Goods and Services Tax (GST) was introduced on 1 July 2000, as a 10 per cent broad range indirect tax that replaced several other taxes such as wholesale sales tax.
In addition to GST being introduced two other indirect taxes were introduced, being: Wine Equalisation Tax and Luxury Car Tax.
It was thought that removing the wholesale sales tax and replacing it with the much lower GST rate of 10 per cent would unfairly advantage these industries, so these taxes maintain equity.
GST is a tax on final consumption and is collected in a step process, so it is levied on each stage of production. The supplier of the goods and services may be able to claim credits for the GST they have paid on their business inputs, thus leaving the end user paying the GST.
GST is calculated at 10 per cent of the taxable supply, or by taking 1/11th of the total cost including GST.
The GST on a shirt (taxable supply) costing $20 (ex. GST) would be 10% of $20, being $2. So the total cost of the shirt including GST would be $22. Conversely, to work out the GST from the total cost of the item, you would take 1/11th of $22, which is $2.
SUPPLIES AND GST
There are three different types of supply for GST purposes:
- Taxable supply;
- Input taxed supply; and
- GST-free supply.
A supply for GST purposes is a very broad term, it can be:
- A supply of goods;
- A supply of services;
- A provision of advice or information;
- A grant, assignment or surrender of real property;
- A creation, grant, transfer, assignment or surrender of any right;
- A financial supply;
- An entry into or release from, an obligation to do anything, to refrain from an act, or to tolerate an act or situation.
A supply occurs if:
A supply is made for consideration;
The supply is made during the course of an enterprise (i.e. the business);
The supply is connected with Australia; and
The supply is made by an entity that is registered for GST or required to be registered for GST.
Supplies made for consideration
Consideration means any payment that is connected to a supply of anything. This is intended to be very broad and includes, but is not limited to:
Inducements to act or not act;
Forgiving a debt in exchange for a supply of something else; and
Payment for a supply, even if it is paid by the person who did not directly receive the supply.
An enterprise is defined as an activity or series of activities done in the form of a business or nature of trade.
Specifically excluded from the definition of ‘enterprise’ are activities, or services of activities done:
As an employee or other PAYG earner;
As a private recreational pursuit or hobby;
By an individual or partnership without a reasonable expectation of profit or gain; or
As a member of a local governing body established by or under a State or Territory law.
Supplies connected with Australia
Goods are connected with Australia if the goods are:
- Delivered in Australia;
- Made available in Australia;
- Removed from Australia;
- Imported into Australia; or
- Installed or assembled in Australia.
Anything other than goods or real property is connected with Australia if:
- The thing is done in Australia; or
- The supplier makes the supply through an enterprise the supplier carries on in Australia.
Required to be registered
An entity must be registered for GST if:
It is carrying on an enterprise; and
Its annual turnover is at or above the registration turnover threshold of $75,000 (or $150,000 for non-profit bodies).
An entity that is carrying on an enterprise but does not meet the turnover registration threshold can choose to be registered for GST.
The broadness of the definition of a supply is deliberate so as many items are caught in the GST net as possible.
Exemptions to certain supplies are then made to remove supplies of a specific nature. They are input taxed supplies and
Many GST registered businesses in Australia will make their supplies under this category.
The following businesses are payers and collectors of GST, for example:
Taxable Supply: Television
Step One: Electronic Component Supplier
Sells components to television manufacturer for $300 plus $30 GST, ATO receives $30.
Step Two: Manufacturer
Buys components for $330 from supplier and then sells manufactured television to the retailer for $600 plus $60 GST.ATO receives $30 (being $60 charged to retailer, less $30 paid to component supplier).
Step Three: Retailer
Buys television from manufacturer for $660 and sells to consumer for $1200 plus $120 GST. ATO receives $60 (being $120 charged to consumer, less $60 paid to the manufacturer).
Step Four: Consumer has paid $1320 for television (including $120 GST).
At the end of the supply chain the ATO has only received a net GST amount of $120 being the final amount paid by the consumer on the finished product. This is because all along the supply chain each business claims an input tax credit on the supplies they have purchased.
INPUT TAXED SUPPLY
Input taxed supplies are not subject to GST as they are specifically excluded from the definition of a taxable supply. Importantly no input tax credits can be claimed on any items used to produce such supplies. Ultimately the pricing of an entity making input taxed supplies will pass on the cost of not being able to claim input credits to its clients and customers.
There are three main types of input taxed supplies:
Supplies of residential rent;
Supplies of residential premises.
Financial supplies mainly include:
- Lending or borrowing of money;
- Granting credit on which interest is due;
- Activities associated with clients’ bank accounts;
- Conducting life insurance business;
- Making certain dealings that relate to debt securities, equity securities, unit trusts or future contracts.
There is relief for businesses that are inadvertently caught under input taxed financial supplies.
A furniture retailer offers finance terms for which it charges interest.
Ordinarily this would form an input taxed financial supply; however, if input credits relating to those supplies are less than $50,000 and those credits are less than 10 per cent of the entities total input credit entitlement, then the entity can claim 100 per cent of the input tax credits.
This assessment of input tax credits must be done on a rolling monthly or quarterly basis and you should also be assessing whether the business will stay compliant in future quarters.
If a business does not pass these tests, input credits must be apportioned according to the type of supply they are for.
For some businesses a reduced input tax credit of 75 per cent is available where the financial supplies are outsourced, for example debt collection.
Supplies of Residential Rent and Residential Premises
The lease of premises that are to be used for residential purposes is input taxed. Also, the sale of residential premises is input taxed, unless it is a new premise which will then be subject to GST.
The main characteristics of commercial premises are:
- Commercial intention;
- Multiple occupants;
- Available to the general public at large;
- Accommodation is main purpose;
- Guest services available;
- Centralised management and/or booking facility.
A GST-free supply is a supply that is deemed to be GST-free by the Act. However, input tax credits can be claimed on the purchases used to generate the GST-free supply. It is important to note that it is the supply that is GST-free and not the supplier.
For example, a bakery may sell GST-free items such as bread, but also sell soft drinks that are taxable supplies.
The broad approach of the Act is to make all food and beverages fit for consumption by humans GST-free, and then remove specific items from the definition.
Most staple items of food are GST-free, including: meat, bread, vegetables, fruit, eggs, cheese, flour sugar, plain milk, cereals and canned foods.
Other items of food that are specifically a Taxable Supply include: restaurant food, takeaway food, most food that has been prepared and frozen meals.
Other examples of food that attracts GST are:
Chocolate and other confectionary;
Cakes, muffins & puddings;
Pies & sausage rolls;
Bread and buns with sweet filling or coating;
Soft drinks and alcohol.
The provision of medical services is GST-free. In general, the service must be provided by an approved medical practitioner and be a recognised health service. Hospital care, medical aids, prescription drugs, and private health insurance are also all GST-free when provided in accordance with the Act.
Cars used by disabled people
Cars used for personal transport by disabled people are GST-free, providing they are used for that purpose for at least two years.
The supply of pre-school, primary education, secondary education & tertiary education are GST-free. Some trade and professional courses are also GST-free. The exemption extends to excursions that are related to the curriculum and some other supplies that are related to education.
The supply of child care is GST-free where it is supplied by a registered provider or government funded.
Exports are generally GST-free, provided they are not re-imported or where the export is not made with a set time from invoice.
Supplies through an inward bound Duty-Free shop are GST-free. Care needs to be taken as specific limits apply to each traveller over all, but especially to alcohol and cigarettes. Amounts brought in exceeding these limits will attract customs duty and GST.
Tourist refund scheme
A refund may be sought by tourists on items they take with them when departing Australia. The minimum value of the purchase from any single business total is $300 and not made more than 60 days prior to exit.
Travel from overseas to Australia and vice versa is GST-free. Also, internal travel by overseas people is GST-free when arranged as part of their international travel.
Services provided in the practice of religion are GST-free provided they are done so by a religious institution.
Non-commercial activities will be GST-free, commercial activities will fall under the normal GST provisions.
Supply of a going concern
The supply of an enterprise as a going concern is GST-free under the Act, provided:
- It is for consideration;
- The purchaser is registered for GST;
- Both parties agree in writing;
- The supply is for all the items that the purchaser will need to continue to run the business;
- The supplier carries on the business until the purchaser buys it.
Note: That by just selling parts of a going concern does not mean that you will be eligible for this exemption.
For example: A trucking company cannot sell one of its trucks (from a fleet) and call it a going concern.
If the supply was a truck and other elements that enabled it to be a going concern in its own right – for example a given right over an area to move freight and earn income – then that may qualify as a going concern.
The determination of whether a supply is a going concern is a complex area and an issue that has come under theATO’s scrutiny. It is recommended that professional advice always be sought in making this determination.
The supply of farming land either through freehold or long-term lease is GST-free, provided that the land is intended to be used for farming purposes and the land has been used for farming for a minimum of five years prior to sale.
Exclusions exist where the land is to be subdivided into residential blocks.
INPUT TAX CREDITS
When an entity makes a purchase and is registered for GST it will be able to claim a credit for the GST included in the price where it was for a creditable purpose.
An acquisition is for a creditable purpose if it is a purchase that is made in carrying on an enterprise. If something is acquired for making an input taxed supply or for a private purpose, then it is deemed to not be a creditable acquisition and you cannot claim any input credits.
As previously discussed (under input taxed supplies) there may be circumstances where an input taxed financial supply may be below the thresholds for input credits and those credits can be claimed as if they were a creditable acquisition.
When claiming an input tax credit and the purchase has been for a partly private purpose you will need to apportion your claim accordingly. For small businesses most of these adjustments can be done on an annual basis.
Small food retailers that have a combination of GST-free purchases and sales have simplified accounting options made to them by the ATO aimed at reducing GST compliance costs. These methods are only available for valuing trading stock; all other sales and purchases must be treated normally. The options are:
- Business norms method
- Snapshot method
- Stock purchases method
Business norms method
Certain food retailers with an annual turnover of less than $2 million can elect to use the ATO standard percentages for calculating GST-free sales and purchases. These are:
|TYPE OF RETAILER||GST-FREE SALES %||GST-FREE PURCHASES %|
|Delis that do not sell|
|hot food or prepared meals||85||90|
|Convenience stores that|
|Convenience stores that|
|do not prepare takeaways||30||30|
|Hot bread shops||50||75|
|Health food shops that do|
|not prepare food||35||35|
|Fish shops that sell fresh & some|
|Pharmacies with both taxable & GST-free food sales|
|Dispensary: non-claimable sales||98||Nil|
|Dispensary: over counter sales||47.5||2|
|Rural convenience stores that may sell fuel or have an Aust.|
The retailers can take a snapshot of two two-weekly periods and estimate the GST-free purchases and sales over those periods. Alternatively, retailers can work out their GST-free purchases from invoices and estimate the GST-free sales.
Care must be taken to ensure that there is a reasonable basis for the estimation, especially if the percentage differs greatly from the ATO estimated figures as listed above. This option is available to retailers with a turnover of less than $2 million.
Stock purchases method
Where a retailer is only a reseller of products (for example small convenience store that does not prepare takeaways) the stock purchases method is available.
Under this method over two four-weekly periods retailers take a snapshot of purchases only. From this they can estimate GST purchases and sales which should have the same percentages, as they are only resellers. This option is available to retailers with a turnover of less than $2 million.
MORE SIMPLIFIED ACCOUNTING METHODS
In the May 2007 Budget it was announced that more simplified accounting methods would be allowed for small businesses (annual turnover less than $2 million).
This will give more small businesses the option of using a simplified method to calculate their GST obligations if it suits their requirements.From 1 July 2007, any small business that makes mixed (taxable and GST-free) supplies or mixed purchases will be able to approach the Australian Tax Office (ATO) to discuss the development of a simplified accounting method for their use.
SPECIAL INPUT TAX CREDIT RULES
There are a number of circumstances where input credits can be claimed in full, at a reduced rate or not at all depending on the scenario.
Specifically, under the Act if a non-deductible (for income tax) purchase is made in the following circumstances no input tax credit is available:
- Fines & penalties;
- Travel expenses for a relative;
- Costs associated with maintaining your family;
- Health club memberships;
- Leisure facilities or boats;
- Entertainment expenses;
- Non-compulsory uniform expenses;
- Non-deductible non-cash business benefits; and
- Some car parking expenses.
In general, where a company has not yet commenced business, an input tax credit can still be claimed for the costs of setting up the entity and acquiring trading stock.The requirements are:
- The expense is not private in nature;
- The company is created and registered within six months of the expense being incurred;
- The entity that first incurred the expense is reimbursed by the new company and becomes a member, officer or employee of the new company.
If you purchase a car in an entity that is registered for GST and it is used to for business purposes you will be able to claim input credits on its purchase and for running expenses.
The current depreciation cost limit is $57,581 and where your vehicle costs more than that, your input tax credit will be calculated at the depreciation cost limit amount and not the purchase price.
If you use the vehicle for part private use, an apportionment for private use will need to be made on input credits claimed. The ATO sets out four methods for individuals and certain partnerships:
Logbook method: A logbook of business trips is made for 12 weeks and a business percentage usage is ascertained. Unless business use drops significantly the logbook is valid for five years.
One-third method: Where the vehicle travels more than 5,000km you may claim input credits up to one-third of the expenses incurred.
Set rate method: Where usage is below 5,000km you can estimate your kilometres travelled and use the following rates:
ESTIMATED ASSUMED ANNUAL
BUSINESS INCOME CREDIT CLAIM
Formula method: You can make an estimate of business kilometres and apply this as a fraction over your total kilometres for the taxation year. This percentage is used to calculate business portion of input credits.
Julie estimates that of the 20,000km travelled during the year that 13,000km were work-related. Her percentage would be 13,000/20,000 X 100 = 65% business usage.
It should be noted that both the 12% of original value method and the one-third method have been repealed for income tax purposes.
If you are registered for GST, you can claim an input tax credit on your insurance payments that are made for business purposes.
You should inform your insurer of the amount of input credit you are claiming, as if a claim is made you will receive the payment net of GST (i.e. it will not require GST to be remitted to the ATO – it will still be assessable income).
You can claim input credits on the purchase of replacement items or on the repair of an item damaged.
So that second-hand dealers are not unfairly disadvantaged when competing with private individuals not registered for GST, special rules apply. Even though a second-hand dealer may purchase an item from someone that is not registered for GST, they can claim an input tax credit on that purchase when they sell the item.
In this way the second-hand dealer is only remitting to the ATO the GST that they have made on the mark-up.
GST does not apply to a fringe benefit made to an employee where fringe benefits tax has been applied. The FBT gross up factor has taken the GST into account when calculating the taxable value of the benefit.
Where an employee makes a contribution towards the benefit and the employer is registered for GST that contribution will be deemed to include GST.
Fred’s employer manufactures beds and sells a bed to Fred for $1,200 that usually retails for $2,500. The contribution by Fred to his employer is GST inclusive and his employer would have to remit 1/11th or $109 to the ATO.
For detailed examples of how FBT is calculated refer to the Fringe Benefits Tax chapter.
Real Property and the Margin Scheme
The margin scheme is one method used to calculate GST on the sale of real property no matter whether it was acquired before or after the introduction of GST on 1 July 2000.
A developer purchased a block of land in 1998 for $200,000 and its value at 30 June 2000, was $400,000. On 31 December 2000, the developer sold the block for $440,000. Using the margin scheme the developer could only pay GST on the margin of $40,000 – being the difference between the valuation at 30 June 2000 and the sale price at 31 December 2000.
Importantly, under the margin system the new purchaser would not be able to claim an input tax credit on the amount of GST included in the $440,000 purchase price, even if they were registered for GST. However, when the new owners sell the margin would be the difference between $440,000 and the selling price.
The margin system is a complex and crucial area, so get professional advice from an accountant or lawyer as its application can vary greatly with significant consequences.
In the May 2008 Budget, changes to the margin scheme were announced. The changes relate to the application of the margin scheme where the land being sold was acquired through a GST-free or non-taxable supply, such as the farm land or going concern exemptions.
REGISTERING FOR GST
Businesses with an annual turnover of more than $75,000 are required to register for GST, while those with a turnover less then $75,000 per annum have the option to register. The registration threshold for non-profit entities is $150,000.
To avoid having 47% withheld from payments it is in the best interests for businesses to apply for an ABN. At the same time entities can register for a Tax File Number, GST, and Pay As You Go Withholding.
You are not eligible to register for GST unless you are genuinely in business with an expectation to profit.This excludes activities undertaken as a hobby, and salary & wage earners.
When registering for an ABN or for GST it is important to consider:
- The type of business you will be operating and your turnover;
- Accounting systems you will employ;
- Cash flow;
- Whether you will be employing others;
- Type of supplies you will be making, being: taxable, GST-free, and input taxed;
- The extent to which you will be able to claim input tax credits.
These are all important issues as it will help you determine the following:
- Should I register on the cash or accruals basis? (Businesses with a turnover less than $10 million have an option).
- Should I lodge my BAS/IAS monthly or quarterly? (Businesses with a turnover less than $20 million have an option).
- Do I have adequate systems in place to calculate and budget for my monthly or quarterly tax office remittances?
Many businesses will find that registering on the cash basis will be the best option for them. Under this option GST is recorded when you physically pay or get paid for a service or item.
Under the accruals method all debtors and creditors are included for GST purposes. This means that if you’re carrying many debtors (accounts receivable) you will be remitting GST to the ATO that you have not physically received yet.
Conversely those on the accruals method with high creditors (accounts payable) may benefit from this option.
The decision on whether to lodge monthly or quarterly depends on the taxpayer. Many find it easier to budget for GST payments when they lodge monthly, others can manage with quarterly and see savings in reduced compliance costs.
Many businesses that make mostly GST-free supplies (for example a doctor’s surgery) lodge monthly to improve cash flow as they are often refundable.
To claim an input tax credit for an item costing more than $75 (from 1 July 2007), a tax invoice is required.
To be a tax invoice it must:
- State that it is a tax invoice;
- Contain the name and ABN of the supplier;
- Have a description of the items supplied;
- Note the total price including GST, or the GST amount and the total price.
If the tax invoice is for over $1,000 it must also include the name and ABN of the recipient and the quantity of each thing supplied.
From 1 July 2010 the change to what can be accepted as a tax invoice allows the ATO greater discretion to accept documents/invoices for the purposes of claiming input tax which previously would not have satisfied the strict criteria for ‘valid tax invoices’.In addition, where a taxpayer makes all reasonable efforts to obtain a tax invoice, but cannot, they can treat another suitable document as a tax invoice, provided they notify the Commissioner, and meet any other requirements as determined by the Commissioner.
The law has been clarified in respect of claiming input tax.Businesses may now claim input tax in a period after the period in which a tax invoice is received.This is not a GST mistake requiring notification to the ATO.
ADJUSTMENTS AND BAS
From time to time situations will arise where an adjustment will need to be made on a BAS that has already been lodged.
This may occur:
- Due to a discount allowed or received;
- Due to a return of goods;
- Due to a bad debt being written off.
This is not an exhaustive list; however, there is no need to amend the BAS that has already been lodged. An adjustment may be made on your next BAS lodged.
The threshold at which an adjustment note must be held has been increased from $50 to $75. For business to business transactions, there is an option to treat as fully taxable.Where a supply is made which is partly taxable and partly GST-free between two registered businesses, both parties can opt to treat the supply as fully taxable for convenience.This may be most applicable where the extent of the GST-free treatment is unclear.This does not apply to a supply where part or all of it is an input taxed supply.
MISTAKES AND BAS
Where there is an error and business turnover is less than $20 million the ATO will allow the following:
- If an administration error leads you to paying too much GST (credit error) you can correct the error on a later BAS that starts within the four-year period review of the assessed BAS which contains the GST error;
- If an administration error leads you to paying too little GST (debit error) and the total is less than $10,000 and the debit error is within the debit error time limit, you can correct the error on a later BAS.
For turnovers greater than $20 million the following correction limits apply:
Up to $100 million$20,000
Up to $500 million$40,000
Up to $1 billion$80,000
Over $1 billion$450,000
If the correction falls outside these parameters a request to amend the original BAS must be made. The ATO may impose fines and interest on outstanding amounts owing to them.
From 11 May 2010 the law has been amended to limit claims for input tax credits to a four-year period in line with the time limit on refunds and credits in the Tax Administration Act.Previously there was no cap.
The GST has been amended to provide higher thresholds, together with fewer and shorter adjustment periods.The new law will apply for adjustments.For example, two years for acquisitions less than $100,000, five years for those over $100,000 and ten years for real property.Where possible, the existing provisions will be consolidated within the GST law and aligned with other relevant rules elsewhere in the tax system (i.e. the private use percentage will be the same as the direct tax calculation).
Claiming an input tax credit on a later BAS because you failed to claim it in an earlier activity statement is not a GST error.If you did not claim a GST credit for a purchase that you were entitled to claim on in an earlier BAS, you are entitled to claim it on a later BAS.Generally, a four-year time limit applies to input tax credit claims.
From 1 July 2010 greater harmonisation has been introduced between the current self actuating system for GST, wine equalisation tax, luxury car tax and fuel tax credits and the income tax system of self assessment.This should benefit every business due to lower compliance costs and harmonisation across the taxes.Time limits will run from the date of assessment as opposed to the end of a BAS period.
The GST Act allows for certain groups of entities to register as a GST group. This means that intra group transactions are ignored for GST purposes.
Also grouping can lessen the compliance costs as only one BAS is prepared. Furthermore, if some entities are payable and some refundable you only make one ‘net’ payment / refund to the ATO. Members of the group still need to account for GST in their financial accounts individually.
GST groups can consist of two or more companies, trusts, partnerships and individuals; and can register as a group if:
- They are registered for GST;
- They have the same tax periods (i.e. quarterly or monthly);
- They account for GST on the same basis (cash or accruals);
- They are not members of another GST group; and
- There is like ownership.
Like ownership for trusts and partnerships usually requires a 90 per cent common ownership.
GST Grouping and Joint Ventures
From 1st July 2010 there has been numerous changes to the membership rules, and the entry and exit rules for grouping and joint ventures (JVs).Holding companies with no enterprise can be included in a group when this change is implemented.
Furthermore, eligibility for grouping and forming a JV may be determined on a self assessment basis.
GST liabilities on insolvency
In response to the Federal Court of Australia’s decision in a GST test case, DCT v PM Developments Pty Ltd (2008) FCA 1886, the Government has amended the GST law (with retrospective effect to 1 July 2000) to ensure that representatives of incapacitated entities (e.g. administrators and liquidators) remain liable for GST when selling the assets of those insolvent entities.
In other words, the representative will stand in the shoes of the insolvent entity and the sale will attract the same GST consequences that would have applied had the insolvent entity made the sale.The amendment is intended to restore the original policy intent underlying Division 147 of the GST Act.
GST changes to Hire Purchase (HP) contracts effective 1 July 2012
Significant changes have applied since 1 July 2012.
Formerly, under the Hire Purchase contract, only the upfront sale of the asset to the customer by the financier is considered taxable.Term charges imposed on the amount financed and all related fees and charges are considered input taxed, with no GST being levied.
From 1 July 2012, this distinction has been removed and all Hire Purchase contracts are treated as fully taxable.
This means that term charges imposed on the Hire Purchase product including all fees and charges related to a Hire Purchase are subject to GST and payable upon settlement of the contract.
This new GST treatment is different to the GST treatment of a Lease agreement, where the GST is charged progressively on the rentals and residual.
The finance company is now liable for all the GST on the terms, charges and fees up front and will pass the liability onto the hirer by issuing a tax invoice.
The Customer then has two options:
- Pay the GST directly to the Financier from their own funds, at settlement, or
- Elect to have the GST liability in the amount financed under the Hire Purchase contract.
In the May 2015 Federal Budget, it was announced:
- The Government will provide $265.5 million to the ATO over three years from 2016-17 to promote GST compliance.
- The previously announced measure to implement reverse charge rules for going concerns and farmland sales will not proceed.
GST on Netflix and more on the way
The Federal Government has moved to impose the goods and services tax on services such as Netflix.
This change will apply GST to imports of “intangibles” such as downloaded books, music, videos and software.The GST already applies to imported parcels worth more than $1,000.
This will increase the price of a Netflix subscription by 10 per cent.
This change is easily accomplished, requiring little redrafting of the Tax Act.
This change was confirmed in the May 2016 Federal Budget the changes and applies from 1 July 2018.
The liability for the GST will be imposed on overseas suppliers, using a vendor registration model.This means that those suppliers which have Australian turnover of $75,000 or more will be required to register for, collect and remit GST for all goods supplied to consumers in Australia, i.e. regardless of value.
Currently, there is a GST threshold exemption of $1,000 that applies to purchases of imported goods (relevant for online purchases).
Rather than lower the threshold, the Government now proposes to reduce the threshold to zero.This means that all goods supplied by registered foreign vendors will be subject to GST from 1 July 2018.
Taxable supplies of residential premises under development leases
Following a decision in the Federal Court in the Gloxinia Investments case from 3.10.2007, the GST law was amended in 2011 to confirm that the sale of new residential premises constructed under a development lease will be treated as a taxable supply.
Granting of individual strata lot leases over newly constructed residential premises is not sufficient to make future supplies of the premises input taxed.Change in property title arrangements will not result in the premises once again becoming new residential premises.This applied from 1 July 2000.
COMPLIANCE IN FOCUS 2018/19
As the ATO continued to target GST in its 2018 compliance program it became clear that errors were being made in the preparation of Business Activity Statements.Below is a list (by no means exhaustive) of some common errors.
Are you conducting an enterprise?If you are in any doubt refer to Miscellaneous Taxation Ruling MT2006/1.If it’s still not clear, take professional advice.
For “one-off” large transactions always take professional advice.
Be very careful when claiming motor vehicle input tax credits either on purchase of the vehicle (G10) or vehicle expenses (G11).Refer to our comments earlier in this Chapter.
We have put the ATO factsheet “Common BAS errors – Business Portal general problems and solutions” on our website for easy reference.
Always take care when preparing your BAS.A failure to do so will result in a penalty of 50%.
GST AND DIGITAL CURRENCIES
The Government has been grappling the treatment of digital (or crypto) currency for GST purposes including bitcoin, with over 600 other currencies available.
ATO rulings released in December 2014 (GSTR 2014/3; TD 2014/25; TD 2014/26; TD 2014/27 and TD 2014/28) set out their view that bitcoin is neither money nor a foreign currency and the supply of bitcoin is not a financial supply for GST purposes.It likens bitcoin transactions to a barter arrangement, with similar GST consequences.
The result is that trading with bitcoin can give rise to double taxation for GST purposes.
The Government has recently addressed this issue in its “Backing Australian FinTech” statement: 2016 WTB 12.
We will keep you informed on developments.
GST REPORTING REQUIREMENTS SIMPLIFIED FOR SMALL BUSINESSES
From 1 July 2017, all small businesses with less than $10 million turnover have more easily been able to classify transactions and prepare and lodge their business activity statements.
A trial of the new simpler reporting arrangements commenced on 1 July 2016.
GST- 2017 MAY FEDERAL BUDGET CHANGES
GST on new property transactions is now to be collected by purchasers.
From 1 July 2018, purchasers of new residential premises will remit the GST amount directly to the ATO as part of the settlement process.
This measure now requires developers to change the way they disclose the price of newly constructed residential premises to ensure the GST liability is disclosed as a separate line item to enable the purchaser to remit the appropriate amount of GST to the ATO.
Those involved in the settlement process (e.g. financiers, lawyers and conveyancers) will also need to be mindful of their obligations in terms of ensuring the purchaser meets their obligations.
These were no significant changes to GST announced in the May 2018 Federal Budget.