GST: Numerous changes to the law effective 1 July 2010

The Government will be implementing a large number of changes to GST legislation and administration, with many of these effective from 1 July 2010.  Some of the changes will affect or apply to every business while others will affect only certain types of transactions or arrangements.

Below are some of the details of the main changes confirmed for 1 July 2010 (unless otherwise stated) and highlights of other pending changes to GST.    

Adjustments for manufacturers' rebates
The GST law has been amended to ensure that adjustments for manufacturers' rebates result in adjustments for the payer and the third party. This, in effect, changes the price of the transaction and accurately reflects the economic outcome. This will mainly affect car dealers.

Tax invoices
The change to what can be accepted as a tax invoice allows the ATO greater discretion to accept documents/invoices for the purposes of claiming input tax which previously would not have satisfied the strict criteria for ‘valid tax invoices’.  In addition, where a taxpayer makes all reasonable efforts to obtain a tax invoice, but cannot, they can treat another suitable document as a tax invoice, provided they notify the Commissioner, and meet any other requirements as determined by the Commissioner.

Tax invoices and attribution
The law has been clarified in respect of claiming input tax. Businseses may now claim input tax in a period after the period in which a tax invoice is received.  This is not a GST mistake requiring notification to the ATO.

Adjustment notes
The threshold at which an adjustment note must be held has been increased from $50 to $75. Business to business transactions – option to treat as fully taxable
Where a supply is made which is partly taxable and partly GST-free between two registered businesses, both parties can opt to treat the supply as fully taxable for convenience.  This may be most applicable where the extent of the GST-free treatment is unclear.  This does not apply to a supply where part or all of it is an input taxed supply.

Rulings
The law has been amended to include GST, luxury car tax (LCT) and wine equalisation tax (WET) in the rulings regime which applies to income tax. This regime also includes the Medicare levy, fringe benefits tax, withholding tax and net fuel amounts.  The law now enables recipients and suppliers to rely on each other’s rulings in relation to the tax status of the supply between them where they agree to provide their rulings to each other for this purpose.  However, this will not extend to supplies in other parts of the supply chain.

Where recipients and suppliers agree to rely on the other’s ruling, they should be bound to apply the ruling in the preparation of their BAS. However, one party may object to the other’s ruling.

Four year cap on input tax credits (effective from May 2010)
The law has been amended to limit claims for input tax credits to a four year period in line with the time limit on refunds and credits in the Tax Administration Act.  Previously there was no cap.

Incapacitated entities
The law has been changed in light of the PM Developments case, confirming that representatives of incapacitated entities are liable for any GST consequences arising during their appointment.  The law has been changed with retrospective effect from 1 July 2000.

The following changes have been deferred until 1 July 2011, as announced in the Budget on 11 May 2010 (the changes were previously due to be effective from 1 July 2010).

Adjustments for changes in use
The GST law will be amended to provide higher thresholds, together with fewer and shorter adjustment periods.  The new law will apply for adjustments. For example, two years for acquisitions less than $100,000, five years for those over $100,000, and ten years for real property.  Where possible, the existing provisions will be consolidated within the GST law and aligned with other relevant rules elsewhere in the tax system (i.e. the private use percentage will be the same as the direct tax calculation). 

Self assessment
Greater harmonisation will be introduced between the current self actuating system for GST, wine equalisation tax, luxury car tax and fuel tax credits and the income tax system of self assessment.  This should benefit every business due to lower compliance costs and harmonisation across the taxes.  Time limits will run from the date of assessment as opposed to the end of a BAS period. 

Adjustments for pre-registration acquisitions
The change will allow a greater scope for claiming GST incurred prior to registration. GST liability will no longer be limited to trading stock and materials on hand at the registration date.

GST grouping and GST joint ventures
There will be numerous changes to the membership rules, and the entry and exit rules for grouping and joint ventures (JVs).  Holding companies with no enterprise will be able to be included in a group when this change is implemented.  Furthermore, eligibility for grouping and forming a JV may be determined on a self assessment basis.

Reverse charge mechanism – going concern and farmland
The GST law will be amended to remove the GST free concessions for the supply of going concerns and farm land supplied for farming. This will replace the current concessions with a reverse charge mechanism.  The reverse charge mechanism will also be available for a wider range of supplies of going concerns.  Under the reverse charge mechanism, the purchaser will effectively self account for the GST due on the supply but will be entitled to a credit on the BAS subject to the normal rules.

Coming soon
There will be additional amendments to the following areas, effective from the first quarterly tax period after Royal Assent:

• Gambling
• Luxury Car Tax/WET
• non-profit sub-entities
• the power to recover overpaid funds
• payment of refunds of overpaid GST
• associates
• adjustments arising on deregistration
• clarification of the rules for general and tax law partnerships (1 July 2011)
• GST accounting for bare trusts

Major Reviews
The Board of Taxation has also recommended changes to three major areas of GST. These are:

1 Financial Services
Likely changes to GST in the financial services industry include an increase in the Financial Acquisition Threshold, disallowing the bundling of services to utilize the Reduced Input Tax Credit (RITC) rules, and allowing businesses which operate on the cash basis to claim input tax credits up front on hire-purchase contracts.  These changes will be confirmed and will be effective from 1 July 2012.

2 Margin Scheme
The aims of changes to margin schemes are simplification and certainty (to be effective from 1 July 2012).

3 International Supplies
The Government announced during the 2010-11 Budget that it will be implementing all of the recommendations of the Board of Taxation from its review of the application of GST to cross border transactions.    The 14 changes, which come into effect on 1 July 2012, include:

• limiting the ‘connected with Australia’ rules 
• expanding the resident agent rules and the application of the reverse charge by registered recipients thereby removing the need for many non-residents to register in Australia
• a streamlined registration process for non-residents (where registration is still required) and a low value importation threshold.

Further changes will also be made to the GST treatment of domestic transport of imported and exported goods. Specifically, this will apply to ancillary and related services which will be treated the same as the transport (as determined by the place of delivery in the principal contract).

For more information on these changes to GST and how they may effect you, contact your usual Grant Thornton advisor or:

Krish Patel
Partner - Tax
T  +61 2 8297 2400
E  krish.patel@au.gt.com