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Ruling

Subject: Attribution of GST payable

Issue: Are you making taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and, if so, to which tax periods is the GST payable attributable?

Question 1

Is GST payable in relation to the first Letter of Agreement (FOA1) executed in December 2010 and, if so, in which period is the GST payable attributable?

Answer: GST is payable because you made a taxable supply and is attributable to the period ending 31 December 2010.

Question 2

Is GST payable in relation to the second Letter of Agreement (FOA2) executed on 1 March 2011, and, if so, in which period or periods is the GST payable attributable?

Answer: The GST payable is attributable on a progressive basis to the monthly periods that a tax invoice is issued or payment received.

Question 3

Is GST payable in relation to the Construction and Installation Contract (Contract), and, if so, in which period or periods is the GST payable attributable?

Answer: The GST payable is attributable on a progressive basis to the monthly periods that a tax invoice is issued or payment received.

Question 4

When is the GST payable, in relation to the 10% retention amounts under FOA2, attributable?

Answer: The GST payable is attributable to the monthly periods that a tax invoice is issued or payment received.

Question 5

When is the GST payable, in relation to the 10% retention amounts under the Contract, attributable?

Answer: The GST payable is attributable to the monthly periods that a tax invoice is issued or payment received.

Relevant facts and circumstances

You are a Limited Company with an Australian Business Number and are registered for GST.

You registered for GST in June 2011 with effect from 1 January 2011.

In December 2010 you agreed and accepted a letter of authorisation (LOA1) from your Client to proceed with certain works to be included in a contract you were negotiating with Client for services you will perform.

An amount was payable on execution of LOA1.

In March 2011 you agreed to and accepted a second letter of authorisation (LOA2) from your Client to proceed with additional works. A requirement of LOA2 is that the authorisation is not to exceed a specified amount.

A 5% 'Advance Payment' was authorised to be invoiced upon execution of the LOA2. The Client agreed that compensation relating to LOA2 would be paid in accordance with the applicable section of the final contract. This provided for monthly invoices based on work completed and allowed for 10% of the value to be retained.

The retained 10% of the value of each invoice, in accordance with the draft proposed contract you were negotiating with your Client, would be paid to you as part of the first payment due after the execution of the final agreement.

In October 2011 you executed a final agreement (Contract) with your Client to deliver the works and services.

Your Client may retain ten percent of the amount of each invoice. These amounts will be payable one year after receipt of the Notice of Final Acceptance of the works and services to be performed.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 9

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

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5

A New Tax System (Goods and Services Tax) Act 1999 Section 29-5

A New Tax System (Goods and Services Tax) Act 1999 Section 29-25

A New Tax System (Goods and Services Tax) Act 1999 Division 156

A New Tax System (Goods and Services Tax) Act 1999 Section 156-5

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision

Question 1

Is GST payable in relation to the first Letter of Agreement (FOA1) executed in December 2010 and, if so, in which period is the GST payable attributable?

Summary

GST is payable because you made a taxable supply and the GST is attributable to the period ending 31 December 2010.

Detailed reasoning

Under section 9-5 of the GST Act you make a taxable supply if:

1. you make a supply for consideration,

2. the supply is in the course or furtherance of your enterprise,

3. the supply is connected with Australia and

4. you are registered, or required to be registered for GST.

The supply is not taxable to the extent it is GST-free or input taxed.

You registered for GST in June 2011 with effect from 1 January 2011. However, in  December 2010 you entered into an agreement (LOA1) to make a supply and became entitled to receive a lump sum.

Section 23-5 of the GST Act provides that you are required to be registered for GST if you are carrying on an enterprise; and your GST turnover meets the registration turnover threshold. Because the consideration exceeds the registration turnover threshold, you were required to be registered.

You satisfy the positive requirements of section 9-5 of the GST Act and your supply is not GST-free nor input taxed. You made a taxable supply when you executed the LOA1 in  December 2010.

Section 29-5 of the GST Act provides that GST payable by you on a taxable supply is attributable to the tax period in which any of the consideration is received for the supply or an earlier period in which an invoice is issued relating to the supply.

Because the consideration was payable in December 2010, GST was attributable to the tax period ended 31 December 2010.

Question 2

Is GST payable in relation to the second Letter of Agreement (FOA2) executed in March 2011, and, if so, in which period or periods is the GST payable attributable?

Summary

The GST payable is attributable on a progressive basis to the monthly periods that a tax invoice is issued or payment received.

Detailed reasoning

When you executed the second letter of authorisation (LOA2) from your Client to proceed with additional works in March 2011 you agreed to make supplies with progressive payments over the period from 1 March 2011 until a final contract was executed.

You satisfy the positive requirements of section 9-5 of the GST Act and your supply is not GST-free nor input taxed.

The supplies you make under LOA2 are taxable supplies.

Division 156 of the GST Act relates to supplies and acquisitions made for a period or on a progressive basis. These are treated as separate supplies or acquisitions for some purposes, in particular the attribution rules under section 29-5 of the GST Act.

Section 156-5 of the GST Act provides:

156-5 Attributing the GST on progressive or periodic supplies

(2) The GST payable by you on a *taxable supply that is made:

(a) for a period or on a progressive basis; and

(b) for *consideration that is to be provided on a progressive or periodic basis;

is attributable, in accordance with section 29-5, as if each progressive or periodic component of the supply were a separate supply.

Goods and Services Tax Ruling GSTR 2000/35 - GST: Division 156 - supplies and acquisitions made on a progressive or periodic basis (GSTR 2000/35) describes how to attribute goods and services tax (GST) and input tax credits with respect to supplies and acquisitions made for a period or on a progressive basis.

Where you make a supply for a period or on a progressive basis and for consideration that is to be provided on a progressive or periodic basis, you attribute the GST payable as if each progressive or periodic component of the supply that you make were a separate supply. Subsection 156-5(1) requires you to attribute the GST payable on each notional separate supply in accordance with the basic attribution rules (refer to paragraph 12 of GSTR 2000/35).

As you perform your obligations under the LOA2, your Client will acquire legal interests in the works. Clause X of the contract provides for title to pass to Client on a progressive basis, and recognises you will be responsible for the care, custody and control of the Clients interests.

You have agreed that the consideration will be payable on a monthly basis in accordance with progress made. Division 156 of the GST Act applies to the supplies made under LOA2 as if each periodic monthly payment relates to a separate taxable supply for the consideration received each month.

A 5% 'Advance Payment' was due and payable on execution of the LOA2 in March 2011. The supply relating to this consideration was attributable to the period ending 31 March 2011.

Question 3

Is GST payable in relation to the Construction and Installation Contract (Contract), and, if so, in which period or periods is the GST payable attributable?

Summary

The GST payable is attributable on a progressive basis to the monthly periods that a tax invoice is issued or payment received.

Detailed reasoning

In October 2011 you executed a final agreement Contract with your Client to deliver certain services. You have agreed that consideration for the supply would be payable on a monthly basis.

Under the contract you are required to submit invoices to your Client for Compensation as soon as reasonably possible following each calendar month in which Work is performed and at the completion of the Work. With each invoice, you shall provide to your Client to their satisfaction a detailed explanation to support the charges.

For the reasons detailed under question 2 above, Division 156 of the GST Act also applies to the supplies made under the final agreement as if each periodic monthly payment relates to a separate taxable supply.

Question 4

When is the GST payable, in relation to the 10% retention amounts under FOA2, attributable?

Summary

The GST payable is attributable to the monthly periods that a tax invoice is issued in relation to the retention amounts or payment received.

Detailed reasoning

Section 29-5 of the GST Act provides that GST payable by you on a taxable supply is attributable to the tax period in which any of the consideration is received for the supply or an earlier period in which an invoice is issued relating to the supply.

However, section 29-25 of the GST Act authorises the Commissioner to determine the tax periods to which GST payable on a taxable supply of a specific kind is attributable.

Goods and Services Tax Ruling GSTR 2000/29 - GST: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25 (GSTR 2000/29) explains how the Commissioner can determine particular tax periods different to the tax periods that would otherwise apply under the basic or special rules.

Schedule 6 to GSTR 2000/29 provides the Commissioner's determination under section 29-25 of the GST Act for supplies and acquisitions made under contracts that provide for the retention of consideration.

Schedule 6 to GSTR 2000/29 provides the following:

Particular attribution rule for GST payable on a taxable supply made under a contract that provides for retention of some or all of the consideration until certain conditions are met

3. (1) This particular attribution rule applies if you make a taxable supply under a contract that provides for the recipient of the supply to retain some or all of the consideration until certain conditions are met.

(2) The GST payable on the non-retained consideration is attributable to the tax period when:

(a) any of that consideration is received for the supply; or

(b) an invoice is issued relating to the supply;

whichever is the earlier.

(3) The GST payable on the retention amount is attributable as follows:

(a) if, in a tax period, all of the retention amount is received, the GST payable on the retention amount is attributable to that tax period but only to the extent that it has not been previously attributed to an earlier tax period as a result of the issue of an invoice for the retention amount; or

(b) if, in a tax period, part of the retention amount is received, the GST payable on the retention amount is attributable to that tax period, but only to the extent that:

(i) the retention amount is received in that tax period; and

(ii) the GST payable on the retention amount has not been previously attributed to an earlier tax period as a result of the issue of an invoice for the retention amount; or

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

(4) However, if an invoice for the retention amount is issued in a tax period, GST payable on the retention amount is attributable to that tax period, but:

(a) only to the extent of the amount of the invoice issued in that tax period; and

(b) only to the extent that the GST on the retention amount has not been previously attributed to an earlier tax period because part of the retention amount was received in an earlier tax period.

(5) This Clause applies only if you do not account on a cash basis.

The Commissioner's determination detailed in Schedule 6 to GSTR 2000/29 applies to your circumstances.

The retained amounts of 10% of the value of each invoice under LOA2 are payable to you as part of the first payment due after the execution of the final agreement. In October 2011 you executed the final agreement with your Client to deliver the works and services.

Under paragraph 3(4) of Schedule 6 to GSTR 2000/29, GST payable on the retention amount is attributable to that tax period an invoice for the retention amount is issued.

In the normal course of events, you will invoice your Client in November 2011 for the supplies made in October 2011. If you invoice your Client in November 2011 for the retention amounts under LOA2, the GST payable will be attributable to that tax period.

Question 5

When is the GST payable, in relation to the 10% retention amounts under the EPCI contract, attributable?

Summary

The GST payable is attributable to the monthly periods that a tax invoice is issued or payment received.

Detailed reasoning

The Commissioner's determination under section 29-25 of the GST Act for supplies and acquisitions detailed by Schedule 6 to GSTR 2000/29 applies to your taxable supplies under the EPCI contract. This is because you are making taxable supplies under a contract that provides for the recipient of the supply to retain part of the consideration until certain conditions are met.

Under the terms of the contract, your Client may retain ten percent of the amount of each invoice. These amounts will be payable one year after receipt of the Notice of Final Acceptance of the works and services to be performed.

For the reasons detailed under question 4 above, the GST payable on the retention amounts will be attributable to that tax period an invoice for the retention amounts is issued (refer to paragraph 3(4) of Schedule 6 to GSTR 2000/29).