House of Representatives

Tax Laws Amendment (2010 GST Administration Measures No. 2) Bill 2010

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan MP

Chapter 1 - GST groups and GST joint ventures

Outline of chapter

1.1 Schedule 1 to this Bill amends:

·
the A New Tax System (Goods and Services Tax) Act 1999 ( GST Act) and the Taxation Administration Act 1953 ( TAA 1953) to allow entities to self assess their eligibility to form, change and dissolve a goods and services tax (GST) group or GST joint venture and to do so at any time during a tax period; and
·
the TAA 1953 and the GST Act to allow members of a GST group and participants in a GST joint venture to enter into an indirect tax sharing agreement with a representative member or a joint venture operator respectively in relation to their indirect tax law liabilities.

Context of amendments

1.2 This measure is implemented in response to Recommendation 32 of the Board of Taxation's Review of the Legal Framework for the Administration of the Goods and Services Tax.

1.3 The GST Act allows entities that choose to form a GST group or a GST joint venture to apply special rules for reporting their GST liabilities and entitlements, and to ignore most intra-group transactions. In general terms, the special rules effectively result in treating GST groups and, to a lesser extent, GST joint ventures, as if they were a single entity for GST purposes (Divisions 48 and 51). GST groups and GST joint ventures are also recognised as one entity for the purposes of the wine equalisation tax (Division 21 of the A New Tax System (Wine Equalisation Tax) Act 1999), the luxury car tax (Division 16 of the A New Tax System (Luxury Car Tax) Act 1999) and fuel tax credits (sections 70-05 and 70-15 of the Fuel Tax Act 2006).

1.4 To form a GST group, entities must obtain approval from the Commissioner of Taxation (Commissioner) (section 48-5). The application for approval must be made jointly by all the entities concerned and must nominate one of them as a representative member of the group. The Commissioner must approve a GST group if each of the entities satisfies the membership requirements for that GST group and the nominated representative member is an Australian resident. Changes to the group membership, a change in the representative member or a revocation of a GST group also requires the Commissioner's approval. The application for such approval must be made by the representative member (subsections 48-70(1) and 48-75(1)). When a member or a group no longer meets the membership requirements, the representative member must notify the Commissioner of this (section 48-80) and the Commissioner must revoke the approval of such a member and a GST group (subsections 48-70(2) and 48-75(2)). Entities can only form, alter or revoke a GST group from the beginning of a tax period (subsection 48-85(3)), except when entities pay GST by instalments, or report and pay GST annually (subsection 48-85(3)).

1.5 If an entity becomes incapacitated, its tax period ends at that time under section 27-39. This will generally result in the entity having a different tax period to those applying to other members of the GST group, and therefore in that entity failing to meet the membership requirements of that GST group. The representative member may elect to have the tax periods that apply to other group members cease at the same time as the incapacitated entity's tax period ceases (section 48-73). An incapacitated entity cannot be the representative member of the GST group unless all the members of the group are incapacitated (section 48-72).

1.6 To form a GST joint venture, entities must obtain the Commissioner's approval (section 51-5). The application for approval must be made jointly by all the entities concerned and must nominate one of them, or another entity, as the joint venture operator of the joint venture. The Commissioner must approve a GST joint venture if the joint venture is for approved purposes, the joint venture is not a partnership and each of the entities satisfies the participation requirements for that GST joint venture. Changes to the joint venture membership, a change in the joint venture operator or a revocation of a GST joint venture also require the Commissioner's approval. The application for such approval must be made by the joint venture operator (subsections 51-70(1) and 51-75(1)). When a participant or a joint venture no longer meets the participation requirements, the joint venture operator must notify the Commissioner of this (section 51-80) and the Commissioner must revoke the approval of such a participant or a GST joint venture (subsections 51-70(2) and 51-75(2)). Entities can only form, alter or revoke a GST joint venture from the beginning of a tax period (section 51-85(2)).

1.7 Each member of a GST group or participant of a GST joint venture is jointly and severally liable to pay any amount that is payable under an indirect tax law by the representative member or the joint venture operator respectively, in the event that they default on the payment (sections 444-90 and 444-80 in Schedule 1 to the TAA 1953). An 'indirect tax law' is defined in the Income Tax Assessment Act 1997 as any of the following - the GST law, the wine equalisation tax law, the luxury car tax law and the fuel tax law.

1.8 The existing provisions add to compliance costs and constrain the flexibility of entities in conducting their businesses. In particular: the time taken to obtain an approval from the Commissioner can result in uncertainty; allowing grouping and de-grouping only at the beginning of a tax period may delay commercial transactions or require the unwinding of transactions for GST purposes to the beginning of a tax period; and finally joint and several liability can give rise to ongoing uncertainty for entities, even after they leave a GST group or GST joint venture.

Summary of new law

Self assessment and intra-tax period grouping and de-grouping

GST groups

1.9 Schedule 1 amends Division 48 of the GST Act to allow entities to self assess their eligibility to form, change and dissolve a GST group and to notify the Commissioner of details of the GST group in the approved form. Under the amendments, entities will be able to form, change and dissolve a GST group, and change a representative member on any day during a tax period. The representative member of the group must notify the Commissioner of the details of the GST group on or before the day by which the representative member is required to give to the Commissioner a GST return for the tax period in which the formation, change or dissolution takes effect.

1.10 If the representative member fails to notify the Commissioner of the details of the GST group by the relevant date, the representative member will need to apply to the Commissioner for approval of the date of effect of the formation, change in membership, or dissolution of a GST group or a change in the representative member.

1.11 Transitional rules provide for the treatment of GST groups that already exist or that have already been approved by the Commissioner under the amended provisions. Transitional rules also provide for the treatment of applications made under the existing provisions that have not been dealt with by the Commissioner.

GST joint ventures

1.12 Similarly, Schedule 1 amends Division 51 of the GST Act to allow entities to self assess their eligibility to form, change and dissolve a GST joint venture and to notify the Commissioner of details of the GST joint venture in an approved form. Under the amendments entities will be able to form, change and dissolve a GST joint venture, and change a joint venture operator on any day during a tax period. The joint venture operator must notify the Commissioner of the details of the GST joint venture on or before the day by which the joint venture operator is required to give to the Commissioner a GST return for the tax period in which the formation, change or dissolution takes effect.

1.13 If the joint venture operator fails to notify the Commissioner of the details of the GST joint venture by the relevant date, the joint venture operator will need to apply to the Commissioner for approval of the date of effect of the formation, change in participants or dissolution of a GST joint venture, or a change in the joint venture operator.

1.14 Transitional rules provide for the treatment of GST joint ventures that already exist or that have already been approved by the Commissioner under the amended provisions. Transitional rules also provide for the treatment of applications made under the existing provisions that have not been dealt with by the Commissioner.

Indirect tax sharing agreements

GST groups

1.15 Schedule 1 also amends the TAA 1953 to allow members and a representative entity of a GST group to enter into an indirect tax sharing agreement to limit the indirect tax law liabilities of the members for tax periods in which they are a member of a GST group. Subject to certain conditions, a member with an indirect tax sharing agreement can also leave a GST group clear of any indirect tax law liabilities for a tax period if it leaves before the representative member is required to give a GST return to the Commissioner for the tax period.

GST joint ventures

1.16 Similarly, Schedule 1 amends the TAA 1953 to allow participants and the joint venture operator of a joint venture to enter into an indirect tax sharing agreement to limit the indirect tax law liabilities of the participants for tax periods in which they are a participant in the GST joint venture. Subject to certain conditions, a participant with an indirect tax sharing agreement can also leave a GST joint venture clear of any indirect tax law liabilities for a tax period if it leaves before the joint venture operator is required to give a GST return to the Commissioner for the tax period.

Comparison of key features of new law and current law

New law Current law
Assessment of eligibility to group
GST groups
Entities self assess their eligibility to form, change and dissolve a GST group, change the representative member and notify the Commissioner accordingly. However, failure to notify by the prescribed date means that formation, change or dissolution of a GST group or change of representative member requires the Commissioner to approve the date of effect.
GST joint ventures
Entities self assess their eligibility to form, change and dissolve a GST joint venture, change the joint venture operator and notify the Commissioner accordingly. However, failure to notify by the prescribed date means that formation, change or dissolution of a GST joint venture or change of the joint venture operator requires the Commissioner to approve the date of effect.
Assessment of eligibility to group
GST groups
Entities need to obtain the Commissioner's approval for forming, altering and revoking a GST group and for changing the representative member.
GST joint ventures
Entities need to obtain the Commissioner's approval for forming, altering and revoking a GST joint venture and for changing the joint venture operator.
Date of effect of a group
GST groups
Entities can form, change and dissolve a GST group, and change the representative member, on any day during a tax period.
GST joint ventures
Entities can form, change and dissolve a GST joint venture, and change the joint venture operator, on any day during a tax period.
Date of effect of a group
GST groups
The date of effect of the Commissioner's approval for forming, altering or revoking a GST group or for changing the representative member must be the beginning of a tax period.
GST joint ventures
The date of effect of the Commissioner's approval for forming, altering or revoking a GST joint venture or for changing the joint venture operator must be the beginning of a tax period.
Liabilities of a group
GST groups
Members of a GST group can enter into an indirect tax sharing agreement with the representative member in relation to their indirect tax law liabilities.
GST joint ventures
Participants in a GST joint venture can enter into an indirect tax sharing agreement with the joint venture operator in relation to their indirect tax law liabilities.
Liabilities of a group
GST groups
Each member of a GST group is jointly and severally liable for any amount that is payable under an indirect tax law by the representative member.
GST joint ventures
Each participant in a GST joint venture is jointly and severally liable for any amount that is payable under an indirect tax law by the joint venture operator to the extent that the amount relates to the joint venture.

Detailed explanation of new law

Self assessment and intra-tax period grouping and de-grouping

1.17 These amendments allow entities to self assess their eligibility to form a GST group and a GST joint venture, and to make membership changes to, or dissolve a GST group or a GST joint venture on any day during a tax period. These amendments are aimed at reducing compliance costs and increasing the flexibility for entities to form, change and dissolve a GST group or a GST joint venture while preserving the integrity of the GST system.

GST groups

1.18 To form a GST group, entities must satisfy the membership requirements of a GST group, agree in writing to form a GST group and nominate a representative member (which has to be an Australian resident). Entities can self assess to form a GST group from a particular date provided that the representative member notifies the formation to the Commissioner in the approved form on or before the day by which the representative member is required to give the Commissioner a GST return for the tax period in which the formation takes effect (prospective formation) . [Schedule 1, item 3, subsections 48-5(1) to (3)]

Example 1.1 : Prospective formation of a GST group -- notifying the Commissioner Entity A has a 90 per cent stake in Entities B, C and D. They are all companies that are registered for GST purposes, apply the monthly GST tax period, account for GST on the same basis, are not members of another GST group and do not have any branch registered for GST purposes. Entities A, B, C and D agree in writing to form a GST group with a date of effect from 23 April 2011. They nominate Entity A (which is an Australian resident for GST purposes) as the representative member. Entity A notifies the Commissioner in the approved form of their decision to form a GST group and the details of the group membership on 27 April 2011. These entities have formed a GST group (under section 48-5 of the GST Act) with a date of effect from 23 April 2011 as the notification was provided to the Commissioner before 21 May 2011, which is the due date for lodgment of the GST return for the April tax period.

1.19 The Commissioner can approve the formation of a GST group for a tax period in which the due date for lodgment of a GST return by the nominated representative member has already passed (retrospective formation). To form a group with retrospective formation, the representative member needs to apply to the Commissioner in the approved form and the Commissioner has to approve the date of effect and notify the representative member of the decision. The Commissioner may decide to determine another date of effect. The decision to approve another date of effect is a reviewable decision . [Schedule 1, item 3, subsection 48-5(4) and item 16, subsections 48-71(1) and (3)]

Example 1.2 : Retrospective formation of a GST group - approval by the Commissioner Same facts as in Example 1.1 but the nominated representative member (Entity A) notifies the Commissioner of their decision to form a GST group on 22 May 2011. In this case, the entities cannot self assess their eligibility to form a GST group with a date of effect from 23 April 2011. This is because Entity A did not notify the Commissioner about forming a GST group on or before 21 May 2011; that is, on or before the due date for lodgment of a GST return for the April tax period. The Commissioner therefore needs to approve the date of effect of the formation of the group. The Commissioner approves 23 April 2011 as the day of the formation of the GST group and gives a notice to the representative entity of the decision. Thus a GST group is formed with a date of effect from 23 April 2011 under section 48-5.

1.20 A member of a GST group is defined as an entity that either formed a GST group or joined (and has not subsequently left) the group and that satisfies the membership requirements of the group . [Schedule 1, item 3, subsections 48-7(1) and (2)]

1.21 The representative member must notify the Commissioner in the approved form within 21 days if a member of the GST group no longer satisfies the membership requirements. The failure to notify the Commissioner within 21 days may result in an administrative penalty under section 286-75 in Schedule 1 to the TAA 1953 . [Schedule 1, item 3, subsections 48-7(3) and (4)]

1.22 Changes can be made to a GST group by the representative member notifying the Commissioner in the approved form of the changes. The changes have effect from the date specified in the notice, providing the notice is given to the Commissioner on or before the day by which the representative member of the group is required to give the Commissioner a GST return for the tax period in which such actions take effect. The changes include an entity joining a GST group, a member or the representative member leaving a GST group, the representative member of the GST group being replaced by another member of the group and the GST group being dissolved . [Schedule 1, item 16, subsections 48-70(1) and (3)]

1.23 If an entity ceases to be the representative member, the GST group is taken to be dissolved unless another member of the group immediately becomes the representative member. A notice that another member has become the representative member must be given to the Commissioner by the new representative member within 21 days after that member became the representative member. A failure to notify the Commissioner within 21 days may result in an administrative penalty under section 286-75 in Schedule 1 to the TAA 1953 . [Schedule 1, item 16, subsections 48-70(6) and (7)]

1.24 The Commissioner can approve a change in the membership of the GST group, a replacement of the representative member of the GST group or dissolution of a GST group retrospectively if the notification occurs after the due date for lodgment of the GST return for the tax period in which the action takes effect. To make changes to a group with a retrospective date of effect, the representative member needs to apply to the Commissioner in the approved form and the Commissioner has to approve the date of effect and notify the representative member of the decision. The Commissioner may decide to determine another date of effect. The decision to approve another date of effect is a reviewable decision . [Schedule 1, item 16, subsection 48-70(4) and subsections 48-71(1) and (3)]

1.25 The date of effect of forming, changing and dissolving a GST group, whether by self assessment or with the Commissioner's approval can be any day during a tax period. The existing requirements concerning approvals and revocations of GST groups in sections 48-75 to 48-90 are repealed . [Schedule 1, item 20]

1.26 The GST payable on a taxable supply and the entitlement to an input tax credit for a creditable acquisition that an entity makes, that is attributed to a tax period in which an entity is a member of a GST group, is respectively payable by, or creditable to, the representative member. Similarly, an adjustment that an entity has and that is attributable to a tax period during which the entity is a member of a GST group, is the representative member's adjustment. A GST liability for a taxable importation arises in the tax period that the taxable importation is made. If that importation is made when the entity is a member of the group, the GST is payable by the representative member (provided that the GST on the importation is payable when GST on taxable supplies is normally payable by the representative member) . [Schedule 1, item 6, subsection 48-40(1), item 7, paragraph 48-40(1)(b), item 8, subsection 48-40(1), item 9, subsection 48-45(1), item 10, paragraph 48-45(1)(b), item 11, subsection 48-45(2), item 12, subsection 48-50(1) and item 13, paragraph 48-50(1)(a)]

1.27 However, if an entity is a member of a GST group for only part of the tax period, the periods in which it was not a member of a group are treated as if they were a tax period applying to the entity for the purposes of working out which amounts the entity is liable for or entitled to. Consequently, the entity is liable to pay any GST on taxable supplies, is entitled to any input tax credits for creditable acquisitions or creditable importations, and has adjustments to the extent that these amounts would be attributable to the period (or periods) in which the entity was not a member of any GST group. GST on importations is payable by the entity if the GST liability arose in that period . [Schedule 1, item 14, section 48-51]

1.28 Similarly, the representative member of a GST group of which an entity is only a member for part of a tax period is only responsible for the liabilities and entitlements that arise for transactions undertaken by the entity to the extent that these would be attributable to the period in which the entity was a member of the GST group (if this were a tax period) . [Schedule 1, item 14, section 48-52]

1.29 If there are two or more representative members of a GST group for a tax period, each representative member is only liable for, or entitled to, amounts that would be attributable to the period in which it was the representative member (as if this period was treated as a tax period) . [Schedule 1, item 14, section 48-53]

1.30 Diagram 1.1 illustrates the responsibilities for accounting and reporting for GST by the entities forming and leaving a GST group as well as the representative member of a GST group.

Diagram 1.1 : Intra-tax period formation and alteration of a GST group and accounting for GST in a business activity statement

Diagram 1.1

In Diagram 1.1, Entities A, B and C form a GST group on 15 April with Entity B becoming the representative member of the group. In these circumstances, each entity will be required to lodge a business activity statement for the tax period ending on 30 April, with:

·
the representative member (Entity B) accounting for its own liabilities and entitlements from 1 April to (the end of) 14 April and the GST group's liabilities and entitlements for the period from (the start of) 15 April to 30 April; and
·
Entity A and Entity C accounting for their own liabilities and entitlements from 1 April to (the end of) 14 April.

Further, the membership of the ABC GST group is altered on 20 June when Entity A leaves the group. This will require:

·
the representative member (Entity B) to account for the liabilities and entitlements of the GST group for the whole of the tax period, including Entity A's activities up to (the start of) 20 June, in its business activity statement for the tax period ending on 30 June; and
·
Entity A accounts for its own liabilities and entitlements from the start of 20 June to 30 June.

1.31 The Commissioner may revoke an approval for a retrospective formation, a retrospective change in the membership of a GST group, a retrospective replacement of the representative member or a retrospective dissolution of a GST group. The Commissioner must notify the relevant entity of any decision and the decision is a reviewable decision . [Schedule 1, item 16, subsections 48-71(2) and (3)]

1.32 If a member becomes an incapacitated entity, and as a result the tax periods that apply to it are different from the members of the GST group, it ceases to be a member of the GST group unless the representative member makes an election for the tax period that applies to the members of the GST group to end at the same time as the incapacitated entity became incapacitated. The Commissioner must be notified about such an election within 21 days after the member becomes incapacitated . [Schedule 1, item 19, subsections 48-73(1A) and (1B)]

1.33 A representative of an incapacitated entity may remove an incapacitated entity from a GST group by notifying the Commissioner in the approved form that the incapacitated entity is no longer a member of the GST group. The representative of an incapacitated entity needs to seek the Commissioner's approval of such action if the notification occurs after the due date for lodgment of the GST return for that tax period. However, the date of effect cannot be earlier than the day on which the member of the group became incapacitated . [Schedule 1, item 16, paragraphs 48-70(1)(e) and (2)(c), and subsections 48-70(4) and (5)]

1.34 If a representative member becomes an incapacitated entity, it ceases to be the representative member of a GST group unless all other members of the GST group are also incapacitated entities . [Schedule 1, item 20, section 48-75]

1.35 An entity with a tax period determined by the Commissioner under section 27-30 of the GST Act will satisfy the membership requirements for joining a GST group despite not immediately having the same tax period as other members of the GST group, if the tax period determined by the Commissioner ends at the same time as the tax period for the other members of the group and this tax period is not longer than the tax period for the other members of the group (other than a tax period that another member has under section 27-30) . [Schedule 1, item 4, subsection 48-10(2A)]

GST joint ventures

1.36 To form a GST joint venture, entities must satisfy the participation requirements of a GST joint venture, agree in writing to form a GST joint venture and nominate a joint venture operator. The joint venture operator does not need to be a joint venture participant. Entities can self assess to form a GST joint venture from a particular date provided that the joint venture operator notifies the formation to the Commissioner in the approved form on or before the day by which the joint venture operator is required to give the Commissioner a GST return for the tax period in which the formation takes effect (prospective formation) . [Schedule 1, item 23, item 24, subsection 51-5(1), item 25, item 26, paragraph 51-5(1)(e), item 27, subsection 51-5(1), and item 28, subsections 51-5(2) and (3)]

1.37 The Commissioner can approve the formation of a GST joint venture for a tax period in which the due date for lodgment of a GST return by the joint venture operator has already passed (retrospective formation). To form a joint venture with retrospective formation, the Commissioner has to approve the date of effect and notify the joint venture operator of the decision. The Commissioner may decide to determine another date of effect. The decision to approve another date of effect is a reviewable decision . [Schedule 1, item 28, subsection 51-5(4) and item 31, subsections 51-75(1) and (3)]

1.38 A participant in a joint venture is defined as an entity that either formed a GST joint venture or joined (and has not subsequently) left the joint venture and that satisfies the participation requirements of the joint venture . [Schedule 1, item 29, subsections 51-7(1) and (2)]

1.39 The joint venture operator must notify the Commissioner in the approved form within 21 days if a participant in the GST joint venture no longer satisfies the participation requirements. A failure to notify the Commissioner within 21 days may result in an administrative penalty under section 286-75 in Schedule 1 to the TAA 1953 . [Schedule 1, item 29, subsections 51-7(3) and (4)]

1.40 Changes can be made to a GST joint venture by the joint venture operator notifying the Commissioner in the approved form of the changes. The changes have effect from the date specified in the notice, providing the notice is given to the Commissioner on or before the day by which the joint venture operator is required to give the Commissioner a GST return for the tax period in which such actions take effect. The changes include an entity joining a GST joint venture, a member leaving a GST joint venture, the joint venture operator being replaced by another entity and the GST joint venture being dissolved . [Schedule 1, item 31, subsections 51-70(1) and (2)]

1.41 If an entity ceases to be the joint venture operator, the GST joint venture is taken to be dissolved unless another participant in the joint venture immediately becomes the joint venture operator. A notice that another joint venture participant has become the joint venture operator must be given to the Commissioner by the new joint venture operator within 21 days after that entity became the joint venture operator. The failure to notify the Commissioner within 21 days may result in an administrative penalty under section 286-75 in Schedule 1 to the TAA 1953 . [Schedule 1, item 31, subsections 51-70(4) and (5)]

1.42 The Commissioner can approve a change in the participants in a GST joint venture, a replacement of the joint venture operator or a dissolution of the GST joint venture retrospectively. The approval of the Commissioner is required when the joint venture operator notifies the Commissioner of the action after the due date for lodgment of the GST return for the tax period in which the action takes effect. To make changes to a joint venture with a retrospective date of effect, the joint venture operator needs to apply to the Commissioner in the approved form and the Commissioner has to approve the date of effect and notify the joint venture operator of the decision. The Commissioner may decide to determine another date of effect. The decision to approve another date of effect is a reviewable decision . [Schedule 1, item 31, subsection 51-70(3), and subsections 51-75(1) and (3)]

1.43 The date of effect of forming, changing and dissolving a GST joint venture, whether by self assessment or with the Commissioner's approval, can be any date during a tax period. The existing requirements in Subdivision 51-C dealing with approvals or revocations are repealed . [Schedule 1, item 31]

1.44 The Commissioner may revoke an approval for a retrospective formation, a retrospective change in the participants in the GST joint venture, a retrospective replacement of the joint venture operator or a retrospective dissolution of the GST joint venture. The Commissioner must notify the relevant entity of any decision and the decision is a reviewable decision . [Schedule 1, item 31, subsections 51-75(2) and (3)]

Indirect tax sharing agreements

1.45 The amendments allow participants of a GST joint venture and members of a GST group to enter into an indirect tax sharing agreement with their joint venture operator and representative member respectively in relation to their indirect tax law liabilities. These amendments are aimed at reducing compliance costs by increasing certainty.

1.46 A supply that is made by an entity because it enters into an indirect tax sharing agreement or a supply of a release from an obligation under an indirect tax sharing agreement is not a taxable supply . [Schedule 1, items 54 and 55, sections 110-60 and 110-65]

GST joint ventures

1.47 Joint venture participants can enter into an indirect tax sharing agreement with the joint venture operator to limit their exposure to joint and several liability for the joint venture operator's indirect tax liability for a tax period. The indirect tax sharing agreement can limit their liability to an amount (the contribution amount) determined in accordance with its terms.

1.48 An indirect tax sharing agreement must be in force before the date on which the joint venture operator is required to give to the Commissioner a GST return for a tax period and under the indirect tax sharing agreement a contribution amount must be able to be determined for each contributing participant for that tax period. The contribution amounts of each contributing participant under the indirect tax sharing agreement must represent a reasonable allocation of the total indirect tax amounts that the participants would be jointly and severally liable for in relation to that tax period (that is, an amount comprising the sum of the joint venture operator's net amount for the tax period, the joint venture's net fuel amount for the tax period and any other tax-related liabilities that arise under an indirect tax law during the tax period, such as GST payable on taxable importations that the joint venture operator is liable to pay) to the extent that the amounts in question relate to the joint venture.

1.49 The requirement to allocate the joint venture operator's total indirect tax law liability between the contributing participants and the joint venture operator provides joint venture participants with the flexibility to determine an appropriate basis of allocation that suits the circumstances of the GST joint venture. Participants are not, for example, restricted to adopting a methodology which allocates liability amounts for each separate indirect tax law to each participant (that is, the GST, wine equalisation tax, luxury car tax and fuel tax laws) although they may choose to do this provided that the allocation of the total liability is reasonable . [Schedule 1, items 56 and 57, subsection 444-80(1) and item 58, paragraphs 444-80(1A)(a) to (c)]

1.50 To provide additional assurance to the business community, the Commissioner will publish guidelines as to what is considered to be a reasonable allocation of a GST joint venture operator's total indirect tax law liability under an indirect tax sharing agreement.

1.51 The effect of the indirect tax sharing agreement provisions is to limit the liability of a participant in the event that a joint venture operator defaults on the payment of a joint venture's indirect tax law liability for a tax period. While the joint venture operator may also have a (nominal) allocation under the indirect tax sharing agreement, it remains liable to pay the total amount of the indirect tax law liability of the GST joint venture for a tax period in respect of which it was the joint venture operator.

1.52 A participant with a relevant indirect tax sharing agreement can leave a GST joint venture clear of any liability for a tax period, if before the day on which the joint venture operator is required to give to the Commissioner the relevant GST return for the tax period, the participant pays the joint venture operator its contribution amount for that period, or if that amount cannot be determined at the time of payment, a reasonable estimate of its contribution amount . [Schedule 1, item 58, paragraph 444-80(1A)(d) and subsection 444-80(1B)]

1.53 The liability of participants with a relevant indirect tax sharing agreement that have not left the GST joint venture is limited to the contribution amount determined in accordance with the indirect tax sharing agreement. A subsequent payment made by a participant to the Commissioner will reduce its contribution amount and the GST joint venture's indirect tax liability to the extent of the payment. However, this payment will not affect the Commissioner's ability to recover the joint venture's outstanding liabilities from other participants to the extent of their contribution amounts . [Schedule 1, item 58, paragraph 444-80(1A)(e)]

Example 1.3 : GST joint venture and indirect tax sharing agreements Entities A, B, C, D and E formed a GST joint venture on 5 February 2011. A is nominated as the joint venture operator and thus is responsible for the indirect tax law liabilities of the GST joint venture, but B, C, D and E are jointly and severally liable for any amount that is payable under an indirect tax law by the joint venture operator (to the extent that the amount relates to the joint venture). The GST joint venture applies a monthly tax period for remitting its indirect tax law liabilities. On 10 April 2011, B, C, D and E enter into an indirect tax sharing agreement with Entity A in respect of the April 2011 tax period. On 21 May 2011, A defaults on the payment to the Commissioner of amounts that are payable for the April 2011 tax period in respect of the GST joint venture's indirect tax law liabilities. Entities B, C, D and E are jointly and severally liable for the GST joint venture's indirect tax law liabilities. However, as they have a valid indirect tax sharing agreement for the tax period their liabilities are limited to their respective contribution amounts determined in accordance with the indirect tax sharing agreement. Entity A remains wholly liable for the total amounts that are payable for the GST joint venture.If Entity B left the GST joint venture on 20 May 2011 and made a payment to A of its contribution amount for both the April 2011 tax period and the May 2011 tax period, it is clear of any indirect tax law liabilities for the April 2011 and May 2011 tax periods. Entities C, D and E are jointly and severally liable for the GST joint venture operator's indirect tax law liabilities for these tax periods to the extent that the liabilities relate to the joint venture, with their liabilities being limited to their contribution amounts determined in accordance with the indirect tax sharing agreement.

1.54 More details about the operation of indirect tax sharing agreements can be found in Diagram 1.2 that illustrates the operation of indirect tax sharing agreements in respect of the indirect tax law liabilities of a GST group.

1.55 An indirect tax sharing agreement does not apply if it was entered into as part of an arrangement that had a purpose of prejudicing the Commissioner's ability to recover an amount payable under an indirect tax law . [Schedule 1, item 58, subsection 444-80(1C)]

1.56 In addition, an indirect tax sharing agreement does not apply if the joint venture operator fails to comply with a written notice given by the Commissioner requiring the joint venture operator to give the Commissioner a copy of the indirect tax sharing agreement in the approved form within 14 days . [Schedule 1, item 58, subsection 444-80(1D)]

1.57 An indirect tax sharing agreement can cover more than one participant in a joint venture but the joint venture operator for the GST joint venture cannot enter into more than one indirect tax sharing agreement for the same tax period . [Schedule 1, item 58, subsection 444-80(1E)]

GST groups

1.58 Members of a GST group can enter into an indirect tax sharing agreement with the representative member of the group to limit their exposure to joint and several liability for the representative member's indirect tax liability for a tax period. The indirect tax sharing agreement can limit their liability to an amount (the contribution amount) determined in accordance with its terms.

1.59 An indirect tax sharing agreement must be in force before the date on which the representative member of the group is required to give to the Commissioner a GST return for a tax period and under the indirect tax sharing agreement a contribution amount must be able to be determined for each contributing member for that tax period. The contribution amounts of each contributing member under the indirect tax sharing agreement must represent a reasonable allocation of the total indirect tax amounts that the members would be jointly and severally liable for in relation to that tax period (that is, an amount comprising the sum of the representative member's net amount for the tax period, the representative member's net fuel amount for the tax period and any other tax-related liabilities that arise under an indirect tax law during the tax period, such as GST payable on taxable importations, that the representative member is liable to pay).

1.60 The requirement to allocate the representative member's total indirect tax law liability provides group members with the flexibility to determine an appropriate basis of allocation that suits the circumstances of the GST group. Members are not, for example, restricted to adopting a methodology which allocates liability amounts for each separate indirect tax law to each member (that is, the GST, wine equalisation tax, luxury car tax and fuel tax laws) although they may choose to do this provided that the allocation of the total liability is reasonable . [Schedule 1, items 59 and 60, subsection 444-90(1) and item 61, paragraphs 444-90(1A)(a) to (c)]

1.61 To provide additional assurance to the business community, the Commissioner will publish guidelines as to what is considered to be a reasonable allocation of a representative member's total indirect tax law liability under an indirect tax sharing agreement.

1.62 The effect of the indirect tax sharing agreement provisions is to limit the liability of a member in the event that a representative member defaults on the payment of a group's indirect tax law liabilities for a tax period. While the representative member may also have a (nominal) allocation under the indirect tax sharing agreement, it remains liable to pay the total amount of the indirect tax law liability for a tax period of the GST group in respect of which it was the representative member.

1.63 A member with a relevant indirect tax sharing agreement can leave a GST group clear of any liability for an indirect tax amount for a tax period, if before the day on which the representative member is required to give to the Commissioner the GST group's GST return for the tax period, the member pays the representative member its contribution amount, or if that amount cannot be determined at the time of payment, a reasonable estimate of its contribution amount . [Schedule 1, item 61, paragraph 444-90(1A)(d) and subsection 444-90(1B)]

1.64 The liability of members with a relevant indirect tax sharing agreement that have not left the GST group before an indirect tax amount becomes payable is limited to the contribution amount determined in accordance with the indirect tax sharing agreement. A subsequent payment made by a member to the Commissioner will reduce its contribution amount and the GST group's liability to the extent of the payment. However, this payment will not affect the Commissioner's ability to recover the GST groups outstanding liability from other members to the extent of their contribution amounts . [Schedule 1, item 61, paragraph 444-90(1A)(e)]

1.65 Diagram 1.2 illustrates the intended outcome of these provisions in respect of the liability of a member with an indirect tax sharing agreement that leaves a GST group and the liabilities of the remaining members of the GST group for an amount that is payable under an indirect tax law.

1.66 An indirect tax sharing agreement does not apply if it was entered into as part of an arrangement that had a purpose to prejudicing the Commissioner's ability to recover an amount payable under an indirect tax law . [Schedule 1, item 61, subsection 444-90(1C)]

1.67 In addition, an indirect tax sharing agreement does not apply if the representative member fails to comply with a written notice given by the Commissioner requiring the representative member to give the Commissioner a copy of the indirect tax sharing agreement in the approved form within 14 days . [Schedule 1, item 61, subsection 444-90(1D)]

1.68 An indirect tax sharing agreement can cover more than one member of a GST group but the representative member of the GST group cannot enter into more than one indirect tax sharing agreement for the same tax period . [Schedule 1, item 61, subsection 444-90(1E)]

Diagram 1.2 : Indirect tax sharing agreement and indirect tax law liabilities of GST group

Diagram 1.2

In Diagram 1.2, a GST group operates that consists of Entity X (a representative member of the group), and Entities Y and Z. Entity A joins this group mid-way through tax period 2 which is to be allowed under provisions covered by this Bill and illustrated in Diagram 1.1.

The group members enter into an indirect tax sharing agreement with the representative member of the GST group (Entity X) at the same time and this occurs after the GST return for tax period 1 is due. Entity A leaves the group during tax period 5 (but after lodgment for period 4 is due) after making a payment of its contribution amount to X under the indirect tax sharing agreement with respect of period 5. The contribution amount represents a reasonable allocation of A's share of the representative member's total indirect tax law liabilities that have not yet become payable for period 5.

In this scenario, the representative member (X) is responsible for the indirect tax law liabilities of the GST group for the duration it was the representative member of the group. However, if X defaults on the payment of the indirect tax law liabilities of the GST group for tax periods 1 to 7:

·
Entity Y and Z are jointly and severally liable for the amounts that are payable with respect of tax period 1 as there is no applicable indirect tax sharing agreement;
·
before Entity A leaves the group, Entities Y, Z and A are jointly and severally liable for any amounts that are payable for tax periods covered under the indirect tax sharing agreement (tax periods 2, 3 and 4). However, their liabilities are limited to their respective contribution amounts determined under the indirect tax sharing agreement;
·
after Entity A leaves the group and makes a payment under the indirect tax sharing agreement to X:

-
Entities Y and Z remain jointly and severally liable for the indirect tax law liabilities of the GST group that arose in a tax period prior to A leaving the group (tax periods 2, 3 and 4) as well as for the tax period in which A leaves the group (tax period 5) and tax periods 6 and 7. However, their liabilities are limited to their respective contribution amounts determined under the indirect tax sharing agreement;
-
Entity A:

a.
does not have any indirect tax law liabilities for the tax period in which it leaves the GST group (tax period 5) as it left prior to the date the representative member was required to lodge a GST return for that period, and has made a payment of its contribution amount in respect of that period; and
b.
remains liable for amounts payable under GST returns which were required to be lodged at the time during which it was a member of the GST group (tax periods 2, 3 and 4) but only to the extent of its contribution amounts determined under the indirect tax sharing agreement for those periods.

Regardless of whether X defaults or not, Entity A is responsible for any increasing and decreasing adjustments that are attributable to a period after it leaves the group (for example, in tax period 7) but only in respect of supplies and acquisitions that A made while it was a member of the GST group (tax periods from 2 to 5).

Application and transitional provisions

1.69 The amendments made by Part 1 and Part 2 of Schedule 1 apply to tax periods starting on or after 1 July 2010 . [Schedule 1, items 45 and 63]

1.70 Transitional rules provide for the treatment of GST groups and GST joint ventures that already exist or that have already been approved by the Commissioner. They also provide for the treatment of applications made under the existing provisions that have not been dealt with by the Commissioner.

Self assessment: GST groups

1.71 A GST group that existed immediately before 1 July 2010 will be taken to continue to exist under the new provisions for formation of a GST group, provided that the entities who are members of the GST group and the representative member of such a group before and after 1 July 2010 remain the same . [Schedule 1, subitem 43(1)]

1.72 GST groups that have been approved by the Commissioner before 1 July 2010 with a date of effect after 1 July 2010 will not be required to notify the Commissioner about the formation of the GST group, unless there are changes to membership of the GST group or the representative member . [Schedule 1, subitem 43(2)]

1.73 An application by entities to form a GST group with effect after 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be a notification of the formation of the GST group under the amended provisions . [Schedule 1, subitem 43(3)]

1.74 An application by entities to form a GST group with effect before 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be an application for approval to form the GST group under the amended provisions . [Schedule 1, subitem 43(4)]

1.75 An application by a representative member to make changes to a GST group with effect after 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be a notification of the changes to the GST group under the amended provisions . [Schedule 1, subitem 43(5)]

1.76 An application by a representative member to make changes to a GST group with effect before 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be an application for changes to the GST group under the amended provisions . [Schedule 1, subitem 43(6)]

1.77 An application by a representative member to revoke a GST group with effect after 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be a notification of the revocation of the GST group under the amended provisions . [Schedule 1, subitem 43(7)]

1.78 An application by a representative member to revoke a GST group with effect before 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be an application for approval of the revocation of the GST group under the amended provisions . [Schedule 1, subitem 43(8)]

Self assessment: GST joint ventures

1.79 A GST joint venture that existed immediately before 1 July 2010 will be taken to continue to exist under the new provisions for formation of a GST joint venture, provided that the entities who participate in the GST joint venture and the joint venture operator of such a GST joint venture before and after 1 July 2010 remain the same . [Schedule 1, subitem 44(1)]

1.80 GST joint ventures that have been approved by the Commissioner before 1 July 2010 with a date of effect after 1 July 2010 will not be required to notify the Commissioner about the formation of the GST joint venture, unless there are changes to membership of the GST joint venture or the joint venture operator . [Schedule 1, subitem 44(2)]

1.81 An application by entities to form a GST joint venture with effect after 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be a notification of the formation of the GST joint venture under the amended provisions . [Schedule 1, subitem 44(3)]

1.82 An application by entities to form a GST joint venture with effect before 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be an application for approval to form the GST joint venture under the amended provisions . [Schedule 1, subitem 44(4)]

1.83 An application by a joint venture operator to make changes to a GST joint venture with effect after 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be a notification of the changes to the GST joint venture under the amended provisions . [Schedule 1, subitem 44(5)]

1.84 An application by a joint venture operator to make changes to a GST joint venture with effect before 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be an application for approval of the changes to the GST joint venture under the amended provisions . [Schedule 1, subitem 44(6)]

1.85 An application by a joint venture operator to revoke a GST joint venture with effect after 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be a notification of the revocation of the GST joint venture under the amended provisions . [Schedule 1, subitem 44(7)]

1.86 An application by a joint venture operator to revoke a GST joint venture with effect before 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be an application for approval of the revocation of the GST joint venture under the amended provisions . [Schedule 1, subitem 44(8)]

Consequential amendments

Self assessment and intra-tax period grouping and de-grouping

1.87 As a consequence of introducing self assessment:

·
Section 48-1 of the GST Act describing the content of Division 48 and a heading of Subdivision 48-A are amended to indicate that entities can form rather than be approved as a GST group [Schedule 1, item 1, section 48-1 and item 2].
·
The heading of Subdivision 48-B of the GST Act is amended to refer to the consequences of GST groups rather than to the consequences of approval of GST group [Schedule 1, item 5].
·
A note is inserted under subsection 48-60(1) of the GST Act to indicate that if an entity is not a member of a GST group during the whole tax period, it will still be obligated to give a GST return for the tax period and that the net amount for that tax period will take into account its liabilities and entitlements relating to the part of the tax period during which it was not a member of a group [Schedule 1, item 15].
·
Section 48-72 of the GST Act dealing with the effect of a representative member becoming an incapacitated entity has been deleted and replaced with a new section 48-75 [Schedule 1, item 17].
·
Note 2 under subsection 48-73(1) of the GST Act was amended to indicate that if a representative member does not make an election for the tax period that applies to the members of the GST group to end at the same time as a member becomes incapacitated, the member's membership of the group may cease on becoming incapacitated if the tax periods that apply to it do not apply to other members [Schedule 1, item 18].
·
Section 51-1 of the GST Act describing the content of Division 51 and the heading of Subdivision 51-A are amended to indicate that entities can form rather than be approved as a GST joint venture [Schedule 1, item 21, section 51-1 and item 22].
·
The heading of Subdivision 51-B of the GST Act is amended to refer to the consequences of GST joint ventures rather than to the consequences of approval of GST joint ventures [Schedule 1, item 30].
·
Subsection 58-10(6) of the GST Act is amended to reflect the addition of a new subsection 48-40(1A) [Schedule 1, item 32].
·
Sections 151-65 and 151-70 and paragraph 151-25(1)(d) of the GST Act are repealed and paragraph 151-25(1)(c) of the GST Act is amended to ensure that an intra-tax period alteration to a GST group or an intra-tax period change in a representative member does not prevent a GST group from continuing to lodge GST returns, and pay amounts of GST or receive refunds of GST, on an annual tax basis [Schedule 1, item 33, paragraph 151-25(1)(c), item 34, paragraph 151-25(1)(d) and item 35].
·
A number of definitions in section 195-1 of the GST Act are amended to reflect changes in the main provisions dealing with GST groups (Division 48) and GST joint ventures (Division 51) [Schedule 1, items 36 to 40].
·
Subsection 110-50(2) in Schedule 1 to the TAA 1953 is amended by deleting items relating to the Commissioner's decision to refuse an application for approval to form, change or dissolve a GST group and a GST joint venture under the existing provisions and inserting items relating to the Commissioner's decision to refuse to approve a retrospective date of effect for forming, changing and dissolving a GST group and a GST joint venture [Schedule 1, items 41 and 42].

Indirect tax sharing agreements

1.88 A note under subsection 48-40(1) of the GST Act that deals with the GST liabilities of a GST group is amended to indicate that each member may be, rather than is, jointly and severally liable to pay GST that is payable by the representative member. A similar amendment was made to a note under subsection 51-30(1) of the GST Act that deals with the GST liabilities of a GST joint venture . [Schedule 1, items 50 and 51]

1.89 A table in section 9-39 of the GST Act that specifies special rules relating to taxable supplies is amended in the light of changes to Division 110 making certain indirect tax sharing agreement related transactions a non-taxable supply. Similar changes are made to the checklist of special rules in section 37-1 of the GST Act . [Schedule 1, items 46 to 49]

1.90 Section 110-1 of the GST Act describing the content of Division 110 and the heading of Division 110 are changed to indicate the Division deals with income tax and other taxes, rather than just income tax, following the amendment making indirect tax sharing agreement related transactions a non-taxable supply . [Schedule 1, items 52 and 53]

1.91 A subheading has been inserted before subsection 444-90(4) to separate the remaining subsections dealing with criminal liability from the preceding subsections dealing with joint and several liability . [Schedule 1, item 62]


View full documentView full documentBack to top