| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012534174837
Ruling
Subject: Assessable income - when is the income derived
Question 1
Is your assessable income derived when the invoice issued to the Customer is paid?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on:
1 July 2012
Relevant facts and circumstances
The Company operates a manufacturing and wholesale business selling products.
The Company accounts for sales revenue on an accruals basis.
The Company has supplied goods to a Customer in accordance with the Supply Agreement entered into between the Company and the Customer.
Clause 6.1 of the Supply Agreement provides that:
· the risk of loss or damage to a Product will pass to the Customer in accordance with the Freight Terms. Where the Freight Terms do not specify when the risk of loss or damage to a Product will pass to the Customer, the risk of loss or damage to a Product will pass to the Customer on delivery of the Product to the Customer's warehouse.
Clause 6.2 of the Supply Agreement provides that:
· title to a Product will pass to the Customer on payment of the invoice.
Clause 7.1 of the Supply Agreement provides that:
· the Customer must pay, by electronic funds transfer directly to the bank account nominated by the Company, the Price (and, if applicable any GST) in respect of the Products the Customer orders from the Company under clause 4.5 within 30 days after the later of:
o receipt of an invoice from the Company; and
o the time at which risk of loss or damage to a Product will pass to the Customer in accordance with clause 6.1.
It is apparent to the Company that upon delivery of the product to the customer, the customer may, in some cases, immediately place such goods for resale in the course of their business.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
We consider that income from the sale of goods under a conditional contract, which is assessable to the seller on an accruals basis, is derived when a debt for the sale of those goods is created under the contract of sale. Generally, we consider a debt is created under the contract of sale when the goods are delivered by the seller to the purchaser once the seller has accepted the purchaser's order. However, our view differs where the contract is subject to a Romalpa or retention of title clause whereby the title in the goods passes when payment is made.
In your case, as your Supply Agreement is subject to a Romalpa clause we consider the income is not derived when the Company issues the invoice. The income is derived when title to the goods passes to the Customer on payment of the invoice in accordance with clause 6.2 of the Supply Agreement.