2008-2009-2010

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

EXPLANATORY MEMORANDUM

(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)

Glossary.............................................................................................................. 1

General outline and financial impact................................................................ 3

Chapter 1           GST groups and GST joint ventures................................... 7

Chapter 2           Adopting the general rulings system for indirect taxes and excise    33

Chapter 3           Tax invoices........................................................................ 51

Index.................................................................................................................. 63

The following abbreviations and acronyms are used throughout this explanatory memorandum.

GST groups and GST joint ventures

Schedule 1 to this Bill amends:

•       the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and the Taxation Administration Act 1953 (TAA 1953) to allow entities to self assess their eligibility to form, change and dissolve a goods and services tax (GST) group or GST joint venture and to do so at any time during a tax period; and

•       the TAA 1953 and the GST Act to allow members of a GST group and participants in a GST joint venture to enter into an indirect tax sharing agreement with a representative member or a joint venture operator respectively in relation to their indirect tax law liabilities.

Date of effect:  These amendments apply to tax periods starting on or after 1 July 2010.

Proposal announced:  This measure was announced in the then Assistant Treasurer and Minister for Competition Policy and Consumer Affairs’ Media Release No. 042 of 12 May 2009.

Financial impact:  The self assessment and intra-tax period grouping and de‑grouping amendments will have nil impact on revenue.  The indirect tax sharing agreements amendments will have a negligible cost to GST revenue.

Compliance cost impact:  These amendments are expected to result in a low overall compliance cost impact, comprised of a low implementation impact and a low decrease for ongoing compliance costs relative to the affected group.

Adopting the general rulings system for indirect taxes and excise

Schedule 2 to this Bill amends the Taxation Administration Act 1953, the A New Tax System (Goods and Services Tax) Act 1999, the Excise Act 1901 and the Income Tax Assessment Act 1997 to include indirect tax rulings and excise advice in the general rulings regime.

Date of effect:  These amendments apply to rulings made by the Commissioner of Taxation on or after 1 July 2010.  They also apply to private indirect tax rulings that have been applied for, or that are in operation immediately before 1 July 2010, and public indirect tax rulings that are gazetted or labelled as public rulings and are in operation immediately before 1 July 2010.

Proposal announced:  These amendments were announced in the then Assistant Treasurer and Minister for Competition Policy and Consumer Affairs’ Media Release No. 042 of 12 May 2009.

Financial impact:  These amendments will have an unquantifiable, but expected to be small impact on the goods and services tax, the wine equalisation tax, the luxury car tax and excise revenue.

Compliance cost impact:  Low; the change brings the treatment of indirect tax and excise rulings into line with the existing rules for the broader rulings regime.

Tax invoices

Schedule 3 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 to simplify the requirements for a document to be a tax invoice.

Date of effect:  These amendments apply from 1 July 2010.

Proposal announced:  These amendments were announced in the then Assistant Treasurer and Minister for Competition Policy and Consumer Affairs’ Media Release No. 042 of 12 May 2009.

Financial impact:  These amendments have an unquantifiable, but expected to be small, cost to annual goods and services tax revenue.

Compliance cost impact:  Low.  These amendments reduce compliance costs by eliminating the need to seek further documents for many minor omissions in tax invoices.  However, only a limited number of taxpayers are affected as only a small proportion of the total number of tax invoices issued contain such errors.

These amendments also have a minimal transitional impact.  No changes to existing systems or behaviour are required.

Outline of chapter

1.1                   Schedule 1 to this Bill amends:

•       the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and the Taxation Administration Act 1953 (TAA 1953) to allow entities to self assess their eligibility to form, change and dissolve a goods and services tax (GST) group or GST joint venture and to do so at any time during a tax period; and

•       the TAA 1953 and the GST Act to allow members of a GST group and participants in a GST joint venture to enter into an indirect tax sharing agreement with a representative member or a joint venture operator respectively in relation to their indirect tax law liabilities.

Context of amendments

1.2                   This measure is implemented in response to Recommendation 32 of the Board of Taxation’s Review of the Legal Framework for the Administration of the Goods and Services Tax. 

1.3                   The GST Act allows entities that choose to form a GST group or a GST joint venture to apply special rules for reporting their GST liabilities and entitlements, and to ignore most intra-group transactions.  In general terms, the special rules effectively result in treating GST groups and, to a lesser extent, GST joint ventures, as if they were a single entity for GST purposes (Divisions 48 and 51).  GST groups and GST joint ventures are also recognised as one entity for the purposes of the wine equalisation tax (Division 21 of the A New Tax System (Wine Equalisation Tax) Act 1999), the luxury car tax (Division 16 of the A New Tax System (Luxury Car Tax) Act 1999) and fuel tax credits (sections 70‑05 and 70‑15 of the Fuel Tax Act 2006).

1.4                   To form a GST group, entities must obtain approval from the Commissioner of Taxation (Commissioner) (section 48‑5).  The application for approval must be made jointly by all the entities concerned and must nominate one of them as a representative member of the group.  The Commissioner must approve a GST group if each of the entities satisfies the membership requirements for that GST group and the nominated representative member is an Australian resident.  Changes to the group membership, a change in the representative member or a revocation of a GST group also requires the Commissioner’s approval.  The application for such approval must be made by the representative member (subsections 48‑70(1) and 48‑75(1)).  When a member or a group no longer meets the membership requirements, the representative member must notify the Commissioner of this (section 48‑80) and the Commissioner must revoke the approval of such a member and a GST group (subsections 48‑70(2) and 48‑75(2)).  Entities can only form, alter or revoke a GST group from the beginning of a tax period (subsection 48‑85(3)), except when entities pay GST by instalments, or report and pay GST annually (subsection 48‑85(3)).

1.5                   If an entity becomes incapacitated, its tax period ends at that time under section 27‑39.  This will generally result in the entity having a different tax period to those applying to other members of the GST group, and therefore in that entity failing to meet the membership requirements of that GST group.  The representative member may elect to have the tax periods that apply to other group members cease at the same time as the incapacitated entity’s tax period ceases (section 48‑73).  An incapacitated entity cannot be the representative member of the GST group unless all the members of the group are incapacitated (section 48‑72).

1.6                   To form a GST joint venture, entities must obtain the Commissioner’s approval (section 51‑5).  The application for approval must be made jointly by all the entities concerned and must nominate one of them, or another entity, as the joint venture operator of the joint venture.  The Commissioner must approve a GST joint venture if the joint venture is for approved purposes, the joint venture is not a partnership and each of the entities satisfies the participation requirements for that GST joint venture.  Changes to the joint venture membership, a change in the joint venture operator or a revocation of a GST joint venture also require the Commissioner’s approval.  The application for such approval must be made by the joint venture operator (subsections 51‑70(1) and 51‑75(1)).  When a participant or a joint venture no longer meets the participation requirements, the joint venture operator must notify the Commissioner of this (section 51‑80) and the Commissioner must revoke the approval of such a participant or a GST joint venture (subsections 51‑70(2) and 51‑75(2)).  Entities can only form, alter or revoke a GST joint venture from the beginning of a tax period (section 51‑85(2)).

1.7                   Each member of a GST group or participant of a GST joint venture is jointly and severally liable to pay any amount that is payable under an indirect tax law by the representative member or the joint venture operator respectively, in the event that they default on the payment (sections 444‑90 and 444‑80 in Schedule 1 to the TAA 1953).  An ‘indirect tax law’ is defined in the Income Tax Assessment Act 1997 as any of the following — the GST law, the wine equalisation tax law, the luxury car tax law and the fuel tax law.

1.8                   The existing provisions add to compliance costs and constrain the flexibility of entities in conducting their businesses.  In particular:  the time taken to obtain an approval from the Commissioner can result in uncertainty; allowing grouping and de-grouping only at the beginning of a tax period may delay commercial transactions or require the unwinding of transactions for GST purposes to the beginning of a tax period; and finally joint and several liability can give rise to ongoing uncertainty for entities, even after they leave a GST group or GST joint venture.

Summary of new law

Self assessment and intra-tax period grouping and de-grouping

GST groups

1.9                   Schedule 1 amends Division 48 of the GST Act to allow entities to self assess their eligibility to form, change and dissolve a GST group and to notify the Commissioner of details of the GST group in the approved form.  Under the amendments, entities will be able to form, change and dissolve a GST group, and change a representative member on any day during a tax period.  The representative member of the group must notify the Commissioner of the details of the GST group on or before the day by which the representative member is required to give to the Commissioner a GST return for the tax period in which the formation, change or dissolution takes effect.

1.10                If the representative member fails to notify the Commissioner of the details of the GST group by the relevant date, the representative member will need to apply to the Commissioner for approval of the date of effect of the formation, change in membership, or dissolution of a GST group or a change in the representative member.

1.11                Transitional rules provide for the treatment of GST groups that already exist or that have already been approved by the Commissioner under the amended provisions.  Transitional rules also provide for the treatment of applications made under the existing provisions that have not been dealt with by the Commissioner.

GST joint ventures

1.12                Similarly, Schedule 1 amends Division 51 of the GST Act to allow entities to self assess their eligibility to form, change and dissolve a GST joint venture and to notify the Commissioner of details of the GST joint venture in an approved form.  Under the amendments entities will be able to form, change and dissolve a GST joint venture, and change a joint venture operator on any day during a tax period.  The joint venture operator must notify the Commissioner of the details of the GST joint venture on or before the day by which the joint venture operator is required to give to the Commissioner a GST return for the tax period in which the formation, change or dissolution takes effect.

1.13                If the joint venture operator fails to notify the Commissioner of the details of the GST joint venture by the relevant date, the joint venture operator will need to apply to the Commissioner for approval of the date of effect of the formation, change in participants or dissolution of a GST joint venture, or a change in the joint venture operator.

1.14                Transitional rules provide for the treatment of GST joint ventures that already exist or that have already been approved by the Commissioner under the amended provisions.  Transitional rules also provide for the treatment of applications made under the existing provisions that have not been dealt with by the Commissioner.

Indirect tax sharing agreements

GST groups

1.15                Schedule 1 also amends the TAA 1953 to allow members and a representative entity of a GST group to enter into an indirect tax sharing agreement to limit the indirect tax law liabilities of the members for tax periods in which they are a member of a GST group.  Subject to certain conditions, a member with an indirect tax sharing agreement can also leave a GST group clear of any indirect tax law liabilities for a tax period if it leaves before the representative member is required to give a GST return to the Commissioner for the tax period.

GST joint ventures

1.16                Similarly, Schedule 1 amends the TAA 1953 to allow participants and the joint venture operator of a joint venture to enter into an indirect tax sharing agreement to limit the indirect tax law liabilities of the participants for tax periods in which they are a participant in the GST joint venture.  Subject to certain conditions, a participant with an indirect tax sharing agreement can also leave a GST joint venture clear of any indirect tax law liabilities for a tax period if it leaves before the joint venture operator is required to give a GST return to the Commissioner for the tax period.

Comparison of key features of new law and current law

Detailed explanation of new law

Self assessment and intra-tax period grouping and de-grouping

1.17                These amendments allow entities to self assess their eligibility to form a GST group and a GST joint venture, and to make membership changes to, or dissolve a GST group or a GST joint venture on any day during a tax period.  These amendments are aimed at reducing compliance costs and increasing the flexibility for entities to form, change and dissolve a GST group or a GST joint venture while preserving the integrity of the GST system.

GST groups

1.18                To form a GST group, entities must satisfy the membership requirements of a GST group, agree in writing to form a GST group and nominate a representative member (which has to be an Australian resident).  Entities can self assess to form a GST group from a particular date provided that the representative member notifies the formation to the Commissioner in the approved form on or before the day by which the representative member is required to give the Commissioner a GST return for the tax period in which the formation takes effect (prospective formation).  [Schedule 1, item 3, subsections 48-5(1) to (3)]

Example 1.1:  Prospective formation of a GST group –– notifying the Commissioner

Entity A has a 90 per cent stake in Entities B, C and D.  They are all companies that are registered for GST purposes, apply the monthly GST tax period, account for GST on the same basis, are not members of another GST group and do not have any branch registered for GST purposes.  Entities A, B, C and D agree in writing to form a GST group with a date of effect from 23 April 2011.  They nominate Entity A (which is an Australian resident for GST purposes) as the representative member.  Entity A notifies the Commissioner in the approved form of their decision to form a GST group and the details of the group membership on 27 April 2011.  These entities have formed a GST group (under section 48-5 of the GST Act) with a date of effect from 23 April 2011 as the notification was provided to the Commissioner before 21 May 2011, which is the due date for lodgment of the GST return for the April tax period.

1.19                The Commissioner can approve the formation of a GST group for a tax period in which the due date for lodgment of a GST return by the nominated representative member has already passed (retrospective formation).  To form a group with retrospective formation, the representative member needs to apply to the Commissioner in the approved form and the Commissioner has to approve the date of effect and notify the representative member of the decision.  The Commissioner may decide to determine another date of effect.  The decision to approve another date of effect is a reviewable decision.  [Schedule 1, item 3, subsection 48-5(4) and item 16, subsections 48-71(1) and (3)]

Example 1.2:  Retrospective formation of a GST group – approval by the Commissioner

Same facts as in Example 1.1 but the nominated representative member (Entity A) notifies the Commissioner of their decision to form a GST group on 22 May 2011.  In this case, the entities cannot self assess their eligibility to form a GST group with a date of effect from 23 April 2011.  This is because Entity A did not notify the Commissioner about forming a GST group on or before 21 May 2011; that is, on or before the due date for lodgment of a GST return for the April tax period.  The Commissioner therefore needs to approve the date of effect of the formation of the group.  The Commissioner approves 23 April 2011 as the day of the formation of the GST group and gives a notice to the representative entity of the decision.  Thus a GST group is formed with a date of effect from 23 April 2011 under section 48-5.

1.20                A member of a GST group is defined as an entity that either formed a GST group or joined (and has not subsequently left) the group and that satisfies the membership requirements of the group.  [Schedule 1, item 3, subsections 48-7(1) and (2)]

1.21                The representative member must notify the Commissioner in the approved form within 21 days if a member of the GST group no longer satisfies the membership requirements.  The failure to notify the Commissioner within 21 days may result in an administrative penalty under section 286-75 in Schedule 1 to the TAA 1953.  [Schedule 1, item 3, subsections 48-7(3) and (4)]

1.22                Changes can be made to a GST group by the representative member notifying the Commissioner in the approved form of the changes.  The changes have effect from the date specified in the notice, providing the notice is given to the Commissioner on or before the day by which the representative member of the group is required to give the Commissioner a GST return for the tax period in which such actions take effect.  The changes include an entity joining a GST group, a member or the representative member leaving a GST group, the representative member of the GST group being replaced by another member of the group and the GST group being dissolved.  [Schedule 1, item 16, subsections 48‑70(1) and (3)]

1.23                If an entity ceases to be the representative member, the GST group is taken to be dissolved unless another member of the group immediately becomes the representative member.  A notice that another member has become the representative member must be given to the Commissioner by the new representative member within 21 days after that  member became the representative member.  A failure to notify the Commissioner within 21 days may result in an administrative penalty under section 286‑75 in Schedule 1 to the TAA 1953.  [Schedule 1, item 16, subsections 48-70(6) and (7)]

1.24                The Commissioner can approve a change in the membership of the GST group, a replacement of the representative member of the GST group or dissolution of a GST group retrospectively if the notification occurs after the due date for lodgment of the GST return for the tax period in which the action takes effect.  To make changes to a group with a retrospective date of effect, the representative member needs to apply to the Commissioner in the approved form and the Commissioner has to approve the date of effect and notify the representative member of the decision.  The Commissioner may decide to determine another date of effect.  The decision to approve another date of effect is a reviewable decision.  [Schedule 1, item 16, subsection 48‑70(4) and subsections 48‑71(1) and (3)]

1.25                The date of effect of forming, changing and dissolving a GST group, whether by self assessment or with the Commissioner’s approval can be any day during a tax period.  The existing requirements concerning approvals and revocations of GST groups in sections 48-75 to 48-90 are repealed.  [Schedule 1, item 20]

1.26                The GST payable on a taxable supply and the entitlement to an input tax credit for a creditable acquisition that an entity makes, that is attributed to a tax period in which an entity is a member of a GST group, is respectively payable by, or creditable to, the representative member.  Similarly, an adjustment that an entity has and that is attributable to a tax period during which the entity is a member of a GST group, is the representative member’s adjustment.  A GST liability for a taxable importation arises in the tax period that the taxable importation is made.  If that importation is made when the entity is a member of the group, the GST is payable by the representative member (provided that the GST on the importation is payable when GST on taxable supplies is normally payable by the representative member).  [Schedule 1, item 6, subsection 48‑40(1), item 7, paragraph 48-40(1)(b), item 8, subsection 48-40(1), item 9, subsection 48-45(1), item 10, paragraph 48-45(1)(b), item 11, subsection 48‑45(2), item 12, subsection 48-50(1) and item 13, paragraph 48‑50(1)(a)]

1.27                However, if an entity is a member of a GST group for only part of the tax period, the periods in which it was not a member of a group are treated as if they were a tax period applying to the entity for the purposes of working out which amounts the entity is liable for or entitled to.  Consequently, the entity is liable to pay any GST on taxable supplies, is entitled to any input tax credits for creditable acquisitions or creditable importations, and has adjustments to the extent that these amounts would be attributable to the period (or periods) in which the entity was not a member of any GST group.  GST on importations is payable by the entity if the GST liability arose in that period.  [Schedule 1, item 14, section 48-51]

1.28                Similarly, the representative member of a GST group of which an entity is only a member for part of a tax period is only responsible for the liabilities and entitlements that arise for transactions undertaken by the entity to the extent that these would be attributable to the period in which the entity was a member of the GST group (if this were a tax period). [Schedule 1, item 14, section 48-52]

1.29                If there are two or more representative members of a GST group for a tax period, each representative member is only liable for, or entitled to, amounts that would be attributable to the period in which it was the representative member (as if this period was treated as a tax period).  [Schedule 1, item 14, section 48-53]

1.30                Diagram 1.1 illustrates the responsibilities for accounting and reporting for GST by the entities forming and leaving a GST group as well as the representative member of a GST group. 

Diagram 1.1:  Intra-tax period formation and alteration of a GST group and accounting for GST in a business activity statement

In Diagram 1.1, Entities A, B and C form a GST group on 15 April with Entity B becoming the representative member of the group.  In these circumstances, each entity will be required to lodge a business activity statement for the tax period ending on 30 April, with:

•        the representative member (Entity B) accounting for its own liabilities and entitlements from 1 April to (the end of) 14 April and the GST group’s liabilities and entitlements for the period from (the start of) 15 April to 30 April; and

•        Entity A and Entity C accounting for their own liabilities and entitlements from 1 April to (the end of) 14 April.

Further, the membership of the ABC GST group is altered on 20 June when Entity A leaves the group.  This will require:

•        the representative member (Entity B) to account for the liabilities and entitlements of the GST group for the whole of the tax period, including Entity A’s activities up to (the start of) 20 June, in its business activity statement for the tax period ending on 30 June; and

•        Entity A accounts for its own liabilities and entitlements from the start of 20 June to 30 June.

1.31                The Commissioner may revoke an approval for a retrospective formation, a retrospective change in the membership of a GST group, a retrospective replacement of the representative member or a retrospective dissolution of a GST group.  The Commissioner must notify the relevant entity of any decision and the decision is a reviewable decision.  [Schedule 1, item 16, subsections 48-71(2) and (3)]

1.32                If a member becomes an incapacitated entity, and as a result the tax periods that apply to it are different from the members of the GST group, it ceases to be a member of the GST group unless the representative member makes an election for the tax period that applies to the members of the GST group to end at the same time as the incapacitated entity became incapacitated.  The Commissioner must be notified about such an election within 21 days after the member becomes incapacitated.  [Schedule 1, item 19, subsections 48‑73(1A) and (1B)] 

1.33                A representative of an incapacitated entity may remove an incapacitated entity from a GST group by notifying the Commissioner in the approved form that the incapacitated entity is no longer a member of the GST group.  The representative of an incapacitated entity needs to seek the Commissioner’s approval of such action if the notification occurs after the due date for lodgment of the GST return for that tax period.  However, the date of effect cannot be earlier than the day on which the member of the group became incapacitated.  [Schedule 1, item 16, paragraphs 48‑70(1)(e) and (2)(c), and subsections 48-70(4) and (5)]

1.34                If a representative member becomes an incapacitated entity, it ceases to be the representative member of a GST group unless all other members of the GST group are also incapacitated entities.  [Schedule 1, item 20, section 48-75]

1.35                An entity with a tax period determined by the Commissioner under section 27-30 of the GST Act will satisfy the membership requirements for joining a GST group despite not immediately having the same tax period as other members of the GST group, if the tax period determined by the Commissioner ends at the same time as the tax period for the other members of the group and this tax period is not longer than the tax period for the other members of the group (other than a tax period that another member has under section 27-30).  [Schedule 1, item 4, subsection 48‑10(2A)]

GST joint ventures

1.36                To form a GST joint venture, entities must satisfy the participation requirements of a GST joint venture, agree in writing to form a GST joint venture and nominate a joint venture operator.  The joint venture operator does not need to be a joint venture participant.  Entities can self assess to form a GST joint venture from a particular date provided that the joint venture operator notifies the formation to the Commissioner in the approved form on or before the day by which the joint venture operator is required to give the Commissioner a GST return for the tax period in which the formation takes effect (prospective formation).   [Schedule 1, item 23, item 24, subsection 51-5(1), item 25, item 26, paragraph 51‑5(1)(e), item 27, subsection 51‑5(1), and item 28, subsections 51-5(2) and (3)]

1.37                The Commissioner can approve the formation of a GST joint venture for a tax period in which the due date for lodgment of a GST return by the joint venture operator has already passed (retrospective formation).  To form a joint venture with retrospective formation, the Commissioner has to approve the date of effect and notify the joint venture operator of the decision.  The Commissioner may decide to determine another date of effect.  The decision to approve another date of effect is a reviewable decision.  [Schedule 1, item 28, subsection 51‑5(4) and  item 31, subsections 51‑75(1) and (3)]

1.38                A participant in a joint venture is defined as an entity that either formed a GST joint venture or joined (and has not subsequently) left the joint venture and that satisfies the participation requirements of the joint venture.  [Schedule 1, item 29, subsections 51‑7(1) and (2)]

1.39                The joint venture operator must notify the Commissioner in the approved form within 21 days if a participant in the GST joint venture no longer satisfies the participation requirements.  A failure to notify the Commissioner within 21 days may result in an administrative penalty under section 286-75 in Schedule 1 to the TAA 1953.  [Schedule 1, item 29, subsections 51‑7(3) and (4)]

1.40                Changes can be made to a GST joint venture by the joint venture operator notifying the Commissioner in the approved form of the changes.  The changes have effect from the date specified in the notice, providing the notice is given to the Commissioner on or before the day by which the joint venture operator is required to give the Commissioner a GST return for the tax period in which such actions take effect.  The changes include an entity joining a GST joint venture, a member leaving a GST joint venture, the joint venture operator being replaced by another entity and the GST joint venture being dissolved.  [Schedule 1, item 31, subsections 51‑70(1) and (2)]

1.41                If an entity ceases to be the joint venture operator, the GST joint venture is taken to be dissolved unless another participant in the joint venture immediately becomes the joint venture operator.  A notice that another joint venture participant has become the joint venture operator must be given to the Commissioner by the new joint venture operator within 21 days after that entity became the joint venture operator.  The failure to notify the Commissioner within 21 days may result in an administrative penalty under section 286-75 in Schedule 1 to the TAA 1953.  [Schedule 1, item 31, subsections 51‑70(4) and (5)]

1.42                The Commissioner can approve a change in the participants in a GST joint venture, a replacement of the joint venture operator or a dissolution of the GST joint venture retrospectively.  The approval of the Commissioner is required when the joint venture operator notifies the Commissioner of the action after the due date for lodgment of the GST return for the tax period in which the action takes effect.  To make changes to a joint venture with a retrospective date of effect, the joint venture operator needs to apply to the Commissioner in the approved form and the Commissioner has to approve the date of effect and notify the joint venture operator of the decision.  The Commissioner may decide to determine another date of effect.  The decision to approve another date of effect is a reviewable decision.  [Schedule 1, item 31, subsection 51‑70(3), and subsections 51‑75(1) and (3)]

1.43                The date of effect of forming, changing and dissolving a GST joint venture, whether by self assessment or with the Commissioner’s approval, can be any date during a tax period.  The existing requirements in Subdivision 51-C dealing with approvals or revocations are repealed. [Schedule 1, item 31]

1.44                The Commissioner may revoke an approval for a retrospective formation, a retrospective change in the participants in the GST joint venture, a retrospective replacement of the joint venture operator or a retrospective dissolution of the GST joint venture.  The Commissioner must notify the relevant entity of any decision and the decision is a reviewable decision.  [Schedule 1, item 31, subsections 51-75(2) and (3)] 

Indirect tax sharing agreements

1.45                The amendments allow participants of a GST joint venture and members of a GST group to enter into an indirect tax sharing agreement with their joint venture operator and representative member respectively in relation to their indirect tax law liabilities.  These amendments are aimed at reducing compliance costs by increasing certainty.

1.46                A supply that is made by an entity because it enters into an indirect tax sharing agreement or a supply of a release from an obligation under an indirect tax sharing agreement is not a taxable supply.  [Schedule 1, items 54 and 55, sections 110-60 and 110-65]

GST joint ventures

1.47                Joint venture participants can enter into an indirect tax sharing agreement with the joint venture operator to limit their exposure to joint and several liability for the joint venture operator’s indirect tax liability for a tax period.  The indirect tax sharing agreement can limit their liability to an amount (the contribution amount) determined in accordance with its terms.

1.48                An indirect tax sharing agreement must be in force before the date on which the joint venture operator is required to give to the Commissioner a GST return for a tax period and under the indirect tax sharing agreement a contribution amount must be able to be determined for each contributing participant for that tax period.  The contribution amounts of each contributing participant under the indirect tax sharing agreement must represent a reasonable allocation of the total indirect tax amounts that the participants would be jointly and severally liable for in relation to that tax period (that is, an amount comprising the sum of the joint venture operator’s net amount for the tax period, the joint venture’s net fuel amount for the tax period and any other tax-related liabilities that arise under an indirect tax law during the tax period, such as GST payable on taxable importations that the joint venture operator is liable to pay) to the extent that the amounts in question relate to the joint venture.

1.49                The requirement to allocate the joint venture operator’s total indirect tax law liability between the contributing participants and the joint venture operator provides joint venture participants with the flexibility to determine an appropriate basis of allocation that suits the circumstances of the GST joint venture.  Participants are not, for example, restricted to adopting a methodology which allocates liability amounts for each separate indirect tax law to each participant (that is, the GST, wine equalisation tax, luxury car tax and fuel tax laws) although they may choose to do this provided that the allocation of the total liability is reasonable.  [Schedule 1, items 56 and 57, subsection 444‑80(1) and item 58, paragraphs 444‑80(1A)(a) to (c)]

1.50                To provide additional assurance to the business community, the Commissioner will publish guidelines as to what is considered to be a reasonable allocation of a GST joint venture operator’s total indirect tax law liability under an indirect tax sharing agreement.

1.51                The effect of the indirect tax sharing agreement provisions is to limit the liability of a participant in the event that a joint venture operator defaults on the payment of a joint venture’s indirect tax law liability for a tax period.  While the joint venture operator may also have a (nominal) allocation under the indirect tax sharing agreement, it remains liable to pay the total amount of the indirect tax law liability of the GST joint venture for a tax period in respect of which it was the joint venture operator.

1.52                A participant with a relevant indirect tax sharing agreement can leave a GST joint venture clear of any liability for a tax period, if before the day on which the joint venture operator is required to give to the Commissioner the relevant GST return for the tax period, the participant pays the joint venture operator its contribution amount for that period, or if that amount cannot be determined at the time of payment, a reasonable estimate of its contribution amount.  [Schedule 1, item 58, paragraph 444‑80(1A)(d) and subsection 444‑80(1B)]  

1.53                The liability of participants with a relevant indirect tax sharing agreement that have not left the GST joint venture is limited to the contribution amount determined in accordance with the indirect tax sharing agreement.   A subsequent payment made by a participant to the Commissioner will reduce its contribution amount and the GST joint venture’s indirect tax liability to the extent of the payment.  However, this payment will not affect the Commissioner’s ability to recover the joint venture’s outstanding liabilities from other participants to the extent of their contribution amounts.  [Schedule 1, item 58, paragraph 444-80(1A)(e)]

Example 1.3:  GST joint venture and indirect tax sharing agreements

Entities A, B, C, D and E formed a GST joint venture on 5 February 2011.  A is nominated as the joint venture operator and thus is responsible for the indirect tax law liabilities of the GST joint venture, but B, C, D and E are jointly and severally liable for any amount that is payable under an indirect tax law by the joint venture operator (to the extent that the amount relates to the joint venture).  The GST joint venture applies a monthly tax period for remitting its indirect tax law liabilities.  On 10 April 2011, B, C, D and E enter into an indirect tax sharing agreement with Entity A in respect of the April 2011 tax period.  On 21 May 2011, A defaults on the payment to the Commissioner of amounts that are payable for the April 2011 tax period in respect of the GST joint venture’s indirect tax law liabilities.  Entities B, C, D and E are jointly and severally liable for the GST joint venture’s indirect tax law liabilities.  However, as they have a valid indirect tax sharing agreement for the tax period their liabilities are limited to their respective contribution amounts determined in accordance with the indirect tax sharing agreement.  Entity A remains wholly liable for the total amounts that are payable for the GST joint venture.

If Entity B left the GST joint venture on 20 May 2011 and made a payment to A of its contribution amount for both the April 2011 tax period and the May 2011 tax period, it is clear of any indirect tax law liabilities for the April 2011 and May 2011 tax periods.  Entities C, D and E are jointly and severally liable for the GST joint venture operator’s indirect tax law liabilities for these tax periods to the extent that the liabilities relate to the joint venture, with their liabilities being limited to their contribution amounts determined in accordance with the indirect tax sharing agreement.

1.54                More details about the operation of indirect tax sharing agreements can be found in Diagram 1.2 that illustrates the operation of indirect tax sharing agreements in respect of the indirect tax law liabilities of a GST group.

1.55                An indirect tax sharing agreement does not apply if it was entered into as part of an arrangement that had a purpose of prejudicing the Commissioner’s ability to recover an amount payable under an indirect tax law.  [Schedule 1, item 58, subsection 444‑80(1C)]

1.56                In addition, an indirect tax sharing agreement does not apply if the joint venture operator fails to comply with a written notice given by the Commissioner requiring the joint venture operator to give the Commissioner a copy of the indirect tax sharing agreement in the approved form within 14 days.  [Schedule 1, item 58, subsection 444‑80(1D)]

1.57                An indirect tax sharing agreement can cover more than one participant in a joint venture but the joint venture operator for the GST joint venture cannot enter into more than one indirect tax sharing agreement for the same tax period.  [Schedule 1, item 58, subsection 444‑80(1E)]

GST groups

1.58                Members of a GST group can enter into an indirect tax sharing agreement with the representative member of the group to limit their exposure to joint and several liability for the representative member’s indirect tax liability for a tax period.  The indirect tax sharing agreement can limit their liability to an amount (the contribution amount) determined in accordance with its terms. 

1.59                An indirect tax sharing agreement must be in force before the date on which the representative member of the group is required to give to the Commissioner a GST return for a tax period and under the indirect tax sharing agreement a contribution amount must be able to be determined for each contributing member for that tax period.  The contribution amounts of each contributing member under the indirect tax sharing agreement must represent a reasonable allocation of the total indirect tax amounts that the members would be jointly and severally liable for in relation to that tax period (that is, an amount comprising the sum of the representative member’s net amount for the tax period, the representative member’s net fuel amount for the tax period and any other tax-related liabilities that arise under an indirect tax law during the tax period, such as GST payable on taxable importations, that the representative member is liable to pay).

1.60                The requirement to allocate the representative member’s total indirect tax law liability provides group members with the flexibility to determine an appropriate basis of allocation that suits the circumstances of the GST group.  Members are not, for example, restricted to adopting a methodology which allocates liability amounts for each separate indirect tax law to each member (that is, the GST, wine equalisation tax, luxury car tax and fuel tax laws) although they may choose to do this provided that the allocation of the total liability is reasonable.  [Schedule 1, items 59 and 60, subsection 444‑90(1) and item 61, paragraphs 444‑90(1A)(a) to (c)]

1.61                To provide additional assurance to the business community, the Commissioner will publish guidelines as to what is considered to be a reasonable allocation of a representative member’s total indirect tax law liability under an indirect tax sharing agreement.

1.62                The effect of the indirect tax sharing agreement provisions is to limit the liability of a member in the event that a representative member defaults on the payment of a group’s indirect tax law liabilities for a tax period.  While the representative member may also have a (nominal) allocation under the indirect tax sharing agreement, it remains liable to pay the total amount of the indirect tax law liability for a tax period of the GST group in respect of which it was the representative member.

1.63                A member with a relevant indirect tax sharing agreement can leave a GST group clear of any liability for an indirect tax amount for a tax period, if before the day on which the representative member is required to give to the Commissioner the GST group’s GST return for the tax period, the member pays the representative member its contribution amount, or if that amount cannot be determined at the time of payment, a reasonable estimate of its contribution amount.  [Schedule 1, item 61, paragraph 444‑90(1A)(d) and subsection 444‑90(1B)] 

1.64                The liability of members with a relevant indirect tax sharing agreement that have not left the GST group before an indirect tax amount becomes payable is limited to the contribution amount determined in accordance with the indirect tax sharing agreement.  A subsequent payment made by a member to the Commissioner will reduce its contribution amount and the GST group’s liability to the extent of the payment.  However, this payment will not affect the Commissioner’s ability to recover the GST groups outstanding liability from other members to the extent of their contribution amounts.  [Schedule 1, item 61, paragraph 444‑90(1A)(e)]

1.65                Diagram 1.2 illustrates the intended outcome of these provisions in respect of the liability of a member with an indirect tax sharing agreement that leaves a GST group and the liabilities of the remaining members of the GST group for an amount that is payable under an indirect tax law.

1.66                An indirect tax sharing agreement does not apply if it was entered into as part of an arrangement that had a purpose to prejudicing the Commissioner’s ability to recover an amount payable under an indirect tax law.  [Schedule 1, item 61, subsection 444‑90(1C)]

1.67                In addition, an indirect tax sharing agreement does not apply if the representative member fails to comply with a written notice given by the Commissioner requiring the representative member to give the Commissioner a copy of the indirect tax sharing agreement in the approved form within 14 days.  [Schedule 1, item 61, subsection 444‑90(1D)]

1.68                An indirect tax sharing agreement can cover more than one member of a GST group but the representative member of the GST group cannot enter into more than one indirect tax sharing agreement for the same tax period.  [Schedule 1, item 61, subsection 444‑90(1E)]

Diagram 1.2:  Indirect tax sharing agreement and indirect tax law liabilities of GST group

In Diagram 1.2, a GST group operates that consists of Entity X (a representative member of the group), and Entities Y and Z.  Entity A joins this group mid-way through tax period 2 which is to be allowed under provisions covered by this Bill and illustrated in Diagram 1.1.

The group members enter into an indirect tax sharing agreement with the representative member of the GST group (Entity X) at the same time and this occurs after the GST return for tax period 1 is due.  Entity A leaves the group during tax period 5 (but after lodgment for period 4 is due) after making a payment of its contribution amount to X under the indirect tax sharing agreement with respect of period 5.  The contribution amount represents a reasonable allocation of A’s share of the representative member’s total indirect tax law liabilities that have not yet become payable for period 5.

In this scenario, the representative member (X) is responsible for the indirect tax law liabilities of the GST group for the duration it was the representative member of the group.  However, if X defaults on the payment of the indirect tax law liabilities of the GST group for tax periods 1 to 7:

•        Entity Y and Z are jointly and severally liable for the amounts that are payable with respect of tax period 1 as there is no applicable indirect tax sharing agreement;

•        before Entity A leaves the group, Entities Y, Z and A are jointly and severally liable for any amounts that are payable for tax periods covered under the indirect tax sharing agreement (tax periods 2, 3 and 4).  However, their liabilities are limited to their respective contribution amounts determined under the indirect tax sharing agreement;

•        after Entity A leaves the group and makes a payment under the indirect tax sharing agreement to X:

–      Entities Y and Z remain jointly and severally liable for the indirect tax law liabilities of the GST group that arose in a tax period prior to A leaving the group (tax periods 2, 3 and 4) as well as for the tax period in which A leaves the group (tax period 5) and tax periods 6 and 7.  However, their liabilities are limited to their respective contribution amounts determined under the indirect tax sharing agreement;

–      Entity A:

a.        does not have any indirect tax law liabilities for the tax period in which it leaves the GST group (tax period 5) as it left prior to the date the representative member was required to lodge a GST return for that period, and has made a payment of its contribution amount in respect of that period; and

b.       remains liable for amounts payable under GST returns which were required to be lodged at the time during which it was a member of the GST group (tax periods 2, 3 and 4) but only to the extent of its contribution amounts determined under the indirect tax sharing agreement for those periods.

Regardless of whether X defaults or not, Entity A is responsible for any increasing and decreasing adjustments that are attributable to a period after it leaves the group (for example, in tax period 7) but only in respect of supplies and acquisitions that A made while it was a member of the GST group (tax periods from 2 to 5).

Application and transitional provisions

1.69                The amendments made by Part 1 and Part 2 of Schedule 1 apply to tax periods starting on or after 1 July 2010.  [Schedule 1, items 45 and 63]

1.70                Transitional rules provide for the treatment of GST groups and GST joint ventures that already exist or that have already been approved by the Commissioner.  They also provide for the treatment of applications made under the existing provisions that have not been dealt with by the Commissioner.

Self assessment:  GST groups

1.71                A GST group that existed immediately before 1 July 2010 will be taken to continue to exist under the new provisions for formation of a GST group, provided that the entities who are members of the GST group and the representative member of such a group before and after 1 July 2010 remain the same.  [Schedule 1, subitem 43(1)]  

1.72                GST groups that have been approved by the Commissioner before 1 July 2010 with a date of effect after 1 July 2010 will not be required to notify the Commissioner about the formation of the GST group, unless there are changes to membership of the GST group or the representative member.  [Schedule 1, subitem 43(2)]

1.73                An application by entities to form a GST group with effect after 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be a notification of the formation of the GST group under the amended provisions.  [Schedule 1, subitem 43(3)]

1.74                An application by entities to form a GST group with effect before 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be an application for approval to form the GST group under the amended provisions.  [Schedule 1, subitem 43(4)]  

1.75                An application by a representative member to make changes to a GST group with effect after 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be a notification of the changes to the GST group under the amended provisions.  [Schedule 1, subitem 43(5)]

1.76                An application by a representative member to make changes to a GST group with effect before 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be an application for changes to the GST group under the amended provisions.  [Schedule 1, subitem 43(6)]

1.77                An application by a representative member to revoke a GST group with effect after 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be a notification of the revocation of the GST group under the amended provisions.  [Schedule 1, subitem 43(7)]

1.78                An application by a representative member to revoke a GST group with effect before 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be an application for approval of the revocation of the GST group under the amended provisions.  [Schedule 1, subitem 43(8)]

Self assessment:  GST joint ventures

1.79                A GST joint venture that existed immediately before 1 July 2010 will be taken to continue to exist under the new provisions for formation of a GST joint venture, provided that the entities who participate in the GST joint venture and the joint venture operator of such a GST joint venture before and after 1 July 2010 remain the same.  [Schedule 1, subitem 44(1)]  

1.80                GST joint ventures that have been approved by the Commissioner before 1 July 2010 with a date of effect after 1 July 2010 will not be required to notify the Commissioner about the formation of the GST joint venture, unless there are changes to membership of the GST joint venture or the joint venture operator.  [Schedule 1, subitem 44(2)]

1.81                An application by entities to form a GST joint venture with effect after 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be a notification of the formation of the GST joint venture under the amended provisions.  [Schedule 1, subitem 44(3)]

1.82                An application by entities to form a GST joint venture with effect before 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be an application for approval to form the GST joint venture under the amended provisions.  [Schedule 1, subitem 44(4)]

1.83                An application by a joint venture operator to make changes to a GST joint venture with effect after 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be a notification of the changes to the GST joint venture under the amended provisions.  [Schedule 1, subitem 44(5)]

1.84                An application by a joint venture operator to make changes to a GST joint venture with effect before 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be an application for approval of the changes to the GST joint venture under the amended provisions.  [Schedule 1, subitem 44(6)]

1.85                An application by a joint venture operator to revoke a GST joint venture with effect after 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be a notification of the revocation of the GST joint venture under the amended provisions.  [Schedule 1, subitem 44(7)]

1.86                An application by a joint venture operator to revoke a GST joint venture with effect before 1 July 2010 that was not approved or refused by the Commissioner before 1 July 2010 will be taken to be an application for approval of the revocation of the GST joint venture under the amended provisions.  [Schedule 1, subitem 44(8)]

Consequential amendments

Self assessment and intra-tax period grouping and de-grouping

1.87                As a consequence of introducing self assessment:

•       Section 48‑1 of the GST Act describing the content of Division 48 and a heading of Subdivision 48‑A are amended to indicate that entities can form rather than be approved as a GST group [Schedule 1, item 1, section 48-1 and item 2].

•       The heading of Subdivision 48-B of the GST Act is amended to refer to the consequences of GST groups rather than to the consequences of approval of GST group [Schedule 1, item 5].

•       A note is inserted under subsection 48-60(1) of the GST Act to indicate that if an entity is not a member of a GST group during the whole tax period, it will still be obligated to give a GST return for the tax period and that the net amount for that tax period will take into account its liabilities and entitlements relating to the part of the tax period during which it was not a member of a group [Schedule 1, item 15].

•       Section 48-72 of the GST Act dealing with the effect of a representative member becoming an incapacitated entity has been deleted and replaced with a new section 48-75 [Schedule 1, item 17].

•       Note 2 under subsection 48‑73(1) of the GST Act was amended to indicate that if a representative member does not make an election for the tax period that applies to the members of the GST group to end at the same time as a member becomes incapacitated, the member’s membership of the group may cease on becoming incapacitated if the tax periods that apply to it do not apply to other members [Schedule 1, item 18].

•       Section 51‑1 of the GST Act describing the content of Division 51 and the heading of Subdivision 51‑A are amended to indicate that entities can form rather than be approved as a GST joint venture [Schedule 1, item 21, section 51‑1 and item 22].

•       The heading of Subdivision 51-B of the GST Act is amended to refer to the consequences of GST joint ventures rather than to the consequences of approval of GST joint ventures [Schedule 1, item 30].

•       Subsection 58-10(6) of the GST Act is amended to reflect the addition of a new subsection 48-40(1A) [Schedule 1, item 32].

•       Sections 151‑65 and 151-70 and paragraph 151-25(1)(d) of the GST Act are repealed and paragraph 151-25(1)(c) of the GST Act is amended to ensure that an intra‑tax period alteration to a GST group or an intra‑tax period change in a representative member does not prevent a GST group from continuing to lodge GST returns, and pay amounts of GST or receive refunds of GST, on an annual tax basis [Schedule 1, item 33, paragraph 151-25(1)(c), item 34, paragraph 151-25(1)(d) and item 35].

•       A number of definitions in section 195-1 of the GST Act are amended to reflect changes in the main provisions dealing with GST groups (Division 48) and GST joint ventures (Division 51) [Schedule 1, items 36 to 40].

•       Subsection 110-50(2) in Schedule 1 to the TAA 1953 is amended by deleting items relating to the Commissioner’s decision to refuse an application for approval to form, change or dissolve a GST group and a GST joint venture under the existing provisions and inserting items relating to the Commissioner’s decision to refuse to approve a retrospective date of effect for forming, changing and dissolving a GST group and a GST joint venture [Schedule 1, items 41 and 42].

Indirect tax sharing agreements

1.88                A note under subsection 48-40(1) of the GST Act that deals with the GST liabilities of a GST group is amended to indicate that each member may be, rather than is, jointly and severally liable to pay GST that is payable by the representative member.  A similar amendment was made to a note under subsection 51-30(1) of the GST Act that deals with the GST liabilities of a GST joint venture.  [Schedule 1, items 50 and 51]

1.89                A table in section 9-39 of the GST Act that specifies special rules relating to taxable supplies is amended in the light of changes to Division 110 making certain indirect tax sharing agreement related transactions a non-taxable supply.  Similar changes are made to the checklist of special rules in section 37-1 of the GST Act.  [Schedule 1, items 46 to 49]

1.90                Section 110‑1 of the GST Act describing the content of Division 110 and the heading of Division 110 are changed to indicate the Division deals with income tax and other taxes, rather than just income tax, following the amendment making indirect tax sharing agreement related transactions a non‑taxable supply.  [Schedule 1, items 52 and 53]

1.91                A subheading has been inserted before subsection 444-90(4) to separate the remaining subsections dealing with criminal liability from the preceding subsections dealing with joint and several liability.  [Schedule 1, item 62]

Outline of chapter

2.1                   Schedule 2 to this Bill amends the Taxation Administration Act 1953 (TAA 1953), the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), the Excise Act 1901 (Excise Act) and the Income Tax Assessment Act 1997 (ITAA 1997) to include indirect tax rulings and excise advice in the general rulings regime.  All references are to the TAA 1953 unless otherwise specified.

Context of amendments

2.2                   Schedule 2 implements the Government’s response to the Board of Taxation’s Review of the Legal Framework for the Administration of the GST which recommended harmonising the indirect tax rulings system with the general ruling system.

2.3                   Under the current law, indirect tax rulings are issued under the Commissioner of Taxation’s (Commissioner) power of general administration of indirect tax.  Administratively binding advice for excise is issued under the Commissioner’s powers of general administration.  There is currently no express legislative framework for indirect tax rulings and excise advice, and no formal objection or review rights.

2.4                   The intention of harmonising indirect tax rulings and excise advice with the general rulings system is to simplify the tax law and provide consistent rules that apply across different taxes.  Specific differences between the rulings regimes are retained only where essential characteristics of the different taxes require a different approach.

2.5                   It is not intended that any changes be made to how the existing rulings regime generally applies for taxes currently covered by that regime.  In addition, private indirect tax rulings in operation immediately prior to 1 July 2010 are treated as if made under the revised ruling regime.  This ensures that the rulings remain valid and do not impose additional compliance costs on affected parties by requiring new rulings to be obtained.  Indirect tax rulings in operation immediately prior to 1 July 2010 that are gazetted or labelled as public rulings are also treated as if made under the revised ruling regime.

2.6                   Given the concerns expressed during consultation, the Board of Taxation’s recommendation that one party to a supply be able to rely on rulings issued to the other party to the supply has not been implemented.  However, adopting the broader rulings regime means the Commissioner can issue class and product rulings concerning indirect tax and excise.  Suppliers and recipients can also still apply jointly for private rulings.

Summary of new law

2.7                   This Schedule broadens the scope of the general rulings system to extend it to the goods and services tax (GST), the luxury car tax (LCT), the wine equalisation tax (WET) and excise duty.  This ensures that, where possible, consistent rules for tax rulings apply across different taxes.

2.8                   This allows the Commissioner to issue public and private indirect tax and excise rulings to taxpayers that are legally binding on the Commissioner in relation to these taxes and excise duty.  The adoption of the general rulings regime for indirect tax and excise duty introduces a range of features which include the right to object to a private indirect tax or excise ruling.

2.9                   The amendments apply to rulings made by the Commissioner on or after 1 July 2010.  They also apply to:

•       private indirect tax rulings that have been applied for, or are in operation, immediately before 1 July 2010; and

•       public indirect tax rulings that are gazetted or labelled as public rulings and are in operation immediately before 1 July 2010,

in order to reduce any transitional compliance costs resulting from the changes.

Comparison of key features of new law and current law

Detailed explanation of new law

2.10                These amendments include indirect tax rulings and excise advice in the general rulings regime available for income tax and other taxes, and are intended to reduce compliance costs for taxpayers by providing generally consistent rules across different taxes.  Where necessary, limited differences have been maintained for indirect tax and excise rules reflecting the specific characteristics of these taxes and duties.

Inclusion in the general rulings regime

2.11                The extension of the general rulings regime to include indirect tax rulings and excise advice brings indirect tax, excise duty, net amounts, wine tax credits and their administration and the payment or collection of a net amount or wine tax credit, all within the scope of the general regime.  As the regime applies, amongst other things, to net amounts, it allows for rulings relating to components that make up the net amount (for example, input tax credits and adjustments).  Excise advice extends to the administration or collection of excise duty (for example, provisions under the Excise Act about the administration or collection of excise duty).  [Schedule 2, items 24 to 26, paragraphs 357‑55(fb), (fc), (g), (j) and (k) of Schedule 1 to the TAA 1953]

2.12                This ensures that the common rules for rulings and specific rules for public rulings and private rulings apply to indirect taxes and excise, subject to any specific modifications.  This allows the Commissioner to issue public rulings, including product and class rulings and private rulings to taxpayers, that are legally binding on the Commissioner.  The adoption of the general rulings regime for indirect tax rulings and excise advice introduces a range of features for indirect tax and excise.  Some of these features include:

•       Public rulings can cover any matter involved in the application of a provision, including matters relating to administration, collection and ultimate conclusions of fact.

•       Private rulings may cover anything involved in the application of the provision, including valuations.  The Commissioner may charge for a private ruling on a valuation issue.

•       If a taxpayer has applied for a private ruling and the Commissioner has not made the ruling or declined to make the ruling within 60 days, and an event that extends that time has not occurred, then the applicant can issue a written notice requiring the Commissioner to make the ruling.  If the Commissioner does not make the ruling or declines to rule within 30 days, then the taxpayer has an objection right. 

•       The Commissioner may rely on information from other sources, provided the Commissioner tells the applicant what the information is, and gives them a reasonable opportunity to respond before making the private ruling.

•       The Commissioner can make assumptions about a future event or other matter for a private ruling, provided the Commissioner informs the applicant of the assumptions and gives the applicant a reasonable opportunity to respond.

Right of objection

2.13                With the incorporation of indirect tax and excise rulings into the general rulings regime, taxpayers that obtain an indirect tax or excise private ruling have a right to object against that ruling under subsection 359‑60(1).  This contrasts with the situation under the current law in which to dispute the Commissioner’s interpretation of an indirect tax law, a taxpayer who obtains a private indirect tax ruling would ordinarily need to request that the Commissioner issue an assessment and object against that assessment to formally test the issue.

2.14                Consistent with the general rulings regime, if a taxpayer objects to a private indirect tax or excise ruling then their right of objection against an assessment is limited to matters that they were not able to raise as grounds for objection against the private ruling.  This ensures that there is a single avenue to object and prevents duplicate objections from being made.  [Schedule 2, item 19, section 14ZVA]

2.15                An amendment also ensures that objections cannot be lodged against a private ruling if other events occur which provide an alternative means to object to an indirect tax or excise liability.  These include:

•       in the case of indirect tax, where there is an assessment to which the ruling relates; and

•       in the case of excise, where the Commissioner has made a decision about the excise duty or other amount payable in relation to those goods and the decision is reviewable.

[Schedule 2, item 43, paragraph 359‑60(3)(c) of Schedule 1 to the TAA 1953]

2.16                Where an objection has already been lodged against a private ruling, there is a further provision in the case of excise that also prevents duplication of dispute avenues of review where there is an objection to a private ruling in relation to the rate of duty or liability to duty.  Section 154 of the Excise Act provides for a right of review where there is a dispute as to the amount of duty payable on excisable goods.  If a taxpayer has already obtained a private ruling concerning the amount of duty payable on excisable goods, and has objected against the ruling, their ability to commence legal action under section 154 of the Excise Act is limited to grounds that neither were, nor could have been, grounds for objecting against the ruling.  This restriction is additional to the amendments to section 14ZVA of the TAA 1953, as this section only applies to decisions made under the Excise Act giving rise to review under Part IVC of the TAA 1953.  [Schedule 2, item 6, section 155 of the Excise Act]

Example 2.1:  Excise objection

A licensed manufacturer anticipates manufacturing a new type of excisable good.  They seek a private ruling as to the amount of duty that would be payable on the good.  They do not accept the amount advised by the Commissioner in the ruling and they lodge an objection.  Subsequently, they commence manufacture of the excisable goods.  They pay the amount of duty that the Commissioner claimed was payable in the private ruling, and commence an action against the Commissioner under section 154 of the Excise Act.  Their ability to commence an action under section 154 is limited to grounds that were not, and could not have been, grounds for objecting against the private ruling.

2.17                The amendments specify the time limit for lodging an objection against a private indirect tax ruling, which is the end of the latter of:

•       60 days after the ruling was made; or

•       four years after the end of the tax period, or importation of goods to which the ruling relates.

[Schedule 2, items 20 and 21, subsections 14ZW(1AAB) and (1A)]

2.18                Transitional provisions have been included so that a private indirect tax ruling that is in force immediately before 1 July 2010, is taken as if it had been made under the new rules.  This enables objection rights to be pursued for existing private indirect tax rulings.  [Schedule 2, subitem 46(2)]

2.19                It was not possible to extend this to excise advice, as only administratively binding advice (not rulings) has been able to be provided under the existing law. 

Other changes

2.20                A new term indirect tax or excise ruling is added to the income tax definitions.  It means a public or private ruling to the extent it relates to an indirect tax law or an excise law (other than a fuel tax law).  The existing definitions of indirect tax rulings are repealed.  [Schedule 2, items 9 to 12, definitions of ‘indirect tax or excise ruling’, ‘indirect tax ruling’, ‘private indirect tax ruling’ and ‘public indirect tax ruling’ in subsection 995-1(1) of the ITAA 1997]

2.21                A new term ‘private indirect tax ruling’ is added to the definitions in the taxation administration provisions.  To ensure common definitions apply, three other terms are added to the taxation administration definitions:

•       ‘excise law’ has the meaning given by the ITAA 1997 [Schedule 2, item 13, subsection 2(1)];

•       ‘fuel tax law’ has the meaning given by the Fuel Tax Act 2006 [Schedule 2, item 14, subsection 2(1)]; and

•       ‘indirect tax law’ has the meaning given by the ITAA 1997 [Schedule 2, item 15, subsection 2(1)].

2.22                The definition of ‘private ruling’ has the meaning given in section 359-5 of Schedule 1 to the TAA 1953, and the existing definition of private ruling within the taxation administration provisions is repealed.  [Schedule 2, items 16 to 18, subsection 2(1)]

2.23                A definition of ‘excise duty’ has been included in the income tax law to ensure that a common definition applies.  The definition adopts the meaning given by the GST law which refers to any duty of excise imposed by a Commonwealth law.  Under the general rulings regime the advice provided by the Commissioner is limited to the Acts and regulations of which the Commissioner has general administration.  For example, as the Commissioner has general administration of the Excise Tariff Act 1921 the excise duty imposed under this Act is relevant for the purposes of the definition of ‘excise duty’.  [Schedule 2, item 7, definition of ‘excise duty’ in subsection 995‑1(1) of the ITAA 1997]

2.24                A definition of ‘excise law’ has been included in the income tax definitions, which includes the Excise Act, any other Acts that impose excise duty, and related Acts.  [Schedule 2, item 8, definition of ‘excise law’ in subsection 995‑1(1) of the ITAA 1997]

Existing rules:  reliance on the Commissioner’s interpretation

2.25                Section 105-60 in Schedule 1 to the TAA 1953 provides rules where a taxpayer relies on the Commissioner’s interpretation of an indirect tax law.  This section has been repealed as a result of the inclusion of indirect tax rulings in the general ruling regime.  [Schedule 2, items 22 and 23, sections 105-1 and 105-60 of Schedule 1 to the TAA 1953]

Additions to the general rulings regime

Inconsistent rulings

2.26                Many indirect tax and excise rulings relate to transactions that are long‑term or recurring.  As a result, the requirement in the general rulings regime for the income year or other period, or scheme not to have commenced, as a prerequisite to enable a ruling to be withdrawn or revised, is not relevant in the case of indirect tax or excise rulings.

2.27                There are special rules which set out the result for inconsistent indirect tax or excise rulings that are in operation.  (This situation is distinct from where the Commissioner revises a private ruling.  The revised private ruling only applies from the date it is issued or such later time as specified in the ruling.)  Inconsistent rulings arise in circumstances where there are two or more conflicting rulings that apply to a taxpayer at the same time.  [Schedule 2, items 30 to 33, subsections 357-75(1), (1A), (1B) and (2) of Schedule 1 to the TAA 1953]

2.28                Where an indirect tax or excise public ruling exists and a later inconsistent indirect tax or excise private ruling is issued by the Commissioner, the private ruling is taken to apply from the time specified in the ruling and at that time the public ruling is taken to cease to apply to the extent of the inconsistency.  Where no time is specified in the private ruling, it is taken to apply from when the ruling is made, and at that time the public ruling ceases to apply to the extent of the inconsistency.  [Schedule 2, item 32, subsection 357-75(1B) of Schedule 1 to the TAA 1953]

2.29                The same result occurs where an existing indirect tax or excise private ruling and a later inconsistent indirect tax or excise ruling is issued.  The later ruling applies from the later of the time it is made or the time specified in the ruling, and at that time the existing ruling ceases to apply to the extent of the inconsistency.  It does not matter whether the later ruling is a public or private ruling.  [Schedule 2, item 32, subsection 357‑75(1B) of Schedule 1 to the TAA 1953] 

2.30                These modifications to the general rulings regime reflect the existing treatment of inconsistent rulings for indirect taxes.

2.31                Where an indirect tax or excise public ruling exists and a later inconsistent indirect tax or excise public ruling is issued by the Commissioner, taxpayers may rely on either ruling.  In this case the outcome is the same as that under the broader rulings regime.  [Schedule 2, item 32, subsection 357-75(1A) of Schedule 1 to the TAA 1953]

Example 2.2:  Inconsistent public indirect tax rulings

On 16 August 2010, the Commissioner issued a public ruling in relation to the GST treatment of chocolate-covered fruit.  On 18 March 2011, he issued another public ruling, which was inconsistent, in part, with the earlier ruling.  Taxpayers may rely on either ruling to the extent of the inconsistency, until one of the rulings is withdrawn.

Example 2.3:  Inconsistent public and private indirect tax rulings 

The Commissioner issued a public ruling on 1 July 2010.  On 15 September 2010 the Commissioner issued a private ruling to Steve’s Fishing Supplies, which specified that it would apply from 25 October 2010.  From that date, the public ruling ceased to apply to Steve’s Fishing Supplies to the extent of the inconsistency between the two rulings.

Example 2.4:  Inconsistent private indirect tax rulings

The Commissioner issued a private ruling to J & M Building Services on 29 July 2010.  On 30 December 2010 the Commissioner issued another private ruling to J & M Building Services.  The second ruling was silent on the time from which it began to apply.  This second ruling is taken to apply from the date it was made, which was 30 December 2010, and from that date, the earlier ruling ceases to apply to J & M Building Services to the extent of the inconsistency between the two rulings.

2.32                In the case where an inconsistent ruling deals with an indirect tax or excise law and another tax such as income tax, to the extent the ruling deals with indirect tax or excise, the indirect tax and excise rules apply.  To the extent the ruling deals with another tax, the table in section 357-75 of Schedule 1 that sets out the rules for inconsistent rulings other than indirect tax or excise rulings applies.

GST payable

2.33                A feature of the GST is that an amount of input tax credit that a recipient can claim for a creditable acquisition is directly dependent on the amount of the GST payable by the supplier. 

2.34                In business to business transactions, the input tax credits that a recipient claims should match the GST that the supplier pays if the recipient’s acquisition is wholly creditable.  This is because input tax credits reflect the amount of GST on the supply.

2.35                The GST treatment of a supply impacts on the input tax credits available to a recipient and this reflects the symmetry of the GST system.  This is provided by section 11-25 of the GST Act.  The tax invoice is a mechanism for communicating between a supplier and a recipient concerning the supplier’s GST treatment of a supply.

Example 2.5:  Tax invoices and GST payable

A supplier issues a tax invoice which includes an amount of GST payable.  The recipient will be able to claim an input tax credit provided the requirements of the GST Act are met. 

If the supplier issues a tax invoice that shows that no GST is payable, then the recipient will not generally be able to claim an input tax credit.

2.36                The basic rules for working out the GST payable on a supply are contained in Subdivision 9-C of the GST Act.  The basic rules may be affected by other provisions in the GST Act and other Acts. 

2.37                The GST Act is also supported by various machinery provisions contained in the TAA 1953.  In determining the net amount or the amount of GST payable, all provisions affecting the taxpayer’s liability or entitlement to a refund including provisions contained in the TAA 1953 need to be taken into consideration.  [Schedule 2, item 1, section 2-30 of the GST Act]

2.38                In the existing law, under subsection 105-60(2) of Schedule 1 to the TAA 1953, a taxpayer can rely on the Commissioner’s interpretation where the Commissioner altered a previous indirect tax ruling.  The effect of this is that the underpaid amount ceases to be payable.  Once an underpaid amount ceases to be payable, this has an impact on the amount of the input tax credit that a recipient can claim for a creditable acquisition.

2.39                This provision provides protection for the entity that receives a ruling, such that if the ruling is incorrect, they are not liable for an amount of GST in excess of that determined in accordance with the ruling.

2.40                The protection of the ruling may reduce the amount of GST payable by a supplier that relies on a ruling.  This is reflected in the calculation of the recipient’s corresponding input tax credit under section 11-25 of the GST Act.  Thus, input tax credits to which a recipient of a supply is entitled, are dependent on the GST liability of the supplier.

2.41                The amendments confirm the same outcome arises under the general rulings regime.  As a result, in cases where a ruling has been issued, and the taxpayer relies on the ruling, the amendments expressly confirm that the GST payable on the supply is the amount worked out in accordance with the ruling.  [Schedule 2, items 1 to 5, sections 2-30,  9‑99,  11-25, 13-99 and 15-20 of the GST Act; and items 27 and 29, subsections 357-60(1) and 357‑60(3) of Schedule 1 to the TAA 1953]

2.42                The provisions support the fundamental principle of GST that recipients should only be able to claim input tax credits to the extent that the supply to them is subject to GST. 

2.43                These amendments include an example illustrating that in the context of GST, relying on a ruling involves acting consistently with the ruling in respect of the relevant transaction by issuing tax invoices and lodging a GST return in accordance with the ruling.  Accordingly, if a supplier issues a recipient with a tax invoice showing GST payable on a transaction, the recipient’s input tax credit entitlement (if any) cannot be affected by a ruling to the supplier providing that the supply is GST-free. This reflects that they have not relied on the ruling and the GST status of the supply must be determined from the specific circumstances of the transaction.  [Schedule 2, item 28, subsection 357-60(1) of Schedule 1 to the TAA 1953]

Example 2.6:  Rulings and GST payable

Peter makes ongoing supplies of a particular food item to Lara.  Peter obtains a private ruling from the Commissioner that the supplies are GST-free. 

In making his December 2010 delivery to Lara, Peter relies on the ruling to:

•        not include any GST in the price charged to Lara;

•        not issue a tax invoice to Lara;

•        lodge his business activity statement (BAS) on this basis; and

•        not pay GST in relation to this supply.

As there is no GST payable because the ruling provides that the supply is GST-free and Peter has relied on the ruling, Lara is not able to claim an input tax credit in relation to supplies to which the ruling applies even if the Commissioner’s ruling is incorrect.

In March 2011 Peter makes a similar supply to Lara for which Peter would be entitled to rely on the ruling.  Peter issues a tax invoice to Lara showing GST payable on the supply.  Peter has not relied on the ruling.  If the supply is in fact a taxable supply, and Lara’s acquisition is a creditable acquisition, Lara can claim input tax credits in respect of the supply.

2.44                These amendments do not result in recipients being bound by rulings.  It is the Commissioner that is bound by rulings.  A ruling only impacts on the entitlement of the recipient if it is relied on by the supplier and affects the GST that is payable by the supplier. 

Groups, joint ventures and incapacitated entities

2.45                These amendments clarify what happens where an indirect tax law makes a particular entity liable or entitled in respect of taxes or credits that would otherwise be the liability or entitlement of another entity.  They also apply to adjustments.  This occurs in cases of GST groups, joint ventures and incapacitated entities.

2.46                This Schedule ensures that an indirect tax or excise ruling binds the Commissioner in relation to both the representative entity and the member entity where both members rely on the ruling by acting or omitting to act in accordance with it.  [Schedule 2, items 27 and 29, subsections 357-60(1) and (6) of Schedule 1 to the TAA 1953]

2.47                The representative entity is the representative member of a GST group, the joint venture operator, or the representative of an incapacitated entity.  The member entity is the member of the GST group, the participant in the GST joint venture, or the incapacitated entity.  [Schedule 2, item 29, subsection 357-60(5) of Schedule 1 to the TAA 1953]

Fuel tax credits

2.48                The fuel tax credits legislation adopted the general rulings regime when it came into operation on 1 July 2006.  Accordingly, no changes have been made to the way in which the general rulings regime applies to the fuel tax credits legislation.

Exclusions from the general rulings regime

2.49                There are several areas in which modifications have been made to the general rulings regime so that they do not apply for indirect tax and excise rulings.  These include oral rulings, end-dates for private rulings, revised rulings and trustees. 

Oral rulings

2.50                Under the general rulings regime, an individual taxpayer may apply to the Commissioner for an oral ruling on how the Commissioner considers the law applies to them.  This allows taxpayers with very simple affairs to rely on oral advice in much the same way as written private rulings.

2.51                Oral rulings are not currently available for indirect tax or excise.  These taxes are business taxes and therefore the advice on such matters is not simple non-business advice. 

2.52                These amendments provide that taxpayers cannot apply for oral rulings in relation to an indirect tax law (other than a fuel tax law) or an excise law.  [Schedule 2, items 44 and 45, subsections 360-5(1) and (2A) of Schedule 1 to the TAA 1953] 

End-dates for private rulings

2.53                Under the general rulings regime, if a private ruling does not specify an end time, it ceases to apply at the end of the income year or other accounting period in which it started to apply.  The reason for having a default end time for a private ruling where no end time is specified is to provide certainty about the period covered by the ruling.

2.54                Consultation on the development of these changes to include indirect tax and excise rulings in the general rulings regime identified end‑dates as an area where there was a need for a special rule for indirect tax rulings.

2.55                This Schedule amends the law so that an indirect tax or excise private ruling that does not specify an end date continues to apply until it is withdrawn or replaced by the Commissioner.  This is consistent with the existing law for rulings dealing with indirect tax, allowing the Commissioner to set an end date if necessary, but allowing flexibility to provide for unlimited application until the ruling is replaced or withdrawn.  [Schedule 2, items 35 and 36, subsection 359-25(4) of Schedule 1 to the TAA 1953]

Revised rulings

2.56                Under the general rulings regime, the Commissioner cannot revise a private ruling after the scheme to which the ruling relates, or the income year or other accounting period has begun.

2.57                The term ‘scheme’ can capture events or circumstances beyond the supply itself.  The general rulings regime treats a scheme as having begun to be carried out when the contract has been entered into.  However, the time when a contract is entered into is different to the time when taxable supplies are provided under the contract.

2.58                Under the existing law, the Commissioner can change an indirect tax ruling at any time.  The flexibility for the Commissioner to withdraw or replace an indirect tax ruling ensures that competing suppliers of goods or services are not disadvantaged in selling to consumers when one supplier obtains a favourable ruling that is not available to its competitors.  This is a feature that is preserved in this Schedule.

2.59                This Schedule excludes indirect tax and excise rulings from the general rules in relation to the commencement of the scheme or tax period.  The result is that the Commissioner is able to revise an indirect tax or excise ruling and the revised ruling applies to transactions occurring after that time.  The revised ruling only applies to the extent that it is inconsistent with an earlier ruling, and applies from the date it is issued or such later time as specified in the private ruling.  [Schedule 2, items 39 to 42, paragraph 359-55(1)(b), subsection 359-55(1) note, subsections 359-55(3) and (5) of Schedule 1 to the TAA 1953]

2.60                The ability of the Commissioner to specify a later date from which a revised ruling will apply, provides flexibility so that in appropriate cases the Commissioner can provide a reasonable period for taxpayers to take into account the new ruling.

2.61                Under the general rulings regime, a public ruling applies from when it is published or from a specified earlier or later time. However, such a ruling does not apply to a scheme that has commenced if the ruling is less favourable than a general administrative practice that applies to a scheme.  A public ruling that is withdrawn continues to apply to schemes that had begun to be carried out before the withdrawal.  This Schedule modifies these rules in relation to indirect tax and excise rulings as set out above.  [Schedule 2, item 34, subsections 358-10(2) and 358‑20(3) of Schedule 1 to the TAA 1953]

Trustees

2.62                Under the general rules, only the entity that receives a private ruling can rely on it.

2.63                 A special rule ensures a private ruling given to or for the trustee of a trust and relating to the affairs of the trust also applies to another trustee appointed to replace the trustee, or to the beneficiaries of the trust. 

2.64                This rule is important in the income tax context because beneficiaries may be subject to tax on the income of the trust under section 97 of the Income Tax Assessment Act 1936.  It is therefore appropriate that they receive the protection of income tax and related private rulings given to the trustee.

2.65                In the indirect tax context, the beneficiary could be the recipient of a supply from the trustee.  Where the beneficiary is dealing with the trustee of a trust, a rule which makes a private ruling given to the trustee apply to the beneficiary may have an unintended effect.  Therefore it is not appropriate for this special rule to be extended to cover indirect tax.

2.66                Similarly the excise legislation imposes an excise liability on the entity that manufactures or deals with the goods.  Accordingly, if a trustee undertakes such activities, excise obligations are not generally imposed on beneficiaries of the trust.

2.67                As the special rule is not appropriate in the indirect tax and excise context, a carve-out to the special rule has been included in the amendments.  As a result, an indirect tax or excise private ruling given to a trustee does not apply to a beneficiary of the trust.  [Schedule 2, items 37 and 38, paragraphs 359-30(a) and (b) of Schedule 1 to the TAA 1953]

2.68                However, the general rulings system does apply to trusts in other respects.  As a result, a private ruling given to a trustee applies to a trustee replacing an earlier trustee.

Application and transitional provisions

Application provisions

2.69                The amendments made by this Schedule apply to rulings made on or after 1 July 2010.  These amendments also apply in some circumstances to rulings requested before 1 July 2010.  This is dealt with in the transitional provisions.

Transitional rules

2.70                This Schedule applies the general rulings system to indirect tax private rulings that are in operation immediately before 1 July 2010.  This ensures that the adoption of the general rulings regime does not force taxpayers to seek revised private rulings or for the Commissioner to need to reissue existing rulings with resulting compliance cost impacts for taxpayers.  [Schedule 2, subitem 46(2)]

2.71                Currently, what is regarded as a public indirect tax ruling is very broad and covers all advice given or published by the Commissioner on an indirect tax law.  In its review, the Board of Taxation found that this means there is no scope for the Commissioner to publish simplified general advice without it being classified as a public ruling and this undermines the provision of simple advice and increases the complexity of advice given.  The Board noted that a consequence of adopting the income tax ruling system for indirect tax would be that the range of documents that are considered public rulings would be reduced.  It found that this would enable the Commissioner to publish simplified, more readily accessible advice that meets the needs of different classes of taxpayers.

2.72                These amendments ensure that only those rulings that are labelled as a public ruling (or were described in the Gazette in which they were published as a public ruling) that are in operation immediately before 1 July 2010 are public rulings under the new rules.  This is consistent with the broader rulings regime.  [Schedule 2, subitem 46(3)]

2.73                As existing private and public indirect tax rulings are treated as if made under the revised ruling regime, all of the content within those rulings is preserved, and has ruling status.  This includes the explanation and example sections of existing public indirect tax rulings.

2.74                The general rulings regime also applies to an application for a private GST, LCT or WET ruling that was with the Commissioner immediately before 1 July 2010 where the ruling had not been made or the application declined by the Commissioner or the application withdrawn by the taxpayer.  [Schedule 2, subitem 46(4)]

Outline of chapter

3.1                   Schedule 3 to this Bill amends the goods and services tax (GST) law to simplify the requirements for a document to be a tax invoice by expressing the requirements in a more principled way.

Context of amendments

Tax invoices

3.2                   Tax invoices play an important role in the GST system.  They are the mechanism by which the GST treatment that a supplier adopts for a supply is communicated by the supplier to a recipient and reconciled with the recipient’s treatment of an acquisition.

3.3                   To ensure this communication occurs, recipients must hold a tax invoice to substantiate input tax credit claims for acquisitions over $75 (excluding GST).  Similarly, suppliers must provide a tax invoice within 28 days of being requested to do so by the recipient.

3.4                   Section 29-70 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and Regulations 29-70.01 and 29-70.02 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) set out the requirements that a document must satisfy in order for it to be a tax invoice. 

3.5                   The current list of requirements is lengthy and prescriptive.  Even if all of the necessary information has been included on a document, errors in the form in which this information is provided or in the structure of the document can mean that the document is not a tax invoice.

Summary of new law

3.6                   Schedule 3 amends the present requirements for an invoice to be a tax invoice, replacing the current prescriptive list with equivalent but more flexible principles.  It also integrates and streamlines the special requirements for tax invoices that are recipient created tax invoices.

3.7                   As a result of these amendments, a document may be a tax invoice if it is issued by the supplier in the approved form and contains sufficient information to allow a number of key matters to be determined, including:

•       the supplier’s identity and Australian Business Number (ABN);

•       the nature of the supply; and

•        the amount of GST payable.

3.8                   These amendments can also allow an entity to treat a document as a tax invoice.  Where an entity receives a document from another entity that is not a tax invoice as it is missing key information, then the entity may treat the document as a tax invoice if:

•       the document makes clear that it is intended as a tax invoice; and

•       the missing information can be obtained from other documents issued by the other entity.

3.9                   This concession can also apply to recipient created tax invoices.

3.10                As a result of these changes minor errors should no longer result in documents not being tax invoices.  Instead documents generally only fail to constitute a tax invoice where key information has not been provided.

Comparison of key features of new law and current law

Detailed explanation of new law

Tax invoices

General requirements

3.11                These amendments repeal and replace the present requirements for a document to be a tax invoice in subsection 29-70(1) of the GST Act.  The regulations containing the prior list of requirements will no longer have effect and are expected to be repealed by regulation.

3.12                Following these amendments, a document is a tax invoice if it meets several requirements.

3.13                The first of these is that the document is issued by the supplier, unless it is a recipient created tax invoice, in which case it must be issued by the recipient.  [Schedule 3, item 1, paragraph 29-70(1)(a)]

3.14                The second requirement is that the document is in the approved form.  Consistent with the present rules, this permits the Commissioner to set basic procedural requirements to ensure efficient administration.  [Schedule 3, item 1, paragraph 29-70(1)(b)]

3.15                The third requirement is that the document contains enough information to allow the determination of:

•       the supplier’s identity and ABN;

•       the identity or ABN of the recipient, if the consideration for the supply is $1,000 or more;

•       what is being supplied, including the quantity (if applicable) and the price;

•       the GST treatment of the supply (that is, to what extent it is taxable);

•       the date the document is issued;

•       the amount of GST (if any) payable in relation to each supply included on the document; and

•       that it can be clearly determined from the document that it is intended to be a tax invoice.

[Schedule 3, item 1, paragraphs 29-70(1)(c) and (d)]

3.16                Further matters may be specified by regulation.  [Schedule 3, item 1, subparagraph 29-70(1)(c)(viii)]

3.17                The extended requirements for recipient created tax invoices are discussed separately in paragraph 3.28.

3.18                As is currently the case, a tax invoice may include more than one supply, provided it meets the information requirements for each supply.  If the document does not meet the requirements to be a tax invoice for a particular supply or supplies, it remains a tax invoice for other supplies it covers for which it meets the requirements. 

3.19                Consistent with the flexible approach underlying these changes, the amendments require key information to be able to be clearly ascertained from the document.  This means that, provided the information can be found in the document, it does not matter that it is not specifically stated or in a particular format.  For example, the requirement to provide the price of what is supplied could be satisfied by stating a unit price and the quantity, or stating the extent to which a taxable supply is taxable and the amount of GST payable.  Similarly, one piece of information may often be sufficient to satisfy more than one condition.  For example, the description of the supply may also make clear the identity of the supplier, such as in certain cases where a new membership in a club is issued.

3.20                However, it is not enough that the required information can be found in the document.  The required information must be clear in the document.  Information is also not able to be clearly ascertained from a document if the information can only be determined by reference to some outside source.  For example, if a document met all of the requirements to be a tax invoice, but did not contain the supplier’s ABN, it would not be sufficient if it contained information which would allow the ABN to be found on the Australian Business Register.  Information that can be determined in conjunction with an external reference is not information that can be clearly ascertained from the document.

3.21                The requirement that the document contains sufficient information to make clear that it is a tax invoice establishes an objective test that must be satisfied from the document alone.  Other information and documents relating to the intentions of the issuer are not relevant.  This objective test provides certainty by ensuring that the status of the document does not depend on subjective intention or external information that may not be available to the recipient.

3.22                The most direct way to satisfy this requirement is to include the words ‘tax invoice’ on the document.  However, other forms of words are also acceptable (for example, ‘GST invoice’).  In some circumstances, the context of the document itself may make this intention clear without any title to this effect.  For example, a document could include a statement to the effect that it provides all the information needed for the recipient to claim their input tax credits.  However, merely containing all of the other required information will not be sufficient to demonstrate that the document is intended to be a tax invoice.  It is expected that to avoid any doubt, most suppliers will continue to include the words ‘tax invoice’ on documents.  [Schedule 3, item 1, paragraph 29-70(1)(d)]

3.23                The Commissioner retains the discretion to treat a document that does not satisfy the tax invoice requirements as a valid tax invoice.  [Schedule 3, item 1, subsection 29‑70(1B)]

3.24                Despite the changes made to tax invoices, in all cases documents that satisfy the current requirements remain tax invoices.  Suppliers that comply with the existing law will not be required to make any changes to existing systems as a result of these amendments.  Existing businesses have established systems in place to generate tax invoices and recipient created tax invoices and requiring change when it is not needed would impose unnecessary compliance costs. 

3.25                Instead, these amendments seek to remove the excessive compliance costs that can be imposed on recipients which result from the infrequent cases where non‑compliant tax invoices are issued to them by suppliers.

3.26                Tax invoices complying with existing Australian Taxation Office (ATO) guidelines will continue to be valid tax invoices and the ATO’s voluntary industry code for tax invoices continues to set out best practice.

3.27                These revised requirements do not apply to adjustment notes.  Most of the requirements for adjustment notes are set by a legislative determination by the Commissioner.

Recipient created tax invoices

3.28                Presently separate, though overlapping, requirements exist for recipient created tax invoices.  These amendments remove this distinction, creating a single set of criteria.  However, a number of the requirements apply specifically to recipient created tax invoices.  Recipient created tax invoices must include the identity or ABN of the recipient, even where the total value of the supplies included in the document is less than $1,000.  It is also a requirement that the document clearly indicates that the GST is payable by the supplier.  Finally, it must be clear from the document that it is intended to be a recipient created tax invoice.  [Schedule 3, item 1, subparagraphs 29-70(1)(c)(ii) and (vii), paragraph 29‑70(1)(d)]

3.29                These extra requirements reflect the special features of recipient created tax invoices.  As these documents are issued by the recipient it is important that the recipient is identified by the document.  Similarly, as the receipt of a recipient created tax invoice has quite different implications for the supplier than the receipt of a tax invoice, it is important that the nature of the document be made clear.  Accordingly, it must be made clear in the document that it is intended to be a recipient created tax invoice and that the GST is payable by the entity in receipt of the document.

3.30                These amendments continue to allow the Commissioner to specify classes of tax invoices that are permitted to be issued by recipients.  As a result, all existing legislative instruments specifying such classes remain valid. 

Use of other documents by recipients

3.31                Where a recipient receives a document that is intended to be a tax invoice, but it does not contain all of the required information, the document may be treated as a tax invoice by the recipient if the missing information is able to be ascertained from one or more other documents issued by the supplier.  [Schedule 3, item 1, subsection 29-70(1A)]

3.32                Such other documents could range from other documentation provided in relation to a transaction, prior tax invoices or a business card containing the supplier’s ABN that has been provided by the supplier to the recipient.

3.33                These other documents need not have been intended as a tax invoice.  Instead, they merely need to have been issued by the supplier and contain the required information.

3.34                These amendments address concerns expressed that the tax invoice requirements often result in a recipient being disadvantaged by their supplier’s error.  This concern is addressed by allowing recipients to claim input tax credits if the recipient has a document intended to be a tax invoice and the missing information can be clearly ascertained from other documents provided by the supplier. 

3.35                Although the document is treated as a tax invoice for the purposes of the recipient it does not satisfy the obligation of the supplier to provide a tax invoice.  Thus a recipient may still request the supplier to supply a tax invoice that meets the tax invoice requirements.  Consistent with the present situation, the supplier must then provide a valid tax invoice within 28 days of this request.

3.36                This outcome ensures that the more flexible tax invoice rules that the amendments introduce do not inadvertently result in suppliers becoming less diligent in providing the necessary tax invoice information in one document.  Were this to occur on a wide scale then it would result in higher compliance costs being passed onto recipients that would need to devote more resources to identifying multiple documents to obtain the necessary tax invoice information. 

3.37                Recipients are under no obligation to use this concession.  Rather, it is one of a number of options that are available to a recipient.  If a recipient receives a non-compliant tax invoice, they may instead request a valid tax invoice from the supplier.  Alternatively, they may seek to have the Commissioner exercise one of his various relevant discretions or powers, such as treating a document that is not a tax invoice as a tax invoice or allowing an input tax credit to be attributed without a tax invoice.  [Schedule 3, item 1, subsection 29-70(1B) and the note following subsection 29-70(1B)]

3.38                The same rule also applies for suppliers in the case of recipient created tax invoices. 

3.39                However, this concession does not apply to recipients for recipient created tax invoices they issue.  In this case, as the recipient was responsible for producing the document, it is appropriate that the recipient bear responsibility for issuing a document meeting the necessary requirements.  [Schedule 3, item 1, subsection 29-70(1A)]

Tax invoices issued by agents

3.40                The GST law also allows agents to issue tax invoices for a supply made through the agent.  Tax invoices issued by agents will be covered by the amendments in the same way as all other tax invoices. 

3.41                In particular, where an agent issues a tax invoice for a supply made by another entity through the agent, the recipient of this supply may treat the document as a tax invoice in the same way they could if the document was issued by the supplier.  Likewise, when the agent rather than the recipient receives a flawed tax invoice for an acquisition made by the recipient through the agent, this concession can similarly apply to allow the recipient to treat the document as a tax invoice using information in other documents provided to the agent.

Tax invoices issued to entities in GST groups

3.42                These amendments also address issues concerning input tax credits that arise in the context of GST groups.

3.43                Under normal circumstances the GST grouping rules mean that all input tax credits are claimed by the representative member on behalf of the GST group.  As a result there is generally little significance attached to which particular entity within the GST group made the relevant acquisition.^[1]  However, the correct entity must be identified on the tax invoice.  Often this can create difficulties for GST groups and their suppliers, as suppliers may be uncertain which of the grouped entities is making the acquisition.

3.44                These amendments address this situation by modifying the information required for a document to be a tax invoice for acquisitions by a member of a GST group.

3.45                If a document:

•       would be a tax invoice if it contained information from which the recipient’s identity or ABN could be readily determined; and

•       contains sufficient information to clearly show the identity of the GST group, the representative member or another member of the GST group,

then the document is a tax invoice.  [Schedule 3, item 3, subsections 48-57(1) and (3)]

3.46                This concession, however, only applies if the representative member of the GST group is entitled to claim an input tax credit for the acquisition.  This ensures that the concession only applies to acquisitions by members of the GST group.  [Schedule 3, item 3, paragraph 48-57(1)(c)]

3.47                If another entity is identified in the document rather than the acquiring entity, the concession only applies if the representative member would have been entitled to claim the input tax credit had that other entity made the acquisition.  Again, this ensures the concession only applies if the entity identified is a member of the GST group.  [Schedule 3, item 3, subparagraph 48-57(1)(d)(iii)]

3.48                This concession reducing the identification requirements in GST groups can apply in conjunction with the concession allowing recipients to treat a document as a tax invoice despite it missing information where other supplier-issued documents enables the minimum tax invoice information requirements to be met.  For example, a document can be treated as a tax invoice by a recipient of a supply if:

•       despite not identifying the recipient of the supply, it identifies the representative member of the group; and

•       it omits the ABN of the supplier but the ABN is included on another document issued by the supplier to the recipient.

3.49                 Although a document can be treated as a tax invoice as a result of the grouping concession, it does not satisfy the requirement for suppliers to issue a tax invoice identifying the recipient of the supply or supplies at the request of the recipient.  While generally the identity of the particular entity making the acquisition is not significant in the context of a GST group there are circumstances in which it is important, such as where adjustments arise following an entity leaving the GST group.  This qualification ensures that taxpayers still have a legal right to a more accurate tax invoice should it become necessary, but are not obliged to seek such a tax invoice where it is otherwise unnecessary.  [Schedule 3, item 3, subsection 48-57(2)]

3.50                The tax invoice concession for GST groups does not apply to recipient created tax invoices.  Therefore recipients issuing recipient created tax invoices must include their identity on the document, rather than just identifying the GST group or another member of the GST group.  Applying a concession in these circumstances is unnecessary as there are no compliance costs associated with self-identification.

Miscellaneous matters

3.51                The regulations include rules in relation to how amounts are to be rounded on tax invoices.  Following these amendments, rounding on tax invoices will be addressed under section 9‑90 of the GST Act.

3.52                The definition of a ‘tax invoice’ in the GST Act is amended to reflect the additional rules included for tax invoices and to clarify the interaction between the tax invoice rules and the GST branch rules.  This latter change confirms that the GST branch registration number must be included on tax invoices where taxable supplies are made through a GST branch.  [Schedule 3, item 4, definition of’ ‘tax invoice’ in section 195-1]

3.53                The table of special rules concerning tax invoices and adjustment notes is updated.  [Schedule 3, item 2, section 29-99]

Application and transitional provisions

3.54                These amendments apply in relation to net amounts for tax periods commencing on or after 1 July 2010.  [Schedule 3, item 5]

Schedule 1:  GST groups and GST joint ventures

Schedule 2:  Rulings

Schedule 3:  Tax invoices