Edited version of private ruling

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Ruling

Subject: GST and supplies of services

Question 1

Are you liable for goods and services tax (GST) on your supply of services to your clients?

Answer 1

Yes, you are liable for GST on your supply of services to the clubs and hotels.

Question 2:

With regards to the written agreements you entered into with your clients prior to your registration date, for services supplied after that date, will the Commissioner of Taxation (Commissioner) release you of your obligations to comply with the GST law?

Answer 2

No, with regards to the written agreements you entered into with your clients prior to your registration date, the Commissioner will not release you of your obligations to comply with the GST law. You must remit to the Tax office 1/11^th of the consideration you received for your taxable supplies made from that date.

Facts

You are partners carrying on an enterprise as musicians and entertainers.

You provide your services to clients.

You recently registered for GST.

You account for GST on a cash basis.

You commenced your business a few months ago. As you did not expect your business to thrive in the near future, you did not register for GST.

In the entertainment industry, bookings are made in advance for services to be performed in the future. You will receive payment after providing your services. As you were not registered for GST at the time of entering the contracts, there was no provision for GST in same.

Reasons For These Decisions.

Issue 1.

Goods and services tax (GST) is a broad-based tax of 10% on most goods, and services consumed in Australia. Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make.

A supply is defined in section 9-10 of the GST Act as any form of supply whatsoever. It includes a supply of goods, a supply of services, a provision of advice, and information, amongst others.

Goods and Services Tax Ruling GSTR 2006/9 Supplies examines the meaning of 'supply' in the GST Act. Paragraph 12 of GSTR 2006/9 refers to a supplier's liability for GST and states:

12. The basic rules require an entity, the supplier, to make the supply and generally another entity, the recipient, to acquire the supply. GST on a taxable supply is payable by the supplier who is registered or required to be registered for GST. The requirements for a taxable supply are stated in section 9-5.

Section 9-5 of the GST Act provides that you make a taxable supply if:

(a) you make the supply for consideration; and

(b) the supply is made in the course or furtherance of an enterprise that you carry on; and

(c) the supply is connected with Australia; and

(d) you are registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

From the facts of your case, you are making a supply of your entertainment services for consideration. Under section 9-15 of the GST Act, the term 'consideration' is a payment in connection with the supply of anything.

The supply of your services is in the course or furtherance of your enterprise as entertainers. The term 'enterprise' is defined in section 9-20 of the GST Act to include, amongst other things, an activity or series of activities done in the form of a business.

The supply is connected with Australia; and you are registered for GST. Therefore, the supply of the services meets all the requirements listed in paragraphs 9-5(a), (b) (c) and (d) of the GST Act.

There is no provision in Division 38 of the GST Act or any other Act for the supply of your services to your clients to be GST-free. Moreover, your supply of services is not input taxed under Division 40 of the GST Act or any other Act.

As your supply of services to your clients is a taxable supply under section 9-5 of the GST Act, a GST liability arises on your supplies of the services and you are required to remit to the Australian Tax Office (ATO) GST-inclusive consideration for these supplies.

Attributing the GST on your taxable supplies

There are no general 'time of supply' or acquisition rules in the GST Act. Rather, the GST Act sets out in Division 29 the attribution rules. 'Attribution' is the term used in the GST law to describe the way you account for GST payable, input tax credits and adjustments in order to work out your net amount of GST for the tax period. The basic attribution rules differ depending on whether or not you account for GST on a cash basis.

Subsection 29-5(2) of the GST Act provides the attribution rules for entities which account on a cash basis as follows:

(a) if, in a tax period, all of the consideration is received for a taxable supply, GST on the supply is attributable to that tax period; or

(b) if, in a tax period, part of the consideration is received, GST on the supply is attributable to that tax period, but only to the extent that the consideration is received in that tax period; or

(c) if, in a tax period, none of the consideration is received, none of the GST on the supply is attributable to that tax period.

The Commissioner has issued Goods and Services Tax Ruling GSTR 2000/13 which explains how GST should be attributed when you account for GST on a cash basis. Paragraph 12 of GSTR 2000/13 states:

12. If you account for GST on a cash basis, you attribute GST payable on a taxable supply to the tax period in which you receive consideration for the supply, but only to the extent that the consideration is received in that tax period.

You have advised that you account for GST on a cash basis. Therefore, if for example, upon registering for GST, and under your written agreement entered into with your clients prior to the date of your registration for GST, you received an amount as consideration for your supply, you must remit 1/11^th of that amount, representing the GST on the supply for that tax period. This amount is to be remitted irrespective of the fact that your agreement with your clients did not provide for the inclusion of GST in the quoted price.

Issue 2

As explained at issue 1, section 9-40 of the GST Act provides that you must pay the GST payable on any taxable supply that you make.

The GST legislation requires an entity which is registered for GST to meet all its tax obligations. Meaning that once registered, it must include GST in all its taxable supplies. The Commissioner's role is to collect net amounts of GST on taxable supplies that you are liable for, less the GST credits that you are entitled to, for the relevant tax period.

There is no provision in the GST Act for the Commissioner to release you of your obligations to either charge GST on your taxable supplies or to remit the relevant GST amount on these supplies. Hence you are liable for GST on all taxable supplies you make even though they were made pursuant to written contracts entered into prior to the date you registered for GST.

Additional information

Creditable acquisitions

Section 11-20 of the GST Act provides that you are entitled to an input tax credit for any creditable acquisition that you make. Section 11-5 of the GST Act provides that you make a creditable acquisition if:

(a) You acquire anything solely or partly for a creditable purpose, and

(b) The supply of the thing to you is a taxable supply, and

(c) You provide, or are liable to provide, consideration for the supply, and

(d) You are registered or required to be registered for GST.

You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that are input taxed or are private or domestic in nature.

Accordingly, as from the date you registered for GST, you were entitled to claim input tax credits for the GST component in the price paid for any creditable acquisitions that you made. You should note that you must hold valid tax invoices for those acquisitions, at the time of lodgement of your activity statements.

As you account for GST on a cash basis, you attribute the input tax credit for a creditable acquisition to the tax period in which you provide consideration for that acquisition, but only to the extent that you provided the consideration in that tax period.