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Ruling

Subject: Revoking your election to report your GST

Question 1

Can you change your goods and services tax (GST) reporting election from Option 3 to Option 1 during the financial year?

Answer

No, you cannot change your GST reporting election from Option 3 to Option 1 during the financial year. There is no legislative discretion to allow the Commissioner to change your election from Option 3 to Option 1.

Relevant facts and circumstances

You are a small business and are registered for GST from xx March 2012.

You did not have any activity during the March and June 2012 quarters and lodged nil activity statements using option 1.

During the September quarter you also had no activity and a nil activity statement was lodged on XX October 2012 using option 3.

During December 2012 you purchased industrial premises for $xxx,xxx however you received a quarterly GST instalment notice which prevented you from claiming the input tax credit relating to the purchase of the property.

You realised the September 2012 quarter was incorrectly completed using option 3 instead of option 1.

You attempted to correct this error by cancelling your GST registration effective XX November 2012 with a new GST registration commencing on XX December 2012.

You then attempted to lodge your December quarterly using option 1 with a refund of $xx however the ATO systems recognised your original election to use option 3 to report your GST. Your December 2012 activity statement was recorded as nil.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 162-5.

A New Tax System (Goods and Services Tax) Act 1999 Section 162-15.

A New Tax System (Goods and Services Tax) Act 1999 Section 162-25.

Reasons for decision

Under section 162-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) you are eligible to elect to pay GST by instalments if you:

· do not exceed the instalment turnover threshold, which is currently $2 million,

· the current tax period applying to you is not effected by an election or determination of one month tax periods or a special determination of tax periods under Division 27 of the GST Act,

· your current GST lodgement record is at least four months old,

· you have complied with all your obligations to lodge GST returns, and

· you are not in a net refund position.

At the time of your election for GST instalments you were eligible to elect to pay GST by instalments for the 2012-2013 financial year in accordance with section 162-5 of the GST Act. Further, you elected to pay GST by instalments in the approved form in accordance with section 162-15 of the GST Act. In addition, you made your election to pay GST by instalments on or before 28 October 2012, the date you were required to make your election under section 162-25 of the GST Act.

The duration of an entity's election to pay GST by instalments is specified by section 162-30 of the GST Act, which states that your election has effect, and is taken to have had effect, for the whole of the financial year in question. This section of the GST Act also provides that:

your election does not cease to have effect if, after making the election, you exceed the instalment turnover threshold at any time, and  

· if you make this election after 28 October of the financial year in question, and

· part of that financial year is already covered by one or more tax periods for which you lodged a return, your election is taken to have effect only for that part of the financial year that is not covered by those tax periods.

This indicates the election is intended to continue, despite an entity no longer being eligible or as advised in this case to correct an error to in selecting the GST instalment system in the September 2012 activity statement.

As a consequence, in accordance with section 162-30 of the GST Act, you have elected to pay GST by instalments and you must remain paying GST by instalments for the whole of the 2012 - 2013 financial year.

The GST instalments for a quarter are generally worked out by the Commissioner. However, an instalment payer can vary their instalment amount.

Where the GST instalment rate notified to you by the Commissioner is no longer appropriate for you, under section 162-140 of the GST Act you may vary the instalment amount. Under this section of the GST Act, you can vary your GST instalment amount and notify the Commissioner of the varied amount on your BAS. You must also include on the BAS an estimate of your GST amount for the financial year. You may choose to vary your GST instalment amount to an amount not less than zero.

The GST Act does not give the Commissioner any discretion to allow a change to the duration of the election. The Commissioner has a discretion under Division 162 of the GST Act to enable an eligible business to elect to become a GST instalment payer at a later date than those specified in subsections 162-25(1) and 162-25(2) of the GST Act, but has no discretion to let a GST instalment payer opt out of the instalment system.

Our records indicate that, you were eligible to report using the GST instalment system for the 2012 - 2013 financial years, the option was provided to you on the September 2012 activity statement, and you made an election to use option 3. The Commissioner has no discretion to revoke your election, even when the election was made in error. Therefore, you must remain a GST instalment payer for the full financial year.

You will be required to prepare a GST return to calculate and report a net GST amount for your instalment tax period (the 2012-2013 financial year). The net amount for payment or refund that you calculate will take into account the GST instalments you have paid during the year. The GST return for a GST instalment payer generally needs to be lodged on or before 28 February following the end of the instalment tax period.

The 2011/12 Budget announcement included amendments to extend the GST instalment system to allow access for small businesses in a net refund position. You can review the exposure draft on the Treasury web site which was released 5 November 2012.

The draft new legislation can be accessed by conducting a search using the term 'extending access to the GST instalment system' via the 'Tax professionals" tab on our web page www.ato.gov.au You can select the link to 'new legislation' and then expand the display by selecting the plus sign relating to 'Goods and Services Tax'.

For your convenience I have included copies of the tax facts 'Quarterly GST options' (NAT 4149) and 'Varying your GST instalments' (NAT 4239)

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