Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2008-2009-2010
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
tax laws amendment (2010 GST administration measures no. 1) bill 2010
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary 1
General outline and financial impact 3
Chapter 1 Adjustments for third party payments 5
Chapter 2 Attribution of input tax credits 15
Index 19
Do not remove section break.
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
|Abbreviation |Definition |
|BAS |business activity statement |
|GST |goods and services tax |
|GST Act |A New Tax System (Goods and |
| |Services Tax) Act 1999 |
|TAA 1953 |Taxation Administration Act |
| |1953 |
General outline and financial impact
Adjustments for third party payments
Schedule 1 to this Bill amends the A New Tax System (Goods and
Services Tax) Act 1999 to ensure that the appropriate amount of
goods and services tax is collected and the appropriate amount of
input tax credits claimed in situations where there are payments
between parties in a supply chain, which indirectly alter the price
paid or received by the parties for the things supplied, but for
which an adjustment does not presently arise because the parties
are not directly involved in a supply from one to the other.
Date of effect: This measure has effect on and from 1 July 2010.
Proposal announced: The measure was announced in the then
Assistant Treasurer's Media Release No. 042 of 12 May 2009.
Financial impact: This measure will have these revenue
implications:
|2009-10 |2010-11 |2011-12 |2012-13 |2013-14 |
|Nil |Low |Low |Low |Low |
Compliance cost impact: Low.
Attribution of input tax credits
Schedule 2 to this Bill amends the A New Tax System (Goods and
Services Tax) Act 1999 to clarify that until the expiry of the
relevant limitation period, input tax credits may always be claimed
in the current tax period.
Date of effect: This measure has effect on and from 1 July 2010.
Proposal announced: This measure was announced in the then
Assistant Treasurer's Media Release No. 042 of 12 May 2009.
Financial impact: Negligible. This measure clarifies the
interpretation of the law in a manner consistent with current
administration.
Compliance cost impact: Negligible. This measure clarifies the
interpretation of the law in a manner consistent with current
practice.
This measure also has a negligible transitional impact. No changes
to existing systems or practice are required.
Chapter 1
Adjustments for third party payments
Outline of chapter
1. Schedule 1 to this Bill amends the A New Tax System (Goods and
Services Tax) Act 1999 (GST Act) to ensure that the appropriate
amount of goods and services tax (GST) is collected and the
appropriate amount of input tax credits claimed in situations where
there are payments between parties in a supply chain which
indirectly alter the price paid or received by the parties for the
things supplied.
2. This is achieved by creating an adjustment to apply in situations
where an entity (the payer) supplying things for re-sale makes a
monetary payment to a third party (the payee) in connection with
the payee's acquisition of those things. This adjustment occurs
when the payer does not supply the things directly to the payee but
rather through a supply chain.
Context of amendments
3. The amount of GST paid or input tax credits claimed in a previous
tax period may need to be adjusted to ensure that the correct GST
outcome is obtained when circumstances change. Adjustments may
arise due to, among other things, changes in consideration such as
a change in price due to a discount. A third party rebate may not
give rise to an adjustment because it would not, ordinarily, alter
the consideration for the supply by the payer to its customer, or
the consideration paid for the acquisition by the payee from its
supplier.
4. An adjustment is either an increasing or decreasing adjustment. An
increasing adjustment is added to the net amount for a tax period,
which will either increase the amount payable by the entity to the
Australian Taxation Office (ATO), or reduce the amount payable by
the ATO to the entity. A decreasing adjustment is subtracted from
the net amount for a tax period, which will either decrease the
amount payable by the entity to the ATO, or increase the amount
payable by the ATO to the entity.
5. Where a registered entity supplies things to another entity and
that second entity supplies those things to a third party, the
original supplier of the things sometimes makes a payment, such as
a rebate, to the third party - a third party payment. As the law
currently operates, the original supplier must remit GST based on
the price for which it sells the things to the second entity, with
no adjustment for the third party payment. The third party can
claim an input tax credit based on the price paid to its supplier
with no adjustment for the third party payment.
Summary of new law
6. Where the payment to the payee indirectly reduces the amount the
payer receives for a supply, the payer will be entitled to a
decreasing adjustment reflecting the difference between the GST
remitted on the original supply and the GST which would have been
payable on the supply if the consideration was calculated net of
the third party payment. The payee will have an increasing
adjustment if the acquisition was for a creditable purpose. This
adjustment will arise even if there are several interposed entities
in the supply chain.
Comparison of key features of new law and current law
|New law |Current law |
|The payer will be |A payment by a supplier |
|entitled to make a |to a third party in a |
|decreasing adjustment in |supply chain does not |
|the event that, having |ordinarily give rise to |
|made a taxable supply to |an adjustment for the |
|an entity, it makes a |payer. |
|payment to a third party |A payment received by a |
|in the supply chain which|recipient from a third |
|indirectly reduces the |party in a supply chain |
|payment received by the |does not ordinarily give |
|payer for the thing |rise to an adjustment for|
|supplied. |the payee. |
|Where the payee acquires | |
|the thing for a | |
|creditable purpose the | |
|third party payment will | |
|also result in an | |
|increasing adjustment for| |
|the payee. | |
|The decreasing adjustment| |
|will be attributable to | |
|the tax period in which | |
|the payer first holds a | |
|third party adjustment | |
|note. | |
|The payer is responsible | |
|for issuing the third | |
|party adjustment note | |
|within 28 days of the | |
|earlier of becoming aware| |
|of the adjustment or a | |
|request by the payee for | |
|a copy of the note. | |
|If a payment gives rise | |
|to a third party payment | |
|adjustment, the payment | |
|cannot also result in an | |
|adjustment event under | |
|another provision. | |
Detailed explanation of new law
7. The amendments create an entitlement to a decreasing adjustment
where an entity (the payer) makes a monetary payment to a third
party (the payee) (or offsets an amount of money owed by the payee
to the payer, or credits an amount of money to the payee's account)
relating to a thing that the payer has supplied to another entity
and which the payee subsequently acquires. To give rise to a
decreasing adjustment:
. the supply by the payer must be a taxable supply;
. the payment must have a connection with the payee's
acquisition of the thing (or be in response to, or for the
inducement of, the payee's acquisition of the thing); and
. the payment must not be consideration for a separate
supply to the payer.
[Schedule 1, item 13, subsection 134-5(1)]
8. The term thing is defined in section 195-1 of the GST Act as
'anything that can be supplied or imported'. Accordingly, the
adjustment may arise for any type of supply, including supplies of
rights or services. It is necessary though for what the payee
acquires to be the same thing the payer supplies. There may be
some alteration of the thing through the supply chain, or
incorporation of the thing into a broader supply (for example, the
thing may be packaged with other goods or services). But for the
adjustment to apply, the thing supplied by the payer must be
capable of being identified as something acquired by the payee.
[Schedule 1, item 13, subsection 134-5(1)]
9. The decreasing adjustment is the difference between:
. the amount of GST payable on the original supply to the
other entity (taking into account any other adjustments
relating to the supply); and
. the amount of GST that would have been payable on that
supply if the consideration for that supply had been
reduced by the amount of the third party payment (and
taking into account any other adjustments relating to the
supply).
[Schedule 1, item 13, subsection 134-5(2)]
10. The amendments create an increasing adjustment for the recipient of
a third party payment (the payee) in respect of a thing acquired
from another entity where:
. the acquisition of that thing was a creditable
acquisition;
. the monetary payment must have a connection with the
payee's acquisition of the thing (or be in response to, or
for the inducement of, the payee's acquisition of the
thing); and
. the payment is not consideration for a separate supply by
the payee.
[Schedule 1, item 13, subsection 134-10(1)]
11. The increasing adjustment is the difference between:
. the amount of input tax credits to which the payee was
entitled for its acquisition (taking into account any
other adjustments relating to the acquisition); and
. the amount of input tax credits to which the payee would
have been entitled for that acquisition had the
consideration for that acquisition been reduced by the
amount of the third party payment (and taking into account
any other adjustments relating to the acquisition).
[Schedule 1, item 13, subsection 134-10(2)]
12. The decreasing adjustments cannot be attributed until the tax
period in which the payer holds a third party adjustment note.
. This does not apply to decreasing adjustments not
exceeding the adjustment notes threshold (currently $50,
increasing to $75 on 1 July 2010).
[Schedule 1, item 13, section 134-15]
13. The amendments set out the requirements for third party adjustment
notes. The payer is required to give the payee a copy of the third
party adjustment note within 28 days of the earlier of a request by
the payee or becoming aware of the adjustment.
. This does not apply to decreasing adjustments not
exceeding the adjustment notes threshold.
14. The Commissioner of Taxation (Commissioner) has the power to
determine that in the case of a particular third party adjustment
note a different period may be substituted for 28 days. The
provision that such a determination is not a legislative instrument
is included to assist readers as the determination is not a
legislative instrument within the meaning of section 5 of the
Legislative Instruments Act 2003.
15. The Commissioner also has the power to determine, by a legislative
instrument, circumstances in which a different period may be
substituted for 28 days. A determination made in relation to a
particular document will override a determination made in relation
to circumstances. [Schedule 1, item 13, section 134-20]
16. An anti-overlap provision specifies that a payment which gives rise
to an adjustment under Division 134 cannot also give rise to an
adjustment event. [Schedule 1, item 13, section 134-25]
1. : Retail third party rebate
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.
The decreasing adjustment is calculated as follows:
(A) GST payable on supply to Choice Cameras:
A = $660 × 1 / 11 = $60
(B) GST which would have been payable had the consideration
been reduced by the amount of the payment to the payee:
B = ($660 - $110) × 1 / 11 = $50
A - B = $60 - $50 = $10
Fascam is entitled to a decreasing adjustment of $10.
(As the decreasing adjustment is for an amount less than
$50, Fascam is not required to issue a third party
adjustment note).
Choice Cameras is not affected by the decreasing adjustment
to which Fascam is entitled. Choice Cameras's GST liability
remains as follows:
GST payable on sale - input tax credits on acquisition =
GST liability:
($880 × 1 / 11) - ($660 × 1 / 11) = $80 - $60 =
$20
If Irene is registered for GST as a professional
photographer and has purchased the camera for use in her
business, the acquisition of the camera is a creditable
acquisition. She therefore has an increasing adjustment
under section 134-10.
The increasing adjustment is calculated as follows:
(C) Input tax credit entitlement arising from the
acquisition from the other entity (Choice Cameras):
C = $880 × 1 / 11 = $80
(D) Amount of input tax credits to which the payee would
have been entitled had the consideration for the acquisition
been reduced by the amounts of the payer's payment:
D = ($880 - $110) × 1 / 11 = $70
C - D = $80 - $70 = $10
Irene has an increasing adjustment of $10. If Irene is not
registered for GST, this increasing adjustment does not
arise.
If Irene is registered for GST but intends to use the camera
50 per cent for private purposes and 50 per cent for
creditable purposes she is entitled to an input tax credit
of 50 per cent of the full input tax credit.
The increasing adjustment is calculated as follows:
(C) Input tax credit entitlement arising from the
acquisition from the other entity (Choice Cameras):
C = $880 × 1 / 11 × 0.50 = $40
(D) Amount of input tax credits to which the payee would
have been entitled had the consideration for the acquisition
been reduced by the amounts of the payer's payment:
D = ($880 - $110) × 1 / 11 × 0.50 = $35
C - D = $40 - $35 = $5
Irene has an increasing adjustment of $5.
2. : Motor vehicle industry holdback payments
Dealers in new motor vehicles commonly use floor plan
arrangements to finance their trading stock. In a typical
floor plan arrangement, title to the vehicles passes from
the manufacturer or importer to a finance company and the
dealer is granted physical possession of the vehicle. This
allows the dealer to offer the vehicles for sale without
having to purchase them before securing a customer. When
the dealer finds a customer for a vehicle, title to that
vehicle is supplied by the finance company to the dealer
immediately before the dealer supplies it to the customer.
Manufacturers and importers of motor vehicles commonly make
payments to their dealers known as 'holdback' payments.
A manufacturer, Manucars, supplies motor vehicles to a
finance company, Financars, which obtains title to the
vehicles. Financars has a floor plan arrangement with a
dealer, Dealacars, that covers the vehicles it acquires from
Manucars. The arrangement allows Dealacars to display the
vehicles for sale to its customers. A wholesale holdback
payment will be credited to Dealacars' account by Manucars
when Manucars invoices Financars for a particular vehicle.
Dealacars orders a vehicle from Manucars on behalf of
Financars. Manucars supplies the vehicle to Financars and
invoices Financars for $22,000 (including GST). Title in
the vehicle passes from Manucars to Financars and Dealacars
obtains physical possession of the vehicle.
A wholesale holdback payment of $5,500 is credited to
Dealacars' account by Manucars because Manucars has invoiced
a specific motor vehicle to Financars. The arrangement
looks like this:
[pic]
Manucars attributed GST of $2,000 in relation to the supply
of the car to Financars. It has a decreasing adjustment in
relation to the holdback payment to Dealacars.
The decreasing adjustment is calculated as follows:
(A) GST payable on supply to Financars:
A = $22,000 × 1 / 11 = $2,000
(B) GST which would have been payable had the consideration
been reduced by the amount of the payment to the payee:
B = ($22,000 - $5,500) × 1 / 11 = $1,500
A - B = $2,000 - $1,500 = $500
Dealacars has a corresponding increasing adjustment of $500.
Financars does not have any adjustment in relation to the
holdback payment.
Example 1.3: Third party rebate involving computer software
A software developer, LangtonSoft, has developed a
specialised accounting software package. It enters into an
agreement with an online retailer of computer software,
GaremaSoft, to supply its software to Australian customers
and provides GaremaSoft with all of the necessary codes to
effect these sales. The arrangements involve GaremaSoft
acquiring from LangtonSoft the licence to each software
package for $440, and selling that licence to its customers.
GaremaSoft is not acting as an agent.
After a year, LangtonSoft decides to offer a cash rebate of
$110 to any Australian firm that buys the software.
An Australian firm, Lam and Co, purchases the accounting
software from GaremaSoft's website for $660. The tax
invoice GaremaSoft issues shows GST payable of $60.
Lam and Co applies for the $110 rebate and LangtonSoft pays
it.
Lam and Co acquires the right to use the software, which
LangtonSoft supplied. LangtonSoft will have a decreasing
adjustment of $10 under Division 134. If Lam and Co
acquires the rights of use of the software for a sole or
partly creditable purpose, it will have an increasing
adjustment under Division 134.
Application and transitional provisions
17. Third party payment adjustments will apply to payments made on or
after 1 July 2010.
Consequential amendments
18. As a consequence of the inclusion of Division 134, amendments have
been made to:
. paragraph 19-40(c) to ensure the corrected GST amount
includes adjustments resulting from the new Division 134;
. paragraph 19-45(c) to ensure the previously attributed GST
amounts include decreasing adjustments arising from the
new Division 134;
. paragraph 19-70(2)(a) to ensure the corrected input tax
credit amount includes adjustments resulting from the new
Division 134;
. paragraph 19-75(b) to ensure the previously attributed
input tax credit amounts include increasing adjustments
arising from the new Division 134;
. section 54-50 to apply the requirements of this section to
third party adjustment notes required under the new
Division 134;
. section 129-80 to include adjustments arising from the new
Division 134 in the calculation of adjustments under this
section;
. section 131-55 to include adjustments arising from the new
Division 134 in the calculation of the amount of
increasing adjustment under this section;
. Division 153 to ensure that the rules in that Division
regarding the provision of adjustments notes by principals
and agents apply to the provision of third party
adjustment notes;
. subsection 8J(10) of the Taxation Administration Act 1953
(TAA 1953) to include third party adjustment notes in the
list of statements made in relation to a tax law that are
made to a person other than a taxation officer;
. section 288-45 of Schedule 1 to the TAA 1953 to include
third party adjustment notes required by the new Division
134 in the provisions applying a penalty for failing to
issue an adjustment note; and
. section 288-50 of Schedule 1 to the TAA 1953 to include
third party adjustment notes in the provisions applying a
penalty where principal and agent both issue tax invoices
and adjustment notes.
Chapter 2
Attribution of input tax credits
Outline of chapter
19. Schedule 2 to this Bill amends the goods and services tax (GST) law
to clarify the rules in the GST law for attributing input tax
credits to tax periods.
Context of amendments
Attribution of input tax credits
20. The rules for attributing input tax credits to particular tax
periods play an important role in the operation of the GST. The A
New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides
that input tax credits (including reduced input tax credits) are
attributable to the first tax period in which either any
consideration is provided by the recipient, or an invoice is
issued. If the taxpayer accounts on a cash basis, input tax
credits will only be attributable when and to the extent that the
recipient provides consideration.
21. Two exceptions exist to this basic rule. Firstly, input tax
credits cannot be attributed to a tax period unless a relevant tax
invoice is held by the taxpayer in that tax period. Such input tax
credits will instead be attributable to the first tax period in
which the taxpayer holds a tax invoice (see subsection 29-10(3) of
the GST Act). Secondly, if the GST return for a tax period does
not take into account an otherwise attributable input tax credit,
the input tax credit is not attributable to that tax period. Such
credits are attributable to the first tax period in which a return
is provided taking the credit into account (see subsection 29-10(4)
of the GST Act).
22. Concerns have been expressed by taxpayers that the way the latter
exception is expressed in the law may be ambiguous and is open to
an argument that it applies only to a limited category of input tax
credits.
Summary of new law
23. This Schedule amends the present rules for attributing input tax
credits. These amendments clarify that taxpayers are able to defer
the attribution of input tax credits, subject to the four-year
restriction on claiming input tax credits contained in Schedule 1
to the Tax Laws Amendment (2009 GST Administration Measures) Bill
2009.
24. This amendment addresses concerns by taxpayers that the present
attribution rules may not give this outcome in all situations.
Comparison of key features of new law and current law
|New law |Current law |
|Input tax credits cease |Input tax credits cease |
|to be attributable to a |to be attributable to a |
|particular tax period |particular tax period |
|when they are not taken |when they are not taken |
|into account in the GST |into account in the GST |
|return for that period. |return for that period. |
|Instead, the credits will|Instead, the credits will|
|be attributable to the |be attributable to the |
|first tax period in which|first tax period in which|
|they are taken into |they are taken into |
|account in a return where|account in a return where|
|the taxpayer holds a tax |a tax invoice is held by |
|invoice. |the taxpayer. However, |
|This is subject to the |concerns have been |
|four-year restriction on |expressed about the |
|claiming input tax |effectiveness of the |
|credits contained in |legislation in achieving |
|Schedule 1 to the Tax |this outcome in all |
|Laws Amendment (2009 GST |cases. |
|Administration Measures) |This is subject to the |
|Bill 2009. |four-year restriction on |
| |claiming input tax |
| |credits contained in |
| |Schedule 1 to the Tax |
| |Laws Amendment (2009 GST |
| |Administration Measures) |
| |Bill 2009. |
Detailed explanation of new law
Clarification of the input tax credit attribution rules
25. The amendments clarify the attribution rules for input tax credits
contained in subsection 29-10(4) of the GST Act.
26. Subsection 29-10(4) was introduced in 2000 to enable taxpayers to
attribute input tax credits to tax periods after the period in
which they first held a tax invoice. The effect of this measure
was to permit taxpayers to claim input tax credits in the current
business activity statement (BAS) rather than revising a BAS for an
earlier tax period.
27. Since the introduction of the measure, some taxpayers have
expressed concern that the specific reference in subsection 29-
10(4) to an earlier paragraph in the attribution rules (paragraph
29-10(3)(b)) may leave unclear the application of the provision to
input tax credits not falling within this earlier paragraph.
28. This amendment resolves this ambiguity by revising subsection 29-
10(4) to remove any reference to other provisions. [Schedule 2,
item 1, subsection 29-10(4)]
Application and transitional provisions
29. These amendments will apply in relation to net amounts for tax
periods commencing on or after 1 July 2010.
Index
Schedule 1: Adjustments for third party payments
|Bill reference |Paragraph |
| |number |
|Item 13, subsection 134-5(1) |1.7, 1.8 |
|Item 13, subsection 134-5(2) |1.9 |
|Item 13, subsection 134-10(1) |1.10 |
|Item 13, subsection 134-10(2) |1.11 |
|Item 13, section 134-15 |1.11 |
|Item 13, section 134-20 |1.15 |
|Item 13, section 134-25 |1.16 |
Schedule 2: Attribution of input tax credits
|Bill reference |Paragraph |
| |number |
|Item 1, subsection 29-10(4) |2.10 |
Do not remove section break.