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  • Key messages

    Notional GST – Unimproved land – The ATO is of the view that some entities, advisers and valuers are not applying GSTR 2006/6 correctly. The application of section 38-445 was subject of a neutral evaluation on 15 April 2015 which supported the Commissioner’s position. Some aspects were not considered and, the ATO is progressing a further neutral evaluation to address and provide guiding principles in relation to the application of item 4 of the table in subsection 75-10(3) to dams, fences and roads. It is expected for the neutral evaluation to be finalised by September 2016.

    Government grants and payments – The ATO gave a presentation to members on the new legislation for Government Grants and Payments which received royal assent on 30 November 2015. The start date for reporting under the legislation is 1 July 2017 and the first report will be due for lodgment by 28 August 2018.

    Grants and GST turnover threshold – Entities that are carrying on an enterprise and not required to be registered for GST, will need to register for GST if a grant they receive is consideration for a taxable supply and the amount of that grant will make the entity exceed the GST registration threshold. The entity must register for GST in the month they receive the grant and remain registered for at least 12 months before they can cancel their registration.

    Impact of MBI decision on compulsory acquisitions – ATO is continuing to work through the implications of Commissioner of Taxation v. MBI Properties Pty Ltd [2014] HCA 49 in relation to proposition 5 of GSTR 2006/9 (and equivalent views in GSTR 2004/9) and plan to consult externally through a discussion paper before any addendum is published.

    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

    Following receiving a neutral evaluation on 15 April 2015 on the application of section 38-445, which supported the Commissioner’s position, matters were raised with the GST Administration Subcommittee (GSTAS) for their consideration.

    GSTAS have determined that:

    • government entities will apply the principles established in the first evaluation;
    • the same evaluator need not be retained in order to apply the principles to different examples; and
    • if a different evaluator is used, the principles previously established should be applied by evaluators in future cases.

    We are progressing a second neutral evaluation matter primarily focussing on the application of item 4 of the table in subsection 75-10(3) in respect of dams, fences and roads. This neutral evaluation is anticipated to be finalised in approximately September 2016.

    Meeting discussion

    The ATO anticipates that the combined outcome of these two neutral evaluations will provide guiding principles that can be applied broadly to assist interpretation of the legislation. The ATO advised that it has not yet determined whether GSTR 2006/6 Goods and services tax: improvements on the land for the purposes of Subdivision 38-N and Division 75 will require updating to include guiding principles from the neutral evaluations, but will consider it after the second neutral evaluation.

    There was discussion on the issues being raised in the second neutral evaluation which involves an englobo block of land as at 1 July 2000 on which there are fences, dams and roads and whether these constitute improvements in the context of subdivided lots for the purposes of item 4 of the table in subsection 75-10(3).

    The second neutral evaluation is progressing but it is not anticipated to be finalised before September 2016. Currently the parties are in the process of reaching agreement on the neutral evaluation process.

    Local government class action

    The ATO is aware of a potential class action by an advisor on behalf of more than 90 local Government bodies. It is understood that the proposed class action seeks to argue that a notional GST cannot be imposed on the state, and therefore local Government, as it is forbidden by section 114 of the Constitution. The class action is not expected to commence prior to June 2016.

    Government grants and payments - introduction of Bill

    Legislation to introduce third party reporting of government grants and payments data received royal assent on 30 November 2015.

    ATO provided an update on the draft legislation for Government grants and payments during the presentation at Agenda Item 2.

    2. Third party reporting - Government grants and payments

    ATO provided a presentation on the new legislation for Government grants and payments.

    Meeting discussion

    ATO advised that Government entities at the federal, state, territory and local levels will need to report total payments they make to a business for providing services as from 1 July 2017.

    Additionally, Government entities at the federal, state and territory levels will need to report the total grants paid to entities with an ABN.

    The entities will need to report details of these payments and grants on the Taxable payments annual report. The first report is due 28 August 2018 for the year ending 30 June 2018.

    The information reported may be used for pre-filling purposes to make it easier for individual businesses to lodge tax returns. It will also be used in the ATO data matching program to identify businesses that have:

    • not lodged tax returns
    • omitted income from tax returns that have been lodged
    • not met their GST obligations.

    A member noted that reporting should be undertaken by the entity that actually makes the payment and asked whether reporting could be undertaken at the administrative reporting level where entities were grouped.

    The ATO advised that the law states that the entity making the payments is required to report them. This allows the ATO to know which entity has lodged the annual report so they are not followed up for non-lodgment and is important as the data will be available to payees in pre-filling, with the name of the payer displayed. If a different payer name is displayed, this is likely to cause confusion and may cause adverse workloads for the ATO and the reporting entity.

    The structure of the annual report allows for another entity to lodge the report on behalf of an entity. In this case the lodger of the report would include their details in the ‘sender’ data records, with the entity that made the payments being recorded in the ‘payer’ data records.

    After considering these options, where an ‘administrative reporting entity’ still wishes to report on behalf of other entities because there are administrative issues in reporting under the actual payer, they would need to request this in writing, outlining the circumstances.

    The ATO advised that there are approximately 25 classes of Government entities that are specifically excluded from reporting under the new measure. This has been achieved by legislative instrument. There are also a range of payments that do not have to be reported, for example, payments to other government entities, utilities, airfares etc. These exclusions are also detailed in a recent legislative instrument. Members sought a list from the ATO of all the entities required to report from within their jurisdiction. ATO referred members to the following recent legislative determinations outlining the exclusions:

    Classes of Government Related Entities Exempt from Providing Third Party Reports Determination 2016External Link 11 April 2016: This instrument exempts certain classes of government entities from having to report.

    Classes of Transactions for which Government Related Entities are Exempt from Providing Third Party Reports Determination 2016External Link 11 April 2016: This instrument exempts government related entities from having to include specified classes of transactions in reports prepared and lodged in relation to items 1 and 2 in the table included in section 396-55 of Schedule 1 to the TAA 1953.

    ATO advised that each jurisdiction will need to determine which of their government entities will need to report and what payment transactions are required to be reported based on their consideration of the law and the legislative instruments, as well as information now published on the ATO website at ato.gov.au/tparGov.

    If members still have questions after referring to the ATO website, they can contact the ATO for further information by:

    3. Division 81 – Government fees and charges

    Issue

    Is a fee to use a council dump subject to GST when the council does not provide a kerbside collection?

    Background

    Council by-laws state:

    If the council does not provide or cause to be provided a regular garbage collection service for particular premises, the occupier of the premises shall provide or cause to be provided an approved alternative regular garbage collection service for the premises.

    The council may:

    (a) require a person to apply for and obtain a licence for the use of a council dump; and

    (b) charge a fee for dumping garbage on a council dump.

    Class ruling CR 2015/67 refers to 2 types of waste management services:

    • Kerbside collection where paragraph 22 includes in the examples – 'WMS to a collection point where a group of rural landowners take their domestic waste to a common, that is not a waste disposal facility, area for pick up' where this fee is not consideration; and
    • Access to a waste disposal site where paragraph 24 includes in the examples – 'rural waste facility access cards' where this fee is consideration.

    Whilst the waste disposal facility fee would fall under subsection 81-10(4), paragraph 1(d) of regulation 81-10.01 treats it as consideration. However, paragraph 1(f) of regulation 81-15.01 treats a fee for a supply of a regulatory nature as not being consideration. The requirement to dispose of rubbish as a waste management facility where there is no kerbside collection would be regulatory in nature. Regulation 81-15.02(2) would apply to treat the fee as consideration thereby making the supply subject to GST.

    There seems to be an anomaly in the situation where a ratepayer does not have access to kerbside collection and is required to take their rubbish to a waste disposal facility and pay GST.

    ATO response

    Residents who receive kerbside collections provided by their Council will not be charged GST where the cost of the service forms part of their rates. Council rates are not subject to GST under section 81-5. Residents who do not receive kerbside collections and are required to take their refuse to a transfer station will pay GST on any fees as the GST Regulations [Paragraph 81-10.01(1)(d)] provide that the payment of these fees is consideration for a taxable supply in these circumstances.

    It should be noted, however, that residents who receive a kerbside collection will also pay GST if they take additional refuse to the transfer station.

    4. GST and forfeiture of security deposit

    Issue

    GST treatment of a security deposit forfeited due to non-compliance of a land development contract where there was written agreement by both parties to apply the margin scheme.

    Background

    Entity A entered into a standard land development contract with a land developer whereby the developer would acquire freehold title to residential lots when all works had been certified as completed and a monetary payment made. It was agreed by both parties that the margin scheme would apply to the sale of the lots by Entity A to the developer. The agreement required the developer to provide a non-refundable security deposit.

    The developer decided not to proceed with the development and forfeited their security deposit.

    Paragraph 97I of GSTR 2000/28 indicates that, upon forfeiture, the security deposit is treated under section 99-5 as consideration for the earlier supply of a right to receive the land. The ruling refers to the application of section 9-30 for the supply of a right that is GST-free or input taxed. However, the right to receive land under the margin scheme would not fall under section 9-30 and Division 75 does not appear to address this situation. The margin scheme is outside the scope of GSTR 2000/28.

    Paragraph 126A of GSTR 2006/2 states “If the deposit is forfeited, it is consideration for a supply the supplier makes when it enters into a contract consisting of the obligations it undertakes and the consequent rights it grants.” The obligations and rights of the development contract are for land valued under the margin scheme.

    ATO response

    The contract called for the supply of the land, which would have been a taxable supply. Separately, the contract also called for the margin scheme to be applied when calculating the GST payable on the supply of the land.

    As stated in paragraph 97I of GSTR 2000/28, upon forfeiture, the security deposit is treated under section 99-5 as consideration for the earlier supply of a right to receive the land.

    The ultimate supply was the right to receive a supply of the land – not the supply of the land itself. Pursuant to sections 9-5 and 9-10, the supply of the right is a taxable supply.

    The margin scheme can be applied to the supply of real property that is made by:

    • selling a freehold interest in land,
    • selling a stratum unit, or
    • granting or selling a long-term lease

    The margin scheme cannot be applied to calculate the GST payable on the right to receive a supply of land.

    Meeting discussion

    ATO emphasised that the margin scheme cannot be applied to a right to receive something as a supply of a right does not involve a supply of land. In the above scenario, if the contract had gone to fruition resulting in a supply of land then the margin scheme could have been applied to calculate the GST on the supply.

    5. Appropriations

    Issue

    A number of Government agencies within a jurisdiction can receive their operating budgets as a mixture of appropriated funds and commercially sourced revenue.

    Specific programs are usually appropriated, while other items or general operating expenses may be partly or wholly funded by commercial activities. Commercial activities can be in the form of fare revenue, hiring fees, charges, fines and taxes. These may or may not be specifically allocated to a cost.

    In seeking to apply section 9-17 of the GST Act to transactions between these agencies, we are unsure of the impact partial commercial funding has on the operation of the section.

    Should we determine the percentage of appropriated and commercial revenue and apply the exemption proportionately or ‘drill down’ into each transaction to determine whether it is specifically covered by an appropriation. In everyday application this will be difficult and time consuming and prone to errors particularly when inexperienced staff are involved.

    ATO response

    Subsection 9-17(3) of the GST Act requires, inter alia, that the payment be covered by an appropriation. The provision does not allow for application proportionately to arrive at a percentage of a payment that is non-taxable. Therefore, unless the funds can be identified as only being sourced from appropriated funds, the payment will not be ‘covered by an appropriation under an Australian law’ for the purposes of subsection 9-17(3).

    In some jurisdictions, Financial Management Acts can provide for own sourced revenue to be appropriated to the agency. An example of this is section 23 of the Financial Management Act 2006 (WA) that provides for the Treasurer to make determinations of prescribed receipts that can be retained by an agency that receives them and that it will be taken to have been appropriated for the year for the service or function to which the determination relates.

    6. Tax invoices and debt factoring arrangements

    Issue

    Entitlement to input tax credits where a tax invoice issued by a supplier has the supplier’s name and ABN substituted for the name and ABN of the purchaser of the debt.

    Background

    A supplier was engaged to provide a service. A document titled ‘Tax Invoice’ relating to the supply was received with a sticker that fully covered the supplier’s ABN and covered most of the supplier’s name. The sticker states:

    PLEASE NOTE: This invoice has been purchased by ---------------- ABN --------

    Please forward remittance to ----------------------

    The invoice otherwise contained all details required for a tax invoice and also quoted a job number that identified a purchase order issued to the supplier. There was no documentation containing the supplier’s ABN.

    There was no confirmation of an arrangement made by the supplier to assign their debt to a third party.

    Pursuant to section 29-10 the recipient of a supply may claim an input tax credit for a creditable acquisition in the tax period they hold a tax invoice. Paragraph 72 of GSTR 2013/10 set out the requirements for a document to be a tax invoice. The document must, inter alia, contain the identity and ABN of the supplier. In the situation above, the identity of the supplier can be ascertained from the job number quoted on the invoice but the supplier’s ABN is not ascertainable from the document because of the sticker which could not be removed without removing the printing underneath.

    Paragraphs 59 to 61 of GSTR 2004/4 advise:

    59. For an effective legal assignment there is a mandatory requirement to give express notification of the assignment to the debtor. . ……….. Where notification is given, the debtor is bound to make payments to the assignee from that point onwards.
    60. In a practical sense this raises an issue about which entity is to provide an invoice ……………………………. It is also desirable that an invoice contains sufficient information to identify or ascertain the date of issue, the supplier and the recipient.
    61. In paragraph 32 of GSTR 2000/34 it is accepted that a third party can issue an invoice notifying an amount payable by one party to another. Therefore, where the assignor and assignee agree, it will be sufficient for the assignee to issue an invoice to the debtor to trigger attribution of the GST payable by the assignor provided the requirements set out in paragraph 60 are satisfied.

    It appears that a tax invoice issued by the purchaser of a debt would be compliant where it provides the name and ABN of the purchaser of the debt as well as other information required for a compliant tax invoice. However, this may only be acceptable where the recipient of the supply has written notification from the supplier of the assignment of the debt. There is concern as to whether a sticker with the information mentioned above is sufficient to accept the invoice as a compliant tax invoice for the purpose of claiming an input tax credit.

    ATO response

    Accept the tax invoice as compliant where the supplier’s name and ABN are substituted with the name and ABN of the purchaser of the debt provided the debtor has been expressly notified of the assignment of the debt.

    7. Grants and GST turnover threshold

    Issue

    1. Does an entity need to register for GST when they receive a one-off grant that will cause the entity to exceed the registration turnover threshold only in the month the grant is made?

    2. Does GST apply to a grant that exceeds the registration turnover threshold but the recipient of the grant is not registered for GST?

    Background

    A non-profit entity with a GST turnover of less than $70,000 applies for a government grant to make renovations to their premises from which they carry on their enterprise. The non-profit body is given a grant of $200,000 subject to terms and conditions that are enforceable. The grant does not include GST because the non-profit entity is not registered for GST.

    An entity is required to be registered for GST if they are carrying on an enterprise and their GST turnover meets the registration turnover threshold. The registration turnover threshold is $150,000 for a non-profit body and $75,000 for other entities.

    You have a GST turnover that meets a particular turnover threshold under subsection 188-10(1) of the GST Act when:

    (a) your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold; or

    (b) your projected GST turnover is at or above the turnover threshold.

    ‘Current GST turnover' at any time during a particular month is the sum of the values of all the supplies that you made, or are likely to make, during the current month and the preceding 11 months. There are some exceptions but none of the exceptions apply.

    ‘Projected GST turnover' at a time during a particular month is the sum of the values of all the supplies that you made, or are likely to make, during that month and the next 11 months. There are some exceptions but none of the exceptions apply.

    The grant causes both the current GST threshold and projected GST threshold to be exceeded in the month the grant is made.

    However, you have a GST turnover that does not meet a particular turnover threshold under subsection 188-10(2) of the GST Act when:

    (a) your current GST turnover is at or below the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is above the turnover threshold; or

    (b) your projected GST turnover is at or below the turnover threshold.

    Whilst the projected GST turnover exceeds the registration turnover threshold in the month the grant is made, it does not meet the projected GST threshold in the following month. The non-profit body is not required to register for GST when their projected GST turnover does not exceed the registration turnover threshold.

    It appears that the non-profit body may be required to be registered for GST only in the month the grant is paid.

    ATO response

    An entity is required to be registered for GST if they are carrying on an enterprise and their GST turnover meets the registration turnover threshold. The registration turnover threshold is $150,000 for a non-profit body and $75,000 for other entities.

    The facts show that the non-profit entity is carrying on an enterprise. The entity is not registered for GST as the entity’s GST turnover is less than $70,000. However, the grant ($200,000) they receive will make the entity’s GST turnover exceed $150,000 (where the $200,000 grant is consideration for a supply). Accordingly, the entity must register for GST in the month they receive the grant.

    The entity may not be required to be registered for GST in the month that follows the month in which grant is received.

    Even though the entity is not required to be registered, the entity must stay registered for at least 12 months before they can cancel their registration unless the entity ceases carrying on an enterprise.

    If the entity is not carrying on an enterprise, the registration will be cancelled from the time the entity ceases carrying on an enterprise.

    Meeting discussion

    ATO advised that the non-profit entity receiving the grant has responsibility for their GST obligations but the scenario highlights the importance of communication between the grant payer and the grant recipient of potential GST consequences for unregistered entities receiving taxable government grants. It should be noted however, that if the grant is not taxable then there would be no GST consequences for the grant recipient and the government entity would not be entitled to an input tax credit. There was discussion on distinguishing the facts to determine when the payment of a grant constituted consideration for a taxable supply and whether enforceable obligations are sufficient to make a grant taxable for GST purposes. For example, an enforceable obligation to undertake a community activity should be distinguished from a requirement to repay the grant if that activity is not done. The payment of the grant in the first situation would have been made in consideration for the entity to ‘undertake a community service’. Expense payments incurred by the entity in undertaking that community service could then be made in relation to construction of a playing field or building a new community hall.

    8. Impact of MBI decision on compulsory acquisitions

    Issue

    What is the impact of the MBI decision to the GST treatment of compulsory property acquisitions? The ATO view in GSTR 2006/9 is the making of a supply must always involve some action on the part of the supplier. The MBI decision implies it may be incorrect to consider that the making of a supply must always involve some action on the part of the supplier.

    ATO response

    We are continuing to work through the implications of Commissioner of Taxation v. MBI Properties Pty Ltd [2014] HCA 49 in relation to proposition 5 of GSTR 2006/9 (and equivalent views in GSTR 2004/9) and plan to consult externally through a discussion paper before any addendum is published. We are driven to amend proposition 5 in the ruling to take account of the High Court’s comments, however, we do not think it results in outcomes that are materially different to our published views.

    9. GST technical update

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

    Meeting discussion

    Members sought background information on the ATO Law Companion Guidelines. ATO advised that a law companion guideline will usually be published when the new law introduces a new regime, or new and unfamiliar concepts. It is a type of public ruling and gives the ATO view on how recently enacted law applies. Law companion guidelines offer the same protection in relation to underpaid tax, penalties or interest as a normal public ruling but this protection will only apply if the guideline is relied upon in good faith.

    10. General business

    10.1 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

    Members continue to comment on the difficulty of navigating through the ATO website for relevant rulings. ATO advised that the Legal Database now has its own search function to locate rulings and other information such as published guidance or court judgments contained within the database.

    One member raised the invoicing requirements under the provisions for GST grouping as an administrative irritant. The GST group members that make a supply are required to issue tax invoices in their name but it would be administratively easier to have the GST group representative member issue tax invoices in their name and ABN rather than the group member. The registration of business names for particular government entities is costly and not a viable solution in the longer term due to constant machinery of government changes.

    Action item 27042016/1

    Members sought further information in respect of whose name or identity can GST group members issue tax invoices for supplies made by them whilst a member of a GST group.

    Post meeting response

    For GST purposes the GST group representative member lodges a single activity statement and is liable for the GST payable on all taxable supplies. Despite this special rule, a GST group member is the entity making the taxable supply and as such must issue a tax invoice for a taxable supply when requested by the recipient.

    Where a member of a GST group makes a taxable supply, the identity of that member must be clearly ascertainable from the document. It may however authorise the representative member to issue tax invoices on its behalf. The tax invoice is required to include its details (name and ABN) and not the details of the representative member of the GST group.

    Action item 27042016/2

    Members sought an updated list of the key contacts across the ATO who can assist with timely and senior level support.

    Post meeting update

    Updated list was disseminated to members on 27 May 2016.

    10.2 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

    The main issue facing Government entities into the future is the implementation of system requirements to meet the third party reporting measures for Government grants and payments.

    Another issue raised by members included the impacts to Government entities due to changing personnel and the consequential loss of GST knowledge.

    Members also voiced concern at the decreasing ATO support to the government sector in that the larger Government agencies no longer have dedicated ATO Client Relationship Managers. These were replaced by fewer Government Relationship Managers designed to service at a jurisdictional level but the availability of these resources to assist the Government sector have now also decreased. ATO advised that the Large Service Team can assist Government entities in relation to online, transactional and administrative issues. They can be contacted by phone on (02) 9685 8735 and by email at LargeServiceTeam@ato.gov.au.

    10.3 GST STIP minutes

    The minutes from the last GST STIP meeting held on 5 November 2015 have been published on the ATO website and can be accessed via this link – GST States and Territories Industry Partnership minutes 5 November 2015.

      Last modified: 12 Aug 2016QC 49853