GST LECT - Lecture notes 12 PDF

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Lect 12 w incorporated book readings ...

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GST Basics Broad-based consumption tax designed to impose tax on final private consumers. Rules are:   

10% tax on supplies and importations unless ‘input taxed’ or ‘GST-Free’ Difficult to change the rate as the Federal Government and all the states will have to agree when changing the rate Regressive tax – people at the lower incomes bears more of the tax o Low-income people tend to spend a greater portion of their income = paying GST o Greater portion of their income is subjected to GST o Example: $30,000 a year  If you assume that they spent all of that on living expenses = pays GST on 100% o Example: $100,000 per year but spends 50%  Pays 50% of GST on her income o Sheila pays more GST but Roy’s burden is greater

Example:

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GST is a value-adding tax

Enterprise  Note: You have to recognise the existence of a business first (go through the factors of what constitutes a business to recognise GST)  Defined in s9-20: Any activity conducted in the form of a business: Stone, Ferguson, TR 97/11  Isolated commercial activities in the form of an adventure or concern in the nature of trade: s9-20(1) (b) – Whitfords Beach; Westfield; Myer  Leasing property on a regular basis: s-20(1c)  Or activities carried out by trustees, charities, religious: s9-20(1) (d) to (h) BUT NOT  

Provision of labour as an employee – s9-20(2): excludes this. Recreational, private or hobbies: not considered as a business/enterprise.

Registration as an Enterprise 

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Will have to register for GST if annual turnover exceeds a threshold: s23-5 of GST Act o $150,000 for non-profit organisations: s23-5 o $75,000 for other entities: s23-15 Exception: Taxi Travel o Suppliers need to register for GST regardless of annual turnover: s144-5

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Annual turnover is defined in DIV 188: “no input taxed supplies and supplies not made for consideration”: s188-15 “Taxi Travel” is defined in s195-1: “travel that involves transporting passengers by taxi or limousine, for fares” Uber v Commission of Taxation (2017): Federal Court held that Uber X services are supply taxi travel and must register for GST.

GST: Taxable Supply Defined in s9-5 of GST Act as: An entity makes a taxable supply if:     

It makes a supply The supply is for consideration The supply is made in the course of furtherance of the entity’s enterprise The supply is connected with the indirect tax zone The entity is registered or required to be registered for GST

Not a taxable supply if it is a GST-free supply or an input tax supply Taxable Supply S9-10 of GST Act defines supply as: “any form of supply whatsoever”  

FCT v Reliance Carpet Co Pty Ltd (2008) uses this meaning of “supply” in the context of GST legislation. The courts do support a wide interpretation of “supply” FCT v Qantas Airways (2012) reaffirms the wide interpretation of supply

Cases used in this topic 

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FCT v Reliance Carpet Co (2008) – “Supply” o TP guaranteed an option-purchases to buy commercial property in VIC o Purchaser defaulted but paid a 10% deposit for the option o The High Court found that the deposit was consideration for a supply o Judgement: Noted that “there was upon the exchange of contracts the grant by the TP to the purchaser of contractual rights exercisable…the right to require… conveyance of the land” – conveyance of the land is the supply. FCT v Qantas Airways Ltd (2008) – “Wide interpretation of Supply” o TP is the supplier of air travel – GST payable on cancellation or no shows of tickets where there’s no refund o Judgement: Full Federal Court held that the supply was the provision of travel – supply was “the promise to use best endeavours to carry the passenger… having regard to the circumstances” –

Consideration   

Whatever you pay for supply is consideration defined in: s9-15 of GST Act This can be in cash: s9-15(1) or payment of any kind S9-15(2): Does not matter whether the payment was voluntary or whether it was by the recipient

In the furtherance of an enterprise After defined as an “enterprise” 

FCT v Reliance Carpet Co Pty Ltd (2008) suggest a wide approach to any supply that is connected to the enterprise will be made “in the course or furtherance of” that enterprise

Indirect Tax Zone

S9-25 recognises when a supply would be connected with the indirect tax zone S195-1 is defined as “Australia” 

Connected to Australia if: o Goods are delivered or made available in Australia o Supply involves those being removed in Australia except for exports o Goods are imported removed from Australia exp for exports o Goods are imported into Australia or installation of goods in Australia o If not goods = enterprise carried out through an enterprise made Australian land

GST Free supplies (DIV 38) Note: Look at the taxable supply first, then assess whether it is a GST-Free supply. If it is not an exception, continue the recognition of GST. Also, look at the procedure under DIV 38 and connect it with their definition in s195-1. 

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Food: s38-2 o Lansell House (2011) – cracker not bread o Exceptions of food:  Food for consumption on the premises from which it is supplied (restaurants)  Hot food for consumption away from that premise  Food in Schedule 1  A beverage o Usually fresh and unprocessed foods are GST-free Health: s 38-7 o Cosmetic-related are not payable or GST free Education Childcare Exports and other supplies outside Australia Religious services Charities Water and sewerage Supplies of going concerns o Only GST-Free if the business is in going-concern

Note: If a TP make GST-free supplies, it is not required to pay GST under s38-1 of GST Act. GST-free supplies are excluded from “taxable supply” under s9-5. Input-taxed supplies (DIV 40) 

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Financial Supplies: subdiv 40-A o Regulation 40.5.09 specifies financial supplies as: interests, loan arrangement, superannuation funds, insurance agreement, shares and derivatives o Regulation 40.5.12 specifies non-financial supplies as: professional services in relation to financial supply, payment system, broking services, etc. o Regulation 40.5.12 sets that if an item is both financial and non-financial supply = nonfinancial supply will prevail. Residential Rent: subdiv-40B o Actual residential premises – defined in s 195-1 o Vidler (2009) – period of occupation or intended occupation is irrelevant + vacant land is not a “residential premises” o South Steyne Hotel (2009) – “element of shelter and basic living facilities + capable of being occupied as a residence”

Ruling GSTR 2012/5” Commissioner will focus on the physical characteristics of he premises to determine it to be residential . Sale of existing residential premises: subdiv 40-C o Sell an existing home = no GST on that sale o Issue of residential v commercial: Commercial = will be taxed; residential = input taxed (no GST) o New v existing: new = taxed, existing = input-taxed (no GST) Precious Metals: subdiv 40-D; School tuckshops and canteens: subdiv 40-E Fundraising events conducted by charitable institutions: subdiv 40-F o

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Note: If an entity makes an input taxed supply, they are not required to pay GST on the making of the supply: s40-1 of GST Act. Input tax supplies are excluded from the definition of “taxable supply” in s9-5. Consequences If taxable supply is non-exempt:  

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An entity that makes a taxable supply is liable to pay GST on the taxable supply: s9-40 GST is payable by the supplier on 10% of the value of the taxable of the supply: s9-70 o Value of taxable supply 1/11 of the price: s9-75 o Price = consideration: s9-75 Example: $11 for a book o Consideration = 11 o Value of the taxable supply = $10 o GST payable = $1

Creditable Acquisition Defined in s11-5    

Acquisition solely or partly for a creditable purpose (s11-15) o If you are in an enterprise = creditable purpose Supply made to you was a taxable supply You have provided or are liable to provide consideration for the acquisition You are registered or be required to registered for GST

Acquisition Is defined broadly in s11-10 and is an acquisition in any form including:

Creditable purpose Is defined in s11-15. Typically, is a creditable purpose if: 

It is purchased to carry on the entity’s enterprise

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Made for a business purpose where, s11-15(2) excludes the purpose of it being private or domestic in nature Acquisitions that relate to the provision of fringe benefits are of a creditable purpose – GSTR 2001/3

Not a creditable purpose if: 

It is related to making of input-taxed supplies: s11-15(2) (a) o Rio Tinto Services (2015): Full Federal Court held that acquisitions are not for a creditable purpose if they are related to the provision of input taxed supplies …”

Except if:  

It is a Financial Supply – the supplier may be entitled to input tax credits only in some circumstances under s70-5 GSTR 2004/1 includes examples of acquisitions related to: cheque clearing services, loan services, debt collection and transaction processing services to be allowed for input tax credits

Solely or Partly Ensures that an acquisition will still be treated to be of a creditable purpose even if they have a non-business purpose as well as a business purpose in making the acquisition – GSTR 2006/4 

S11-30 goes on the calculation of the applicable input tax credit available for the TP.

Supply to the entity was a taxable supply  

If the amount specifically includes GST = acquisition of a taxable supply If it is not clear if the amount includes GST = go through the process of o Supplier being registered for GST o If the supply is taxable or not

Note: If an entity makes a creditable acquisition it is entitled to input tax credits on the acquisition: s11-20 of GST Act.  

Amount of input tax credits = GST payable on the supply of the thing acquired: s11-25 S11-30: Establishes the amount of tax credits if the purpose was partly creditable.

Special Rule: Non-deductible expenses Even if all of the elements for a “creditable acquisition” is met, if it is a non-deductible expense = it cannot be a creditable acquisition – DIV 69 (s69-5). Items such as:    

Penalties: s26-5 ITAA97 Relatives travel expenses (NOTE FBT interaction): s26-30 ITAA97 Entertainment (NOTE FBT interaction): DIV 32 ITAA97 Recreation club expenses (NOTE FBT interaction): s26-45

Note: If the non-deductible expense RELATES to FBT obligations = s69-5 does not apply and the non-deductible expense can give rise to input tax credits Special Rule: Importations  If you make a taxable importation – you need to pay GST (s13-5) o If you import something in Australia for HOME consumption – its for use in Australia and its not here in transit = taxable o If goods are imported = taxable  Not something that is GST free or input-tax free o If it is, then it is not a taxable importation o Goods exported from Australia and is returned in Australia unchanged: s42-10 o Note: If the good itself will be GST-free is supplied normally = GST-FREE

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o Value must be more than a thousand dollars Importer is liable for GST on importation – does not matter of the intent or if the importer is signed with GST = still have to pay for it (s13-20) o Pay for 10% of the customs value of the goods plus other costs Creditable importation (s15-5) o Business purpose = taxable tax + creditable importation (refund) o Private purpose = no creditable importation = no GST refund paid Intangible supples (Netflix tax) and Low-value Goods ( $75,000 of sales = register, collect and pay GST o Online marketplace - $75000 of sales in Australia = charge, collect and pay GST

Note: An entity that makes creditable importation is entitled to input tax credits on the importation: ss15-1 ad 15-15 of the GST Act. 

Amount of input tax credits = GST payable on the importation: s15-20

GST Administration  BAS – Business Activity Statement o Usually done on a quarterly basis: ss 27-5, 31-5 and 31-8 of GST Act o Monthly if bad tax history, $2 million turnover or carrying a business in Australia for less than 3 months: ss27-15, 31-5 and 31-10. o Entities have the option to choose their reporting date: s27-10 o Will include:  GST Paid (input tax credits)  GST Payable (i.e. GST Collected) for the period  Net GST  Entity must have a tax invoice to be entitled to input tax credits: s29-10(3) and (4) o S29-70 sets the requirement for a “tax invoice” Adjustments What can give rise: s19-10   

Cancelling a supply or acquisition Changing the consideration for a supply or an acquisition Causing a supply or acquisition to become, or stop being a taxable supply or creditable acquisition

What do?  

Increase/Decrease adjustment when the adjustment even happens Compare to GST obligations now compared to before = account for the difference

Interaction with Other Taxes Income tax: Take GST out of the income and deductions  

S17-5: Not have to include GST in your income S27-5: Can’t get a deduction for GST if you got a GST refund

Fringe Benefit Tax 

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Type 1: Entitled to a refund of GST paid o Employer is entitled to any input tax credits in relation to the acquisition as long as the elements of “creditable acquisition” is satisfied/ Type 2: Not entitled to a refund of GST paid

EXAM NOTES GST Questions Read the last thing – what are you asked to do?   

Which TP asked to advise? KEEP TAXPAYERS SEPARATE What am I asked to advise on? What period am I given advise on?

Notes:   

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Enterprise and connected to Australia >$80,000 annual sales = need to be registered for GST Issue 1: Is the toy koala a taxable supply? Sale of $33 o Purchased at $11 each o Creditable Acquisition? – can he get a refund for the GST he paid o Supplier details = need it because it will show if it charged the TP GST when selling the good Sale of $55 each – Boomerang: separated from koala BUT link bank if its similar = as per the koala … o Taxable Supply? o Imported Unit though: so, taxable importation? o Is it a creditable importation? o Customs value of $20 about 50 2 years ago 100 this year Giving away 20 of the boomerangs for personal purpose $660 of Body Corporate Fees o GST refund? No. Relates to input-tax supply = cannot get a refund

Second TP: Anna    

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Fruit Store = carrying on a business + enterprise for GST purposes Vic market = connected to Australia TO $80,000 = GST registered Sold $3000 of fruit? o Fruit = GST Free = no need to charge GSt o Don’t need to going through the requirements to be taxable supply. Has she paid GST on the acquisitions? o Can she get a refund on the ones that she padi – creditable acquisition?

@reading time  

Identify what the facts tell me what I need to know Identify the issues I need to address with the answer...