GST Legislation

GST for non-residents made easy

It has been out for a while, but there is some draft law that proposes big changes to GST.

The first part of the draft Tax Laws Amendment (GST treatment of Cross-Border Transactions) Bill is exactly as we expected… The government will impose GST on offshore intangible supplies to Australian consumers from 1 July 2017.

But the second half of the Bill proposes a series of changes to the “connected to Australia” rules in the GST Act. And if these changes are implemented there will be a massive drop in the number of non-resident suppliers in cross-border business-to-business arrangements that must apply the GST system. But the draft Bill has not start date yet so don’t get to excited…

This draft Bill does three interesting things for non-residents:

First, the draft Bill creates a new type of supply, which is specifically made not connected with Australia. This is a supply made by a supplier who is a non-resident, that is not be made through an enterprise that the supplier carries on in Australia, and the recipient of the supply must be registered, must be carrying on an enterprise in Australia and must not acquire the thing solely for a private or domestic purpose.

Put simply, non-residents who don’t have an enterprise in Australia that only transact business to business will find that they no longer have GST obligations.

Second, the current GST Act uses the income tax definition of “permanent establishment” to establish if there is an enterprise carried on in Australia. The new rule proposed by this draft Bill will be that an enterprise of an entity will be carried on in Australia if the enterprise is carried on by particular individuals who are in Australia and either, the enterprise is carried on through a fixed place in Australia, or the enterprise of the entity is carried on, or is intended to be carried on, through one or more places in Australia for more than 183 days in a 12-month period.

Third, the draft Bill states that GST-free supplies made by a non-resident supplier will not be counted towards the turnover test so they will only need to assess if their taxable supplies are greater than $75,000 to see if they need to register for GST.






Funny Stuff GST Tax Policy

Queensland. Beautiful one day, tax insanity the next…

The Queensland government raises about $44 billion a year in taxes, fees…

About 20% of this amount comes from the GST that is collected by the Federal Government and passed on to the states and territories.

This makes the GST almost as large as all the other taxes combined that the Queensland government charges (all those taxes together come to about 24% of all the revenue).

And the GST is almost as large as all other grants the Federal Government makes to Queensland (about 28% of all Queensland government revenue).

So the GST is by far the most important single revenue item for the Queensland government…

And the Queensland opposition leader can’t even quote the rate is 10%.

She knows exactly how she wants to spend the revenue but has no interest on how the revenue is collected…

But before I laugh at Queensland politicians I need to remember that my local Canberra representative thought that the government paid for the superannuation increases for workers…

Where do they find these people?

UPDATE: And we now have a Premier who can’t quote the GST rate…

Cases GST

Will the full federal Court ever learn…

Just under a year ago I wrote the following regarding the full Federal Court decision in MBI Properties…

So the supply was defined form a literal rather than a practical perspective and led to a ridiculous outcome.

But remember the Federal Court also found that there was no supply by Qantas when people did not turn up for their flight… A decision laughed off by the High Court who took a practical rather than a literal view of what is a supply.

And remember the Federal Court also found that there was no supply on a forfeited deposit in Reliance Carpets… A decision laughed off by the High Court who took a practical rather than a literal view of what is a supply.

No points for guessing what the High Court will do.

Maybe the Federal Court might one day accept it is the Federal Court and not the High Court, read the Constitution (i can’t talk as I failed Constitutional Law) and start making GST decisions that the High Court does not need to overturn. I can only hope…

Well, this week the High Court has unanimously found for the Commissioner, holding that the conditions for the operation of s 135-5 were met. And just as expected the High Court said the Full Federal Court

…was wrong to reason that the only relevant supply was on the grant of the lease by South Steyne to MML, and the Full Court in South Steyne was wrong to conclude that MBI made no supply to MML.

Is it worth reminding the Full Federal Court that they only exist due to an Act of a Parliament (Federal Court of Australia Act 1976). And the only reason that Act could be created by that Parliament was that in 1900 the Constitution was adopted – a Constitution that forms one court to sit above all other Courts – the High Court.

So if the High Court, generally unanimously, keeps interpreting the GST laws in a practical way rather than a technical way, like in Qantas, like in Reliance Carpets, like in MBI Properties… maybe the Full Federal Court should start doing the same. Maybe the Federal Court should remember who they are.

If a part time tax boffin, part time Thomas the Tank Engine watcher (who I am) knows what the outcome of a Federal Court appeal will be a year in advance, then it should be obvious to much brighter tax minds than me…

GST Rulings

Gloxina GST idea is now 110% dead…

Following the 2010 Gloxina case I have had a lot of people tell me they have a great way to avoid developers having to charge GST on the new residential premises they build.

You have heard the same line… Well can I just say it is now 110% dead.

You would think that the Government changing the legislation in 2012 to kill the idea would make it 100% dead, but now the Commissioner has released a draft GST Ruling adding another 10% to the death.

What happened in the Gloxina case was a development lease arrangements with a government agency. This is where:

  1. The government agency charges a developer either a lump sum or a regular lease to access vacant land owned by the government agency;
  2. The developer and the government agency agree that if the developer, builds stuff on the land to an appropriate standard they will transfer the land to the developer.

The government does this as it gets the payment at item 1 above and normally requires the developer to put in roads, parks and other common goods the government agency ends up owning.

In Gloxina, the Courts concluded that the first sale of residential premises was from the government agency to the developer, and so every sale after that was input taxed. Now, to be very clear, this has not been the law for some time.

But as people still think this idea works today, the Commissioner has released GST Ruling GSTR 2014/D5 to make sure people release how dead this GST saving idea is.

In this draft ruling the Commissioner considers all the supplies that are made between the government entity and the developer… and none are a supply of new residential premises.

The supplies, and their GST treatments, are:

  • Grant of a development lease by the government agency to the developer. The rent on this lease is consideration for the supply of land and is a taxable supply of vacant land.
  • Development works on the government agency’s land made by the developer, in accordance with the terms of a development lease arrangement. Here the developer makes a supply of development services to the government agency. The supply of the land to the developer by the government agency is consideration for the developer’s supply of development services. Therefore, the developer makes a taxable supply of development services and the government agency makes a taxable supply of land.
  • The transfer of the land by the government agency to the developer. This is just the reverse of the supply above…

The draft ruling states that the value of the development work provided by the developer will almost always be the value of the land provided by the government agency. So all these parties need to do is swap tax invoices at the agreed value.

The ruling does go into issues like attributions of the GST for both parties, where the land is not transferred but a call option is given to the developer and additional payments made by the developer to the government agency. But all of these are as you would expect using the basic GST rules.

In summary, a development lease arrangement is fundamentally a barter transaction where the developer provides developing work and the government entity provides land. The developer gets new residential premises to sell (subject to GST) and the government agency get roads, lights, parks… built for them at an agreed standard (and maybe some additional funds for accessing the site).

Can we just put this Gloxina idea in the recycling bin please…

GST Rulings

GST and motor vehicles and incentive payments and fleet discounts and runout models and…

One of the more interesting GST cases in recent times is AP Group Limited v. Federal Commissioner of Taxation (2013) 214 FCR 301; [2013] FCAFC 105; 2013 ATC 20-417. The case considered a series of payments made in the motor vehicle industry.

Following this case the Commissioner has released his first GST ruling for 2014 (in October… it looks like GST is settling down) on this issue. The ruling is Goods and Services Tax Ruling 2014/1 – Goods and services tax: motor vehicle incentive payments.

But before we go further, the Commissioner sets a very clear rule – this only applies to the motor vehicle industry…

“The Ruling only applies to the class of entities that make or receive incentive payments in the motor vehicle industry. This Ruling is therefore confined to the facts and circumstances of the motor vehicle industry and does not consider incentive payments made in other industries and caution should be applied if you seek to apply the view in this Ruling to payments made in other industries.”

But this statement is rubbish. The reasoning in this Ruling is just as applicable to incentive payments in other industries – it just you can’t quote this Ruling when applying for a ruling.

So what payments in the motor vehicle industries does the ruling apply to?

  1. Where the dealer does something for the manufacturer, like installing a tow bar or presenting the cars in certain ways. As you would expect, GST applies as this is a taxable supply.
  1. Where there is a supply by a dealer to a retail customer for consideration provided by the manufacturer. Common payments in this category include fleet rebates, run-out model payment and free accessories’ payments. But you need an example…

Max Manufacturer makes certain incentive payments to Delta Dealership under the terms of their dealership agreement. As part of its ‘Creating Havok’ run-out program, Max Manufacturer pays Delta Dealership $3,300 for each Havok vehicle when it is sold at a discounted price to a customer.

Pat purchases a Havok vehicle from Delta Dealership for $23,100.

The $3,300 payment is part of the consideration for the supply of the motor vehicle by Delta Dealership to Pat. It is not consideration for a separate supply by Delta Dealership to Max Manufacturer of supplying the vehicle to Pat.

Therefore Delta dealership has to remit 1/11th of $23,100 + $3,300. If registered for GST, Pat can claim back 1/11th of $23,100. And as Max manufacture has not made a creditable acquisition it cannot claim anything (subject to the Division 134 discussion below).

  1. Where there is no supply, like retail incentives and wholesale incentives. Another example:

Max Manufacturer runs a competition for sales assistants employed by one of its dealers, Delta Dealership, whereby Max Manufacturer will reward the sales assistant who makes the most sales for the dealership each month with a prize.

Delta Dealership has not made a supply to Max Manufacturer for consideration as there is no conduct which can be identified as a supply – Delta Dealership does not do anything, or agree to do anything, for that payment.

But there is just one more issue – Division 134. This Division was introduced in 2010 (with 2 amendments in the same year as the Treasury has never been good in getting the GST law right the first time) and it ensures that certain manufacturer rebates create a decreasing adjustment. For example:

Fascam Ltd, a manufacturer, sells a camera to Choice Cameras Ltd, a retailer, for $660. Choice Cameras sells the camera to a customer, Irene, for $880 at a time when Fascam is offering a cash-back incentive to retail customers to boost its sales. Irene applies for and receives a cash-back payment of $110 from Fascam.

Under section 134-5 Fascam is entitled to a decreasing adjustment with regard to the cash-back payment.

So what does Division 134 mean for Max Manufacturer and its ‘Creating Havok’ run-out program from the example above…

Max Manufacturer has made a payment to Delta Dealership, which acquired the vehicle that Max Manufacturer supplied to the interposed finance company as a taxable supply. Further, the payment is made for the inducement of Delta Dealership’s acquisition of the vehicle as the payment relates to Delta Dealership’s acquisition of the vehicle because the $3,300 indirectly alters the price Delta Dealership paid for the vehicle by $3,300. Max Manufacturer therefore has a decreasing adjustment of $300 under section 134-5 once Delta Dealership acquires the motor vehicle.

So don’t forget Division 134…

Finally if this all gets to much there is a table summarising it all starting a paragraph 322.

What does this mean… First, if you are advising motor dealers it is time to review all the payments they get from manufactures and make sure GST is treated properly.

But if you have any clients in other industries whether there are payments from manufacturers to retailers, like incentive payments, this ruling is a great way to assess if the GST treatment of these payments is correct. These types of payments are especially common in franchise arrangements…

GST Legislation Rulings

“Excess GST”, “passed on”, “reimbursed”…

One of the best amendments to the GST Act ever was inserting a new Division, Division 142. This Division applies to tax periods starting on or after 31 May 2014.

The object of Division 142 is to ensure that excess GST is not refunded if this would give an entity a windfall gain.

In summary, the Division operates so that an entity is not entitled to a refund of an amount of excess GST where the entity has passed on the GST to another entity, and has not reimbursed the recipient for the passed-on GST.

Yes, I know you are asking me what is “excess GST”, “passed on” and “reimbursed”. To help, the Commissioner has released Draft GST Ruling GSTR 2014/D4. This is titled:

Goods and services tax: the meaning of the terms ‘passed on’ and ‘reimburse’ for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999

But first, an example if you have never seen Division 142 before…

Joshua sells his widgets to a Canadian company and incorrectly charges GST (excess GST). The Canadian company pays the $100 on the invoice that states there has been $10 of GST (GST passed on). Under Division 142, the supply Joshua made is a taxable supply and is not a GST-free export until Joshua refunds (reimburses) the $10 to the Canadian company. Once this amount is refunded Joshua can amend their BAS and reclaim the excess $10.

Excess GST is pretty simple…

Excess GST can arise by incorrectly treating something which is not a supply as a taxable supply, miscalculating a GST liability under the GST law, incorrectly reporting an amount of GST on a GST return or incorrectly treating a GST-free or input taxed supply as a taxable supply.

Notice this is not where you find addition input tax credits but only where the GST has been too high.

Has the GST has been passed on…

The Draft Ruling says look at the following factors to assess if the GST has benn passed on:

  • The manner in which the excess GST arose
  • The entity’s pricing policy and practice
  • The documentary evidence surrounding the transaction, and
  • Any other relevant circumstances.

In relation to the manner to which the excess GST arose, the Draft Ruling states that where an error occurs after the transaction has taken place, for example through a simple transcription error, this may point towards a finding that excess GST has not been passed on. Where the excess GST arises as a result of an error made before setting the price, this error will generally flow through to the sale price paid by the recipient and is likely to point towards a finding that excess GST has been passed on.

For example:

Diana provides personal aquatic survival skills courses and swimming lessons. She holds qualifications issued by a relevant accrediting association. Diana’s supply of the personal aquatic survival skills course is a GST-free supply of an education course under section 38-85 and Diana issues each student of this course with a tax invoice showing the amount of GST on the supply as nil.

When preparing her GST return, Diana mistakenly reports supplies of personal aquatic survival skills course as taxable and remits GST on each course.

As the excess GST arose when Diana filled out her GST return and she had issued tax invoices showing the amount of GST as nil, this would indicate that Diana has not passed on the excess GST.

In relation to pricing and policy the Commissioner states you need to consider if GST was included in working out what to charge for the supply. If it was, then the GST has been passed on.

Big-mart sells a range of food and retail products. Big-mart sets its prices at a level that is lower than its competitors for equivalent products. Big-mart contends that GST was not factored into its pricing methodology, despite the fact that it sets prices then adds GST at the end.

Big-mart realises that one of its products is GST-free, but has been treated as taxable. Big-mart immediately reduces the price of the product by 1/11th. The price reduction points towards a finding that the excess GST has been passed on.

The documentary evidence is basically what the tax invoice says. While it is not a 100% certainty, if there is a tax invoice with GST on it that has been paid by the customer, Division 142 will generally apply.

Taylor Co and David Co enter into an agreement for David Co to purchase Taylor Co’s business as a GST-free supply of a going concern. All the requirements of section 38-325 are met and the contract of sale is clear that the supply is a GST-free supply.

As Taylor Co regularly makes taxable supplies, Taylor Co’s new accounts manager does not realise that the supply of the business is a GST-free supply. The accounts manager issues a tax invoice to David Co showing an amount of GST payable, and includes the GST on the GST return.

Even though Taylor Co has issued a tax invoice for the supply showing an amount of GST payable, it has other documentary evidence including the contract of sale and other written correspondence with David Co which indicate that the excess GST has not been passed on.

However, excess GST may have been passed on even if there is no tax invoice, if the evidence suggests it was included in the price.

When is the GST reimbursed?

There are only two real issues here as what is a reimbursement will generally be obvious.

The first is when I cannot identify my customers? Bad luck…

Gavin Co is a large retailer that has introduced a new stock item, supplies of which it treated as taxable. Tax invoices were issued to customers showing an amount of GST on these supplies. Gavin Co later discovers that the supplies should have been treated as GST-free.

Gavin Co has an excess GST amount of $135,000 which was passed on to its customers.

In order to claim a refund of the excess GST that was passed on, Gavin Co must reimburse the excess GST that was passed on to its customers. However, Gavin Co is not able to identify those customers and so is unable to reimburse them.

Section 142-10 applies so that the excess GST is treated as always having been payable. Accordingly, Gavin Co is not entitled to a refund of the excess GST

The other issue is what if you don’t reimburse the whole amount, specifically as you decide to keep an administration fee. No luck again.

Patel Co is registered for GST and makes a supply to Kim which it believes to be taxable. Kim pays $3,300 for the supply which includes GST of $300 and receives a tax invoice. Kim is not registered or required to be registered for GST.

In its quarterly GST return, Patel Co includes GST payable of $300 for the supply to Kim. The $300 is taken into account in Patel Co’s net amount for the relevant tax period.

Subsequently Patel Co realises that the supply was not taxable and that the $300 is excess GST. The excess GST is taken to have always been payable until Patel Co reimburses Kim. However, Patel Co decides that it will only reimburse Kim if he agrees to pay a $30 administration fee which can be offset against the amount of excess GST to be reimbursed. Kim agrees to pay the fee and Patel Co only reimburses Kim $270 of the excess GST Kim paid.

Consequently, Patel Co is only entitled to a refund of $270. The remaining $30 (being the difference between the excess GST and what has been reimbursed) is taken to have always been payable under section 142-10. Patel Co is entitled to a decreasing adjustment of $270 in the tax period in which it became aware of the adjustment.

So in summary, your GST scheme where the supplier recovers all the GST is over if the GST was passed on to the customer – as it will in almost all sitiuations…

Funny Stuff GST Income Tax Rulings

Am I cool if I say Bitcoin?

I live in a town of less than 400,000 people and I just saw a Bitcoin ATM. I don’t know who to use it but how cool am I for living near a Bitcoin ATM…

The Commissioner also is cool as he has released his thoughts on the tax treatment of Bitcoin transaction.

In summary, he thinks Bitcoin is not money (not widely used or general accepted as money) so using Bitcoin is like any barter transaction… For example:

I want to buy a coffee. I could:

1. Go to the coffee shop and use cash or a card to buy the coffee; or

2. I could go to the fruit shop, buy $4 worth of bananas and go to the coffee shop and see if they will swap my $4 of bananas for a coffee (barter); or

3. I could go to a Bitcoin ATM or Bitcoin exchange and buy $4 of Bitcoin (yes I know Bitcoins are worth over $600 – it is just an example) and go to the coffee shop and swap my Bitcoin for a coffee (barter).

There is no difference between example 2 and example 3 – effectively no difference between Bitcoin and bananas. Yes, Bitcoin has a exchange so has a standard value at any time so if you would prefer replace bananas with BHP shares as they have an exchange, the ASX.

The problem with this outcome is a GST issue. In example one the only GST remitted is by the cafe (around 40c) and I don’t claim it back.

But in examples 2 and 3 the cafe still remits its 40c but the Bitcoin ATM owner also remits about 40c on the sale of the bit coin it make to me. As I am not registered for GST, and even if I was it is unlikely either acquiring the bit coin or the coffee are a part of my enterprise, I can’t claim either of the GST amounts back.

Now I am off to get a selfie of me and the Bitcoin ATM…

GST Rulings

Luxury Cars and Hire Purchases

We now have a final ruling that is exactly like the draft – LCTD 2014/1 – so have a read about the draft

Picture 9

GST Income Tax Legislation Super Tax Policy

Clearing the Tax and Super Decks

Apart from the changes in the Mining Tax and Carbon Tax repeal bills (small business instant asset write off, carry back losses…), and the promise to remove the means testing of the private health insurance offset, the government only has a series of promises to do certain things the previous government announced.

There are 37 of these “announced but unenacted” changes. Right now there are bill before the parliament (or just about to be released like TLAB2) that cover 10 of these announcements, two excise ones are already being collected, there are two discussion papers (dividend washing and data matching) and draft legislation for the investor manager regime.

There are 15 that relate to mining, consolidations, foreign exchanges rules, debt/equity rules, MITs, OBUs or thin capitalisation… so irrelevant to the vast majority of taxpayers.

That just leaves ten issues…

These include:

1. Non resident withholding for sales of commercial and residential property

2. CGT issues with earnouts and installment warrants (this is just making the law do what you always thought it did)

3.  Changes to GST going concerns and GST “connected with Australia” rules to make things easier.

4. Removing the need for small business with less than $2 million in interest to need to consider the thin cap rules.

5. Extending CGT rollovers where assets are not held as CGT assets

Hopefully this link has them all and I will start to look at some of these in future posts… But maybe we might have a relaxing tax year…

Government Tax announcements

GST Legislation

Let us have a moment of silence for the GST advisors…


Since the introduction of the GST they (GST Advisors) have always been looking for a way to recover GST paid incorrectly.

And the Holy Grail of this advice has always been how can we turn a supply of new residential premises into existing residential premises as this would increase the margin for the developer by the 10% GST.

Well, the Government has released an exposure draft the new Division 142 of the GST Act. These provisions will ensure that any mistakenly paid excess GST is treated as always  payable and in relation to a taxable supply where that excess has been passed on to another entity.

That’s right. Even if it is a GST export, if it was treated as a taxable supply, until the customer is refunded it IS A TAXABLE SUPPLY.

Because a GST amount is considered as always payable, no refund arises as the GST is taken to have been correctly payable. If an amount of excess GST that has been passed on is reimbursed, the excess amount stops being treated as payable on a taxable supply.

So even if you think you have a great GST refund idea, even the Holy Grail idea, don’t go and sell it to a property developer as they will get no benefit from it.

The only person who gets a benefit is their customers – as before the developer can get the GST back they have to refund it to the customer. Actually, the developer has to finance the refund.

So spend a moment thinking of the pain of our GST brothers…