Supplementary Explanatory MemorandumAmendments to be moved on behalf of the Government (Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Chapter 1 - A New Tax System (Goods and Services Tax) Act 1999
Outline of Chapter
1.1 This Chapter explains the amendments to the GST Act contained in ITCAB 2. Most are minor policy changes and technical amendments and include amendments to:
- ensure that payments, acts or forbearance constituting compensation or damages will be treated as consideration irrespective of whether they are received in compliance with an order of a court, tribunal or other body or received from settlement out of court, tribunal or other body;
- make it clear that payments made by members of a body to that body can be consideration;
- ensure that appropriations between 'Government related entities' will not be subject to GST, and provide certainty to States and Territories with respect to the GST treatment of appropriations;
- ensure that adjustments are calculated correctly when a change in creditable purpose or a bad debt occurs before an adjustment event;
- ensure that an adjustment for a bad debt will be made 12months after a debt becomes overdue for payment rather than 12 months after it becomes owing;
- ensure that HIV detection tests are GST-free;
- ensure that a pre-school course recognised by a State or Territory education authority, or body that has the responsibility for recognising pre-school curricula, will be GST-free;
- ensure that only the sale or long-term lease of farm land is GST-free;
- ensure that the sale of farm land is GST-free even if the entity supplying the land is different from the entity carrying on the farming business on the land;
- provide that a supply of services to a foreign postal administration will be GST-free where the services are for the delivery in Australia or transit through Australia of postal articles mailed outside Australia;
- clarify the conditions under which an importation of goods will be a non-taxable importation;
- ensure that the joint venture operator does not have to be party to the joint venture agreement;
- ensure that an entity that ceases to be a participant in a GST joint venture will become responsible for adjustments relating to supplies or acquisitions that the joint venture operator made on its behalf during the time the entity was a participant of the joint venture;
- clarify details about the valuation of improved Crown land;
- provide for an increasing adjustment where goods are applied solely to private or domestic use;
- ensure that an adjustment for a bad debt is calculated correctly when the debt is in respect of a mixed purpose supply or acquisition;
- detail rules for claiming input tax credits for newly registered entities;
- clarify the accounting rules for progressive supplies;
- attribute either a GST inclusive or a GST exclusive meaning to certain terms used in Commonwealth Acts;
- remove any doubt as to the status of supplies, acquisitions or importations made by or on behalf of a partner of a partnership in his or her capacity as a partner;
- provide that some vouchers will be subject to GST at the time of redemption;
- ensure that a supply to a non-resident that is effectively used and enjoyed in Australia is not GST-free; and
- ensure that the supply of a right to receive a supply that is GST-free or input taxed is also GST-free or input taxed.
1.2 The remainder of this Chapter explains these amendments in more detail.
Explanation of amendments
Court orders and out of court settlements
1.3 Payments, acts or forbearance constituting compensation or damages will be specifically included in the definition of consideration in the GST Act [amendment 3, item 1A new subsection 9-15(2A)] . These payments, acts or forbearance will be treated as consideration irrespective of whether they are received in compliance with an order of a court, tribunal or other body [new paragraph 9-15(2A)(a)] or whether they are received from settlement out of court, tribunal or other body [new paragraph9-15(2A)(b)] .
1.4 Where a combined payment, act and forbearance is awarded, the combined payment, act and forbearance will be consideration. For example, where a payment of money and a right to use a certain logo is awarded, both the payment of money and right to use of the logo will be consideration.
1.5 Where the consideration relates to an underlying supply that was taxable, the consideration received will be subject to GST. An underlying supply is the subject matter of the claim of compensation or damages. If the claim relates to an enterprise carried on by a registered entity, the entity will be entitled to an input tax credit for the GST included in the consideration received.
1.6 Where the subject of the claim of damages or compensation was in respect of a GST-free or input taxed supply, the consideration will take on the same characteristic of the underlying supply (i.e. it will not be subject to GST).
1.7 Consideration in respect of claims of compensation or damages will only be subject to GST when the claim relates to a taxable supply of goods or services. For example, money received as a result of a court order for a non-payment of a taxable supply will be regarded as consideration and subject to GST.
Contributions by members of a mutual body
1.8 Amendment 3 inserts new subsection 9-15(2B) to make it clear that payments made by members of a body to that body can be consideration. Section 9-20 of the GST Act and section 38 of the ABN Act provide the same definition of enterprise and both are amended accordingly to make it clear that an organisation can still be considered to be carrying on an enterprise even though it may only make supplies to members of the organisation.
Example 1.1 The owners of residential units form a body corporate to manage the affairs of the complex. Each owner contributes $1,100 per year to the body corporate. The body corporate engages third parties to provide services (e.g. lawn mowing, repairs, insurance etc.). The body corporate registers for GST purposes and is entitled to claim input tax credits for the GST included in the price of the services. It is required to pay GST on the supply of services to the members for which it receives the consideration of $1,100 per member. New subsection 9-15(2B) makes it clear that the $1,100 contributed by each of the members is consideration. New subsection 9-20(3) makes it clear that the body corporate is carrying on an enterprise even though it only makes supplies to its members.If the contributions to the body corporate were not taxable and the body corporate claimed input tax credits, it would effectively obtain the services of the third parties free of GST. This is in contrast to the situation where individual owners of residential premises pay for services but cannot claim input tax credits.
1.9 This amendment also makes it clear that membership fees paid by members of a body in return for supplies are taxable where the body is registered or required to be registered. A non-profit body will be required to be registered where it is carrying on an enterprise and has an annual turnover of $100,000 or more. The amendment removes any doubt as to whether the body is considered to be carrying on an enterprise where it only provides supplies to its members.
1.10 Currently under the GST Act, a payment from one Australian government agency to another Australian government agency is not the provision of consideration if the payment is specifically covered by an appropriation. However, it is uncertain whether the definition of 'Australian government agency' will encompass government related entities that will register separately for GST. This may mean that payments from one government related entity to another that are covered by an appropriation under an Australian law may be subject to GST.
1.11 To correct this, amendment 3 deletes the references to 'Australian government agency' in paragraph 9-15(3)(c) of the GST Act and replaces them with references to government related entities. This amendment will ensure that appropriations between government related entities will not be subject to GST, and provides certainty to States and Territories with respect to the GST treatment of appropriations.
1.12 Related amendments also ensure that appropriations to local governing bodies will also not be consideration for a supply, and hence not subject to GST. [Amendments 75 and 117]
Allow the Commissioner to determine how the extent of creditable purpose is worked out
1.13 Entities that make financial supplies charge no GST on the supply and are not entitled to any input tax credits for acquisitions to the extent that they are used to make the financial supplies. However, not all supplies made by a provider of financial supplies are input taxed. Most suppliers of financial products will make taxable, GST-free and input taxed supplies. This creates difficulties in determining the extent to which a supplier will receive an input tax credit for GST included in the price of acquisitions.
1.14 To assist providers of financial supplies in determining the amount of input tax credits that they are entitled to, new subsection 11-30(5) allows the Commissioner to determine appropriate apportionment methodology for working out the amount of input tax credits the financial supply provider is entitled to for their acquisitions. [Amendment 7]
1.15 For example, the Commissioner may allow the extent of input tax credits available to an entity making financial supplies to be based on a formula that takes into account the ratio of input taxed supplies to taxable supplies made by the entity. This will reduce compliance costs for affected entities.
1.16 The Commissioner will also be able to determine the apportionment methodology for importations [amendment 8, new subsection 15-25(4)] and for reduced credit acquisitions [amendment 44, new subsection 70-20(3)] .
Interaction between adjustment Divisions
1.17 Adjustments under Division 19 of the GST Act currently take into account any prior adjustments under that Division. However, in situations where there have been adjustments under other Divisions, these cannot be taken into account when subsequently calculating a Division 19 adjustment. In these circumstances, the adjustment calculated will not properly reflect the change in GST payable or entitlement to input tax credits.
1.18 Amendments 10 and 11 amend paragraphs 19-40(c), 19-45(b) and 19-45(c) to allow bad debts for a supply to be taken into account when calculating a subsequent adjustment under Subdivision 19-B.
1.19 Paragraphs 19-70(c), 19-75(b) and 19-75(c) are amended by amendments 12 and 13 to allow bad debts and changes in creditable purpose for an acquisition to be taken into account when calculating a subsequent Subdivision 19-C adjustment.
1.20 Amendments 58 and 60 make technical amendments to the adjustment provisions for a change in creditable purpose to correct minor drafting errors.
Timing of bad debt adjustments
1.21 Division 21 of the GST Act provides for an adjustment where debts are written off as bad or outstanding after 12 months. The Division requires that an adjustment will be made if a debt has been due for 12months or more.
1.22 In the income tax law, the word 'due' in relation to a debt has frequently been interpreted by the courts to mean a debt that is owing, not a debt that is presently payable.
1.23 An anomalous result occurs when an entity makes a supply or acquisition with credit terms that extend beyond a period of 12 months. The legislation requires that the entity must make an adjustment for the part of the debt that is owing beyond the 12 month period, even though the debt clearly is not bad.
1.24 Parallel problems also arise in relation to the bad debt provisions in Division 15 of the LCT Act.
1.25 Amendments 15 to 18 removes all references to the word 'due' from the bad debt adjustments provisions in the GST Act and substitutes 'overdue'. Similarly, amendment 88 replaces references to the word 'due' with 'overdue' in the provisions for bad debt adjustments in the LCT Act.
1.26 The amendments insert a definition of 'overdue' for the purposes of the GST Act and the LCT Act [amendments 78 (item 64B) and 90] . A debt will be considered to be overdue if there has been a breach of the debtor's obligations in relation to the debt by failure to discharge the debt.
1.27 A supply of medical services is GST-free under section 38-7 of the GST Act. Specifically excluded from this exemption, are services listed in regulation 14 of the Health Insurance Regulations made under the HIA 1973. These services do not attract a Medicare rebate, and include detection tests for HIV.
1.28 Amendment 26 will amend paragraph 38-7(2)(a) to ensure that HIV detection tests are GST-free. This amendment will restore the Government's original intention with regards to the GST treatment of HIV detection tests. HIV screening and checkups are GST-free under the GST Act.
1.29 Under the GST Act, a supply of an education course is GST-free (section38-85). The definition of 'education course' in section195-1 includes a 'pre-school course', which must be delivered in accordance with a curriculum recognised by the education authority of the State or Territory.
1.30 However, in certain States, the pre-school curriculum is recognised by an authority other than the State education authority. This creates a problem, in that a strict interpretation of the GST Act may result in several hundred pre-school courses in these States being subject to GST. This is contrary to the Government's original intention.
1.31 The definition of 'pre-school course' will be amended by amendment 79 to ensure that a pre-school course recognised by a State or Territory:
- education authority; or
- body that has the responsibility for recognising pre-school curricula,
will be GST-free.
Sale or long-term lease of land
1.32 Currently, the supply of farm land is GST-free as a sale of a going concern if the supplier and recipient satisfy certain conditions. A supply of farm land by way of a lease would also be caught under this provision. However, the GST-free treatment was only intended to apply to sales of farm land.
1.33 Amendments 28 and 29 amend Subdivision 38-O so that only the sale or long-term lease of the land is GST-free.
Supplier of farm land is not the entity that carries on farming business on the land
1.34 Currently, the GST-free treatment of supplies of farm land require the supplier to have carried on a farming business on the land for 5years. However, this provision does not reflect farming industry practice. In Australia, it is common for the entity which carries on the farming business to be different from the entity or entities who are the owner or owners of the farm land.
1.35 Amendments 28 and 29 ensure that the sale of the farm land is GST-free even if the entity supplying the land is different from the entity carrying on the farming business on the land. That is, the supply is GST-free provided that farming business has been carried on the land for 5 years. In addition, the recipient of the farm land must intend that the land be used for carrying on a farming business.
1.36 The Universal Postal Convention provides that each country which receives postal articles from another country, has the right to collect from that country reimbursement for the cost of delivering the postal articles. Under the GST Act, such a charge to a foreign postal administration would be taxable. However, under the terms of the Convention the GST cannot be passed on to the foreign postal administration.
1.37 Amendment 30 adds new Subdivision 38-Q . It provides that a supply of services to a foreign postal administration will be GST-free where the services are for the:
- delivery in Australia; or
- transit through Australia,
of postal articles mailed outside Australia.
1.38 Subsection 41-5(1) provides that an importation of goods is a non-taxable importation if the goods are covered by one of the listed items in Schedule 4 to the CTA 1995. Item 17 of Schedule 4 allows in certain circumstances goods that have been exported from Australia to be imported free of duty. One of the conditions of item 17 is that the goods must be returned to Australia in an unaltered condition.
1.39 Amendment 31 clarifies the conditions under which an importation of goods covered by item 17 will be a non-taxable importation by inserting new subsection 42-5(1B) . The conditions are:
- the importer is the manufacturer of the goods (this will cover, e.g. goods that a manufacturer has sent overseas and then brought back into Australia in an unaltered condition);
- the importer has previously acquired the goods for a GST inclusive price; or
- the importer has previously imported the goods, and GST was payable on that importation.
1.40 In the Australian minerals industry, the joint venture operator is not often a party to the joint venture agreement. It is also not unusual for the joint venture operator to be the joint venture operator for several joint ventures and not be a party to the joint venture agreement of any of them. This means that the requirement in paragraph 51-10(d) of the GST Act for all participants in the GST joint venture, including the joint venture operator, to be parties to the joint venture agreement makes Division 51 unavailable to many joint ventures. This is not the intended outcome.
1.41 Amendment 37 amends subsection 51-5(1) to ensure that the joint venture operator does not have to be party to the joint venture agreement. Amendments 35 to 39 make amendments consequential upon allowing a joint venture operator not to be party to the joint venture agreement. Amendment 77 amends the definition of joint venture operator to take account of the above amendments.
Adjustments after ceasing to be a participant in a GST joint venture
1.42 Special rules in the GST Act allow certain entities to form GST joint ventures. In a GST joint venture, the joint venture operator is responsible for paying the GST and is entitled to input tax credits relating to transactions that the operator has made in relation to joint venture activities on behalf of participants in the joint venture.
1.43 If the joint venture operator has accounted for GST or claimed input tax credits on any of these transactions and a subsequent event results in that GST or input tax credits being incorrect, an adjustment will be required. While an entity is a participant in a GST joint venture, the joint venture operator will make any adjustments in relation to transactions that the operator has made on behalf of that entity for joint venture activities.
1.44 When an entity ceases to be a participant of a GST joint venture, it was intended that the entity would become responsible for accounting for all of its own adjustments, including those relating to supplies and acquisitions for joint venture activities that the joint venture operator made on its behalf. As currently drafted, the GST law does not give effect to this intention.
1.45 New Subdivision 51-D provides rules in relation to adjustments after an entity ceases to be a participant in a GST joint venture [amendment 42] . The amendment inserts a definition of when an entity will cease to be a participant in a GST joint venture [amendment 69] .
1.46 New section 51-110 describes how adjustments in relation to a transaction that a joint venture operator has made on behalf of a participant for joint venture activities will be treated when the entity subsequently ceases to be a participant in that GST joint venture. New subsection 51-110(1) stipulates that in the circumstances described, the entity that ceases to be a participant in the joint venture will be responsible for the adjustment and the entity that is or was the joint venture operator at the time of the transaction will not be responsible for any such adjustments. Any supply by the joint venture operator to a participant in the joint venture in relation to joint venture activities will not give rise to an adjustment.
1.47 New section 51-115 provides rules in relation to adjustments for a change in creditable purpose after an entity ceases to be a participant in a GST joint venture.
1.48 New subsection 51-115(2) specifies that for the calculation of an adjustment for a change in creditable purpose, an entity exiting a GST joint venture will be treated as though they were not a participant in the joint venture when they acquired or imported a thing through the joint venture operator. As a result of this treatment, the exiting entity will be taken to have been entitled to the input tax credits on the acquisition or importation and will therefore be responsible for any adjustments that arise in relation to those transactions.
1.49 In order to decide if the exiting entity has an adjustment for a change in creditable purpose, new subsection 51-115(1) stipulates how the intended or former application of a thing acquired or imported through the joint venture operator will be determined. In these circumstances, the intended or former application used will be the extent of creditable purpose that was last used to work out the amount of input tax credit or the amount of any adjustment that the joint venture operator had in relation to the acquisition or importation.
1.50 Amendment 39 (item 20J) provides that the company that is the joint venture operator at the time the adjustment arises actually has the adjustment.
1.51 Amendments 33 and 34 make minor technical amendments to new Subdivision 48-D to ensure consistency with the joint venture provisions.
1.52 Where a government holds unimproved land at 1July2000 that is subsequently improved before supply, GST is intended to be charged on the difference between the sale price and the value of the unimproved land at the date of sale. The effect is that the value of the unimproved land is not subject to GST and that only the value of the improvements will be taxed. This is consistent with Subdivision38-N that provides that grants of freehold interests in unimproved land by governments are GST-free. However, the existing provisions do not achieve this because they do not specify that it is the unimproved land that is to be valued at the date of sale.
1.53 Amendment 47 inserts new subsection 75-10(3A) to clarify that it is the unimproved land that is to be valued at the date of sale.
Goods applied solely to private or domestic use
1.54 Some acquisitions made by an individual in the course of carrying on their business may be used for private or domestic purposes. An input tax credit can only be claimed if things are acquired for a creditable purpose. The meaning of creditable purpose is set out in section 11-5 and states that something is not acquired for a creditable purpose to the extent that the acquisition is of a private or domestic nature. This means, for example, that if an individual acquires something in the course of their business which will be used for private or domestic purposes, they cannot claim an input tax credit in respect of that acquisition.
1.55 If at the time an acquisition is made, it is known that it will be used for a private or domestic purpose, an input tax credit will not be claimed in respect of the acquisition. However, there will be situations where something acquired for a creditable purpose is later applied for a private or domestic purpose. An example would be where an individual who owns a supermarket takes taxable goods off the shelf for consumption at home. This amendment inserts a new Division which will provide for an adjustment in these situations to effectively claw back the input tax credit claimed.
1.56 Amendment 61 inserts new Division 130 which provides for an increasing adjustment where goods are applied solely to private or domestic use. An increasing adjustment will arise where:
- you make a creditable acquisition or creditable importation of goods;
- the acquisition or importation was solely for a creditable purpose; and
- you apply the goods solely to private or domestic use.
1.57 The amount of the adjustment is the amount of the input tax credit to which you were entitled to claim taking into account any previous adjustments in relation to the acquisition or importation (e.g.volume rebates).
Example 1.2 Andrea owns a hardware store and on occasions takes stock home for private use. In August 2000, Andrea purchases 10 drills costing $550 in total, for inclusion in her stock for sale. In her GST return for August, she claims an input tax credit of $55. In November 2000, Andrea takes one of the drills off the shelf for use at home. Andrea will have an increasing adjustment under Division 130 of $5 in her GST return for November 2000.
1.58 An adjustment cannot arise under new Division 130 if you have previously had an adjustment under Division 129. Similarly, an adjustment cannot arise under Division 129 if you have had an adjustment under Division 130 for the acquisition. [Amendment 57]
1.59 In broad terms Division 129 applies to situations where your actual use of a thing is different from your intended extent of creditable purpose and the thing acquired cost more than $1,000. This covers situations, for example, where a business asset is intended to be used 75% for business and 25% private but the actual usage is 85% business and 15% private.
1.60 Division 130 will only cover situations where something is acquired solely for a creditable purpose but is then applied solely to private or domestic use. This situation would be otherwise caught by Division 129 but for the $1,000 threshold (in cases where the item has a value of less than $1,000) and the operation of new section 129-15 .
1.61 Amendments 9 and 24 insert new items into the tables in sections 17-99 and 37-1 respectively. Amendment 76 adds a new item into the table in the definition of 'increasing adjustment' in section 195-1.
Adjustments for bad debts on mixed purpose supplies or acquisitions
1.62 When an entity makes a taxable supply or a creditable acquisition, they will account for the GST payable or input tax credits. However, if a debt relating to a supply or acquisition becomes bad, the amount of GST or input tax credits accounted for will be incorrect. In these circumstances, an adjustment will be required under Division 21 to correct the amount of GST or input tax credits.
1.63 Division 21 requires that the calculation of the bad debt adjustment is to be based on the amount of the debt that has been written off or the amount of the debt that has been due for 12 months or more.
1.64 An unintended result arises when a debt is in respect of a transaction that is partly taxable or partly creditable. Currently, the adjustment will be calculated on the entire debt, not just that part of the debt attributable to the taxable extent of the supply or the creditable extent of the acquisition. In these cases the adjustment will be too large.
1.65 If an entity subsequently recovers an amount that has been written off, an adjustment is required that is calculated on the basis of the amount recovered. If the debt that has been recovered is in respect of a partly taxable or creditable transaction, the adjustment will also be too large and will not reflect the mixed purpose.
1.66 Similar problems also arise for bad debt adjustments that relate to reduced credit acquisitions or to motor vehicles and similar items to which phased in input tax credits apply.
1.67 Amendment 62 inserts new Division 136 , which provides rules for bad debts relating to transactions that were partly taxable or partly creditable. If an entity has a bad debt adjustment under Division 21 in respect of a supply that was partly taxable or an acquisition that was partly creditable, that adjustment will be reduced through the application of the rules under Division 136 [new section 136-1] .
1.68 New section 136-5 prescribes how a Division 21 adjustment will be reduced if it relates to a bad debt for a partly taxable supply that is written off or recovered. In these circumstances, the amount of the adjustment normally calculated under Division 21 will be reduced to the proportion of the supply that is taxable.
1.69 New subsection 136-10(1) prescribes the treatment for an adjustment relating to a partly creditable acquisition that has been written off or recovered. In these situations, the adjustment calculated under Division 21 will be reduced to the proportion of the acquisition that is for a creditable purpose. The extent of creditable purpose used to calculate the reduction will be the extent of creditable purpose last used to work out either the input tax credit for the acquisition or an adjustment for a change in creditable purpose. The adjustment will be further reduced to the extent to which the entity provided or was liable to provide consideration for the acquisition.
1.70 For reduced credit acquisitions wholly for a creditable purpose under Division 70, any bad debt adjustment in relation to that acquisition will be reduced in accordance with new subsection 136-10(2) . The bad debt adjustment under Division 21 in respect of a reduced credit acquisition will be decreased to the percentage of reduced input tax credit prescribed in the regulations for that type of acquisition. The adjustment will be further reduced to the extent to which the entity provided or was liable to provide consideration for the acquisition.
1.71 Similarly, any change in creditable purpose adjustment in relation to a reduced credit acquisition that was acquired wholly for a creditable purpose under Division 70, will be reduced in accordance with new subsection 129-40(3) . New subsection 129-40(3) provides that for the purposes of calculating the intended or former application of the thing, the extent to which the acquisition was acquired for a creditable purpose is the reduced input tax credit percentage prescribed in the regulations for that type of acquisition. [Amendment 59]
1.72 Amendments 19 and 23 insert references to new Division 136 'Bad debts relating to partly taxable or creditable transactions' in the Checklist of Special Rules in Divisions 21 and 37.
1.73 Section 20 of the GST Transition Act provides that entitlement to input tax credits for the acquisition of motor vehicles, bodies and certain trailers for use in carrying on your enterprise will be phased in. New subsection 20(5) provides that where a person is not entitled to input tax credits in the first year of operation (1 July 2000 to 30 June 2001) a person will not be eligible to make a bad debt adjustment in relation to that acquisition. Where the input tax credit to which you are entitled is reduced by 50% (in the second year of operation 1 July 2001 to 30 June 2002) then the bad debt adjustment is reduced by 50% before any reduction under Division 136 [new subsection 20(6)] .
Input tax credits for newly registered entities
1.74 An entity that is not required to be registered may choose at a later date to become registered. At that date, it may hold stock for resale or for use as raw materials. If this stock has been purchased at GST inclusive prices, the entity will not have been entitled to claim input tax credits. Any supply of this stock after the entity becomes registered will be subject to GST. If an input tax credit is not allowed, GST will effectively be paid twice on the same item.
1.75 Amendment 63 inserts new Division 137 . New section 137-5 provides for a decreasing adjustment if the following conditions are met:
- the entity becomes registered or required to be registered;
- at that time the entity holds stock for the purpose of sale or exchange, or for use as raw materials, in carrying on the enterprise; and
- the entity had acquired the stock solely or partly for a creditable purpose.
1.76 This section does not apply to other acquisitions that the entity has made before it became registered (e.g. plant and equipment).
1.77 The amount of the decreasing adjustment is equal to the amount that would have been the previously attributed input tax credit amount (defined in section 19-75) for the acquisition if the entity had been registered at the time of the acquisition. This reflects the input tax credit the entity could have claimed at the time of acquisition plus any adjustments that may have resulted (e.g. because of a volume rebate received). [New subsection 137-5]
Example 1.3 Alex conducts a small business with an annual turnover of less than $50,000 per year. He chooses not to register for GST and therefore cannot claim input tax credits for his acquisitions. At a later date his business expands and he decides to register for GST. At that date he holds an item of stock for sale which he originally purchased for $220 (including GST). At the time that he becomes registered he will be able to make a decreasing adjustment equal to $20 (1/11 of the purchase price). This will be claimed in the first GST return that Alex lodges after becoming registered.
1.78 New subsection 137-5(2) covers a situation where an entity may have been previously registered and claimed an input tax credit for the acquisition which has not been subject to an increasing adjustment under Division 138.
1.79 Amendment 73 inserts an additional item into the table of the definition of 'decreasing adjustment' in section 195-1.
1.80 Amendments 9 and 24 insert new items into the tables in sections 17-99 and 37-1 respectively.
Supplies for a period or progressively over a period
1.81 Division 156 of the GST Act provides special attribution rules in relation to supplies and acquisitions that are made for a period or progressively over a period where the consideration for the supply is made progressively or periodically. The special rule provides that those kinds of supplies and acquisitions, are accounted for as if each progressive or periodic component were a separate supply. That is, the general attribution rules in Division 29 apply to each component of the supply. In some circumstances it may not be clear what the components are.
1.82 Amendments 64 and 65 clarify the accounting rules for such supplies and acquisitions. The components of the supply or acquisitions will be accounted for in accordance with the rules in section 29-5. If the component of the supply is not identifiable, the components will correspond to the separate amounts of consideration.
Example 1.4 Aaron makes a creditable acquisition of a 12 month lease of a building. The lease payments are made monthly. The components are identifiable each month is a component. The attribution rules in section 29-5 apply to the supply of the lease for each month. Aaron's entitlement to the input tax credit for each of those supplies arises on the earlier of invoice or payment for the month.
Example 1.5 Helen is a registered farmer. She leases a block of land for 12 months. Because she will be harvesting her crops in autumn, she makes 3 equal payments for the lease, in April, May and June. In this case, the components of the acquisition may not be identifiable. The effect of the amendments is that the components are taken to be in the same proportion to the total supply as each payment is to the total consideration. In this case, the supply will be split into 3 equal components. The attribution rules in section 29-5 will apply to each component.
GST implications of references to terms used in Commonwealth Acts
1.83 GST will notionally apply to taxable supplies and acquisitions by departments and agencies of government, both Federal and State. The GST implications for their supplies and acquisitions will be affected by the terms of the legislation that regulate their activities.
1.84 New section 177-12 will attribute either a GST inclusive or a GST exclusive meaning to certain terms used in Commonwealth Acts, unless a contrary intention is apparent in the relevant Act.
1.85 Some Acts are excluded from these rules either because they expressly contain rules about the inclusion or exclusion of GST components from terms or concepts they use or because it is intended that the rules should not apply in the context in which similar terms are used in those Acts. [Amendment 66, new subsection 177-12(4)]
References to 'price' and similar terms
1.86 A reference to the 'price' of something, or to similar terms such as 'fee', 'charge' or consideration provided in relation to a supply, is, in the absence of an apparent contrary intention, to be regarded as including the net GST payable by the entity making the supply [amendment 66, new subsections 177-12(1) and (2)] . Net GST is to be defined in the dictionary to the GST Act as the amount of GST net of any increasing adjustments or decreasing adjustments that relate to the supply [amendment 78 (item 64A)] . Increasing adjustments reflect increased GST liability (e.g. if the consideration for the supply is adjusted upwards) and decreasing adjustments reflect reduced GST liability (e.g. if there is a subsequent reduction in the consideration).
1.87 References to the 'value' of something are to exclude any GST that would be payable by an entity if it were to supply that thing. [Amendment 66, new subsection 177-12(3)] .
1.88 Where a partnership or other unincorporated body carries on an enterprise, it is that body that is required to be registered and liable to pay any GST. The individual members of the body are not required to be registered (unless they are carrying on an enterprise separate from the body).
1.89 Amendment 68 adds new subsection 184-5(1) to remove any doubt as to the status of supplies, acquisitions or importations made by or on behalf of a partner of a partnership in his or her capacity as a partner. These are taken to be supplies, acquisitions or importations made by the partnership and not the partner.
1.90 New subsection 184-5(2) similarly removes any doubt in relation to supplies, acquisitions or importations made by members of a committee of management of an unincorporated association or body of persons, in their capacity as members of the committee.
1.91 The note at the end of new subsection 184-5(1) refers to section 50 of the TAA 1953 which deals with the liability of partners for the obligations imposed on a partnership under the GST law. Similarly, the note at the end of new subsection 184-5(2) refers to section 52 of the TAA 1953 which deals with the liability of members of committees of management for the obligations imposed on an unincorporated association or body of persons under the GST law.
1.92 A gift voucher once purchased creates a right to acquire something when the voucher is presented. The purchase of a voucher would generally be a taxable supply. A later supply of goods or services to which the voucher relates would also be a taxable supply. However, subsection 9-15(3)(a) of the GST Act currently operates so that there is only GST on the first supply of the right that is at the time the voucher is purchased. When the voucher is redeemed, consideration on the second supply is limited to the additional amount of consideration provided for the thing supplied. This treatment creates difficulties where the voucher is used to buy goods that are GST-free or input taxed.
1.93 Amendment 56 inserts new Division 100 so that a supply of a voucher is not a taxable supply if on redemption the holder of the voucher is entitled to supplies up to a monetary value stated on the voucher and the consideration provided for the voucher does not exceed that monetary value. Instead, GST will payable at the time the voucher is redeemed for goods or services.
1.94 If the consideration for the voucher exceeds its stated monetary value, then Division 100 only applies to the extent of the stated monetary value. The consideration in excess of the monetary value is the consideration for a taxable supply at the time the voucher is purchased. [New subsection 100-5(2)]
Example 1.6 Owen pays $61 for a limited edition Olympic Moments phone card with a face value of $50. The additional consideration for that phone card will be $61 $50, which is $11, and GST of $1 is payable at the time of purchase. On redemption of the voucher the consideration is the face value of $50.
1.95 When a voucher covered by Division 100 is redeemed, paragraph 9-15(3)(a) will not apply [new subsection 100-10(3)] . On redemption the normal rules will apply and the consideration for the supply will be the value stated on the voucher. If a voucher is redeemed for goods or services of a lesser value and cash is refunded, the consideration for the supply will be the value stated on the voucher less the amount refunded.
1.96 A voucher will include a voucher, token, stamp, coupon or similar article which when redeemed entitles the holder to receive supplies in accordance with its terms. However, a postage stamp is not a voucher. [New section 100-25]
1.97 Only vouchers that entitle the holder to supplies up to the monetary value stated on the voucher come within Division 100. The types of things contemplated are vouchers etc. which entitled the holder to goods or services from a particular provider up to the value stated (e.g.agift voucher). A phone card would fall under this provision as it entitles the holder to make telephone calls up to a certain value. This could involve one call or a number of calls.
Example 1.7 Rachael buys a $40 gift voucher from Lovely Skin Salon. The voucher can be used to buy $40 worth of any of the goods or services sold by Lovely Skin (which includes cosmetics, manicures and facials). Division 100 applies to this type of voucher and no GST is payable at the time the voucher is purchased from Lovely Skin. GST will be payable by Lovely Skin when the voucher is redeemed.
1.98 Division 100 will not cover things which are for a specified good or service but which may also state a price or value of the good or service, such as a bus ticket, a movie ticket, or an airline ticket. These types of supplies entitle the holder to a specified service such as a set number of trips on a bus or travel on a particular date or over a particular period (e.g.a monthly bus pass). These types of supplies are subject to the normal rules and subject to GST at the time of the supply of the ticket etc. Some types of vouchers will not fall under Division 100. These are vouchers which entitled the holder to a specific good or service rather than an entitlement to supplies up to a stated value.
Example 1.8 Andre buys a gift voucher for his wife from Lovely Skin. He pays $110 for a super deluxe one hour pamper pack. There is no monetary amount shown on the voucher but $110 is the standard price for that treatment at the salon. Division 100 does not apply to this type of voucher and GST is payable by Lovely Skin in the tax period in which Andre buys the voucher. The amount payable is 1/11 of the price Andre pays for the voucher. On redemption of the voucher no GST is payable.
Example 1.9 Roger purchases a bus ticket which entitles him to 10 trips. The cost of the ticket is $11 and is printed on the ticket. This is not the supply of a voucher within the terms of Division 100 and GST is payable by the seller at the time the ticket is sold.
1.99 Vouchers that do not entitle the holder to supplies up to a stated monetary value will be subject to GST when supplied. On redemption the price of the voucher is excluded when working out the GST on the supply for which the voucher is redeemed. GST is only payable on any additional consideration which is provided at the time of redemption. [Paragraph 9-15(3)(a)]
Vouchers purchased and not redeemed
1.100 If a voucher is supplied for consideration but not redeemed, the retailer will need to make an increasing adjustment. This would occur at the time that reserves for the voucher are written back to current income and will be 1/11 of the amount written back. No such adjustment is needed for vouchers that have been donated or given away for no consideration. [New section 100-15]
Vouchers sold to persons outside Australia
1.101 Division 100 does not apply to vouchers supplied to non-residents for a supply that would not be GST-free as a result of the application of subsection 38-190(3). This would include, for example, the sale to a person in another country, of a voucher that could only be redeemed in Australia. [New section 100-20]
No supply for the person making the redemption
1.102 New subsection 100-10(1) makes it clear that the act of redeeming a voucher is not treated as a supply by the person redeeming the voucher. This will prevent the redemption of a voucher by a registered person from being treated as a taxable supply (i.e. the supply of giving up the rights attached to the voucher). However, the supply for which the voucher is redeemed is a supply. [New subsection 100-10(2)]
1.103 Amendments 6, 9 and 25 make consequential amendments to sections 9-39, 17-99 and 37-1 of the GST Act, to add vouchers as an additional item in the tables of special rules for taxable supplies, net amounts and adjustments. Consequential amendments are also made to the section 195-1 to insert a definition for 'vouchers' and to amend the notes at the end of the definitions of 'consideration', 'increasing adjustment' and 'taxable supply'. [Amendments 71, 76, 84 and 86]
Vouchers transitional provisions
1.104 Subsection 11(1) of the GST Transition Act operates so that the supply of a right granted on or after 2 December 1998 is taken to be a supply after 1 July 2000 if it could reasonably be expected to be exercised on or after 1 July 2000. Amendment 94 inserts new paragraph 11(1B)(b) so that this rule will not apply if a voucher purchased before 1 July 2000 entitles the holder to supplies up to a monetary value stated on the voucher.
1.105 This provision mirrors those of Division 100. Therefore, a voucher that will be covered by Division 100 and taxable on redemption will not be subject to GST where sold before 1 July 2000. If the voucher is redeemed for taxable goods after 1 July 2000, GST will be payable at that time. There would normally be no additional amount paid at redemption by the person redeeming the voucher if they were obtaining goods or services to the value stated on the voucher.
1.106 Vouchers that are not of the type covered by Division 100 would be covered by section 11 of the GST Transition Act. Any vouchers of this type sold before 1 July 2000 would be subject to GST if there was a reasonable expectation that they would be redeemed on or after 1July2000.
Supply of a right to a non-resident
1.107 Item 2 in the table in subsection 38-190(1) of the GST Act provides that a supply that is made to a non-resident who is not in Australia at the time of the supply is GST-free. There is potential for some supplies that are effectively used and enjoyed in Australia by another entity to be GST-free where the supply is actually made to an entity that is not in Australia at the time of the supply.
1.108 Amendment 27 inserts new subsection 38-190(3) which provides a further qualification, in addition to that in subsection 38-190(2), to the circumstances where a supply will be GST-free under item 2. If the supply to the non-resident is to be effectively provided to another entity in Australia the supply will not be GST-free under item 2.
Example 1.10 A school in Australia provides tuition to overseas students in Australia. However, it bills the overseas parents of the students directly. As the supply is being made to the students in Australia the supply will not be GST-free under item 2 in the table in subsection 38-190(1).
Supply of rights to GST-free and input taxed supplies
1.109 Where a right is granted to receive a supply that is input taxed or GST-free, the supply of that right should also be input taxed or GST-free. This is not clear from the GST Act as currently drafted.
1.110 Amendment 5 inserts new paragraph 9-30(1)(b) so that the supply of a right to receive a supply that would be GST-free will also be GST-free.
Example 1.11 Mary pays $5,000 for the right to enter a nursing home which is covered by the GST-free provisions. The supply of this right is also GST-free.
1.111 Amendment 5 also inserts new paragraph 9-30(2)(b) so that the supply of a right to receive a supply that would be input taxed will also be input taxed.