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Ruling

Subject: GST and attribution rules

Questions

1. Can the entity attribute the GST payable on the taxable supplies that it makes to the tax period in which the instalment plan is completed?

2. Can the entity attribute the GST payable on the taxable supplies that it makes to the tax period in which the holiday package is booked?

Answers

1. No, the entity cannot attribute the GST payable on the taxable supplies that it makes to the tax period in which the payment plan is completed.

2. No, the entity cannot attribute the GST payable on the taxable supplies that it makes to the tax period in which the holiday package is booked.

Relevant facts and circumstances

The entity is an Australian entity that is registered for GST.

The main business of the entity is to provide goods on lay-by terms to consumers in the retail sector.

Recently, the entity launched of its new business of providing flexible holiday packages to various Australian and overseas destinations and cruises on 'lay-by' terms (the travel business).

Through the travel business of the entity, customers purchase holiday packages as follows:

· The customer selects a holiday package and places an order for it through the entity's website or by telephone;

· The entity creates an instalment plan for the customer based on the cost of the holiday package;

· Generally, an instalment plan requires the customer to pay the entity the cost of the holiday package in 52 equal weekly instalments;

· The customer commences payments under the instalment plan;

· Where the customer amends the booking details under the instalment plan or fails to make an instalment payment, the entity's systems will automatically adjust the remaining instalment amounts payable to ensure that the cost of the holiday package or amended holiday package is paid over the remaining term of the instalment plan;

· Approximately 8-10 weeks after the first payment is made by the customer under the instalment plan, the entity collects passenger details from the customer, makes a booking for the holiday package with a travel agent, and pays a deposit to the travel agent for the holiday package booked;

· The prices charged for holiday packages by the travel agent are not fixed and fluctuate over time. Consequently the entity does not know the exact price of a holiday package booked with the travel agent until the entity makes the relevant booking with the travel agent. As a result, the price payable to the travel agent for a holiday package may differ from the price estimated by the entity when it created the instalment plan in respect of that holiday package for the customer. Where this occurs, the entity does not alter the instalment plan to reflect this;

· The travel agent makes the relevant booking with either hotels and airlines or with a cruise provider

· The travel agent provides confirmation of the holiday booking to the entity and the entity provides confirmation to the customer;

· Approximately 40-42 weeks after the first payment is made by the customer under the instalment plan the travel agent issues a summary statement to the entity and the entity pays the travel agent the balance of the price of the holiday package. The payment may include a commission fee charged by the travel agent (generally for cruise bookings). The travel agent has not historically provided a tax invoice for this payment;

· At any time a customer may cancel an instalment plan and obtain a refund (less a cancellation fee) from the entity, or transfer the instalment plan to a different holiday package (whereupon payments already made under the existing instalment plan are transferred to a new instalment plan); and

· The customer generally departs on the holiday 1-4 months after the instalment plan is completed.

In the ruling request the entity advised that for its general lay-by business the entity acts as a retailer, i.e. the entity acquires goods and then on-sells those goods to a customer. In relation to the entity's travel business, however, the entity acts as an agent for the customer and does not acquire the holiday packages from the travel agent and on-sell them to the customer.

The entity refers to the total amount paid by a customer to the entity under an instalment plan as the 'Retail Price' of the holiday package and treats that Retail Price as having two components:

· the estimated wholesale price; and

· the entity's profit margin (or 'Fee') which is only determinable in relation to a holiday package when the booking confirmation for the holiday package is received from the travel agent and the customer has made all the payments under the relevant instalment plan.

The entity accounts for GST on a non-cash basis.

Ruling request:

In the ruling request it was submitted that, in accordance with subsection 29-25(1) and 29-25(2)(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), the entity should attribute the supply of agency services to a customer in respect of domestic travel to the tax period in which the customer makes the final payment under the relevant instalment plan. It was submitted that, in terms of paragraph 29-25(2)(b), the supply of agency services by the entity is:

a supply…for which payment is made or an invoice is issued, but use, enjoyment or passing of title will, or may, occur at some time in the future

and that application of the general attribution rules in the GST Act would produce an inappropriate result.

It was pointed out that the entity is unable to determine the exact amount of the Fee until the relevant instalment plan is completed because the cost of the holiday package may fluctuate between the date the instalment plan is created and the date the entity books the holiday package with the travel agent and because the customer may either cancel the relevant instalment plan and obtain a refund (this occurs in relation to 18% of customers) or transfer to a new holiday package and apply payments already made to a new instalment plan (which occurs in relation to 9% of customers). Reference was made to the number of adjustments required if the entity is required to apply the general GST attribution rules to the Fee due to any variation between the estimated wholesale cost of a holiday package when an instalment plan is created and the wholesale price charged when the relevant booking is made with the travel agent, a customer either cancelling the purchase of a holiday package or switching to another holiday campaign in the middle of an instalment plan, or a customer missing one or more payments under an instalment plan. Reference was made to Goods and Services Tax Ruling GSTR 2000/12 which states (Para 56) that if an entity accounts on an accruals basis, application of the basic attribution rules to a supply made under a lay-by sale agreement produces an inappropriate result and (Para 58) that the Commissioner has made a determination under section 29-25(1) to defer the attribution of a supply or acquisition made under a lay-by sale agreement to the tax period in which the final instalment is paid. It was submitted that, although GSTR 2000/12 relates to the supply and acquisition of goods under a lay-by agreement, the same attribution rules should apply to the entity's supply of agency services for which the Fee is payable.

Telephone conversation:

In a telephone conversation on 8 October 2012, the entity's advisor suggested that, if the ATO would not allow attribution to the tax period in which the customer makes the final payment under the instalment plan, the ATO should allow attribution to the tax period in which the entity makes the booking with the travel agent.

The entity's holiday business website:

We reviewed the Terms and Conditions, the Order Form, the Frequently Asked Questions (FAQs) on the entity's holiday business website. The FAQs state:

What happens after I have booked my holiday?

Once your weekly, fortnightly or monthly payments start, you will receive a booking confirmation letter or e-mail and a passenger registration form to complete and return to …

What is the cancellation policy?

Due to our commitment to our travel partners, if you decide to cancel your holiday, a cancellation fee may apply as follows:

Cooling off period: … allows you to cancel your booking within 21 days of your original booking confirmation date.

Cancellations more than 181 days from holiday departure date: A cancellation fee of 20% of monies paid to date applies.

Cancellations between 90-181 days from holiday departure: A cancellation fee of 50% of monies paid to date applies.

Cancellations less than 90 days from holiday departure date: A cancellation fee of 100% of monies paid to date applies.

Fully paid holidays: Your booking cannot be cancelled once fully paid.

Telephone conversation:

On 9 November 2012 the entity's advisor confirmed that the 21 day cooling off period in the FAQs is not a statutory cooling off period, merely a policy established by the entity.

Relevant legislative provisions

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

Reasons for decisions

Basic attribution rules

In accordance with subsection 29-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), an entity that accounts for GST on a non-cash basis must attribute the GST payable on a taxable supply that it makes:

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

d) 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.

Under the basic attribution rules, the entity would have to attribute the GST payable on its taxable supplies of agency services (i.e. for arranging domestic travel) to the tax period in which either the first instalment under the instalment plan is received by the entity or an invoice is issued, whichever is earlier. We doubt that the Order Form or the sample of a Booking Confirmation issued by the entity to the customer included in the ruling request is an invoice relating to the supply of agency services by the entity to the customer. Accordingly, pursuant to paragraph 29-5(1)(a), that supply would be attributed to the tax period in which the customer paid the first instalment under the relevant instalment plan.

Determination of particular attribution rules

Subsection 29-25(1) of the GST Act states that the Commissioner may determine the tax periods to which the GST on taxable supplies of a specified kind are attributable.

Subsection 29-25(2) of the GST Act states:

(2) However, the Commissioner must not make a determination under this section unless satisfied that it is necessary to prevent the provisions of this Division and Chapter 4 applying in a way that is inappropriate in circumstances involving:

a) a supply or acquisition in which possession of goods passes, but title in the goods will, or may, pass at some time in the future; or

b) a supply or acquisition for which payment is made or an *invoice is issued, but use, enjoyment or passing of title will, or may, occur at some time in the future; or

c) a supply or acquisition occurring, but still being subject to a statutory cooling off period under an *Australian law; or

d) a supply or acquisition occurring before the supplier or *recipient knows it has occurred; or

e) a supply or acquisition occurring before the supplier or recipient knows the total *consideration; or

f) a supply or acquisition made under a contract that is subject to preconditions; or

g) a supply or acquisition made under a contract that provides for retention of some or all of the consideration until certain conditions are met; or

h) a supply or acquisition for which the GST treatment will be unknown until a later supply is made.

Subsection 29-25(3) of the GST Act states that determinations made under subsection 9-25(1) override the provisions of Division 29, but only to the extent of any inconsistency.

A determination made under subsection 29-25(1) of the GST Act is a legislative determination. There is no provision under subsection 29-25(1) of the GST Act for the Commissioner to make a determination for an entity or entities. Any request from an entity seeking a determination for a particular kind of supply or acquisition that it makes must only be considered in terms of whether or not a determination should be made for all supplies or acquisitions of that kind.

Therefore, the Commissioner will not accept that the appropriate time for attribution of the GST payable on the taxable supply made by the entity is in the tax period in which either the booking is made with the travel agent or the instalment plan is completed unless the supply that the entity makes is a kind of supply described in subsection 29-25(2) of the GST Act for which a legislative determination has already been made.

Attribution rules for supplies or acquisitions described in paragraph 29-25(2)(b) of the GST Act

Goods and Services Tax Ruling GSTR 2000/12 states (Para 43) that supplies and acquisitions under 'lay-by sale agreements' (i.e. agreements where goods are sold on terms that the purchase price of the goods is to be paid by instalments and the goods will not be delivered to, or available for collection by, the purchaser until the purchase price is paid in full) fit the description in paragraph 9-25(2)(b) of the GST Act, i.e.

a supply or acquisition for which payment is made or an invoice is issued, but use, enjoyment or passing of title will, or may, occur at some time in the future

The Commissioner has made a Determination, A New Tax System (Goods and Services Tax) Act 1999 (Particular Attribution Rules for Lay-By Sales) Determination (No.1) 2000, for the attribution of GST on taxable supplies and input tax credits on creditable acquisitions made under lay-by sale agreements.

'Lay-by agreement' is defined in clause 5 of the Determination as an agreement under which goods are agreed to be sold on terms that the purchase price of the goods is to be paid by instalments and the goods will not be delivered to, or available for collection by, the purchaser until the purchase price is paid in full.

If an entity accounts for GST on a non-cash basis, the GST payable on a taxable supply that it makes under a lay-by agreement is attributed to the tax period in which the final instalment of the consideration is received (clause 3).

The entity submitted that the attribution rules for the supply of goods on lay-by terms should apply to the supply made by the entity to a customer, i.e. that the entity should attribute that supply to the tax period in which the entity receives the final payment from the customer under the instalment plan.

The Determination mentioned above applies to 'a taxable supply of goods' (clause 3) made under a 'lay-by sale agreement' (defined as 'an agreement under which goods are agreed to be sold' - clause 5). Therefore, the Determination does not apply to a supply of anything other than goods, even if the supply is made on the terms described in the 'lay-by sale agreement' definition. As the supply made by the entity is not a supply of goods, the particular attribution rules in the Determination do not apply and the entity cannot attribute the GST payable on its taxable supplies to the tax period in which the instalment plan is completed.

The Commissioner has not made a determination for any other particular kind of supply that fits the description in paragraph 29-25(2)(b) of the GST Act.

Attribution rules for supplies or acquisitions described in paragraph 29-25(2)(e) of the GST Act

The Commissioner has also made a Determination, A New Tax System (Goods and Services Tax) (Particular Attribution Rules Where Total Consideration Not Known) Determination (No.1) 2000, which applies where:

1. the supplier makes a taxable supply;

2. the supplier does not know the total consideration for the supply when any consideration is received for the supply or an invoice is issued relating to the supply; and

3. the ascertainment of the total consideration depends on a future event or events that is not entirely within the supplier's control;

and either:

4. an invoice is issued relating to the supply; or

5. any consideration is received for the supply.

In the ruling request the entity submitted that the total consideration for the supply made by the entity is determined when the customer makes the final payment under the instalment plan because:

· the cost of the holiday package to the entity may fluctuate between the date the instalment plan is created and the date the entity books the holiday package with the travel agent; and

· at any time, the customer may either cancel the instalment plan or transfer to a different holiday campaign.

In our view the requirement in clause 3(c) of this Determination that ascertainment of the total consideration depends on a future event or events that is not entirely within the entity's control is not satisfied. Any fluctuation in the cost of a holiday package during the period between the date an instalment plan is created and the date the entity books the holiday package with the travel agent is within the entity's control as the entity makes a business decision to book the holiday package with the travel agent 8 to10 weeks after the customer has made the first payment under the instalment plan.

In relation to any variation in the payments made by a customer under an instalment plan, we note that in cases where a customer misses a payment or makes a late payment, the FAQs state:

If you miss any payments, we will automatically recalculate your regular payments to cover the amounts you have missed, ensuring you still fully pay for your holiday by the payment end date.

Where a customer either cancels an instalment plan or transfer to a different holiday campaign, we consider that there is a cancellation of a supply or a change in consideration which will give rise to an adjustment under Division 19 of the GST Act.

Thus, the supply made by the entity to a customer is not covered by this Determination.

Attribution rules for supplies or acquisitions described in paragraph 29-25(2)(c) of the GST Act

Although the ruling request did not refer to paragraph 29-25(2)(c) of the GST Act, the FAQs state that there is a cooling off period that allows a customer to cancel a booking within 21 days of the original booking date. We consider that that cooling off period also allows the customer to cancel the supply of agency services by the entity to the customer.

GSTR 2000/29 refers to paragraph 29-25(2)(c):

a supply or acquisition occurring, but still being subject to a statutory cooling off period under an Australian law;

and states that during the cooling off period there is a real likelihood that a recipient of a supply will exercise the statutory right to rescind the contract for the supply and that it therefore would be inappropriate to attribute GST payable or input tax credits to a tax period which ends before the statutory cooling off period expires (Para 115). GSTR 2000/29 also states that a statutory cooling off period is a period prescribed by Commonwealth, State or Territory legislation which allows a purchaser or person assuming obligations under a contract time within which to rescind the contract (Para 109).

A New Tax System (Goods and Services Tax) (Particular Attribution Rules for Cooling Off Periods) Determination (No. 1) 2000 states:

3.(1) If you do not account on a cash basis and you make a taxable supply subject to a statutory cooling off period under an Australian law, then the GST payable on the supply is attributable to the earlier of:

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

(b)  the tax period in which an invoice is issued relating to the supply.

(2) However, if the GST payable on the supply would be attributable under subclause (1) to a tax period that ends before the cooling off period expires, then the GST payable is attributable to the tax period in which the cooling off period expires.

The entity advised that the 21 day cooling off period referred to in the FAQs is merely a policy established by the entity. As such, the cooling off period is not prescribed by Commonwealth, State or Territory legislation, as required by paragraph 109 of GSTR 2000/29 and is not a 'statutory cooling off period'. Consequently the entity cannot attribute the GST on the supply of agency services to the tax period in which that cooling off period expires.

GSTR 2000/29 states that where a taxable supply is specified in more than one Determination, the Determination which results in attribution to the later tax period applies in order to give overall effect to all relevant Determinations (Para 78).

Commissioner's determination

Where the Commissioner has not made a legislative determination for a particular kind of supply, the supplier must attribute the GST payable on that supply under the basic attribution rules. As noted above, the basic attribution rules require the entity to attribute the GST payable on taxable supplies of agency services to the tax period in which either the first instalment under the instalment plan is received by the entity or an invoice is issued, whichever occurs earlier.