Edited version of private ruling

Authorisation Number: 1011722435315

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Ruling

Subject: GST and changing from Option 3 to Option 1

Question

Can you change your goods and services tax (GST) reporting option from reporting annually and paying by instalments (Option 3) to reporting and paying quarterly (Option 1) during the relevant financial year?

Answer

No. You cannot change your reporting option from Option 3 to Option 1 during the current financial year. The Commissioner has no discretion to allow a taxpayer to withdraw from the GST instalment system and use a different reporting option during the relevant financial year.

Relevant facts and circumstances

You own and lease out commercial property.

You are registered for GST. You currently report annually and pay GST by instalments (Option 3).

You elected to use the instalment option for payment of your GST obligations in your September quarterly activity statement. You have used Option 3 in the two previous financial years.

You were not in a net refund position at the beginning of the previous and relevant financial years.

Your GST turnover is not expected to exceed $2 million.

Your tax agent wrote to the ATO in a letter requesting a change in your reporting option from Option 3 (GST instalments) to Option 1 (full reporting) to enable you to claim a GST refund for the December quarter. This refund relates to your recent acquisition of a new commercial property.

At the time that you elected Option 3 in the September quarterly activity statement you were unaware that this acquisition of new property would be a taxable supply and allow a potential GST credit to be claimed.

Loan obligations for the acquisition of the property were based on the refund being available in the December quarter. Without this GST refund the business may have difficulty in sourcing funds. This refund is critical to fund operations.

You have requested a revocation date of 1 July in the relevant year.

Detailed reasoning

An entity that meets the eligibility requirements of section 162-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) is able to elect and pay their GST by instalments. This is known as Option 3.

You make the election to pay GST by instalment by notifying the Commissioner in the approved form if you are eligible under section 162-5 of the GST Act. In your particular case, you have made the election to report GST by instalments for the relevant financial year.

Duration of your election

The duration of an entity's election to pay GST by instalments is specified by section 162-30 of the GST Act.

Subsection 162-30(1) of the GST Act provides that an election to pay GST by instalments ceases to have effect if:

a) you revoke it, by notifying the Commissioner in the approved form; or

b) the Commissioner disallows it under subsection (3); or

c) you are only carrying on an enterprise (not a business) and on 31 July in a financial year, your projected GST turnover is greater than $2 million; or

d) (ca) you are a small business with an annual turnover of $2 million or more for an income year; or

e) during the first tax period applying to you in a financial year, you are in a net refund position, or

f) there is a change in the membership of a GST group of which you are the representative member.

In your case, you are able to revoke your Option 3 election at any time.

Subsection 162-30(2) of the GST Act provides a revocation of your election is taken to have had, or has, effect:

a) if you notify the Commissioner on or before 28 October in a financial year - from the start of that financial year; or

b) if you notify the Commissioner after 28 October in a financial year - from the start of the next financial year.

Subsection 162-30(3) of the GST Act provides the Commissioner may disallow your Option 3 election if he is satisfied that you have failed to comply with one or more of your tax obligations. The Commissioner has not taken this action in your case.

You are not the representative of a GST group and your GST turnover does not exceed $2 million. In addition, you have not notified the Commissioner that you were in a net refund position during the first quarter of the current year and that you wanted to revoke your Option 3 election on or before 28 October. Your written request for a GST refund that was submitted to the Taxation Office after 28 October of the relevant year.

As none of the events set out in section 162-30 of the GST Act have taken place, your Option 3 election will remain in force for all the quarters of the relevant financial year. 

Division 162 of the GST Act does not give the Commissioner any discretionary powers, even for reasons of hardship, to allow a revocation made after 28 October in the current year to take effect from a point in time other than the start of the next financial year.

Your current Option 3 election may rollover to the next financial year commencing 1 July of the relevant year. If you no longer wish to continue to use Option 3 in the following financial year you must contact the Tax Office to revoke your Option 3 election on or before 28 October of the relevant year.

Additional Information

Where the GST instalment rate notified to you by the Commissioner is no longer appropriate for you, you may vary the instalment amount. Varying instalment amounts is allowed under section 162-140 of the GST. This is available to ensure that the GST instalment system allows flexibility for taxpayers whose circumstances change during the financial year and for whom the instalment determined by the Commissioner is inappropriate.

If you do vary your GST instalment amount and the total of your instalments, or the estimate you use to work out your instalment for a quarter, is less than 85% of your actual liability for the financial year, you may incur a penalty.

Further information regarding varying your GST instalment amounts is explained in the Fact Sheet titled Varying your GST instalments available on our website at www.ato.gov.au