GST ‘ State and Territory GST Issues: the latest published minutes of the GST ‘ States and Territories Industry Partnership
This article discusses some aspects of the recently published (March 2017) minutes of the GST- States and Territories Industry Partnership Meeting held in October 2016.
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The most recent minutes of the States and Territories Industry Partnership were published in March 2017. They relate to the meeting held on 5 October 2016. (Readers seeking greater contextual clarity should refer to TaxEd’s newsletter of September 2016, which discussed the minutes of the April 2016 meeting.)
The following points are noteworthy:
- Unimproved Land – Following on from a neutral evaluation of the application of s. 38-445 (GST-free supply of unimproved Commonwealth, State and Territory land), a second neutral evaluation on the application of item 4 of the table in s. 75-10(3) (deals with the margin scheme where there were no improvements on the land or premises as at 1 July 2000) in respect of dams, fences and roads is expected to be heard in early 2017.
- Class action by various local authorities – The ATO advised that it was not known whether the argument of the plaintiff local authorities ‘takes into account’ the provisions of state laws that exist for the payment of notional GST liabilities.
- Relief from Certain Administrative Penalties, GIC and SIC – The ATO is reviewing MT 2011/1 and PS LA 2011/26 in relation to application of s. 2B of the TAA which includes an exemption of the Crown from liability to a pecuniary penalty and prosecution for an office. (Editorial Note: At the time of preparing this newsletter, it still appears that changes in connection with the review have not been made to either document, apart from a note that the documents are under review.)
The meeting was advised that the ATO was engaging with States and Territories ‘in respect of identifying those entities with Crown immunity’. The ATO outlined to the meeting entities with Crown immunity and provided additional post-meeting elaboration on queries raised on this point.
The ATO’s comments included:
‘State and Territory entities that do not have crown immunity (such as local Government entities) will continue to be liable for penalties and interest charges (subject to any other exemptions).’
- Development Leases: Where the land supplied by the government is not a taxable supply (e.g. GST-free supply of the land under Div 38-N of GST Act etc.) – The ATO commented on the application of GST under a development lease arrangement where the land supplied by the government to the developer pursuant to the arrangement is GST-free. The ATO noted that GSTR 2015/2 is directed to the circumstance of the land being a taxable supply.
GSTR 2015/2 basically relates to an arrangement in which:
- A Government Agency agrees to transfer land (or grant a long term lease over land) to a developer, on the basis that the developer will carry out certain works on the land (i.e. undertake development services). In some cases, the developer is also required to make a monetary payment to the government.
- The Government Agency initially grants a short lease/licence to enable the developer to carry out those works.
- Upon completion of the works (and, if applicable, making the monetary payment), the land is transferred/long term lease is granted.
- The transfer of the land/long term lease is a taxable supply.
The Ruling recognises that the supply of the land/lease is made for a GST inclusive market value equal to the sum of any monetary payment and the GST-inclusive market value of the development services.
The ATO informed the meeting:
‘Notwithstanding that GSTR 2015/2 does not consider the application of Subdivision 38-N, Divisions 81 and 82 of the GST Act, the comments about the valuation of non-monetary consideration as explained at paragraphs 69, 82 and 83 of this ruling would apply equally in the context of development lease arrangements where the land is supplied GST-free. The rationale for this can be found at paragraph 68 of GSTR 2015/2 and paragraph 21 of GSTR 2001/6.
Looking at a development lease situation where the consideration comprises both monetary and non-monetary components as discussed at paragraphs 80 to 83 of GSTR 2015/2, the consideration for a GST-free supply of land by the Government Agency would be:
Monetary Payment + GST inclusive market value of the development services (see paragraphs 83 and 87 of GSTR 2015/2).’
- Tax Invoices – Where Supplier’s GST Registration is back-dated – The ATO was asked to provide advice in relation to the following circumstances:
- A supplier (S) had provided supplies to the recipient (R) for some time but S was not GST registered.
- S issued a tax invoice to R but the Australian Business Register (ABR) did not show S as GST registered.
- S informed R that it had issued a tax invoice because S was now required to be registered and had applied for GST registration.
- S subsequently issued another tax invoice for a further supply and a check of the ABR showed S was registered for GST, with the registration being back-dated to prior to the previous tax invoices.
- R took the view that because S was required to be registered for GST and had issued a tax invoice, R was entitled to an input tax credit (ITC), notwithstanding that S was not registered for GST at the time the first tax invoice had issued.
- R was entitled to claim an ITC in the tax period in which a tax invoice was held.
- The onus was on R to ensure that the supply made by S to R was taxable (which inter alia required that S was either registered or required to be registered for GST).
- Where S was not shown on the ABR as registered for GST, the ATO said that it:
‘ …would expect the recipient to take reasonable steps to satisfy themselves that the supplier is in fact required to be registered. For example, in the situation depicted above, it would be reasonable for the recipient to request a copy of the supplier’s GST registration application.’
- Lump Sum payments – s. 56 of Return to Work act 2014 (SA) – The ATO discussed TD 2016/D1.
- Appropriations – onus of proving that a payment is an appropriation and, therefore, is not consideration for a supply – The ATO was asked to advise whether the government department (S) making a supply, or the government department (R) receiving and paying for the supply, bears the onus of proving that payment is covered by an appropriation.
Section 9-17(3) of the GST Act provides that a payment is not consideration for a supply where:
- a payment is made by a government related entity (such as R) to another government related entity (such as S) for making a supply;
- the payment by the payer (i.e. R) is covered by an Australian appropriation Law or is made under a specified intergovernmental health reform agreement; and
- the payment satisfies the non-commercial test.
In order for S to characterise the supply as not being subject to GST on the basis of s. 9-17(3), S should have sufficient evidence to support that characterisation. As R was asserting that the payment was covered by an appropriation, R would need to provide S with evidence to support the assertion. Until S is satisfied that the payment is covered by an appropriation, S should treat not treat s. 9-17(3) as satisfied.
- Third party reporting – Government grants and payments – The ATO informed the meeting:
‘Government entities at the federal, state, territory and local levels will need to report annually the total payments they make to a business for services as from 1 July 2017. [The first report will be due on 28 August 2018 for the financial year ending 30 June 2017.]
Additionally, Government entities at the federal, state and territory levels will need to report the total grants paid to entities with an ABN. Some government entities, such as hospitals, schools and libraries, are exempt through legislative instruments and are not required to report.
The information reported to the ATO may be used for pre-filling purposes to make it easier for individual businesses to lodge tax returns. It will also be used in the ATO data matching program to identify businesses that have:
- not lodged tax returns
- omitted income from tax returns that have been lodged
- not met their GST obligations.
The Taxable payments annual report will be due by 28 August each year. Government entities will need to update their systems to collect the required information from 1 July 2017. Reports will need to be submitted electronically in a format that meets ATO specifications. These specifications can be downloaded from the ATO at softwaredevelopers.ato.gov.au/tparGov.
ATO advised that each jurisdiction will need to determine which of their government entities will need to report and what payment transactions are required to be reported based on their consideration of the law, and the legislative instruments which exempt certain entities and payments, as well as information published on the ATO website at https://www.ato.gov.au/business/reports-and-returns/taxable-payments-annual-report/government-entities/
Third party reporting has been discussed in previous TaxEd Newsletters – for example see ‘GST – Third Party Reporting Legislation introduced into Parliament’ in the November 2016 newsletter.
- Reverse Charging – Division 84 of GST Act – Question raised for ATO advice:
Does a reverse charging arrangement due to changes under the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Act 2016 require the supplier and the recipient to have entered into an agreement?
‘No. In broad terms, Division 84 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) applies to supplies of anything other than goods or real property that are not connected with the indirect tax zone (ITZ) and that are acquired:
- by a recipient that is required or required to be registered;
- solely or partly for the purpose of an enterprise carried on by the recipient in the ITZ; and
- not solely for a creditable purpose.
Where Division 84 applies to such a supply, the supply becomes a taxable supply and any GST on the supply is payable by the recipient.
Where a supply is disconnected because it is made to an entity that is an Australian-based business recipient of the supply (under the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Act 2016), that entity is responsible for determining if they have a GST liability in relation to the supply under the reverse charge rules in Division 84. There is no requirement that the supplier and the recipient have to enter into an agreement.
Although a particular supply that is excluded from the connected with the ITZ rules as a result of these amendments may be subject to Division 84, it is not necessarily the case that Division 84 requires that the supply be reverse charged. If the acquisition is fully creditable in the recipient’s hands, Division 84 does not apply. This reflects that there is no need to collect GST through a reverse charge where the GST revenue from the reverse charge is fully offset by an equivalent ITC claimed by the recipient.
It should be noted that Division 83 also contains reverse charge rules that may apply to a supply between a non-resident supplier and a recipient that is registered or required to be registered. These rules apply to taxable supplies if the supplier and recipient agree that the GST on the supply should be payable by the recipient.’
The nature and application of the reverse charging provisions were outlined in previous newsletters – for example, see the March 2016 TaxEd newsletter article – ‘When digital products and services are purchased from overseas suppliers: changes to the GST regime’.
Disclaimer: This article is based upon information available as at the time of publishing and may be subject to change.