Taxation law wk10 - notes PDF

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Tax on the consumption of goods and services in Australia. Multi-stage tax: + Effectively charged on the “value added” at each stage + Collected at each stage of the commercial / supply chain (with a credit mechanism to avoid cascading) + Borne by final consumer. GST is 10% on the ‘value’ of the supply or 1/11th of ‘price’ + Value = GST-exclusive + Price = GST-inclusive (ie, value + GST).

Taxable supply -

All section references are to the GST Act An entity makes a taxable supply under s 9-5 if:

- GST is charged on the ‘value’ of taxable supplies (s 9-70). 1/ Supply -

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Defined in s 9-10 as “any form of supply whatsoever” and specifically includes (but is not limited to), eg: ❖ A supply of goods ❖ A supply of services ❖ A provision of advice or information ❖ A grant, assignment or surrender of real property ❖ A creation, grant, transfer, assignment or surrender of any right ❖ An entry into, or release from, an obligation to do anything, to refrain from an act or to tolerate an act or situation. Widely interpreted by the judiciary, see, FCT v Reliance Carpet Co Pty Ltd ( 2008), FCT v Qantas Airways Ltd ( 2012), FCT v MBI Properties ( 2014). Mixed supply is a supply that can be unbundled into separately identifiable parts. ❖ Each part is treated separately for GST purposes. ❖ Apportionment is required between taxable supply and the GST-free and input taxed supply (s 9-80; and see FCT v Luxottica Retail Australia Pty Ltd (2011)). Composite supply is one that has a dominant part and something that is ancillary or integral to that part. Treated as a single supply taking the characterisation of the dominant part.

2/ Consideration: defined in s 9-15 as any act or forbearance in connection with the supply. ❖ ❖ ❖ ❖

Not limited to provision of money Anything of value, eg provision of goods and services Barter transactions Does not have to be voluntary.

3/ In the course or furtherance of an enterprise -

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An enterprise includes an activity, or series of activities conducted: ❖ In the form of a business ❖ In the form of an adventure or concern in the nature of trade ❖ In the form of leasing, licencing or other grant of an interest in property on a regular or continuous basis. Excludes certain activities, including: ❖ Provision of labour as an employee ❖ Private recreational pursuits.

s 9-20 GST Act. -

Meaning of “in the course or furtherance of” an enterprise is not defined in legislation. Judiciary suggests the interpretation take a wide approach such that any supply that is connected to the enterprise will be made “in the course or furtherance of” that enterprise FCT v Reliance Carpet Co Pty Ltd ( 2008).

4/ Connection to the indirect tax zone -

Section 9-25 details when a supply would be connected with the indirect tax zone. ‘Indirect tax zone’ essentially refers to ‘Australia’: s 195-1.

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Examples of supplies connected to Australia include: ● The goods are delivered or made available to the recipient in Australia; ● The supply involves goods being removed from Australia; ● The supply is of Australian land; ● The supply takes place in Australia; ● The supply is made through an enterprise carried on in Australia; or ● The recipient of the supply is an Australian consumer.

5/ Registration -

Purpose of GST registration: ❖ Imposition of GST on certain supplies; and ❖ Claiming input tax credits in respect of certain acquisitions.

** Requirements to register for GST -

An entity must register for GST when the following two requirements are satisfied (s 23-5):

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An entity may register for GST if they carry on an enterprise but do not meet or exceed the registration turnover threshold.

Taxi travel -

Suppliers of “taxi travel” must register for GST regardless of turnover (s 144-5) “Taxi travel” is “travel that involves transporting passengers, by taxi or limousine, for fares” (s 195-1)

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What meets this definition? ● UberX services (Uber BV v Commissioner of Taxation ( 2017)) ● “Ride-sourcing” services

The second requirement is when the entity’s ‘annual turnover’ exceeds the ‘registration turnover threshold’ (s 23-5).

Annual turnover is broadly the entity’s GST-exclusive sales revenue over a current and projected 12-month period (Div188). Consequences: - An entity that makes a taxable supply is liable to pay GST on the taxable supply (s 9-40). - Amount of GST payable:

Taxable supplies GST Free Supply -

No GST charged on the value in respect of GST-free supplies. *Note: GST-free supplies are excluded from the definition of taxable supplies.

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GST-free supplies are listed in Div 38, eg: ● Food ● Health ● Education ● Exports ● Water, sewerage and drainage ● Supplies of going concerns ● Transport and related matters ● Mobile global roaming services provided in Australia.

Food: -

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Food and ingredients for human consumption is GST-free, unless an exception applies (s 38-2). Exceptions (s 38-3): ● Food for consumption on the premises; ● Hot takeaway food; or ● Food listed in Sch 1, eg, prepared food; confectionary; savoury snacks, bakery products, ice-cream food, flavoured milk. Broad rule of thumb: Food that is only fresh, unprocessed food will be GST-free.

Health: -

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Supply of a medical service is GST-free (s 38-7). Medical services include: ❖ Services where a Medicare benefit is payable ❖ Services provided by or on behalf of a medical practitioner approved pathology provider (s 195-1). Other health services included, eg, dental, nursing, podiatry, acupuncture, medicine, hospital care (ss 38-10; 38-45; 38-50; Subdiv 38-B).  ST-free (s 38-7(2)). Cosmetic surgery where no Medicare benefit is payable is not G

Education: -

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The supply of an “education course” and any administrative services directly related to the supply of such a course which are provided by the supplier of the course are GST-free supplies under s38-85. “Education course” defined under s195-1 as a pre-school course, a primary course, a secondary course, a tertiary course, a Masters or Doctoral course etc. Also includes excursions or field trips, course materials (excl. text books) and leases of curriculum-related goods (exceptions apply) where they relate to an education course and certain conditions are met.

Going concerns A ‘supply of a going concern’ is GST-free under s 38-325 provided: ❖ The supply is for consideration ❖ The recipient is registered or required to be registered, and ❖ The supplier and the recipient have agreed in writing that the supply is of a going concern ❖ The supplier must supply all of the things necessary for the continued operation of the enterprise ❖ The supplier must carry on the enterprise until the day of supply. Input taxed supply: No GST charged on the value of input taxed supplies (ITS). ** Note: ITS excluded from the definition of taxable supplies Where a supply is GST-free and input taxed, GST-free characterisation applies: s 9-30(3)

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Input taxed supplies are listed in Div 40, for example: ● Financial supplies ● Residential rent ● Residential premises ● Precious metals ● School tuckshops and canteens ● Fund-raising events conducted by charitable institutions ● Inbound intangible consumer supplies.

Financial supplies - Term “financial supplies” is defined by reference to the GST Regulations (s 40-5). Categories in GST Reg 40-5.09, include:

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Legislation passed in 2017 to treat supplies of digital currency equivalent to a supply of money, ie, generally not subject to GST unless made in exchange for digital currency or money.

Residential Rent -

Broadly, the lease, hire or licence of “residential premises” is input taxed (s 40-35). “Residential premises” is defined as: ❖ Land or a building that is occupied or intended to be occupied as a residence; ❖ Capable of being occupied as a residence for residential accommodation (s 195-1; also see South Steyne Hotel Pty Ltd v FCT ( 2009)).

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Suppliers of “commercial residential premises” (as defined in s 195-1, eg, a hotel) on a long-term basis: Possible to treat the supply as taxable supplies under concessional rules under Div 87 or input taxed.

Residential premises -

Broadly, the sale and long-term lease (lease greater than 50 years) of “residential premises” is input taxed (s 40-65), unless the premises are: ❖ “Commercial residential premises”; or ❖ “New residential premises” (as defined in s 40-75).

Acquisitions (inputs) Creditable Acquisitions - An entity’s entitlement to “input tax credits” (ie, a refund of GST paid on acquisitions it makes) arises when the entity makes a “creditable acquisition”. - You make a creditable acquisition if under s 11-5 if:

1/ Creditable purpose (s11-15) -

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An acquisition has a creditable purpose to the extent that the acquisition relates to carrying on of the entity’s enterprise. However, the acquisition will not be for a creditable purpose to the extent that: ❖ 1.The acquisition relates to making supplies that would be input taxed; or ❖ 2.The acquisition of a private or domestic nature. An ‘acquisition’ is very broadly defined as ‘any form of acquisition whatsoever’ (s 11-10). Acquisition relates to making input taxed supplies No creditable purpose exists if the acquisition relates to making input taxed supplies (see eg, Rio Tinto Services Pty Ltd v FCT ( 2015))

2/ Supply to the entity was a taxable supply - Input tax credits are only available where GST was in fact paid on the acquisition.

=> Consequences: - An entity that makes a creditable acquisition is entitled to input tax credits on the acquisition (s 11-20) + Acquisition used for a fully creditable purpose:

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Acquisition used only partly for a creditable purpose:

** Special rules: Non-deductible expenses -

An acquisition that is a ‘non-deductible expense ’ is deemed not to be a creditable acquisition (Div 69). ‘Non-deductible expense’ is when an expense is not deductible for income tax purposes.

*Note, only certain non-deductible expenses are treated as not being creditable acquisitions, for example: ● ● ● ● ●

Penalties: s 26-5 ITAA97 Relative’s travel expenses: s 26-30 ITAA97 Family maintenance expenses: s 26-40 ITAA97 Entertainment expenses: Div 32 ITAA97 Non-compulsory uniforms: Div 34 ITAA97. GST Administration

Net amount and adjustments Entity reports on the GST return the ‘net amount’ calculated as (s 17-5):

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Errors may be corrected in a later period where circumstances set out in GST Errors Determination 2013  are satisfied. Net amount can be increased or decreased for adjustments. Adjustments arise because of changes to a supply or acquisition previously recorded, examples include: ❖ Supply or acquisition is cancelled ❖ Change to consideration ❖ Change in extent of creditable purpose.

Tax periods Entities registered or required to be registered for GST required to complete and lodge a GST return on a quarterly basis (can elect for monthly tax periods)

Monthly tax periods mandatory for entities: ❖ With an annual turnover > $20 million; ❖ Carrying on an enterprise in Australia for < 3 months; or ❖ With a bad compliance history. Timing - GST obligations are generally reported on a non-cash (accruals) basis Cash basis may be adopted in certain circumstances, eg, the entity is a ‘small business entity’. Attribution rules: Non-cash basis

Cash basis

GST payable on taxable supplies

Attributed earlier of: •Invoice; or •Payment

Attributed when: •Payment made

Input tax credit on creditable acquisitions

Attributed earlier of: •Tax invoice; or •Payment (but must have tax invoice)

Attributed when: •Payment made; and •Tax invoice received

Tax invoices: -

Tax invoices are required to claim input tax credits Attribution of input tax credits cannot occur until a valid tax invoice is held (s 29-10(3) and (4)).

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A document will be a valid tax invoice if it contains certain information, such as: ❖ Supplier’s identity and ABN ❖ Recipient’s identity or ABN where consideration > $1,000 ❖ Details of the thing supplied, including quantity and price ❖ Extent to which the supply is taxable ❖ Date the document is issued. Tax invoices not required for low-value transactions ($75 excluding GST)....