issued a tax invoice, is the recipient of the supply entitled to an input tax credit if payment is made prior to the ABN being reinstated and GST registration restored?

    The recipient of a supply is entitled to input tax credits for any creditable acquisition they make. However, an acquisition needs to be a taxable supply by the supplier to be a creditable acquisition to the recipient. To be a taxable supply the supplier needs to be registered, or required to be registered. It follows that, although a supplier is not registered for GST, they may be required to be registered and should, therefore, be required to issue tax invoices although not registered on the ABR.

    It should however be noted that since it is the recipient making the creditable acquisition, the onus is on them to ensure that the supply made to them is taxable. Where the supplier is not shown as registered for GST on the ABR, we would expect the recipient to take reasonable steps to satisfy themselves that the supplier is in fact required to be registered. For example, in this situation, if they become aware, it would be reasonable for the recipient to request a copy of the supplier’s request for the restoration of their ABN and GST registration to help inform the recipient that the supply to them was taxable and that they have made a creditable acquisition.

    In this situation, if entitled, the recipient of the supply attributes the input tax credits according to their accounting basis in the tax period in which they hold a tax invoice for the supply (section 29-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)).

    A tax invoice is a document that complies with the requirements set in section 29-70 of the GST Act. One of the requirements is that it must contain the supplier’s ABN. As the recipient has checked the ABR and identified that the ABN quoted had been cancelled, they would have reasonable grounds to believe that the tax invoice is not a valid one. Therefore no input tax credits can be attributed until the ABN is reinstated (subsection 19(3) of the ABN Act) and the invoice held is a valid tax invoice.

    3. GST technical update

    Discussion of recent legislative changes, judicial decisions and published ATO rulings and guidance with GST impacts for government entities.

    4. General business

    4.1 Removing irritants and better support

    We would like to continue to work with the States and Territories to identify irritants for government agencies and receive suggestions on how the ATO can better support the government sector.

    Meeting discussion

    One member raised concern with the decreased ATO support for Government entities experiencing administrative issues for their BAS lodgment obligations. Examples included untimely responses with some enquiries taking 2–3 weeks for a response or ticket which ultimately referred the Government entity to the general line for business assistance. The ATO acknowledged their concerns and advised that work is being progressed towards improving the client service experience for the Government sector.

    Another member asked if the page for Government enquiries which included the email address atogateway@ato.gov.au and the phone number (02) 6216 8600 was designed to be an avenue for Government entities to seek business assistance. The member also requested confirmation about what forms can be lodged through the Business Portal and whether the portal will issue a receipt for the lodgment.

    Action Item 20092017/1

    Is the email address atogateway@ato.gov.au and phone number (02) 6216 8600 on the government enquiries page on the ATO website available for use by government entities to access business support from the ATO?

    Also what forms can be lodged through the Business Portal and does the portal provide a lodgment receipt?

    Post meeting response

    The ATO Gateway is an avenue for Government Departments to contact the ATO for official business unrelated to the administration of their own taxation and BAS obligations.

    The Business Portal can be used to lodge a range of forms, including forms to lodge an objection or apply for a private ruling, which can be submitted online. Forms submitted via the portal are acknowledged with a receipt number.

    Refer to our website for further information on online forms and how to lodge an online form.

    4.2 Future GST impacts for States and Territories

    We would like the States and Territories to consider the following questions for discussion at the meeting.

    • What issues from a GST perspective do the States and Territories anticipate in the future?
    • How will the States and Territories be equipped to respond to these impacts?
    • What challenges to sustainability of compliance do the States and Territories face over the next few years?
    • How effective (easier, contemporary, cost effective, more tailored) is the design of existing ATO systems for the administration of GST?
    • How can any deficiencies be shaped to become more effective?

    Meeting discussion

    No issues were raised

    4.3 GST STIP minutes

    The minutes from the last GST STIP meeting held on 27 February 2017 have been published on the ATO website and can be accessed via this link – GST States and Territories Industry Partnership minutes 27 February 2017.

      Last modified: 16 Jan 2018QC 54340