Commonwealth Numbered Regulations - Explanatory Statements
[Index] [Search] [Download] [Related Items] [Help]
A NEW TAX SYSTEM (GOODS AND SERVICES TAX) REGULATIONS 1999 1999 NO. 245
EXPLANATORY STATEMENTStatutory Rules 1999 No. 245
Issued by authority of the Assistant Treasurer
The Governor-General may make regulations under section 177-15 of the A NewTax System (Goods and Services Tax) Act 1999 (GST Act) for the purposes ofthat Act.
The regulations consist of three sets of provisions:
- the first set deals with the informationrequirements for tax invoices. Section 29-70 of the GST Act permits theinformation requirements for tax invoices to be specified in the regulations;
- the second set identifies whether a supply is, oris not, a financial supply. Section 40-5 of the GST Act provides that financialsupply has the meaning given by the regulations; and
- the third set identifies acquisitions that areeligible for the reduced input tax credit under the GST Act (to be known asreduced credit acquisitions) and specifies the percentage to which the inputtax credit is reduced for the reduced credit acquisitions. Section 70-5 of theGST Act permits the reduced credit acquisitions and the rate of the reducedinput tax credit to be specified in the regulations.
Purpose of the regulations
A. Tax periods - tax invoices
The purpose of this part of the regulations is to prescribe the additionalinformation that is required to be contained in tax invoices issued for thepurposes of the goods and services tax (GST). The information that is to beshown on tax invoices (other than that prescribed in the GST Act) has notpreviously been specified.
B. Financial supplies
This part of the regulations gives meaning to the term financial supply.Financial supplies are input taxed under the GST Act. These regulations willidentify those supplies that are financial supplies, and input taxed, for thepurposes of the GST Act.
C. Reduced input tax credits
This part of the regulations sets out a list of reduced credit acquisitionsthat give rise to an entitlement to reduced input tax credits. The regulationsalso specify the percentage of the reduction of the input tax credits to whichthe financial supply provider is entitled.
Explanatory Statement
Background
GST is effectively a tax on final consumption in Australia and is ultimatelyborne by consumers. To ensure GST is effectively borne by consumers, registeredentities will generally be entitled to input tax credits for the GST onacquisitions made for the purpose of their enterprises. Input tax credits areto be offset against the GST payable on taxable supplies made in order todetermine an entity's net GST liability for a tax period.
A. Tax periods - tax invoices
A GST-registered entity must hold transaction documents that satisfy the taxinvoice requirements of the GST Act in order to substantiate creditableacquisitions over $55. An entity must hold a tax invoice for such acquisitionsin order to attribute the input tax credit to a tax period.
To satisfy the tax invoice requirements, section 29-70 of the GST Act requiresa document to show:
* the Australian Business Number (ABN) of the entityissuing the document;
* the GST-inclusive price of the taxable supply; and
* other information as specified in theregulations,
as well as complying with any requirements as to the form of the documentapproved by the Commissioner of Taxation.
Part 2-6 of the regulations prescribe the additional information that isrequired to be contained in tax invoices.
A detailed explanation of the information requirements is contained inAttachment A to this Statement.
B. Financial supplies
Under the GST Act, financial supplies are input taxed. This means that no GSTis charged on the financial supply and that the financial supply provider isnot entitled to any input tax credits for any GST included in the price ofanything acquired or imported to make the supply.
The regulations follow the general rule that where a financial supply provideris able to earn a return on a financial product, the supply of a financialproduct will be a financial supply and input taxed. A financial supply provideris generally able to earn a return by way of a margin where they hold a legalinterest in the financial product before it is supplied. For example, Company Ais able to earn a return by way of a margin by buying shares from Company B andthen selling them to Company C. The regulations overcome difficulties inidentifying the value added margin on individual transactions. Input taxationdoes not require the valuation of a financial service.
All other financial services, including agency services, are generally notcapable of being charged for by way of a margin. This is because thefacilitator of such financial services do not hold a legal interest in afinancial product before it is supplied. All other financial services willtherefore be taxable. For example, fees or commissions relating to agencyservices are easily identified and valued and are taxable.
Exports of financial supplies remain GST-free.
Part 3-1 of the regulations will give meaning to the term financial supply.
A detailed explanation of Part 3-1 of the regulations is contained inAttachment B to this Statement.
C. Reduced input tax credits
Division 70 of the GST Act allows a reduced input tax credit for certainacquisitions made by financial suppliers. Generally, input tax credits are notavailable where the acquisition or importation is used for making financialsupplies.
However, Part 70 of the regulations allows the financial supply provider toclaim a reduced input tax credit for certain acquisitions. The acquisitionseligible for the reduced input tax credit and the rate of the reduced input taxcredit are specified in Part 70 of the regulations.
A detailed explanation of Part 70 of the regulations is contained in AttachmentC to this Statement.
Date of effect
The regulations will commence from 1 July 2000, the commencement of the GSTAct.
New Tax System (Goods and Services Tax) Act 1999
New Tax System (Goods and Services Tax) Regulations
ATTACHMENT A TO THE EXPLANATORY STATEMENT
Why are tax invoices needed?
An entity that acquires goods or services with a GST exclusive value of morethan $50 will need to hold a tax invoice in order to claim an input tax creditfor the acquisition. In situations within classes to be determined by theCommissioner of Taxation, a recipient may issue a tax invoice instead of thesupplier. A recipient created tax invoice may typically be issued in situationswhere the price of the supply is determined after delivery. Recipient createdtax invoices will also have the function of informing suppliers of their GSTliability. Details of more than one supply may be shown on a tax invoice.
What are the tax invoice requirements?
Section 29-70 of the GST Act requires a tax invoice to show:
* the Australian Business Number (ABN) of the entityissuing the document;
* the GST inclusive price of a taxable supply; and
* other information as specified in theregulations.
The regulations specify minimum information requirements for three types of taxinvoices:
(1) tax invoices where the total amount payable is $1,000 or more;
(2) tax invoices where the total amount payable is less that $1,000; and
(3) recipient created tax invoices.
Regulation 29-70 sets out the requirements for tax invoices otherthan recipient created tax invoices [subregulation 29-70(1)].
1 . Tax invoices where the total amount payable is $1,000 or more
In addition to the issuer's ABN and the GST inclusive price of each taxablesupply, a tax invoice where the total amount payable is $1,000 or more isrequired by subregulation 2970(2) to contain:
* the word 'tax invoice' stated prominently on thedocument;
* the date of issue of the tax invoice;
* the name of the supplier;
* the name of the recipient;
* the address or the ABN of the recipient;
* a brief description of each thing supplied; and
* for each description - the quantity of the goods orthe extent of the services supplied.
2. Tax invoices where the total amount payable is less than $1,000
Subregulation 29-70(3) specifies the basic informationrequirements for tax invoices where the total amount payable is less than$1,000. These are essentially the same as described above with the exception ofthe following information:
* the name of the recipient;
* the address or the ABN of the recipient;
* the quantity of the goods or the extent of theservices supplied.
This information is to be required only if the total amount payable is $1000 ormore.
The 'abbreviated' tax invoice requirements (ie. where the total amount payableis less than $1,000) are designed to accommodate smaller business transactions.For example, retail sales documents generally do not have details of therecipient or the quantity or volume of goods supplied. For these types oftransaction a cash receipt may be used as the tax invoice (providing itsatisfies the other information requirements).
Suppliers may, however, choose to show on all tax invoices the information thatis required when the total amount payable is $1000 or more, if it is convenientfor them and their customers to do so.
Additional requirements for tax invoices
There are additional information requirements depending on whether the taxinvoice relates to one or more taxable supplies only or relates to acombination of a taxable supply and other supplies. Supplies other than ataxable supply may either be GST-free, input taxed or a supply that was madebefore 1 July 2000.
The additional requirements are as follows:
Type of supply Additional requirements
Taxable supply or supplies only and Must showeither:
the GST payable is 1/11th of the price (a) astatement to the effect that the total
[subregulations 29-70(4) and amount payable includes GST for the
29-71(2)] supply or supplies; or
(b) the total amount of GST payable
Taxable supply and the GST payable Must show the GSTexclusive value of the
on it is less than 1/11th of the price supply and theamount of GST payable.
[subregulation 29-70(5))] Note: Thiswill apply to the supply of long
term accommodation in commercial
residential premises (Division 87 of the
GST Act).
A combination of taxable supply and Must clearlyidentify each taxable supply
other supplies and show:
[subregulations 29-70(6) and (a) the totalamount of GST payable; and
29-71(3)]
(b) the total amount payable.
3. Recipient created tax invoices
The requirements for recipient created tax invoices are essentially the same asfor tax invoices where the total amount payable is $1,000 or more [paragraph29-71(1)(b) and subregulations 29-71(2), 29-71(3)], but with the followingdifferences:
* the words 'recipient created tax invoice' must beshown prominently on the document instead of 'tax invoice' [paragraph29-71(1)(a)];
* the ABN of the supplier must be shown in additionto the ABN of the issuer of the document [paragraph 29- 71(1)(c)]; and
* words to the effect that the GST shown is payableby the supplier must also be included [subparagraphs 29-71(2)(b)(ii) and29-71(3)(d)(iii)].
Rounding
If the total amount of GST payable on a tax invoice or recipient created taxinvoice includes a fraction of a cent, the amount is to be rounded down to thenearest whole cent. [subregulations 29-70(7) and 29-71 (4)]
Name of the supplier or recipient
Paragraphs 29-70(2)(c), 29-70(2)(d), 29-70(3)(c) and 29-71(1)(b) requirethe name of the supplier and in some instances, the recipient, to be shown on atax invoice or recipient created tax invoice. Including the trading name of thesupplier or recipient would satisfy this information requirement.
A statement to the effect that the total amount payable includes GST forthe supply or supplies
In addition to the other information requirements, where the tax invoice orrecipient created tax invoice is wholly for a taxable supply and where theamount of GST payable on the supply is exactly 1/11th of the total price, thetax invoice or recipient created tax invoice must contain either:
* a statement to the effect that the total amountpayable includes GST for the supply or supplies [paragraphs 29-70(4)(a) or29-71(2)(a)]; or
* the total amount of GST payable [paragraphs29-70(4)(b) or 29-71(2)(b)(i)].
To satisfy the requirements of paragraphs 29-70(4)(a) or 29-71(2)(a),the statement should refer to the relevant amount. Statements that wouldsatisfy this requirement are "the total price includes GST for this supply","GST included in the total" and "total includes GST".
However statements such as "includes GST" and "GST inclusive" alone would notbe sufficient to satisfy the paragraphs as they do not directly relate to theamount payable for the supply.
Total amount of GST payable and total amount payable
The total amount of GST payable and the total amount payable on a tax invoiceor recipient created tax invoice are aggregate amounts relating to the goodsand/or services on the tax invoice. Although the regulations state the minimuminformation required on the transaction document for it to be a tax invoice orrecipient created tax invoice, entities may choose to state the GST amount on aline item basis or show GST exclusive amounts if it is convenient for them todo so.
Electronic invoices
The information requirements for a tax invoice or recipient created tax invoiceapply irrespective of the form of the document. If a. tax invoice is includedin an electronic message, both supplier and recipient are obliged to retainthat message in a readily accessible form for five years in accordance with theGST record keeping requirements (section 70, Taxation Administration Act1953).
Regulation Impact Statement
A Regulation Impact Statement is attached.
9904498A-991015Z
New Tax System (Goods and Services Tax) Act 1999
New Tax System (Goods and Services Tax) Regulations
ATTACHMENT B TO THE EXPLANATORY STATEMENT
Part 3-1 What is and is not a financial supply
Object of Part 3-1
Subsection 40-5(2) of the GST provides that financial supply hasthe meaning given by the regulations. Part 3-1 of the proposedregulations sets out those supplies that are financial supplies and those thatare not. Section 9-10 of the GST Act defines supply. Subsection 9-10(2)of the GST Act provides that a supply of money is only a supply ifit is supplied as consideration for the supply. This means that trade creditprovided by a supplier of goods should not be a financial supply.[Regulation 40-5]
Key concepts
Division 2 of Part 3-1 of the regulations sets out some key concepts tobe used in the regulations.
Regulation 40-6 provides that an interest in relation to afinancial supply is any form of property. For example:
* A debt or a right to credit
* A mortgage over land
* A right under a contract of insurance or a guarantee
* A right to receive payment under a derivative.
Allotment, creation, grant or issue of that interest is regarded as "provision"of that interest, and disposal of an interest includesassignment, transfer and surrender of the interest. Acquisition inrelation to the provision or disposal of an interest includes acceptanceand receipt of the interest. [Regulations 40-7, 40-8 and40-9]
The definition of financial supply provider identifies the entity thatis making a financial supply. [Regulation 40-10]
The definition of financial supply provider identifies an entity that isfacilitating a financial supply made by another entity. [Regulation40-11]
The definitions of financial supply provider and financial supplyfacilitator are used to avoid confusion between the provision of the actualfinancial supply and another supply made in connection with it (such as agencyservices). For example, if A sells shares to B but does so through X, an agent,A is making the financial supply of the shares to B and X is making thesupply of agency services. The financial supply is input taxed, whilst theagency services are taxable.
Before determining if an entity is the financial supply provider in relation toany supply, you must first identify the interest being supplied. For example, adebenture.
An entity is the financial supply provider in respect of that interest if:
* the interest was the entity's property immediatelybefore the supply (for example, if an entity sells a debenture that it owns);or
* the entity created the interest when making thesupply (for example, if an entity issues a debenture). [Regulation40-10]
In contrast, the financial supply facilitator is an entity that facilitates thesupply of an interest without being the financial supply provider of theinterest. Using the example above, if agent X sells an entity's debenture onthat entity's behalf, agent X will be a financial supply facilitator in respectof the supply. [Regulation 40-11]
Financial products supplied by a financial supply facilitator are not financialsupplies. However, a supply of an interest facilitated by a financial supplyfacilitator is a financial supply by the financial supply provider if thesupply of the interest is one to which regulation 40-13 applies. (Proposedregulation 40-13 is explained below)
When a supply is a financial supply
Division 3 sets out what is, and what is not, a financial supply.
A supply is a financial supply only if it is specified as a financial supply inregulation 40-13 or an incidental financial supply under regulation 40-14. Ifsomething would be both a financial supply under regulation 40-13 and also nota financial supply under regulation 40-16, then regulation 40-16 prevails andit will be treated as not being a financial supply (unless it is also anincidental supply under regulation 40-14). [Regulation 40-12]
Supplies that: are financial supplies
In order to qualify as a financial supply, the provision, acquisition ordisposal of an interest must be by a financial supply provider who isregistered or required to be registered.
In addition, the provision, acquisition or disposal must be:
* for consideration
* in the course or furtherance of an enterprise; and
* connected with Australia. [Subregulation 40-13(1)]
A financial supply must also be the supply of an interest in, or under, one ofthe categories set out in the table in subregulation 40-13(2). Thecommon element shared by the interests in these categories is that the supplyof the interests is capable of being charged for by way of a margin by thefinancial supply provider.
These categories are as follows:
* An account made available by an Australian ADI(authorised deposit-taking institution) in the course of its banking businessor its State banking business.
This includes accounts with banks, building societies and credit unionsauthorised to carry on banking business under the Banking Act 1959. Theinterests in an account include not only the right to repayment of money butalso rights to services in connection with the rights to repayment of themoney, including the right to instruct the ADI to make payments from theaccount and to provide access to information in respect of the account. Forexample, bill pay (B-pay) or electronic funds transfer (EFT) transactions.Account maintenance fees would also be input taxed under this provision.
An Australian ADI is defined in the Corporations Law and includes a bodycorporate who has authority under section 9 of the Banking Act 1959 tocarry on banking business in Australia. This may include a foreign corporationauthorised to carry on banking business in Australia.
* A debt, credit or right to credit including aletter of credit.
This includes lending and borrowing, provision of credit generally and anyright to the deferment of a debt.
A charge or mortgage over real or personal property.
This includes security taken over intangible personal property such ascontractual rights or a debt.
While a charge or a mortgage is a financial supply within one of the items inthe table, a deposit taken as security for a supply is dealt with in Division99 of the GST Act. It is not intended to be treated as a financial supply.
* Specified superannuation arrangements.
These are regulated superannuation funds, approved deposit funds, pooledsuperannuation trusts, public sector superannuation schemes and retirementsavings accounts.
* An annuity or allocated pension.
* A life insurance -contract or a related contract ofreinsurance.
This is limited to those life insurance contracts to which section 9(1), 12Aand 12(2) of the Life Insurance Act 1995 applies. Reinsurance contractsentered into with respect to the risks under these contracts are alsoincluded.
* A guarantee, including an indemnity.
This includes agreements where a person agrees to act as surety for another,and related indemnity arrangements. This does not include agreements that areinsurance contracts.
* Credit under a hire purchase agreement.
This is applicable where the charge for credit is separately charged for anddisclosed.
* Australian currency or foreign currency oragreements to buy or sell these currencies.
This includes legal tender and agreements to buy or sell legal tender.
* Securities.
Securities is defined by reference to the Corporations Law definition so as toinclude shares, debentures and interests in managed investment schemes.
In addition, the following items which are explicitly excluded from theCorporations Law definition are also included as a security for the purposes ofdefining what is a financial supply:
- documents evidencing a debt excluded from thedefinition of the debenture in the Corporations Law, including cheques,promissory notes, payment orders and bills of exchange;
- documents issued by an individual which would be adebenture under the Corporations Law if they were issued by a body corporate;
- interests in schemes excluded from the definitionof managed investment scheme in the Corporations Law, including an interest ina scheme operated by related bodies corporate and a barter scheme; and
- the capital of a partnership or trust.
* Derivatives.
Derivatives are defined by reference to their value being derived from thevalue of another asset, liability, rate, or index.
Derivatives include futures contracts, swaps, options and forwards.
Non-exhaustive examples for each of the categories are set out in Schedule 1. Afinancial product falling within one of the items in the table at subregulation40-13(2) will be a financial supply even if it is not described in the examplesin Schedule 1.
A supply made by a financial supply facilitator that would otherwise be afinancial supply is not a financial supply by that entity. However, it is afinancial supply by the financial supply provider. [Subregulation40-13(1)]
Incidental financial supplies
If something is supplied by an entity directly in connection with a financialsupply made to the same recipient of that first supply it is also a financialsupply. The financial supply provider must also supply the incidental financialsupply. [Regulation 40-14] For example, provision of advice by a bank inconnection with the provision of a loan by that bank (a financial supply) wouldbe an incidental financial supply and input taxed.
Examples of financial supplies
Schedule 1 sets out examples of the financial supplies listed as items in thetable in regulation 40-13 or that are incidental supplies. These examples arenot to be taken as exhaustive of all the types of financial supplies that mightrelate to those items. Furthermore, if an example in Schedule 1 is inconsistentwith the description of the financial supply to which the item relates thedescription in regulation 40-13 prevails (and not the example in Schedule1). [Regulation 4015]
Supplies that are not financial supplies
A range of supplies which are sometimes associated with financial transactions,and others which are themselves financial transactions, are excluded from beinga financial supply and are therefore taxable rather than being input taxed.
Regulation 40-16 sets out categories of supplies that are not financialsupplies regardless of whether a financial supply provider or a financialsupply facilitator makes the supply.
Supplies that are not financial supplies and which are therefore taxableinclude:
* Professional services, including information andadvice in relation to a financial supply.
This category includes legal advice, accounting advice, taxation advice,actuarial advice as well as rating services for securitisation vehicles.
* Payment facilities for transaction cards.
* Payment facilities for transaction cards.
Amongst other supplies, this category includes:
- the fees charged by an electronic funds transferterminal network owner to a card issuer for access to and use of the network;
- the fees charged between a card provider and athird party to a transaction with an account holder (that is, a merchant)regarding the transaction; and
- processing of transactions between a card accountprovider and the third party as above, such as a merchant. For exampletransactions relating to direct debit and credit, cheque, electronic fundstransfer, ATM, B-pay, Internet banking and GiroPost.
* Goods supplied in accordance with agreements underwhich the goods are leased, and;
(a) the lessors dispose of their rights in the goods to the lessees; or
(b) the lessees have no obligation or option of acquiring the rights of thelessors in the goods.
* An option, obligation or right or obligation tomake or receive a taxable supply.
Under this item GST is payable on any premium on a deliverable commodityoption, such as a deliverable wool option or wheat option. However, theprovision of margin in respect of exchange traded futures is input taxed and noGST is payable on those payments.
This item excludes a mortgage or charge mentioned in item 3 in the table in theregulation 4013.
* A supply made as a result of the exercise of anoption or right or performance of an obligation to make or receive a taxablesupply.
Under this item, the supply of the taxable commodity when delivery takes placeis not a financial supply and GST is payable on the basis of the settlementprice. This means that GST is payable on the strike or exercise price when thecommodity, such as wool or wheat, is delivered pursuant to the exercise of anoption.
This item includes a mortgage or charge mentioned in item 3 in the table in theregulation 4013.
* Contracts of insurance and reinsurance that havenot been specified as financial supplies under item 6 of the table in 40-13.
This category includes insurance against loss, damage, injury or risk of anykind.
* Broking services.
This category includes services provided by stock brokers and insurancebrokers.
* Management of the assets or liabilities of anotherentity.
This category includes managing the assets or liabilities of an entity, actingas the trustee of an entity, and investment portfolio administration.
* Trustee services.
This category includes management fees for acting as a trustee of a trust orother entity as well as fees for acting as a trustee under a will orsettlement.
Reference should be made to regulation 40-16 for further categories of supplies(in addition to those listed above) that are not considered a financial supply.Examples for the categories are found at Schedule 2.
Examples of supplies that are not financial supplies
Schedule 2 sets out examples of the financial supplies listed as items in thetable in regulation 40-16. These examples are not exhaustive and if there isinconsistency between the examples and the financial supplies described inregulation 40-16, the description in 40-16 prevails. [Regulation40-17]
Merely calling something by a particular name will not guarantee the GSTtreatment for that financial product or transaction if in substance it is adifferent transaction or product.
Dictionary
Terms used in the Regulation are defined in the dictionary to the Regulation.
[Regulation 4]
New Tax System (Goods and Services Tax) Act 1999
New Tax System (Goods and Services Tax) Regulations
ATTACHMENT C TO THE EXPLANATORY STATEMENT
Part 4-2 - Reduced credit acquisitions
Object of Part
Part 4-2 of the regulations specifies:
* those items that are reduced credit acquisitions;and
* the percentage of the reduction of the input taxcredits to which the
financial supplier is entitled.
[Regulation 70-1]
Generally, no input tax credit is available for things acquired by an entity tothe extent they are used to make financial supplies.
However, section 70-5 of the GST Act provides that certain acquisitions thatrelate to making financial supplies give rise to an entitlement to reducedinput tax credits. These acquisitions are referred to as reduced creditacquisitions. When acquired by an entity other than a financial supplyprovider, these would be creditable acquisitions. Therefore, where items listedat regulation 70-2 are used to make taxable supplies full input tax credits maybe available.
Some of the items giving rise to a reduced input tax credit within regulation70-16 may also appear as things that are not financial supplies.
Any entity whose financial supplies meet or exceed the de minimis testat section 11 - 15 of the GST Act may claim reduced input tax credits if theymake a reduced credit acquisition. This means that enterprises other thanfinancial institutions, such as corporate treasuries, store and fleet cardoperators can also claim reduced input tax credits if they would otherwise bedenied a full input tax credit.
Furthermore, reduced input tax credits may also be available where an entity issubject to a reverse charge. Under Division 84 of the GST Act, a reverse chargeis applied to acquisitions that:
* are imported; and
* are used to make input taxed supplies. The reverse charge means that theenterprise must self-assess for the GST payable. Acquisitions subject to thereverse charge are eligible for a reduced credit if they are listed atsubregulation 70-2(2).
Acquisitions that attract a reduced input tax credit
Regulation 70-2 sets out an exhaustive list of the acquisitions that arereduced credit acquisitions and therefore eligible for a reduced input taxcredit.
The reduced credit acquisitions are divided under the following headings:
* Transaction banking and cash management
* Payment services and fund transfers
* Securities transactions
* Loans
* Credit union services
* Debt collection services
* Asset based finance
* Trade finance
* Capital markets and financial instruments
* Funds management services
* Insurance
* Services renumerated by commission and franchisefees
* Trustee and custodial services
Reference should be made to the table at 70-2(2) for the complete list ofreduced credit acquisitions.
It should be noted that something that is used for a reduced credit acquisitiondoes not for that reason become a reduced credit acquisition. For example,while certain data processing services may qualify as a reduced creditacquisition, information technology services acquired to perform the same dataprocessing functions do not qualify as a reduced credit acquisition. Similarly,labour contracted from a labour hire firm to be used as an input to a supplythat is eligible for a reduced input tax credit does not qualify as a reducedcredit acquisition. [Subregulation 70-2(3)]
Percentage to which input tax credits are reduced
For the purposes of subsection 70-5(2) of the GST Act, the percentage ofreduced input tax credit for each kind of reduced credit acquisition is 75%.[Regulation 70-4]
Dictionary
Terms used in the Regulation are defined in the dictionary to the Regulation.
[Regulation 4]
New Tax System (Goods and Services Tax) Act 1999
New Tax System (Goods and Services Tax) Regulations
ATTACHMENT D TO THE EXPLANATORY STATEMENT
REGULATION IMPACT STATEMENT FOR A NEW TAX SYSTEM (GOODS AND SERVICES TAX)REGULATIONS 1999
Policy objective
The information that is to be shown on tax invoices (other than that prescribedin the A New Tax System (Goods and Services Tax) Act 1999) has notpreviously been specified. The policy objective of this measure is to prescribethe additional information that is required to be contained on tax invoicesissued for the purposes of the goods and services tax (GST).
GST is effectively a tax on final private consumption in Australia and is borneby consumers. To ensure GST is effectively borne by consumers, a registeredentity is generally entitled to an input tax credit for the GST on what theyacquire for the purpose of their enterprise. Tax invoices substantiatecreditable acquisitions over $55. An entity must hold a tax invoice for suchacquisitions in order to attribute the input tax credit to a tax period.
Implementation options
Tax invoices are a means of verifying an entity's entitlement to input taxcredits. Countries which also have a broad-based transaction tax, such asCanada, Ireland, New Zealand and the United Kingdom, also use tax invoices toverify input tax credits claimed. The information required by these countrieson their tax invoices was considered in developing alternative implementationoptions.
There are a number of similarities in the information required to be shown ontax invoices in Canada, Ireland, New Zealand and the, United Kingdom. All ofthese countries require the following information to be shown on taxinvoices:
* registration number of the supplier - correspondingto the Australian Business Number (ABN);
* date of invoice; and
* description of goods or services.
In each of these countries there is no set format for the invoice but all therequired information must be provided for the document to be a tax invoice. Thetax invoices used in Canada, Ireland and the United Kingdom require moreinformation to be provided than is considered necessary in the Australian GSTcontext. This may be a consequence of the multiple GST rates that exist inthose countries and the widespread circ*mstances for zero-rated supplies to bemade.
The tax invoice options developed were based on the New Zealand's tax invoicemodel, as GST there is similar to that in Australia.
Preferred Option
In addition to the statutory requirements that the document contain:
* the ABN of the entity issuing the document; and
* the GST-inclusive price of the taxable supply,
the tax invoice should contain the following information:
* the words 'tax invoice' stated prominently on the document;
* the date of the issue of the tax invoice;
* the name of the supplier;
* the name of the recipient;
* the address or ABN of the recipient;
* a brief description of each thing supplied;
* the quantity or volume of what was supplied; and
* either:
- if the tax invoice is for one or more taxablesupplies only and GST payable is exactly 1/11th of the total price:
- a statement to the effect that the total amountpayable includes
GST; or
- the total amount of GST payable on thetaxable supply or supplies.
- if the tax invoice is for a taxable supply but theGST payable is less than 1/11th of the total price: the amount, excluding GST,payable for the taxable supply, and the amount of GST payable on the taxablesupply; or
- if the tax invoice is for one or more taxablesupplies and a supply that is either GST-free, input taxed or made before 1July 2000:
- clearly identify each taxable supply;
- in relation to the taxable supplies, the totalamount of GST payable; and
- the total amount payable for the supplies.
There is no requirement for a tax invoice to be held if the total GST-exclusivevalue of a taxable supply is less than $50. However, an entity must still keeprecords showing the date, brief description, cost and supplier's name in orderto substantiate claims for input tax credits for such supplies. Tax invoicesfor supplies less than $1,000 require fewer details to be shown. Typically,receipts, which do not show the purchaser's name and address, or fully describethe supply would satisfy the requirements for abbreviated tax invoices.
In certain situations tax the recipient rather than the supplier may createinvoices. The requirements for this type of invoice are essentially the same asfor tax invoices, but with the following differences:
* the words 'recipient created tax invoice' must beshown prominently on the document instead of 'tax invoice';
* the ABN of the supplier must be shown in additionto the ABN of the recipient; and
* the words 'The GST shown is payable by thesupplier' must be included.
Alternative Options
Alternative approaches to the information to be shown on tax invoices werebased on the same model as the preferred option, with the followingmodifications:
* 'tax invoice' not stated prominently - it isconsidered that without these words stated prominently, compliance with the taxinvoice requirements would be hindered.
* 'trading name' of supplier - it is accepted thattrading names of suppliers, and of recipients, are commonly used on transactiondocuments. Therefore, it is unnecessary to expressly provide in the regulationsfor 'trading names' or 4 registered business names'.
* include the statement 'the total price includes GSTfor this supply' - this formulation is considered too long and inflexible. Theobject of indicating that the total amount payable includes GST of 1/11th ofthat amount can instead be achieved by providing a guideline for the form ofwords suppliers may choose to Use.
* include the 'amount, excluding GST, payable foreach taxable supply' - suppliers may choose to show both the GST-exclusive andGST-inclusive amounts corresponding to each taxable supply shown on a taxinvoice in order to satisfy the information needs of their customers. However,this data item was not considered essential to satisfy tax invoicerequirements. The price of each taxable supply, the identification of eachsupply that is taxable, and the statement of the total GST payable togetherprovide sufficient information to derive the additional information that may beneeded by recipients. Although it may be desirable to show the GST-exclusiveamount, it is considered that this data item should not be a requirement.
These alternative approaches were either embodied in the exposure draftregulations (see paragraph 28) or reflect suggestions received in response tothe exposure draft regulations.
Transitional arrangements
The GST law requires a tax invoice to show the ABN of the issuer of thedocument, the price of the taxable supply and other information as specified inthe regulations. However, entities now making supplies that span 1 July 2000will not be able to produce documents that satisfy these requirements untilthey are issued an ABN.
Rather than requiring additional documents to be provided that meet the taxinvoice requirements, the Commissioner of Taxation has indicated thecirc*mstances in which a discretion will be exercised to allow a recipient of ataxable supply to claim an input tax credit without holding a tax invoice. TheCommissioner has indicated that the discretion will be exercised if thedocument that was issued before 1 July 2000 contains the minimum informationrequirements as set out in GST Bulletin 1999/1.
Assessment of impacts
Impact group identification
Businesses
Businesses will incur some compliance costs, as they will need to adapt theirtransaction documentation systems to ensure that they can satisfy demands fortax invoice requirements from their customers.
Government
Government departments and agencies will be required to issue tax invoices forsupplies they make to GST-registered entities.
Consumers
Generally, consumers are not impacted by this measure. Consumers can assumethat 1/11th of the purchase price, other than for GST-free or input taxedsupplies, represents GST. However suppliers may issue transaction documents,eg. receipts, to consumers that incidentally satisfy tax invoice requirements.This would be the case if it would be too costly to produce different documentsfor consumer and business customers.
Transitional
GST Bulletin 1999/1
The Commissioner of Taxation will exercise a discretion to allow a recipient ofa taxable supply to claim an input tax credit without holding a tax invoiceproviding the transaction document that issued before 1 July 2000 contains theminimum information requirements as set out in GST Bulletin 1999/1.
Alternative approach: No transitional measures
The prescription of information to be required on tax invoices withouttransitional arrangements would increase compliance costs of business thatissue documents before 1 July 2000 relating to supplies after that date.Affected businesses would have been required to supply additional documentsthat meet the tax invoice requirements.
Analysis of costs / benefits
A feature of the current proposal is that it is optional to show either: theconsideration (including GST) and the total amount of tax charged; or theconsideration charged (including GST) and a statement that it includes anamount of GST - provided that the GST is the tax fraction (1/11th, given theGST rate of 10%).
The option of showing only the GST-inclusive price (together with a statementthat it includes GST) simplifies, and hence minimises compliance costs in, thepreparation of some transaction documentation that can be used as a taxinvoice.
Another consideration in setting the information requirements for tax invoicesis the usefulness of these documents to the recipients. The purpose of the taxinvoice is to substantiate input tax credits entitlements. A function of taxinvoices is, therefore, to inform recipients of the amount of input tax creditto which they are entitled on their acquisitions. Where the supply is only fortaxable supplies (and the supplies are taxed at 1/11th of the price), thisinformation can be easily worked out by the recipient.
However, where the supply is taxed at less than 1/11th of the price, or madewith GST-free or input taxed supplies (that is, a mixed supply) extrainformation must be provided to inform recipients of the amount of input taxcredit to which they are entitled. Therefore if the GST amount is stated on taxinvoices, it reduces the risk, particularly for small businesses withoutautomated systems, of arithmetic error in calculating input tax credits. Italso reduces compliance costs to business as it avoids the need to separatelyre-calculate the GST component relating to each acquisition.
The specification of tax invoice requirements should not impose unnecessarycosts in redesigning transaction documents. The current proposal is optimal inthis respect, as it does not impose requirements that are not necessary. Italso reduces the information required where the GST total amount payable forthe supply is less than $1000. This addresses situations where sales receiptsare the only documents issued. Such documents ordinarily do not contain thename and address of the recipient.
Impacts common to both models
For either model, the greater the scope for mixed supplies, that is, acombination of taxable and input tax supplies or GST-free supplies, the lesslikely tax invoices will be designed to include less information. Entities thatsupply a combination of GST-free or input taxed supplies and taxable supplieswill prefer to design their tax invoice documents in a way that satisfies therequirements for mixed supplies.
Both proposals feature abridged information requirements for tax invoices ifthe total amount payable is less that $1,000 (including GST). The informationomitted on 'abbreviated tax invoices' is the name and address or ABN of therecipient and details of the quantity or volume of what was supplied. Thisomitted information is considered either impractical or unnecessary forsuppliers to record when the total amount payable is below the threshold amountof $1,000.
The abridged information requirements for abbreviated tax invoices do not, ofcourse, preclude suppliers from issuing 'full' tax invoices where it isconvenient for them to do so.
Compliance costs
No separate estimate has been made for the cost of complying with the taxinvoice information requirements. The compliance cost of the whole GST measurewas included in the original Regulation Impact Statement for the introductionof a Goods and Services Tax.
Other issues - consultation
The general public was invited to comment on the draft regulations (the draftregulations were placed on the Australian Taxation Office's (ATO's) Tax ReformInternet site on 2 September 1999). The closing date for comments was 24September 1999. During the three week period for comments the ATO received over60 submissions. While the responses received were varied, all comments weretaken into account when developing the preferred option.
Conclusion and recommended option
The current proposal is considered the optimal model for prescribing theadditional information required on tax invoices. It provides the greatest scopefor business in redesigning transaction documentation and allows business toprovide less detail on the tax invoice when the invoice relates to whollytaxable supplies (that is, where the GST is 1/11th of the total amountpayable).
The ATO will monitor this measure as part of the indirect taxation system on anongoing basis. In addition the ATO has consultative arrangements in place toobtain feedback from professional and small business associations and throughother taxpayer consultation forums.
New Tax System (Goods and Services Tax) Act 1999
New Tax System (Goods and Services Tax) Regulations
ATTACHMENT E TO THE EXPLANATORY STATEMENT
REGULATION IMPACT STATEMENT FOR A NEW TAX SYSTEM (GOODS AND SERVICES TAX)REGULATIONS 1999
Objective of the policy
This Regulation Impact Statement (RIS) will deal with the A New Tax System(Goods and Services Tax) Regulations 1999.
The purpose of a taxation RIS is to examine implementation options arising froma Government policy decision. Accordingly, the RIS is based on the policydesign of the regulations.
Outline of the policy
The A New Tax System (Goods and Services Tax) Act 1999 provides for regulationsto define the treatment of financial services under the GST.
The A New Tax System (ANTS) policy document released on 13 August 1998announced that under the goods and services tax (GST) most financial serviceswould be input taxed in line with international practice. That is, for thoseservices, no GST would be payable on the supply, and no input tax credits wouldbe allowed for any GST paid on purchases used to make the supply. The ANTSdocument stated that the precise range of services that would be input taxedwould be determined in consultation with industry.
Legislation to enact the GST was introduced into Parliament on 2 December 1998.The legislation contains provision for regulations to provide greater clarityregarding the tax treatment of financial services at Division 40-5.
In May 1999, it was announced that a reduced input tax credit (RITC)would be made available on the acquisition of listed supplies used for makinginput taxed financial supplies. The RITC was designed to reduce the bias toinsource and limit any pressure to extend input taxation up the supply chainthrough litigation. Where a financial institution purchases a service that istaxable and eligible for an RITC, the tax effect is similar to the situationwhere the purchased service is input taxed. Legislative amendments to providefor regulations to specify the rate and supplies eligible for the RITC atDivision 70 were made in June 1999.
A Consultation Document titled The Application of Goods and Services Tax toFinancial Services (Consultation Document) was released on 17 August 1999.The document followed targeted industry consultations and provided a focus forbroader industry and community feedback on the application of the GST tofinancial services. Approximately 80 submissions were received from interestedparties.
POLICY ISSUES
Scope of input taxation
The fundamental reason for input taxing financial services is that it isdifficult to value most financial services as they are often charged by way ofa margin. Where supplies are input taxed, it is not necessary to value theservice.
Most financial services to consumers will be input taxed in line withinternational practice. In particular, no explicit GST will be charged on feesand charges relating to savings, cheque, deposit and loan (including homemortgage) accounts. Fees associated with credit cards and charge cards willalso not be subject to GST.
A greater proportion of financial service providers' purchases will be eitherinput taxed, or eligible for an RITC, than would be input taxed in overseasjurisdictions. However, for compliance and simplicity reasons, a broader rangeof services is taxable than is generally taxed in overseas jurisdictions. Wherethe scope of taxation has been increased from what is generally input taxed inoverseas jurisdictions, an R1TC will usually apply. Many overseas jurisdictionsinput tax a range of fee or commission based financial services that can bevalued (and therefore taxed). In particular, overseas jurisdictions often inputtax services that involve 'arranging' financial supplies. This approach hasbeen adopted as these services are often purchased by financial suppliers whoare denied input tax credits. International evidence suggests that the conceptof 4 arranging' has led to substantial difficulties. This has led to pressure,both through lobbying and litigation, to reduce the net tax burden by inputtaxing these services.
By making these types of services taxable and allowing an RITC to thepurchasing financial service provider, the tax burden can be relieved withoutextending the scope of input taxation. For example, custodial services (whichare a form of asset management service provided to fund managers) will betaxable, but a registered purchaser will be entitled to either a full input taxcredit for a business that does not supply financial services, or reduced inputtax credit for a financial service provider.
In accordance with the policy announced in A New Tax System, GSTwill apply to a number of financial services, including general insurance(but not life insurance); financial advice; and accounting services (includingservices provided by tax agents).
Definition of life insurance
The GST Act states that life insurance is to be input taxed. The GSTAct defines an input taxed life insurance policy as 'a policy of insuranceon the life of an individual'. The practical application of this definitionrequires clarification in regulations. In the Consultation Document itwas proposed to define input taxed life insurance as 'premiums for investmentand death cover, and other risk components below a de minimisthreshold'.
The industry has argued that such a definition would raise little revenue andimpose considerable compliance costs. A slightly broader definition of a lifepolicy written under the Life Insurance Act 1995 is being included inthe Regulations. This definition removes the proposed de minimisthreshold, and extends input taxation to disability insurance productswritten by life insurers that are unrelated to investment and death coverpolicies. Adopting the approach has a small revenue cost but provides certaintyfor the industry.
Apportionment of trustee services
The GST Act treats a trust as an entity and recognises that a trusteecan act in a number of different capacities. In particular, the same personoften acts as trustee and also provides a range of portfolio managementservices. Without an amendment, business would need to apportion the value ofcertain fees according to the capacity in which the trustee is acting. Anamendment will be made to deem the whole fee to be consideration for theprovision of the management services. This approach has been sought by industryand will be welcomed as it significantly reduces compliance costs.
Benefits of the proposed system compared to overseas jurisdictions
The RITC approach - which is unique to the Australian GST - has a number ofbenefits over the general approach of broader input taxation taken in overseasjurisdictions. These include reduced bias to insource; lower compliance costsfor smaller entities; greater legislative certainty; and a better competitiveposition for domestic service providers.
Removal of the insourcing bias for listed supplies
In the absence of special rules, financial institutions would have a bias toinsource supplies. Where a product is outsourced, unrecoverable GST is leviedon the full value of the purchase. If the product is produced internally, thenGST is only payable on the inputs used to make that product. The RITC removesthis bias to insource by giving the purchaser of an eligible supply a credit onpart of the GST paid - reducing or possibly removing any tax difference betweeninsourcing and outsourcing.
Compliance costs
The approach in the Regulations will have a beneficial impact on more than tenthousand suppliers to the financial sector. The RITC means that many suppliersto the financial sector will be taxable, rather than (fully or partially) inputtaxed, as they would be in overseas jurisdictions. GST compliance is muchsimpler for wholly taxable businesses. For example, most financial plannerswill only supply taxable services. In contrast, most financial planners in NewZealand make a combination of taxable and input taxed supplies and are requiredto apportion their input tax credits.
Greater legislative certainty
The proposed approach provides a higher level of legislative certainty than isthe case in overseas jurisdictions. Overseas jurisdictions have needed to relyon broad concepts such as 'arranging' and have also had to distinguish betweenmanagement and other professional services. The RITC removes the need forsupplies to be classified as input taxed in order to be offered relief from theinsourcing bias. Over the medium to long term, this will substantially reducethe pressure to expand the definition of input taxed financial supplies.
Reverse charge mechanism
The GST Act applies GST to services imported by entities makingfinancial supplies, if these services would be taxable if sold in Australia.The financial supplier is required to self-assess for the additional GST thatwould have been liable had the supply been purchased domestically. As theproposed approach makes more supplies taxable, the scope of the reverse chargeis increased. As a result, the competitive position of domestic suppliersproviding services to financial suppliers is enhanced.
[Index] [Related Items] [Search] [Download] [Help]