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Ruling

Subject: Goods and services tax (GST) and income tax and commissions

Question 1

In what activity statement should you report a bonus commission?

Answer

A bonus commission should be reported in your activity statement for the tax period in which you first know what the amount of the bonus commission is.

Question 2

Will the bonus commission be assessable in the year to which it relates (the certain financial year)?

Answer

No.

This ruling applies for the following periods:

The scheme commences on:

Relevant facts and circumstances

You receive commissions from an entity (the payer).

You are registered for GST.

You account for GST on a non-cash basis.

You report GST on a monthly basis.

After the end of the income tax year, you may, at the discretion of the Board of Directors, receive an additional amount of commission known as a bonus commission payment from the payer.

A decision to pay you a bonus commission was determined by a resolution of the Board of Directors of the payer on a certain date.

You are generally notified by mail by the payer whether or not and how much such bonus commission is payable to you.

If any bonus commission is payable, it is generally paid to you after the financial year on which it is based.

In past years, the payer has requested you to prepare and supply a tax invoice for the amount of the bonus commission.

The payer has indicated that it will prepare a recipient created tax invoice in the future.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 29-5(1)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 29-25(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 subsection 29-25(2)

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 subsection 6-5(4)

Reasons for decisions

Question 1

Summary

A bonus commission should be reported in your activity statement for the tax period in which you first know the amount of the bonus commission as this is the tax period in which you first know the amount of the bonus commission.

Detailed reasoning

Subsection 29-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sets out the rules for attributing GST on taxable supplies where the supplier accounts for GST on a non-cash basis. It states:

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 that supply - the tax period in which the invoice is issued.

You account for GST on a non-cash basis.

However, in accordance with paragraph 29-25(1)(a) of the GST Act, the Commissioner may, in writing, determine the tax periods to which GST on taxable supplies of a specified kind are attributable.

Subsection 29-25(2) of the GST Act provides that the Commissioner must not make a determination under section 29-25 of the GST Act unless satisfied that it is necessary to prevent the provisions of Division 29 of the GST Act and Chapter 4 of the GST Act applying in a way that is inappropriate in circumstances involving certain things, for example, a supply occurring before the supplier knows the total consideration.

A supply or acquisition occurring before the supplier or recipient knows the total consideration (paragraph 29-25(2)(e))

Paragraphs 92 to 94 of Goods and Services Tax Ruling GSTR 2000/29 state:

92. The particular attribution rule is for supplies and acquisitions where some consideration is received (or provided), or an invoice is issued, but the total consideration for the supply or acquisition has not been ascertained because it depends on a future event or events. The determination does not apply if that event is entirely within the control of the supplier. A copy of this determination is attached to this Ruling as Schedule 5 at page 62.

93. The effect of the particular attribution rule is to defer attribution of GST on the supply or entitlement to an input tax credit for the amount that can not be ascertained.

94. The supplier attributes GST payable (or the recipient claims input tax credits) to the extent that consideration is received (or provided), or an invoice is issued. At the time the supplier (or recipient) knows the total consideration, GST payable on the taxable supply (or input tax credit for the creditable acquisition) is attributable to the tax period in which the supplier (or recipient) first knows the total consideration, but only to the extent that the GST (or input tax credit) has not been previously attributed to an earlier tax period.

This special attribution rule is contained in A New Tax System (Goods and Services Tax) (Particular Attribution Rules Where Total Consideration Not Known ) Determination (No . 1) 2000 .

In your case, you make a supply of selling services in return for commissions. When you make this supply, you do not know the total consideration, as part of the consideration is the bonus commission, and you do not know what the amount of the bonus commission will be when you make your supply. The total amount of the consideration for your supply is not known when you make your supply as it depends on a future event, that is, the payer's Board of Directors resolving to pay a bonus commission and deciding on the amount of the bonus commission. This future event is not within the control of the supplier (you). You receive some of the consideration for your supply of selling services (non-bonus commission) before the amount of bonus commission is ascertained.

Therefore, you would report the GST on the bonus commission in your activity statement for the tax period in which you first know what the amount of the bonus commission is. You would also report the bonus commission amount in that same activity statement.

For example, if you are advised of the amount of a bonus commission in a certain month in a certain financial year, you would report the amount of the bonus commission and the GST on that commission in the activity statement for that month in that financial year.

Question 2

Summary

Given that you have no means to quantify the bonus commission amount prior to the end of the financial year to which it relates, the appropriate time to report and record this assessable income is in the income year in which you have been notified of the payment.

Detailed reasoning

A certain ruling provides the Commissioner's view on the assessability of certain sorts of commission received by certain entities.

The ruling provides that the commission received by certain entities, under the arrangements described in the ruling, is assessable income of the certain entities under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)

It further provides, at a certain paragraph, that additional commission is also assessable:

Generally, in determining whether a taxpayer has derived an amount of ordinary income and when it was derived, the taxpayer is taken to have received the amount when it is applied or dealt with in any way on the taxpayer's behalf or as the taxpayer directs: subsection 6-5(4) of the ITAA 1997.

In Henderson v FCT, 70 ATC 4016, a professional person whose income is assessable on an accruals basis is treated as having derived a fee income when a recoverable debt is created such that the professional person is not obliged to take further steps before becoming entitled to payment. 

Barratt and Others v. Commissioner of Taxation (1992) 36 FCR 222; 92 ATC 4275; (1992) 23 ATR 339 is authority for the proposition that income is derived when there is a present right to receive a quantifiable amount that is not subject to any contingency or defeasibility.

Further, commission income is considered to be derived when it becomes a quantifiable, recoverable debt in accordance with the terms of the contractual arrangement between the taxpayer and client.

We acknowledge that a right to receive the bonus commission does not arise until after the end of the financial year when the bonus commission amount (if any) has been approved by resolution of the Board of Directors of the payer and can be quantified.

Conclusion

Therefore, given that you have no means to quantify the bonus commission amount prior to the end of the financial year to which it relates, the appropriate time to report and record this assessable income is in the income year in which you have been first notified of the payment.