ATO Interpretative Decision

ATO ID 2002/793

Income Tax

Assessable Income: GST received by an unregistered business
FOI status: may be released

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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is a taxpayer, who carries on a business but is not registered nor required to be registered for the goods and services tax (GST), required to include an amount collected as GST on behalf of the taxpayer, as assessable income under subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes, the taxpayer, who carries on a business but is not registered nor required to be registered for the GST, is required to include an amount collected as GST on behalf of the taxpayer, as assessable income under subsection 6-5(1) of the ITAA 1997 as it is an amount received from a transaction carried out in the ordinary course of business.

Facts

The taxpayer carries on a business. The business is not registered nor required to be registered for GST. The business sold some stock through a third party on a consignment basis. The third party collected an amount as GST when the stock was sold and forwarded this amount to the taxpayer as part of the proceeds from the sale of the stock.

Reasons for Decision

Subsection 6-5(1) of the ITAA 1997 includes income according to ordinary concepts, which is called ordinary income, as assessable income.

Amounts received from transactions carried out in the ordinary course of business, such as the proceeds from the sale of trading stock (which includes goods on consignment), are normally considered to be ordinary income.

Paragraph 17-5(a) of the ITAA 1997, however, states that an amount is not assessable income to the extent that it includes an amount relating to GST payable on a taxable supply. As the taxpayer is not registered nor required to be registered for GST, the taxpayer is not making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). As such, there is no GST payable on a taxable supply for the purposes of paragraph 17-5(a) of the ITAA 1997.

The additional amount received by the taxpayer as GST is required to be included as assessable income under subsection 6-5(1) of the ITAA 1997 as it is an amount received from a transaction carried out in the ordinary course of business and is not excluded from assessable income under paragraph 17-5(a) of the ITAA 1997.

Date of decision:  3 July 2002

Year of income:  Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1997
   subsection 6-5(1)
   paragraph 17-5(a)

A New Tax System (Goods and Services Tax) Act 1999
   section 9-5

Keywords
Goods and services tax
GST registration
Taxable supply
Income
Goods on consignment
Trading stock

Siebel/TDMS Reference Number:  DW443513, 1-5CEDSGA, 1-BA8EORI

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  2 August 2002
Date reviewed:  25 July 2017

ISSN: 1445-2782