Edited version of private ruling

Authorisation Number: 1011640368368

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject : GST and attribution of input tax credits

Question

Will the Commissioner determine that you account for your input tax credits in relation to your purchases products by using an accruals program where the actual amount of GST payable is not available so that you may lodge your activity statement earlier (AS)?

Answer

No.

Relevant facts

You are registered for goods and services tax (GST).

You use the non-cash basis of accounting for GST reporting purposes.

You are considering making changes to your reconciliation period end reporting process so as to enable the AS to be submitted earlier than at present.

This change to the process revolves around the accrual amounts and associated GST payable to your suppliers. The following is a description of both the current and proposed changes.

Current practice

For the preceding tax period you calculate your liability to your suppliers in the first X number of days of the following month. This calculation is done in your payroll system, from which recipient created tax invoices are created (RCTIs) for each supplier and the total GST calculated by the system is used in the AS.

Proposed change:

For the preceding tax period you calculate your liability to your suppliers in the first X minus Y days of the following month, and where actual expenditure is not available by COB day X minus Y you will use an accruals program in the payroll system to determine your tax period expense for purchases. This accruals program will utilise up-to-date information on the product supplied. This will be an estimate of the amount of GST payable on the purchase and hence the input tax credit claimable. The amount calculated within the accruals system will then be used to accrue a GST amount for inclusion in the AS. The actual payments made to suppliers including GST will be determined as per the current practice.

Differences:

§ The accrued GST used in the AS may not match the actual GST as per the RCTIs due to changes that may be made in the payroll system after the accrual calculation has been made.

You advise that as outlined above the accruals system for calculating the GST included in the AS may not be used every month, where the actual product expense and GST (matching RCTI total) are available early enough. In this case you will use the actual numbers for completing the AS.

The accruals system provides an estimate of the amount of GST payable on the previous tax period's supply. You believe it will be close to the amount of the actual expense.

The RCTI will be issued on the basis of the actual amount for the tax period and will be issued as per your usual procedures, being based upon the actual GST payable. Where the actual amount is not available the amount determined by the accruals program will be used to complete the AS for the tax period without the support of an RCTI.

You do not make payments to your suppliers before the X plus Z day of the following month. You do make in some cases advance payments, that is, in the preceding tax period but these payments are not linked to the supply of the product in that tax period from the supplier and are not included in the amounts in the AS.

Your objective with this change is to receive your AS refund as soon as possible, preferably by the X plus Z day of each month which is the day monies are remitted to the suppliers.

Reasons for decision

Summary

The general rules under Division 29 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are considered appropriate in your case.

Detailed reasoning

Attribution

The basic attribution rules are set out within section 29-5 of the GST Act which states that:

The GST payable by you on a taxable supply is attributable to: 

a)      the tax period in which any of the consideration is received for the supply; or

b)      if, before any of the consideration is received, an invoice is issued relating to the supply the tax period in which the invoice is issued.

However, the Commissioner may under section 29-25 of the GST Act determine in writing, the tax periods or periods to which GST is payable input tax credits and adjustments for taxable supplies creditable acquisitions and creditable acquisitions and importations of certain kinds are attributable.

The Commissioner can make these determinations only in the circumstances outlined in subsection 29-25(2) of the GST Act where the normal rules would lead to an inappropriate result.

The Commissioner has issued a number of legislative determinations under this provision. However, the circumstances a provided for under this provision do not cover your situation.

Consequently, the Commissioner is not able to make a determination in relation to your proposal to attribute the GST credits on the basis of an estimate of the GST payable by you in relation to your purchases.

We note nevertheless that were the provision to provide for your circumstances to be considered the Commissioner would not exercise the discretion in your favour as:

§ section 29-25 of the GST Act does not give the Commissioner the power to make a determination on an individual basis, that is, a determination that applies only to the entity or entities making a request

§ Division 29 of the GST Act is predicated on the underlying principle that the amount of GST payable or the input tax claimable known at the time of attribution, and

§ we do not think the application of the normal attribution rules to be inappropriate.

General powers of administration

Section 365-5 of the Taxation Administration Act 1953 (TAA) provides the Commissioner with a general authority to administer indirect tax laws.

They are considered to be narrow in scope and can only be exercised in relation management and administrative decisions.

The principles of administrative law and statutory interpretation require the Commissioner to operate within the bounds of the powers conferred on him by Parliament and to use them to give effect to Parliament's legislative intent as discerned by the application of those principles.

As such the powers of general administration cannot be used to extend, confine or undermine Parliament's intentions.

Furthermore the Commissioner's role is to apply the law not the policy. The powers cannot be used to remedy defects or omissions in the law. Where the law is clear the Commissioner has a duty to apply that law.

Consequently section 365-5 of the TAA does not authorise the Commissioner to administer the tax laws inconsistently with their purpose or object whether expressed or implied or their plain meaning.

In your case you are seeking attribution rules different to those provided for in the GST Act and clearly intended by the legislature to apply to entities.

To use the Commissioner's general powers of administration to effectively bypass the Parliament's legislated intent would put you in a position whereby you are treated differently to any other entity in similar circumstances.

Consequently the normal attribution rules apply in your situation and you are not able to lodge an AS which includes a claim for an input tax credit which is based upon an estimate however close that estimate may be to the actual for the tax period.