Following recommendations made by the Board of Taxation, the Federal Government has announced a range of proposed amendments to current tax laws to simplify the administration of the GST.
The Tax Laws Amendment (2009 GST Administration Measures) Bill 2009 was introduced into Federal Parliament towards the end of 2009 and contains a curious mix of measures.
The proposed amendments will impact on the ability of taxpayers to claim GST refunds and also provide some additional flexibility in accounting for GST in commercial transactions.
Four-year limitation period for input tax credit and fuel tax credit claims
Currently there is no effective limitation period within which taxpayers may claim input tax credits and fuel tax credits - which means in some circumstances, taxpayers could defer the claiming of credits indefinitely.
This is set to change. The Bill proposes the introduction of a strict four-year limitation period which will apply to input tax claims made after 7.30pm Australian Eastern Standard Time on 12 May 2009 (Budget night), and claims of fuel tax credits from 1 July 2010.
The changes are significant in the context of contractual arrangements for the taxable supply of goods and services. Generally speaking, one would expect a taxpayer who knows they are entitled to an input tax credit and has a supporting tax invoice to claim the credit without delay. But what if neither party to the transaction realised at the time that the supply of goods or services was a taxable supply?
Depending on the contractual arrangements between the parties, the supplier may be entitled to recover an additional amount on account of GST long after the transaction is completed and the original price paid. If the supplier is able to exercise (and enforce) these rights more than four years after the event, the recipient could be contractually liable to pay an amount to the supplier on account of GST, but unable to recover the input tax credit. The supplier's tardiness in correctly identifying its GST liabilities could leave the recipient out of pocket.
This problem will be addressed by providing the recipient with a "decreasing adjustment" under a new Division 133. Where a recipient finds itself contractually obliged to pay an additional amount on account of GST after the four year period for the claiming of input tax credits has expired, the decreasing adjustment will provide the recipient with a benefit akin to that which would have been available as an input tax credit.
Expanding the concept of "agency"
Currently the agency provisions in the GST law allow principals and common law agents to enter into an optional arrangement (referred to as a "Subdivision 153-B Agreement") that enables the agent to be treated for GST purposes as though the agent were the principal acting in its own right. These agreements change the way in which GST is treated as between the agent and third party and as between the principal and the agent. Such arrangements are designed to simplify the way in which principals and agents account for GST, and to reduce compliance costs. However, under the current law, these provisions apply only where the agent is a common law agent of the principal.
The Bill proposes an extension of the current agency provisions to make them available to a greater range of intermediaries that are not recognised as common law agents (eg. paying agents and billing agents). In some cases, entering into a Subdivision 153-B Agreement is the only practical way of ensuring that the recipient of the supply receives a valid and correct tax invoice. However, it is not always desirable to provide the "intermediary" with all the rights and authorities that are indicative of common law agency. The proposed amendments will alleviate the need to promote such intermediaries to the level of common law agent, merely to enable compliance with the GST law.
These amendments will take effect from 1 July 2010.
Avoiding anomalies with associates
Generally, the GST payable on a taxable supply is calculated by reference to the consideration received in connection with making that supply and not the value of the thing being supplied. One important exception is where a supply is made from one "associate" to another. Where the associate rules apply, the GST payable by the supplier will be calculated on the market value of the thing being supplied – whether or not consideration is in fact provided.
The proposed amendments seek to fill certain gaps in the interaction between the associate provisions and the rest of the GST Act. Specifically:
a supplier of goods will be treated as making a GST-free supply of goods where the actual export of the goods is undertaken by an associate of the supplier; and
supplies made for no consideration will not prevent the supply from being made "by way of sale" for the purposes of applying the GST law; and
supplies made to associates for no consideration may still be GST-free supplies, input taxed supplies or financial supplies.
Currently, one of the requirements for a supply to be a "financial supply" is that the supply is made for consideration. The new proposed section 72-25(c) will override that requirement – clarifying that a supply of shares from one associate to another associate for no consideration will be a financial supply (and therefore input taxed) and not an "out of scope" supply. This will mean a denial of input tax credits on both sides of the transaction for any costs relating to the transfer of the shares.
These amendments will be effective from the date of royal assent.
Other changes
Among the other changes proposed by the Bill are the following:
- The Tourist Refund Scheme will be extended to allow residents of Australian External Territories to claim refunds of GST and/or wine equalisation tax;
- The GST law will be amended to clarify how it applies to gambling operators that make GST-free supplies to entities outside Australia; and
- Overpaid indirect tax refunds will be treated as due and payable from the date of overpayment in order to provide consistency with the treatment of underpaid indirect tax liabilities.
What next?
Describing the changes as merely "administrative" belies their significance. The agency changes will enable some commercial structures to be simplified, whereas the changes to the associate provisions will change the extent to which input tax credits are available in certain related party transactions.
This is also only the first round of the proposed changes – further Bills are expected in the near future. It will be important to stay informed about the proposed changes and ensure your business is prepared for them.