Australian master GST guide 2019 [20th edition.] 9781925894066, 1925894061

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FOREWORD This 2019 edition of the Australian Master GST Guide, the 20th in the series, is designed as a practical and up-to-date explanation of how the GST operates in Australia. This book aims to: • help businesses and their advisers to manage and comply with the tax • equip them to take advantage of some of the opportunities that GST offers, and • help them to avoid some of the many traps that GST presents. Plan of this book Part 1 provides a brief overview of how GST operates and covers the crucial issues in understanding the tax (Chapters 1 and 2). The nuts and bolts rules on how GST operates are contained in Part 2. This covers the standard rules on registration, tax periods, accounting basis, GST liability, claiming credits for GST, adjustments, returns and payments (Chapters 3 to 8). Part 3 contains the special rules that apply in areas such as imports and exports, finance, insurance, real property, transport, food, health, education, charities, gambling, second-hand goods, groups and branches (Chapters 9 to 17). Vital planning issues — including pricing and cashflow implications — are covered in Part 4. This part also contains the transitional rules governing pre-GST contracts, and the anti-avoidance rules. Administration, audits, compliance, penalties and review are also covered here (Chapters 18 to 21). Part 5 includes related tax measures — the wine equalisation tax and the luxury car tax. It also explains how GST is treated for income tax purposes and explains various other GST-related tax rules (Chapters 22 to 24). Useful checklists covering the GST status of transactions are contained in Part 6. This part also includes special checklists designed to alert you to GST issues that are relevant to particular industries. A minidictionary of GST terms is also included, as well as a checklist of key GST thresholds (Chapters 25 and 26). Throughout the text, there are convenient cross-references to commentary in CCH’s flagship Australian GST Guide (abbreviated as “GSTG”). A comprehensive index and other information locators appear at the end of the book. Changes since last edition This 2019 edition brings the book fully up to date for all developments since the publication of the previous edition in January 2018. A listing of the main changes introduced since the last edition of the book is provided at page xi. Online editions of this book Reflecting the dynamic GST environment, this book is also available in a continuously updated online version — the Online Master GST Guide. This version completely updates the commentary at least each quarter. It also features electronic links so that you can access the text of specific rulings, legislation or cases referred to in the online commentary. Sophisticated search facilities also enable you to easily search the online commentary for references to specific paragraphs, rulings, legislation or cases. For details, visit Wolters Kluwer’s website at www.wolterskluwer.cch.com.au or contact Wolters Kluwer Customer Support on 1 300 300 224.

Citations Unless otherwise stated, section references are to sections in the A New Tax System (Goods and Services Tax) Act 1999. References to other legislation are prefixed as follows: Administration Act....................................Taxation Administration Act 1953 ITAA 1997....................................Income Tax Assessment Act 1997 ITAA 1936....................................Income Tax Assessment Act 1936 LCT Act....................................A New Tax System (Luxury Car Tax) Act 1999 Reg....................................A New Tax System (Goods and Services Tax) Regulations 1999 CCA....................................Competition and Consumer Act 2010 Transition Act....................................A New Tax System (Goods and Services Tax Transition) Act 1999 WET Act....................................A New Tax System (Wine Equalisation Tax) Act 1999 This edition is up to date for changes notified up to 1 January 2019. Philip McCouat

Wolters Kluwer Acknowledgments Wolters Kluwer wishes to thank the following who contributed to and supported this publication: Regional Director — Research and Learning: Lauren Ma Head of Content — APAC: Diana Winfield Author | Editor: Philip McCouat Cover Designer: Anjali Kakkad Content Coordinator: Nathan Grice

ABOUT THE AUTHOR Philip McCouat MA, LLB (Hons), LLM (Hons), MEnvL, has many years’ experience in business, publishing and the law. In the area of tax, he is the author of the GST Survival Guide and the Australian Motor Vehicle Tax Guide. Philip was the Founding Editor for Tax Navigator for Business Activities and has been a specialist contributor to many other major publications, most recently the Small Business Tax Concessions Guide, the Australian Master Tax Guide, Australian GST Legislation and the Australian Federal Income Tax Reporter.

Highlights of GST developments This sets out significant GST developments — legislative, administrative or judicial — that have occurred since the preparation of the previous edition. It also provides cross-references to the paragraph in this book where the development has been incorporated.

CHAPTER 3: REGISTRATION • A Bill was introduced to ensure that offshore suppliers of rights to use commercial accommodation in Australia will be required to include those supplies in working out their GST turnover, with effect from 1 July 2019.................................... ¶3-030; ¶13-320 • In the 2018/19 Budget, the Treasurer said that the government intends to strengthen the ABN system “to promote improved confidence in the identity and legitimacy of Australian businesses”.................................... ¶3-050

CHAPTER 4: LIABILITY FOR GST / TAXABLE SUPPLIES • The ATO finalised its guidelines on when a supply of goods or real property has the “connection with Australia” necessary to attract GST (GST Ruling GSTR 2018/1; GSTR 2018/2) ....................................¶4100; ¶4-101 • The Commissioner updated guidelines of how prices expressed in digital currency should be converted to Australian currency for GST purposes ....................................¶4-200

CHAPTER 5: CLAIMING INPUT TAX CREDITS / TAX INVOICES • Provisional guidelines were released on the time limit for claiming input tax credits (Draft Miscellaneous Taxation Ruling MT 2018/D1) ....................................¶5-010

CHAPTER 7: ACCOUNTING BASIS / TAX PERIODS • Book entries recording a payment by way of set-off of mutual liabilities can only be effective for GST purposes where there is a real transaction between the parties (Sunlea Enterprises) ....................................¶7-325

CHAPTER 8: GST RETURNS / BAS/ PAYMENT / ASSESSMENT / REFUNDS • For 2018/19, the GDP adjustment factor used in calculating GST instalments is 6% ....................................¶8-037 • Interest on GST refunds accrues from 14 days after the entitlement to the refund arose, irrespective of when the ATO became aware of the refund amount (Travelex) ....................................¶8-110

CHAPTER 9: IMPORTS AND EXPORTS • A Bill was introduced to ensure that the luxury car tax (¶23-050) on cars re-imported into Australia, following a refurbishment overseas, will be removed from 1 January 2019 .................................... ¶9-050 • Guidelines on applying the rules for imports of intangibles through electronic distribution platforms were finalised (Law Companion Ruling LCR 2018/2) ....................................¶9-120 • The new rules governing imports of low value goods come into force on 1 July 2018 ....................................¶9-130 • Guidelines on the new rules governing imports of low value goods were finalised (Law Companion Rulings LCR 2018/1 and 2018/3) and on (1) the method of converting foreign currency amounts under the low-value import rules, and (2) how mistakes or non-compliance with the rules will be treated ....................................¶9-130

CHAPTER 11: REAL ESTATE / ACCOMMODATION / SALE OF BUSINESS • Under legislation effective from 1 July 2018, purchasers of newly-constructed residential premises or new subdivisions of potential residential land are required to remit the GST amount directly to the Tax Office. Guidelines for purchasers have been released ....................................¶11-022 • The ATO warned that it is reviewing certain development lease arrangements where there is an inconsistency between the ways the developer and government entity are reporting the value of the supplies (Taxpayer Alert TA 2018/3) ....................................¶11-062 • A Bill was introduced to ensure that offshore suppliers of rights to use commercial accommodation in Australia will be required to include those supplies in working out their GST turnover, with effect from 1 July 2019 ....................................¶11-320; ¶12-020; ¶3-030 • On appeal, it has been ruled that in determining whether a method of valuation under the margin scheme is approved, it is appropriate to consider whether it has been made in accordance with relevant professional standards (Decleah Investments) ....................................¶11-120 • The ATO provisionally considers that there may be an improvement to land where an activity increases the usefulness of the land to the occupier, even if it does not enhance its value (Draft amendment to GSTR 2006/6) ....................................¶11-400

CHAPTER 12: TRANSPORT, TRAVEL AND VEHICLES • The ATO finalised its views on determining whether a tour operator is acting as an agent or a principal (Practical Compliance Guideline PCG 2018/6) ....................................¶12-020 • A Bill was introduced to ensure that offshore suppliers of rights to use commercial accommodation in Australia will be required to include those supplies in working out their GST turnover, with effect from 1 July 2019 ....................................¶12-020; ¶3-030; ¶11-320 • The Tax Office is conducting a data matching program for vehicles that have been transferred or newlyregistered in the period 2016/17 to 2018/19. This will involve obtaining data from all Australian registry offices, so as to check compliance with GST requirements ....................................¶12-080 • The car limit for 2018/19 is $57,581, unchanged from the previous year ....................................¶12-110

CHAPTER 13: FOOD, HEALTH AND MEDICAL • GST exemption was extended to menstrual products, from 1 January 2019 ....................................¶13350

CHAPTER 16: GAMBLING, SECOND-HAND GOODS AND OTHER MEASURES • The government finalised guidelines for determining the market value of precious metals under reverse charge rules (Goods and Services Tax Valuable Metals Market Valuation Determination 2018) ....................................¶16-210

CHAPTER 18: ADMINISTRATION / AUDIT / REVIEW • Law Companion Guidelines are now to be known as Law Companion Rulings ....................................¶18-030 • The liquidators of a company who had obtained documents from other parties under a summons were not entitled to refuse to comply with a notice from the Commissioner to produce those documents (Rennie Produce (Aust) Pty Ltd &Ors) ....................................¶18-110 • The ATO identified the five most common errors in GST reporting ....................................¶18-170 • Legislation was passed to extend the formal third party reporting system to businesses involved in providing road freight, IT or security investigation or surveillance ....................................¶18-110 • The rates of general interest charge were updated ....................................¶18-300 • A company that failed to disclose cash receipts from its restaurant business was ruled to be liable for penalty calculated on the basis that its behaviour was reckless (Salser) ....................................¶18-300 • A director of a business who made fictitious expense claims and fraudulently claimed large amounts in GST refunds without having tax invoices was sentenced to over five years imprisonment (ATO Media Release) ....................................¶18-300 • A letter from the ATO stating that it would be prepared to accept a payment of a lump sum in full discharge of the taxpayer’s outstanding tax, inclusive of an estimated GST charge, did not amount to a decision to remit GIC (Pintarich) ....................................¶18-305 • From 1 July 2018, the ATOmay provide certain penalty relief for inadvertent errors in Activity Statements by entities with a turnover of less than $10 million ....................................¶18-305 • Where the question was whether the taxpayer’s position was “reasonably arguable” for the purpose of assessing a penalty, the AAT could not require the ATO to produce internal legal advices prepared by its officers in relation to the taxpayer (ACN 154 520 199) ....................................¶18-650; ¶20-110

CHAPTER 20: ANTI-AVOIDANCE RULES • Draft legislation was introduced to implement a 2018/19 Budget proposal extending the Director Penalty Regime to GST, luxury car tax and wine equalisation tax, so as to make directors personally liable for the company’s tax debts ....................................¶20-000 • Draft legislation to require directors to have unique Director Identification Numbers was introduced ....................................¶20-030 • Internal legal advice obtained by the Commissioner in relation to a taxpayer’s case was held to be liable to be produced to the tribunal in determining whether the position adopted by that taxpayer was reasonably arguable (ACN 154 520 199 Pty Ltd) ....................................¶20-110

CHAPTER 21: PLANNING / PRICING / CASHFLOW • Legislation was passed to extend the third-party reporting obligations to the security, road freight and IT industries ....................................¶21-045; ¶18-110

CHAPTER 22: WINE EQUALISATION TAX • The definition of wine does not impose any requirements as to the appearance, state or other characteristics of the final product, other than the requirement that for the beverage to be produced from the fermentation of fresh grapes or products derived solely from fresh grapes (Diva Beverages) ....................................¶22-010 • Legislation came to into force to reduce the wine producer rebate to $350,000 (¶22-560), impose integrity changes by restricting eligibility to the rebate in certain circumstances (¶22-560) and impose associated changes to the quoting and GST credit rules ....................................¶22-420, ¶22-430, ¶22550

CHAPTER 23: LUXURY CAR TAX • A Bill was introduced to implement a 2018/19 Budget proposal that the luxury car tax on cars reimported into Australia, following a refurbishment overseas, be removed from 1 January 2019 ....................................¶23-050 • The general luxury car tax threshold was increased to $66,331 for 2018/19. The “fuel efficient” threshold remains at $75,526 ....................................¶23-150 • Where a supplier disputes an assessment of LCT on the basis that an effective quote has been made, the onus is on the supplier to establish that this is so (Mavris) ....................................¶23-250

List of Abbreviations Unless otherwise stated, section references are to sections in the A New Tax System (Goods and Services Tax) Act 1999. References to other legislation are prefixed as follows: Administration Act: Taxation Administration Act 1953 ITAA 1997

Income Tax Assessment Act 1997

ITAA 1936

Income Tax Assessment Act 1936

GST

Goods and services tax

GSTG

The GST Guide (CCH)

LCT

Luxury car tax

LCT Act

A New Tax System (Luxury Car Tax) Act 1999

Reg

A New Tax System (Goods and Services Tax) Regulations 1999

s

section

CCA

Competition and Consumer Act 2010

Transition Act

A New Tax System (Goods and Services Tax Transition) Act 1999

WET

Wine equalisation tax

WET Act

A New Tax System (Wine Equalisation Tax) Act 1999

HIGHLIGHTS OF RECENT GST CHANGES ¶1 Highlights of recent GST changes

A checklist of recent developments included in this update is given below. CHAPTER 5: CLAIMING INPUT TAX CREDITS / TAX INVOICES Provisional guidelines were released on the time limit for claiming input tax credits (Draft Miscellaneous Taxation Ruling MT 2018/D1) ¶5-010 CHAPTER 8: GST RETURNS / BAS/ PAYMENT / ASSESSMENT / REFUNDS For 2018/19, the GDP adjustment factor used in calculating GST instalments is 6% ¶8-037 CHAPTER 11: REAL ESTATE / ACCOMMODATION / SALE OF BUSINESS The ATO warned that it is reviewing certain development lease arrangements where there is an inconsistency between the ways the developer and government entity are reporting the value of the supplies (Taxpayer Alert TA 2018/3) ¶11-062 CHAPTER 12: TRANSPORT, TRAVEL AND VEHICLES The ATO finalised its views on determining whether a tour operator is acting as an agent or a principal (Practical Compliance Guideline PCG 2018/6) ¶12-020 CHAPTER 13: FOOD, HEALTH AND MEDICAL GST exemption was extended to menstrual products, from 1 January 2019 ¶13-350 CHAPTER 18: ADMINISTRATION/AUDIT/REVIEW Legislation was passed to extend the formal third party reporting system to businesses involved in providing road freight, IT or security investigation or surveillance ¶18-110 The rates of general interest charge were updated ¶18-300 A director of a business who made fictitious expense claims and fraudulently claimed large amounts in GST refunds without having tax invoices was sentenced to over five years imprisonment (ATO Media Release) ¶18-300 A letter from the ATO stating that it would be prepared to accept a payment of a lump sum in full discharge of the taxpayer’s outstanding tax, inclusive of an estimated GST charge, did not amount to a decision to remit GIC (Pintarich) ¶18-305 CHAPTER 20: ANTI-AVOIDANCE RULES Draft legislation to require directors to have unique Director Identification Numbers was introduced (Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2018 ¶20-000 CHAPTER 21: PLANNING / PRICING / CASHFLOW Legislation was passed to extend the third-party reporting obligations to the security, road freight and IT industries ¶21-045; ¶18-110

OVERVIEW • BASIC CONCEPTS INTRODUCTION What is GST?

¶1-000

A 10-point guide to GST

¶1-010

HOW GST OPERATES GST liability and input tax credits

¶1-100

Registration

¶1-110

Tax periods

¶1-120

Basis of accounting

¶1-130

GST returns, payments and refunds ¶1-140 Tax invoices and adjustments

¶1-150

Non-taxable and GST-free supplies ¶1-160 Input taxed supplies

¶1-170

Special rules and concessions

¶1-180

Transitional rules

¶1-200

SMALL BUSINESS ENTITIES Overview: small businesses

¶1-250

Carrying on a business

¶1-255

Aggregated turnover test

¶1-260

Calculating aggregated turnover

¶1-265

Affiliates

¶1-275

Connected entities

¶1-280

LEGISLATIVE BACKGROUND Sources of GST legislation

¶1-300

Complexity of GST

¶1-310

Interpretation of GST legislation

¶1-315

Commissioner’s rulings

¶1-540

Editorial information

Summary This chapter explains the main concepts involved with GST and briefly describes how the GST works. It also identifies the main exemptions, special rules and transitional provisions. Although presented in simplified form, this chapter is fully cross-referenced so you can use it as a starting point and then go on to further details of the topics you are interested in.

INTRODUCTION ¶1-000 What is GST? A 10% goods and services tax (GST) started full operation in Australia on 1 July 2000. The GST is an indirect, broad-based consumption tax. Indirect means that it is levied on the supply of goods, services or activities, rather than directly on income. Other indirect taxes include sales tax and stamp duty. Consumption tax means, in economic terms, that the tax is ultimately borne by consumers, not by producers or suppliers. A broad-based tax means that it applies generally to all transactions made by all types of taxpayers, with only limited exceptions. It can be contrasted with taxes such as sales tax, which was generally limited to transactions involving sales, and transactions involving certain types of goods. GST is similar to taxes known in other countries as value-added taxes (VATs). The “value-added” refers to the feature that the net tax payable at any one stage is based on the increase in the price. Despite its name, GST is not limited to “goods and services” in the normally understood sense. For example, it also applies to real estate and the creation of rights. GST is therefore a convenient but not an entirely accurate shorthand term. GST replaced sales tax (more formally known as the wholesale sales tax or WST). The introduction of GST was also accompanied by the introduction of Wine Equalisation Tax (¶22-000) and Luxury Car Tax (¶23-000), and by a series of other tax measures, collectively forming part of the so-called New Tax System. In 2017/18, total annual net GST collections were about $63b, representing about 16% of total taxation revenue for all levels of government (ATO Annual Report 2017/18). An additional $3b in GST liabilities was raised through the ATO’s direct compliance activities. The main GST collections are from property and business services, and the wholesale and manufacturing sectors. There are over two million actively trading businesses registered for GST. Although the formal commencement date was 1 July 2000, GST could apply to certain contracts entered into before that date, under special transitional rules (¶19-000). No increase proposed in GST As at 31 December 2018, the government has indicated that it does not intend to propose any increase in the GST to take effect during its current term. As a matter of information, the Parliamentary Budget Office has released a summary of the revenue impacts of various options for changing the GST, including increasing the GST rate and/or removing some or all of the major exemptions (“Goods and Services Tax: Distributional analysis and indicative reform scenarios”, Report No 5/2015, 9 December 2015).

¶1-010 A 10-point guide to GST Here is a 10-point simplified snapshot of how GST works. Each of these steps is explained later in this chapter. (1) GST liability. Liability for GST arises where a registered entity — typically a business — makes supplies to its customers. The GST is imposed at the rate of 10%. Typically, it is included in the price paid by the recipient of the goods or services. The supplier must account for the amount of GST to the Tax Office (¶1-100). (2) Getting credits for GST. If the recipient of goods or services is a registered entity, it will normally be

able to claim a credit for the amount of GST in the price, provided it holds a tax invoice. This credit — called an input tax credit — is offset against any GST which the business itself is liable to account for on goods and services it has supplied to its own customers (¶1-100). (3) Burden on end-consumer. The net effect is that registered entities receive an amount representing GST but do not keep it, and pay an amount representing GST but get a credit for it. This means that they act essentially as collecting agents for the tax. The ultimate burden of the tax falls on the private consumer of the goods and services, as this person gets no credit for the GST component of the price (¶1-100). (4) Registration. Most entities will have to register for GST, although there are some exceptions. If an entity is not registered, GST normally cannot apply to the supply, and the supplier cannot claim credits for the GST component of its acquisitions (¶1-110). (5) Accounting basis and tax periods. GST and input tax credits are allocated to particular tax periods either on a cash basis (based on when amounts are received or paid out) or on an accruals basis (based on when invoices are sent or received). There are restrictions on who can use the cash basis (¶1-130). Tax periods may be monthly, quarterly or, in some limited situations, annually. Monthly tax periods are compulsory in some situations, such as where GST turnover is $20m or more (¶1-120). (6) Returns. Entities account to the Tax Office for their GST liabilities and credit entitlements by making a GST return in their Business Activity Statement (¶1-140). A separate GST return is made for each tax period, though some exemptions apply to quarterly taxpayers on the “instalments” system. (7) Tax or refund? If the GST allocated to a tax period is more than the credits for that period, the entity pays the balance to the Tax Office. If the credits exceed the GST, the entity gets a refund (¶1-140). Adjustments may need to be made later if there is a change of circumstances (¶6-000). (8) GST exemptions. Some transactions are outside the scope of GST altogether because, for example, they are gifts, or made by unregistrable entities, or have no connection with Australia. Others are “GST-free” which means that GST does not apply to the supply, but the supplier can claim credits for the GST on its own related acquisitions. The main GST-free items are exports, healthcare, food, education, international travel and certain charitable activities (¶1-160). (9) Input taxed supplies. A small range of supplies are “input taxed”. This means that GST does not apply to the supply, and the supplier cannot claim credits for the GST on its own acquisitions. The main input taxed items are financial services and the supply of residential rental premises (¶1-170). (10) Special rules apply to a wide range of items including imports, land development, insurance, motor vehicles, second-hand goods, small businesses, charities and gambling (¶1-180).

HOW GST OPERATES ¶1-100 GST liability and input tax credits GST applies where you supply goods or services — including real property and rights — in the course of carrying on an enterprise such as a business. These are called taxable supplies. For there to be a taxable supply, you must normally be registered, the supply must be made for consideration and it must be connected to Australia (¶4-000). The typical example of a “supply” is a sale, but anything else that could be described as supply in the normal sense of the word is also covered. A supply includes creating or surrendering a right (¶4-010). The rate of GST is 10%. This is typically included in the price paid to you by your customer. You must account for the amount of GST to the Tax Office. If you acquire goods or services as part of your business, you can claim a credit for the GST component of the price. This is called an input tax credit because it is a credit on your business inputs. For this to

apply, you must normally be registered, the acquisition must be for consideration and the supply must be connected to Australia (¶5-010). The combined effect of these rules is that the ultimate burden of the GST will fall on the end user, or private consumer. The businesses that form part of the chain of supply act as progressive collectors of the tax, but do not ultimately bear the burden of it. The following example gives you an idea of how GST is accounted for at the various stages of production. Example A customer buys a leather briefcase from a retailer. The retailer had acquired the briefcase from a leathergoods manufacturer that had acquired the leather to make the briefcase from a tannery. The tannery had bought cowhide from an abattoir to make the leather. Assume that all parties are registered, except for the customer. The GST rules apply as follows: (1) The abattoir sells the cowhide to the tannery for $22 (including $2 GST). When the abattoir fills in its GST return, it takes the GST it collected on its sale to the tannery ($2), subtracts any GST it paid for input (its input tax credit, in this case assume nil) and sends the net amount ($2) to the Tax Office. (2) The tannery processes the cowhide into leather and sells it to the leathergoods manufacturer for $44 (including $4 GST). When the tannery fills in its GST return, it takes the GST it collected on its sale to the manufacturer ($4), subtracts the GST it paid on its inputs ($2 paid to the abattoir on purchase of the cowhide) and sends the net amount ($2) to the Tax Office. The Tax Office has therefore collected $4 in total so far. (3) The leathergoods manufacturer makes the leather into a briefcase that it sells to a retailer for $88 (including $8 GST). When the manufacturer fills in its GST return, it takes the GST it collected from the retailer ($8), subtracts the GST it paid on its inputs ($4 paid to the tannery) and sends the net amount ($4) to the Tax Office. The Tax Office has therefore collected $8 in total so far. (4) The retailer sells the briefcase to the final consumer for $110 (including $10 GST). When the retailer fills in its GST return, it takes the GST it collected on the sale to the consumer ($10), subtracts the GST it paid on its inputs ($8 paid to the manufacturer), and sends the difference ($2) to the Tax Office. The Tax Office has therefore collected $10 in total. This means that the total GST payable on the briefcase was $10, which was the total amount sent to the Tax Office. It is also clear that the businesses did not ultimately bear the GST — this was totally borne by the final customer as part of the price paid.

GST is also payable if you import goods. However, in this case you, as importer, account for the GST instead of the supplier. You also claim an input tax credit for the amount of GST payable (¶9-000).

¶1-110 Registration To attract GST or claim input tax credits, you must normally be registered (¶3-000). You register with the Tax Office, which is the body responsible for administering the GST. Registration is compulsory if your GST turnover is $75,000 or more ($150,000 if you are a non-profit body). To be registered, you have to show that you are carrying on an enterprise — this is similar to showing that you are in business, but it is not limited to that (¶3-020). To be registered you must be an “entity”, for example an individual, company, trust, partnership or unincorporated association (¶3-015).

¶1-120 Tax periods Your liability is worked out at the end of each of your tax periods. These periods are normally monthly or quarterly. Monthly tax periods must be used if: • your GST turnover is $20m or more, or • you have a bad tax history. If you use quarterly tax periods they will normally end on 31 March, 30 June, 30 September and 31 December (¶7-100). Annual tax periods may apply where GST is being paid by instalments (¶8-037), or where voluntarilyregistered taxpayers so elect (¶8-040).

¶1-130 Basis of accounting The GST and the input tax credits that belong to each period are worked out according to attribution rules, which vary according to whether you are on a cash basis or an accruals basis of accounting. If you are on the cash basis, you work out your GST and input tax credits for each tax period on the basis of amounts actually received and paid out. You can use the cash basis if: • you satisfy a small business test • you account on a cash basis for income tax purposes • you are a charity, or • you can convince the Tax Office that it is appropriate (¶7-300). If you use the accruals basis, you work out your GST and input tax credits for each tax period on the basis of your entitlement to be paid and your obligation to pay. This will often be when you give or receive an invoice (¶7-205).

¶1-140 GST returns, payments and refunds If you are registered or required to be registered, you need to make a GST return in your Business Activity Statement, and account for the GST. This must be done for each tax period. This may be: • monthly (¶8-002) • quarterly (¶8-002), subject to some concessions (¶8-036), or • annually, in certain situations (¶8-037; ¶8-040). If your GST turnover is $20m or more, you must normally lodge electronically (¶8-043). The amount you are liable to pay for each tax period is the GST for that period less the input tax credits for that period. If the credits exceed the GST, you are eligible for a refund. You pay at the same time you lodge your return. If your GST turnover is $20m or more, you must pay electronically (¶8-100).

¶1-150 Tax invoices and adjustments Generally, you must hold a “tax invoice” at the time you lodge your GST return for the period in which the claim for an input tax credit is made. A tax invoice is a special type of document that contains prescribed items of information, including the supplier’s Australian Business Number (¶5-100). In certain situations, the tax invoice may need to be prepared by the recipient, rather than the supplier (¶5-140). Adjustments to previously declared GST or input tax credits may be needed if supplies are later cancelled, goods are returned, there is a part-refund, or a change of GST status. These “adjustment events” are taken into account in the later tax period (¶6-100). If they have the effect of reducing your liability, you must hold an “adjustment note” at the time of lodging the GST return for the period in which they are claimed. Adjustment notes contain information similar to tax invoices (¶6-110). Other adjustments may be required if there is a bad debt, a change in the intended business use, or where a business is started, transferred or closed down (¶6-000). Tax invoices are not essential if the supply is for $75 or less, excluding GST (¶5-170). Adjustment notes are not essential if the amount of the adjustment is $75 or less (¶6-135).

¶1-160 Non-taxable and GST-free supplies There are three types of exemption from GST. These are: • supplies outside the GST system

• GST-free supplies • input taxed supplies. Supplies outside the GST system The GST rules generally did not apply to supplies made before 1 July 2000. Nor, in general, do they apply to gifts (¶4-030), supplies made by unregistrable entities, supplies made by business entities that are not registered and are not required to be registered (¶4-090), or transactions that have no connection with Australia (¶4-100). For example, sales made at a private garage sale are not caught by the GST. The Commonwealth Government itself is not liable for GST, but has a notional liability for the purpose of its dealings with others (¶5-010). Appropriations made between government agencies are also not subject to GST (¶4-040). GST-free supplies If a supply is GST-free, this means that no GST is payable on it, but that the supplier is entitled to claim credits for the GST payable on its business inputs that relate to that supply (s 9-5; 11-15). For this reason, it is quite different from a supply which is outside the GST system altogether. Example A registered greengrocer’s business consists wholly of selling fresh food. The sale of that food is GST-free. GST therefore does not apply to the sale of the food, but the greengrocer can claim credits for the GST component of the goods and services it acquires in carrying on its business, for example, rent and equipment. Note: If the greengrocer used some of those goods for private, non-business purposes, only a proportion of the input tax credit for GST on those goods would be allowed (¶5-010).

GST-free supplies include: • exports (¶9-200) • health and medical care (¶13-300) • education (¶14-000) • food (¶13-100) • child care (¶14-100) • certain activities of charities and gift-deductible bodies (¶15-000) • religious services (¶15-050) • sales of businesses (¶11-500) • water, sewerage and drainage (¶16-200) • certain transactions involving precious metals (¶16-210) • international travel and transportation of goods (¶12-000; ¶12-010) • international mail (¶12-050) • supplies through inwards duty-free shops (¶12-020) • Crown land (¶11-400) • farm land (¶11-410)

• subdivisions of farm land for family residential purposes (¶11-420) • cars for disabled people (¶12-150) • certain prepaid funerals (¶13-380) • eligible emissions units (¶16-220). If a supply is GST-free, the supply of a right to that supply is also GST-free (s 9-30). Supplies of items such as retail books, public transport or domestic tourism are not GST-free. The greatest impact of GST-free status will normally be felt where the customer is a private consumer. It will not matter so much where the customer is a business that can get an input tax credit for GST in any event, though there may be some cashflow implications (¶21-060).

¶1-170 Input taxed supplies If a supply is “input taxed”, no GST is payable on it, but the supplier normally cannot claim input tax credits for the GST payable on its business inputs that relate to that supply (s 9-5; 11-15). Example A registered landlord’s business consists wholly of letting private residential premises. These are input taxed supplies. GST therefore does not apply to the rental, and the landlord cannot claim input tax credits for the GST component of the goods and services it acquires to run the business. Note: If the landlord also used some of the goods and services in other business activities that were taxable (or GST-free), it could claim a proportion of the GST as an input tax credit (¶5-010).

Input taxed supplies are set out in Div 40 (s 9-5). They include: • financial supplies such as loans, dealings in money and issuing securities (¶10-000) (note that in this particular case, limited input tax credits may be available) • the supply of residential rental premises (¶11-300; ¶11-320) • sales of residential premises (but not new homes or commercial premises) (¶11-010) • food at school tuckshops (optional) (¶14-010) • certain transactions involving precious metals (¶16-210) • certain fundraising activities of charities (¶15-055). If a supply is input taxed, the supply of a right to that supply is also input taxed (s 9-30). It is possible that a supply can be categorised as both a GST-free supply and an input taxed supply. In these cases, the GST-free status prevails (s 9-30(3)). Of course, this rule does not apply if a taxpayer has specifically chosen to be input taxed, for example, where a school tuckshop elects to treat its food sales as input taxed. A supply will also be input taxed if it is a supply of anything that you have used solely in connection with other input taxed supplies that you make (s 9-30(4)). This does not apply to a supply of new residential premises (¶11-020), or where the other input taxed supplies are financial supplies.

¶1-180 Special rules and concessions Some special rules and concessions that have not already been covered are set out below in alphabetical order.

Agents. A principal and an agent (or intermediary) can agree that the agent should be treated as a principal for GST purposes. If a non-resident acts through an agent resident in Australia, the agent is responsible for the GST consequences (¶17-400). Associates. Special rules apply if you supply something to an associate at a price below market value, or as a gift. The supply will be treated as if it had been for market value, unless the associate would have been entitled to a full input tax credit. An associate includes a relative, business partner, entities in trustee/beneficiary relationships, and companies and their controllers (¶17-500). Avoidance. The Commissioner has wide powers to cancel GST benefits that arise from contrived schemes and may also impose substantial penalties (¶20-000). Branches. Special rules allow you to register your business branches separately. This procedure is intended to avoid the administrative and accounting costs of having to amalgamate branch accounts every tax period (¶17300). Charities. Charities and non-profit bodies are generally subject to GST on their commercial activities, but their noncommercial activities are GST-free. They are also entitled to concessions on registration and choice of accounting basis. They may also arrange for their operations to be split into separate independent units for GST purposes, may claim the benefit of simplified accounting methods, and may choose to have their fundraising activities input taxed (¶15-000; ¶25-110). Commercial residential premises. Special rules apply where commercial residential premises, such as caravan parks, are rented out on a long-term basis (ie for more than 28 days) (¶11-320). Deposits taken as security for performance of an obligation are not subject to GST if the obligation is performed (¶4-070). Financial suppliers who would normally be input taxed may be able to claim partial input tax credits for certain outsourced services (¶10-040). Input tax credits may also be claimed where the financial supplier does not exceed the specified threshold or in certain borrowing transactions. Gambling. Special rules for calculating GST apply if you provide gambling services. These include selling tickets in lotteries or raffles, or accepting bets on races, games, sporting events or any other events (¶16-000). Groups. Certain groups of companies, trusts, individuals or partnerships can be treated as a single taxpayer for GST purposes. This means that purely internal transactions within the group do not have any GST consequences. One member of the group — the representative member — is responsible for lodging returns (¶17-000). Importations. The GST is payable by the importer rather than the overseas supplier (¶9-000). Insurance. Detailed rules apply to premiums and payouts. The GST treatment varies according to the type of insurance involved (¶10-100).

Joint ventures. Bodies engaged in specified types of joint ventures can have it approved for GST purposes. This will mean that the operator of the venture is responsible for the GST liabilities and entitlements arising from the operator’s dealings on behalf of the venture participants (¶17-200). Pre-establishment costs. A company may be entitled to input tax credits for acquisitions and importations made before it was incorporated (¶5-030). Property dealers and developers. These can use a “margin scheme” that allows them to calculate their GST liabilities as 1/11th of the difference between the tax-inclusive sale price and the original purchase price. Special rules apply to real estate held at 1 July 2000 (¶11-100). Redeemable vouchers are subject to GST on redemption rather than on the original acquisition (¶4-060). Reimbursements. In certain circumstances, input tax credits can be claimed where employees and others are reimbursed for expenses they incur in the course of their duties (¶5-040). Resident agents. If a non-resident acts through an agent resident in Australia, the agent is responsible for the GST consequences (¶17-400). Reverse charge. Certain services or rights provided from outside Australia may be caught by GST even though they are not made through an Australian business of the supplier. In these cases, the GST is payable by the recipient, not by the provider. This “reverse charging” overcomes the fact that the supplier will often not be within the Australian GST system. Reverse charging can also apply where general taxable supplies are made by non-residents, if both parties agree (¶9-095). Second-hand goods. In certain cases, dealers will be able to claim input tax credits on second-hand goods even though the person who supplied them with the goods was not registered for GST purposes (¶16-100). A “global” method of accounting for GST and input tax credits on second-hand goods may be available in certain circumstances (¶16-120). Small business entities. Taxpayers that qualify as small business entities (¶1-250) can claim various concessions such as cash accounting, annual apportionment of input tax credits and payment of GST by instalments. Small business entities are those whose income, when aggregated with the income of other related bodies, is less than $10m. Tourist refunds. Departing tourists may be entitled to refunds of GST paid on purchases that they take home with them (¶12-030).

¶1-200 Transitional rules The general rule is that GST is payable only on supplies and importations made on or after 1 July 2000, and that sales tax does not apply to those transactions. Similarly, input tax credits can only be claimed on acquisitions and importations made on or after 1 July 2000 (¶19-100). However, there were qualifications to this rule. For example, supplies made on or after 1 July 2000 could be GST-free in certain situations, where the contract was entered into before the GST officially became law (8 July 1999).

Other transitional rules affected: • redeemable vouchers (¶4-060) • progressive or periodic supplies (¶19-210) • rights exercisable after 30 June 2000 (¶19-200) • construction contracts (¶19-230) • life memberships (¶19-220) • prepaid funerals (¶13-380) • luxury vehicles (¶12-110) • stocks of second-hand goods on hand at 1 July 2000 (¶16-130).

SMALL BUSINESS ENTITIES ¶1-250 Overview: small businesses An entity’s eligibility to claim the following GST concessions normally depends on it qualifying as a “small business entity”: • cash accounting (¶7-300) • annual apportionment of input tax credits (¶5-020) • payment of GST by instalments (¶8-037). To be a small business entity, the entity must satisfy two requirements: (1) it must be carrying on a business (¶1-255), and (2) it must satisfy the $10m aggregated turnover test (¶1-260). Broadly, this means that the income of the entity and associated entities must be less than $10m (ITAA 1997 Subdiv 328-C). For tax periods starting before 1 July 2007, eligibility for these concessions instead depended on the entity satisfying various tests based on “annual turnover” (¶3-030). For tax periods starting on or after that date, those tests — renamed as “GST turnover” tests — still apply in determining the eligibility of the limited range of entities that are carrying on an enterprise that does not constitute a business, eg some charities, trustees of superannuation funds and government bodies. The GST turnover tests also still apply in determining certain GST liabilities, ie for compulsory registration (¶3-000), compulsory monthly tax periods (¶7-100) and electronic lodgment (¶8-043). They also apply in determining eligibility for annual payment of GST (¶8-040). There are substantial differences between GST turnover and the aggregated turnover used for the small business entity test. For example: (1) the aggregated turnover test applies to the total ordinary income, whereas GST turnover excludes the value of input taxed and cert