These notes are derived from Chris Tsovolos, ‘Goods and Services Tax — The Basic Concept’ (Practice Paper No T103, College of Law, July 2015) [103.25]–[103.55], [103.75]–[103.115].

  • Key instrument: A New Tax System (Goods and Services Tax) Act 1999 (Cth).

Liability to pay GST

  • GST is payable by a supplier of a taxable supply in respect of taxable supplies and taxable importations that they make: ss 7.1(1), 13.15.
  • As defined in s 9.5, a taxable supply is made if
    • the supply is made for consideration,
    • the supply is made in the course or furtherance of an enterprise that the supplier carries on,
    • the supply is connected with Australia, and
    • the supplier is registered or required to be registered.
  • Supply is not taxable to the extent that it is GST-free or input taxed: s 9.5.

The meaning of supply

  • Supply is defined in GST Act s 9.10 as supply in any form whatsoever, including but not limited to:
    • Supply of goods.
    • Supply of services.
    • Provision of advice or information.
    • Grant, assignment or surrender of real property.
    • Creation, grant, transfer, assignment or surrender of any right.
    • Financial supply.
    • Entry into or release from an obligation to do anything, refrain from an act, or tolerate an act or situation.
    • A combination of any of the above.
  • It is irrelevant whether it is lawful to do, refrain from doing, or tolerate the act or situation constituting the reply.
  • Delivery of livestock or game for slaughter or processing into food is the supply, regardless of when title is relinquished.
  • Supply does not include supply of money unless provided as consideration for a supply of money.
  • There is no limitation to the form of supply:
    • Supply may or may not be made in accordance with a written agreement.
    • Supply may be made pursuant to an agreement that is or is not legally binding.
    • Supply itself may be legal or illegal.
  • Gifts between family members for no consideration would be a supply, but not a taxable supply.
  • The definition indicates that GST is in fact wider than a goods and services tax.
  • GST applies to deposits forfeited in commercial property transactions: Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 246 ALR 448.

When GST is payable

  • Taxable supplies are attributed to tax periods according to when payment was received or the invoice was issued to the suppler: s 29.5
  • Div 29 has regard to whether the supplier is a cash taxpayer or an accruals taxpayer.
    • If a supplier accounts on a cash basis, the GST on the supply is attributable to the tax period in which payment is received.
    • If a supplier accounts on an accruals basis, GST is the same as on a cash basis, but if an invoice in relation to the supply is issued before consideration is received the GST payable is attributable to the tax period in which the invoice is issued.
  • These attribution rules are subject to other specific attribution rules.

Meaning of ‘consideration’

  • Consideration is defined in GST Act s 9.15, and includes any payment, act or forbearance in connection with, in response to, or for the inducement of a supply of anything.
    • It does not matter whether the payment, act or forbearance
      • was voluntary, or whether it was by the recipient of the supply, or
      • was in compliance with an order of, or settlement relating to proceedings before, a court, tribunal or other body with the power to make orders.
  • The fact that the supplier is an entity of which the recipient is a member, or that the supplier only makes supplies to members, does not prevent the payment, act or forbearance from being consideration: s 9.15(2B).
  • Consideration is an inclusive definition, so also includes its ordinary common law meaning, which includes the provision of value in cash or in kind in return for the other party performing its obligations under a contract.
  • Considerations does not have to be given by the recipient of the supply: s 9.15(2).
  • Div 72 deals with supplies and acquisitions without consideration, and supplies for inadequate consideration where the supply is between associates.
    • In some circumstances it will be deemed that the recipient of the taxable supply has given the supplier consideration equal to market value.
    • A supply made to an associate without consideration will be a taxable supply if
      • the associate is not registered or required to be registered, or
      • the associate acquires the thing supplied otherwise than solely for a creditable purpose.
    • If a supply to an associate without consideration is a taxable supply, then the value is the GST exclusive market value.
    • Not all supplies between associates will immediately be subject to this provision.
    • Supplies may be outside the GST provisions because of the grouping provisions that exist.
    • The tax period to which supply to an associate is attributable is the one in which it first becomes connected with Australia.
      • This overrides the general attribution rules in div 29.

Meaning of ‘enterprise’

  • An enterprise is defined in GST Act s 9.20(1) as an activity or series of activities done:
    • In the form of a business.
    • In the form of an adventure or concern in the nature of trade.
    • On a regular or continuous basis in the form of a lease, licence or other grant of an interest in property.
    • By the trustee of a fund or by an authority or institution that is covered by sub-div 30-B of the Income Tax Assessment Act 1997 (Cth) and to which deductible gifts can be made.
    • By a trustee of a complying superannuation fund or, if there is no trustee of the fund, by a person who manages the fund.
    • By a charitable institution or by a trustee of a charitable fund.
    • By the Commonwealth, a State or Territory, or a body corporate, or corporation sole, established for a public purpose by or under a law of the Commonwealth, a State or a Territory.
    • By a trustee of a fund covered by item 2 of the table in s 30.15 of the Income Tax Assessment Act 1997 (Cth), or of a fund that would be covered by that item if it had an ABN.
  • GST Act s 9.20(2) excludes an activity or series of activities done:
    • By a person as an employee or in connection with earning witholding payments (see sub-s 4) unless the activity/series of activities is done in supplying services as the holder of an office that the person has accepted in the course of or in connection with an activity or series of activities of a kind mentioned GST Act s 9.20(1).
    • As a private recreational pursuit or hobby.
    • By an individual or partnership (where all or most members are individuals) without reasonable expectation of profit or gain, except:
      • A trustee of a charitable fund.
      • A trustee of a fund covered by Income Tax Assessment Act 1997 (Cth) s 30.15 item 2.
      • A trustee of a fund that would be covered by ITAA s 30.15 item 2 if it had an ABN.
    • As a member of a local governing body established by or under a state or territory law.
      • Does not apply to local governing bodies to which Taxation Administration Act 1953 (Cth) sch 1 s 12.45(1)(e) applies.
  • An entity whose activities are limited to making supplies to its members does not prevent it from being a business or adventure or concern in the nature of trade: s 9.20(3).
  • ‘Business’ under the Income Tax Assessment Act 1936 (Cth) is not interpreted the same as ‘enterprise’ in the context of GST.
    • The definition of ‘enterprise’ includes, inter alia, a business, but also many other commercial ventures.
  • Many terms used to describe ‘enterprise’ are also used in the A New Tax System (Australian Business Number) Act 1999 (Cth); rulings relating to the ABN may be relevant to the GST.
    • Case law relevant to the concept of a profit-making undertaking or scheme from an isolated transaction will likely to be applied in determining whether or not an enterprise is being carried on.
  • An activity in the nature of an adventure or concern will only be an enterprise if it is in the nature of trade.
  • Activities carried out as an employee or as a private recreational pursuit or hobby do not constitute an enterprise.
  • Activities carried on by an individual or partnership of individuals without a reasonable expectation of profit or gain will not constitute an enterprise.
  • A single activity can in appropriate circumstances constitute an enterprise.
  • Grant of a lease, licence or other interest in property will only constitute an enterprise if done on a regular or continuous basis.
    • A one-off transaction involving the licence of a piece of land to a person for a period of time and for a particularly activity may not constitute an enterprise.
      • Example: a farmer granting a licence to a company for commercial shooting for a one-off period of two days.

Meaning of ‘connected with Australia’

  • Rules are provided in s 9.25 to determine when a supply is connected with Australia:
    • A supply of goods is connected with the indirect tax zone if the goods are delivered or made available in the indirect tax zone to the recipient of the supply: s 9.25(1).
    • A supply of goods that involves the goods being removed from the indirect tax zone is connected with the indirect tax zone: s 9.25(2).
    • A supply of goods that involves the goods being brought into the indirect tax zone is connected with the indirect tax zone if the supplier imports, installs or assembles the goods in the indirect taz zone: s 9.25(3).
    • A supply of real property is connected with the indirect tax zone if the real property or related land is in the indirect tax zone: s 9.25(4).
    • A supply of anything other than goods or real property is connected with the indirect tax zone if
      • The thing is done in the indirect tax zone: s 9.25(5)(a).
      • The supplier makes the supply through an enterprise that they carry on in the indirect tax zone: s 9.25(5)(b).
      • Sections 9.25(5)(a)–(b) do not apply, and the thing is a right or option to acquire another thing, and the supply of the other thing would be connected with the indirect tax zone.
    • An enterprise is carried on in the indirect tax zone if carried on through a permanent establishment defined in Income Tax Assessment Act 1936 s 6(1) or a place that would be a permanent establishment but for ss 6(1)(e)–(g).
  • A supply connected with Australia may be a GST-free supply under subdivision 38-E, which deals with exports and other supplies for consumption outside Australia.
  • Division 96 deals with supplies partly connected with Australia; each part is treated as a separate supply and taxed (or not, as the case may be) accordingly.
    • If any separate supply is reasonably regarded as incidental to any of the other supplies, and the value of the supply did not exceed $50,000, it is considered part of that other supply.
    • Tax is calculated on the entire supply, and paid according to the proportion of the supply connected to Australia.

Requirement to be registered

  • Registration under the GST Act is required if carrying on an enterprise and the GST turnover meets the registration turnover threshold.
    • Current GST threshold is $75,000 for most businesses (amendable by regulations).
    • Current GST threshold for non-profit organisations is $150,000.
  • A person/entity may be registered if they are carrying on an enterprise even if their turnover is less than the threshold amount: s 23.10.
  • A person/entity may become registered if they intend to carry on an enterprise from a particular date.
  • The choice to register may be exercised in order to claim input tax credits.
  • Application for registration must be in the approved form and be made within 21 days after becoming required to be registered.
  • The Commissioner must register an entity if:
    • It has applied for registration in an approved form.
    • The Commission is satisfied that the entity is carrying on, or intends to carry on, an enterprise from a particular date specified in the application.
  • A decision not to register is a reviewable GST decision.
  • If an entity is not carrying on an enterprise it cannot be registered.

Calculating GST liability

  • The GST liability is calculated by reference to the value of the taxable supply: s 9.70.
  • GST is calculated at a flat rate of 10% of the value of the taxable supply.
  • The value of a taxable supply is defined to be ‘Price * 10/11’: s 9.75.
    • ‘Price’ is the amount of consideration payable for the supply without reduction for GST.
    • If all or part of the consideration is in a form other than money the price is calculated by reference to the GST-inclusive market value of that consideration.
  • Consideration payable is effectively inclusive of GST.
    • If the supplier has not adequately provided for the passing on to the recipient of the GST liability, the supplier’s profit margins will suffer.
  • There are a number of special rules that may affect GST calculations:
    • Some supplies may be made up of two or more parts, involving a taxable supply, GST-free supply or input-taxed supply.
      • The value of the taxable supply is the proportion of the value of the whole supply that the taxable supply represents.
    • Certain categories of supply are GST-free — no GST liability, but the supplier is entitled to claim input tax credits in respect of acquisitions relating to the GST-free supply.
    • Supplies that are input-taxed do not bear a GST liability for the supplier, but the supplier cannot claim input tax credits for GST that has been passed on to it that relate to the supply.

GST exemptions

  • Supplies that do not satisfy the requirements of section 9.5 will not be taxable supplies.
  • Specific exemptions are provided for in chapter 3.

GST-free supplies

  • A GST-free supply is one covered by:
    • Division 38.
    • A provision of another Act.
    • A supply of a right to receive a supply that would be GST-free under section 9.30(1)(a).
  • If a supply is GST-free:
    • No GST is payable on the supply.
    • An entitlement to an input tax credit exists for anything acquired or imported in order to make the supply.
  • GST-free supplies include:
    • Food, health, education and childcare.
    • Exports and other supplies for consumption outside Australia.
    • Religious services.
    • Non-commercial activities, raffles and bingo conducted by charitable institutions.
    • Water, sewerage and drainage.
    • Supplies of going concerns.
    • Transport and related matters.
    • Precious metals.
    • Supplies through inward duty-free shops.
    • Grants of freehold land and similar interests by government.
    • Farm land.
    • Cars for use by the disabled.
    • International mail.
  • The taxpayer simply satisfy the provisions of section 11.5 in order to gain the input tax credit.
    • The taxpayer does not need to be using the goods, services or things supplied to the taxpayer for the purpose of making a taxable supply.
    • A taxpayer who is the recipient of a GST-free supply cannot claim an input tax credit in respect of an acquisition because s 11.5(b) would not be satisfied — the supply to them is not a taxable supply.
  • Many of the chapter 3 exemptions are of a specific nature, governed partly by statute and partly by regulation.
    • Example: not all food is exempt; the regulations play a role in determining what sort of food exempt.
    • A supply of packaging in which food is supplied is GST-free if the food is GST-free.
  • Always consider peripheral and indirect issues that may affect that client.

Exports and other supplies for consumption outside Australia

  • Sudivision 38E may provide additional tax relief where a supply has international aspects but is still connected to Australia.
  • The supply of information by an accountant or lawyer based in Australia will be connected with Australia, even though it may be provided to a non-resident and be related an issue that does not affect Australia.
  • Example: a client may migrate to the United States and want to know what impact US inheritance laws will have on their estate.
    • This is connected with Australia because it is a supply of information done in or through an enterprise carried on in Australia.
  • Supplies that seemingly have little or no connection to Australia can still initially be taxable supplies, so examine exceptions.
  • As a general rule supply of goods will be GST-free if the supplier exports the goods within 60 days after the day on which the supplier receives any of the consideration or gives an invoice, whichever is earlier: s 38.185.
    • Exporters should be advised to review current business practices to determine whether the 60-day rule will cause them difficulties.
  • Supply of goods in the course of repairing, renovating, modifying or treating other goods from outside Australia whose destination outside Australia will be a GST-free supply if
    • the goods are attached to or become part of other goods, or
    • the goods become unusable or worthless as a direct result of being used to repair, renovate, modify or treat the other goods.
  • A supply of items other than goods or real property for consumption outside Australia will be GST-free if directly connected with goods or real property outside Australia.

Supplies of going concerns

  • Under s 38.325, supply of a going concern will not be subject to GST if
    • the supply is for consideration,
    • the recipient is registered or required to be registered, and
    • the supplier and recipient have agreed in writing that the supply is of a going concern.
  • A supply of a going concern is a supply under an arrangement under which
    • the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise, and
    • the supplier carries on, or will carry on, the enterprise until the day of the supply.

Input taxed supplies

  • If a supply is input taxed no GST is payable and there is no entitlement to an input tax credit: s 40.1.
  • Input taxed supplies are not taxable supplies.
  • A person who acquires something as a result of an input taxed supply is not entitled to input tax credits.
  • Under Division 40 the following are broad categories of input taxed supplies:
    • Financial supply.
    • Residential rent or premises.
    • Precious metals.
    • School tuckshops and canteens.
    • Fundraising events conducted by charitable institutions.

Financial supplies

  • A financial supply is defined in GST Regulations Pt 3.
  • ATO ruling GSTR 2002/2 provides guidance as to:
    • What is and what is not a financial supply.
    • The type of acquisitions which are reduced credit acquisitions and entitle a financial supply provider to a reduced input tax credit.
  • Not all financial supplies are made by financial institutions — some are made by ordinary companies.
  • A taxpayer exceeds the financial acquisitions threshold if they make or are likely to make acquisitions relating to financial supplies where the input tax credits attributable to those acquisitions would exceed the lesser of $50,000 or 10% of the total amount of input tax credits to which they would be entitled.
  • If the supplier does not exceed the threshold during a particular month they are entitled to input tax credits for acquisitions relating to the supply.
  • A reduced input tax credit is available to suppliers which exceed the threshold.
    • This is 75% of any GST paid on the acquisition.
    • Reduce input tax credits are specified in GST Regulations Pt 4-2.
  • GSTR 2002/2 contains a schedule extensively listing all the different types of supplies which are:
    • Financial supplies.
    • Not financial supplies.
    • Reduced credit acquisitions.

Residential rent

  • Under section 40.35 supply of premises by way of lease, hire or licence (including renewal or extension) is input taxed if
    • the supply is of residential premises (other than commercial residential premises), or
    • the supply is of commercial accomodation constituted by the provision of long-term accommodation to an individual in commercial residential premises that are predominantly for long-term accommodation, and division 87 would apply but for a specific choice being made by the supplier of those premises.
  • The supply is input taxed to the extent that the premises are to be used predominantly for residential accommodation.
    • The supply is not input taxed if it constitutes a long-term lease.
  • Residential premises means land or a building occupied or intended to be occupied as a residence, and includes a floating home: s 195.1.
  • It is suggested that if the premises are not to be used predominantly for residential accommodation, the whole of the supply will not be input taxed.
  • Consider these practical issues:
    • The most effective means by which a landlord can determine the use to which a tenant puts the premises.
    • How the landlord can monitor the use of the premises if the tenant changes their purpose.
    • Whether the lease agreement should place an onus on the tenant to inform the landlord of any change in use.

Residential premises

  • Sale of real property is input taxed to the extent that it is residential premises to be used predominantly for residential accommodation: s 40.65(1).
    • The sale is not input taxed to the extent that the premises are commercial residential premises or new residential premises: s 40.65(2).
  • Consider these practical issues:
    • How to measure the ‘predominantly’ test.
    • How the vendor can know the purchaser’s use for the premises.
    • How the vendor can monitory a change in use by the purchaser.
    • Whether the purchaser should be under an obligation to inform the vendor of a change in use.
    • Implications if the use changes.
    • The period over which the ‘predominantly’ test is to be applied.
  • New residential premises are defined in s 195.1 to mean residential premises that
    • have not previously been sold as residential premises or been the subject of a long-term lease,
    • have been created through substantial renovations of a building, or
    • have been built, or contain a building that has been built, to replace demolished premises on the same land.
  • Premises will not be new residential premises if there has been a period of at least five years since the premises first became residential premises, or were create through renovations, or replaced demolished premises on the same land.

[103.80]–[103.115].