Supplementary Explanatory MemorandumAmendments to be moved on behalf of the Government (Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Chapter 8 - Income tax consequences of GST
8.1 These amendments will:
- ensure that GST is excluded from income amounts derived before 1 July 2000, and input tax credit entitlements are excluded from deductions incurred before 1 July 2000, if the transitional GST provisions operate to make GST payable on those amounts; and
- treat the special credits provided for under the GST Transition Act as assessable income.
8.2 Amendments to the ITAA 1997 propose that GST payable be excluded from assessable income, and that deductions exclude an amount corresponding to an input tax credit entitlement. These amendments are proposed by the A New Tax System (Indirect Tax and Consequential Amendments) Bill 1999 and are to apply from 1 July 2000, the commencement of the GST.
8.3 For supplies that span 1 July 2000, an entity may derive an amount as income before 1 July 2000 for which a liability to GST will be attributable in the first tax period after that date. Conversely, an entity may incur an outgoing before 1July 2000 for which an entitlement to an input tax credit will be attributable in the first tax period. There is doubt about how the amendments proposed by the A New Tax System (Indirect Tax and Consequential Amendments) Bill 1999 apply in these situations.
8.4 An amount equal to GST payable that will result from the operation of the transitional GST provisions is to be excluded from income derived before 1 July 2000, if the GST relates to that income. [Amendment 111, new section 17-25]
8.5 Similarly, an amount equal to an input tax credit entitlement that will result from the operation of the transitional GST provisions is to be excluded from an outgoing incurred before 1 July 2000, if the input tax credit entitlement relates to that outgoing. [Amendment 113, new section 27-30]
8.6 These rules will also apply to amounts received, or receivable, that result in a GST liability, and to amounts paid, or payable, that result in an input tax credit entitlement, if those amounts are taken into account in calculating assessable income derived, or deductions incurred (as appropriate), before 1 July 2000.
Example 8.1 Steven operates a small computer systems consultancy and expects to be registered for GST purposes. In January 2000 Steven paid for annual subscriptions to industry publications used by him and his employees in the course of the business. The publishers have provided tax invoices which indicate the GST component of the amounts paid which correspond to that part of the subscription period from 1 July 2000.An input tax credit corresponding to the GST shown on the tax invoices is attributed to the tax period ending 30 September 2000.The amendment will result in a deduction, for the 1999-2000 income year, for the amount paid for the subscriptions reduced by the amount of the input tax credit.
8.7 As part of the transition to a new system of indirect taxation there is an entitlement to a special credit for sales tax embedded in certain stock on hand at the start of 1 July 2000 (section 16 of the GST Transition Act). Proposed amendments to the GST Transition Act will confer entitlements to special credits for:
- certain sales of motor vehicles held under operating leases since 2 December 1998 ( new section 19A ), proposed to be inserted by the A New Tax System (Indirect Tax and Consequential Amendments) Bill 1999);
- certain alcoholic beverages on which excise duty or customs duty has been increased ( new section 16A ), proposed to be inserted by the ITCAB 2;
- certain alcoholic beverages on which duty would not previously have been paid ( new section 16B ), proposed to be inserted by the ITCAB 2; and
- certain petroleum products on hand on 1 July 2000 ( new section 16C ), proposed to be inserted by the ITCAB 2.
8.8 As special credits do not correspond to any particular outgoing by the entity it is impractical to treat them for income tax purposes in the same way as input tax credits (i.e. as reducing the amount of an outgoing). A neutral outcome can be achieved, however, by treating them as assessable income.
8.9 The amendment will include in assessable income an amount equal to a special credit. It will be treated as income in the income year in which the end of the tax period the special credit is attributed to occurs. For example, if a special credit is attributed to a tax period ending 30November 2000, and the entity has a calendar year substituted accounting period for income tax purposes, an amount equal to the special credit will be included in assessable income for the 2000 calendar year. [Amendment 112, new section 17-30]
8.10 A reference to the income tax treatment of the special credits under sections 16, that is, in the same way as input tax credits, will be removed. [Amendment 99 (item 7C)]