ACLN - Issue #68 32

1---------------- Tax --------------------f

The Building and Construction Industry andThe New Tax System

- Australian Taxation Office

On behalf of The New Tax System Advisory BoardI am pleased to endorse this booklet about the New TaxSystem. The booklet has been produced by the ATOspecifically for businesses and organisations operating inthe building and construction industry. The ATO hasundertaken consultation with organisations to help ensurethat this booklet meets the particular needs of the buildingand construction industry.

This booklet is just one part of the educationalmaterial available to help you prepare for The New TaxSystem. You can also find out more about The New TaxSystem through theATO's telephone information service,a program of seminars scheduled between September 1999and May 2000, and advisory visits by ATO field officersfrom November 1999. A definitive GST guide will bemailed to businesses when they have registered for TheNew Tax System. A large range of helpful material is alsoavailable from the tax reform website atwww.taxreform.ato.gov.au.

Please take the time to read this booklet and makeuse of the other materials available to assist your businessmake the transition to The New Tax System. The transitionis not difficult, but will require some planning. I urge youto start that planning now.

- Chris Jordan, Chairman, The New Tax SystemAdvisory Board.

TODAY'S TAX RATES

1. THE NEW TAX SYSTEMThe New Tax System starts on 1 July 2000.

The New Tax System will benefit you by:• abolishing wholesale sales tax and some State

and Territory taxes;• substantially reducing industry costs;• providing a single reporting form which

replaces several current business tax forms;• reducing the number of times you report to

theATO;• making sure all taxpayers pay their fair share

of tax - but no more;• providing quick and easy ways ofdealing with

the ATO, including through the internet;• helping you to be internationally competitive

and lifting the tax burden on exports;• giving State and Territory governments a

secure revenue base to pay for communityneeds;

• substantially increasing government supportto families and low income earners; and

• dramatically reducing personal income tax,as shown in the table below, and increasingincentives to work and save.

NEW TAX RATES

Current scale*taxable income

Tax rate%

New scale*taxable income

Tax rate0/0

$0-$5,400 0 $0-$6,000 0$5,401-$20,700 20 $6,001-$20,000 17$20,701-$38,000 34 $20,001-$50,000 30$38,001-$50,000 43 $50,001-$60,000 42$50,001+ 47 $60,001+ 47

*In addition, a low income rebate of up to $150 continues to apply.

ACLN - Issue #68

Start-up AssistanceTo help you, The New Tax System Advisory Board

is leading a major education campaign about The NewTax System for business and consumers. The Governmentis also providing $500 million to help small and mediumenterprises, charities and the education sector make thetransition to GST. The GST Start-up Assistance Officewill administer this assistance.

Major elements of The New Tax SystemThe major elements of The New Tax System are:

$12 billion of income tax cuts every year;a goods and services tax ("GST") of 1apercent on the supply of most goods and servicesconsumed in Australia;a Pay As You Go system which will replace anumber of systems, including Pay As YouEarn, the Prescribed Payments System, theReportable Payments System, provisional taxand company instalments;extensions to the Diesel Fuel Rebate Scheme;a luxury car tax and wine equalisation tax (tooffet the abolition of wholesale sales tax);changes to excise on alcohol;requirements for endorsement of charities asbeing deductible gift recipients or income taxexempt; andreporting fringe benefits on employees' groupcertificates.

In addition, the Government has indicated it willintroduce a range of business tax reforms in its responseto the Review of Business Taxation (the Ralph Report).

How to register for The New Tax SystemRegistering for The New Tax System, including

GST, is as simple as filling in a single application.From the beginning of November 1999 current

business taxpayers will receive a registration package.This will include an application, a set of instructionsexplaining how to fill in the application, and an informationguide.

When you register you will receive an AustralianBusiness Number. This is a new identifier which you willuse for your dealings with the ATO and for future dealingswith other government departments and agencies at alllevels.

To register for an Australian Business Number, youmust be either a company or an entity carrying on anenterprise. Employees, hobbyists and individuals whoare conducting activities without a reasonable expectationof profit cannot register for an Australian BusinessNumber.

Note: Your Australian Business Number will notreplace your tax file number but it will eventuallyreplace your Australian Company Number or yourAustralian Registered Body Number.

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Businesses with an annual turnover of $50,000 ormore and non-profit organisations with an annual turnoverof $100,000 or more must register for GST. Those with alower turnover may choose to register. You must have anAustralian Business Number to be part of the GST system.

You must register by 31 May 2000 to be part of TheNew Tax System on 1 July 2000. You can registerelectronically through the Business Entry Point atwww.business.gov.au or send your completed applicationto the ATO. Your tax agent can also lodge your applicationthrough the Electronic Lodgment System.

Streamlined reportingThe New Tax System will simplify the way you

report to the ATO. You will report most of your taxentitlements and obligations on a new single form calleda Business Activity Statement.

If your annual turnover is less than $20 million, youcan lodge your activity statement quarterly or monthly.However, if your annual turnover is $20 million or more,you must lodge your activity statement and make paymentselectronically every month.

You must lodge your activity statement on or beforethe 21st day of the month following the end of each taxperiod. You must lodge an activity statement foreach taxperiod, even if it is a nil report.

Note: You can save time and money by lodging yourbusiness activity statement and making any paymentelectronically. You can also lodge by mail or throughyour tax agent.

At a later date, the ATO will send you informationabout the Business Activity Statement and instructions onhow to fill it in. From February 2000 you will be able topractise lodging your business activity statement on theinternet.

Note: Most supplies of goods and services togovernment departments and agencies from a GSTregistered business will have GST included in theprice of the supply.

Preparing earlyAlthough most elements of The New Tax System

start on 1 July 2000, you need to start preparing now.Things you could do include:

decide whether you should register for GST;think about contracts you have, or enter into,that go beyond 1 July 2000;ask your suppliers about cost reductions;think about the implications of pricingchanges and fluctuations in sales;alert your customers to any changes;plan your cash flow;evaluate your record keeping;prepare a business plan and timetable;train and prepare your staff;prepare your business systems; andreview your stationery requirements,including tax invoices and adjustment notes.

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2. UNDERSTANDING YOUR GSTENTITLEMENTS AND OBLIGATIONSGST is a broad-based tax of 10 per cent on most

supplies of goods and services consumed in Australia.GST replaces wholesale sales tax which applied at varyingrates to a range of products.

The consumer will bear the cost of GST, not thebusiness providing the goods and services. However, theliability to pay GST to the ATO rests on the supplier of thegoods and services, not on their customer. In other words,even if you do not include GST in your price, you willstill be liable to pay it to the ATO.

Consumers will receive large personal income taxcuts and other compensation to offset any rise in prices.

Who will monitor prices?When making pricing decisions to take into account

The New Tax System changes, including GST, businessesneed to be aware that a new law has been passed thatprohibits price exploitation in relation to these changes.Price exploitation occurs where a business does not passon to consumers cost savings arising from tax reforms orwhere it increases prices unreasonably. The AustralianCompetition and Consumer Commission ("ACCC") wantsto help you comply with The New Tax System.

The ACCC will extensively monitor prices to makesure they are adjusted properly and make sure pricechanges are consistent with the changes in tax rates. Newlegislative provisions and ACCC guidelines mean youshould:

fully offset any GST-related price increasesagainst other indirect tax savings and relatedreductions in supplier costs;not apply any mark-up to the GST componentof any price;make sure prices only reflect GST liabilitiesthat can be reasonably forecast;not increase the difference between costs andprices in dollar terms; andreduce prices immediately after tax changesoccur.

You need to maintain appropriate records (such asinvoices showing cost changes or records of pricingdecisions) to demonstrate you have complied with theseguidelines. Penalties may be up to $10 million per offencefor corporations and $500,000 per offence for individuals.

Further information is available from the website atwww.accc.gov.au or you can contact the ACCC on 1300302502.

How does GST work?If you are a registered business, or required to be

registered, GST will be payable by you on most goods

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and services you sell or supply to others in the course ofyour business. These supplies are called taxable supplies.

There are other types of supplies where GST doesnot have to be included in the price. These are calledinput taxed supplies and GST-free supplies, and areexplained later in this booklet.

GST will also be included in the price of things youacquire or import for your business. However, if you areregistered for GST, you can claim a credit from the ATOfor any GST included in the price you pay for things foryour business. This is called an input tax credit.

The difference between the GST payable on yoursupplies and the GST included in the purchase price ofyour acquisitions is the amount you owe or are owed bythe ATO. If your credits are greater than the amount ofGST payable, you will be entitled to a refund.

The following example and flow chart explain howGST will work for you.

EXAMPLE

Supply of goodsNorth Building Supplies sells materials to Bob, asubcontractor, for $11,000 (including $1,000 GST).

Bob then charges his head contractor $10,000 forthe materials and $4,000 for labour, an invoice totalof $15,400 (including $1 ,400 GST) on a house beingbuilt.

The head contractor sells the finished house to abuyer for $165,000 (including $15,000 GST).

North Building Supplies pays the $1 ,000 GST to theATO. Bob is entitled to an input tax credit for $1 ,000GST included in the price paid to North BuildingSupplies. He offsets this credit against the $1 ,400GST payable on the supply to the head contractorand pays $400 to the ATO.

The head contractor is entitled to an input tax creditfor the $1 ,400 GST included in the price paid to Bob.The head contractor offsets this credit against the$15,000 GST payable on the supply to the housebuyer and pays $13,600 to the ATO.

Only the consumer bears GST on the final product,as consumers cannot claim input tax credits for GSTincluded in the price paid.

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How do you work out GST on taxable supplies?The GST is always included in the price of goods

and services you supply or buy but may not be shownseparately.

To work out how much GST to include in the priceof a taxable supply you are selling, divide the value of thesupply by 10.

To work out how much GST is included in the priceof something you have bought (an acquisition), divide theprice by 11.

EXAMPLE

Working out the amount of GSTArthur's Building Supplies sells 100 packs of nails toyour business. The total value of the nails is $200.Arthur calculates how much GST is payable bydividing the value by 10 ($200/10 =$20). He chargesyou $220, that is, $200 for the nails plus $20 GST.

If you want to work out how much GST is included inthe price of the nails, you divide $220 by 11. Theamount of the GST is $20.

Note: The principle of mutuality may be of relevancein determining what constitutes income for thepurposes of the income tax laws, however, it has norelevance in determining whether or not an entity hasmade a taxable supply.

Input tax creditsInput tax credits are only available for the GST

included in the price paid for a creditable acquisition. Acreditable acquisition is something you acquire for acreditable purpose for use in your business.

You cannot claim a credit if an acquisition is not fora creditable purpose, that is, if it is for making input taxedsupplies (for example, financial supplies) or for a privatepurpose. The amount of input tax credit is reduced if theacquisition is only partly for a creditable purpose. Youwill need to apportion the input tax credit accordingly.

EXAMPLE

Claiming input tax creditsKatherine runs a plumbing supplies business and isregistered for GST. She buys 10 taps for $550 froma manufacturer to sell to a plumber. She is entitledto an input tax credit of 1/11 th of $550, that is, $50.

On the same day Katherine buys a TV for her homefor $770 (including $70 GST). As this is a privatepurchase, Katherine cannot claim an input tax creditfor the $70 GST included·in the price of the TV.

If you payor are liable to pay only part of theconsideration for an acquisition, you need to apportionthe input tax credit. You are only entitled to the part of theinput tax credit that relates to the consideration you payor are liable to pay.

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You are entitled to input tax credits for more thanjust the materials you use directly in making a supply. Forexample, you may buy a large piece of equipment for yourbusiness and have it serviced. Any GST included in theprice of the equipment and service can be claimed as aninput tax credit. You are also entitled to input tax creditsfor the GST included in the price of business expensessuch as power, telephone and advertising costs. You don'thave to wait until you sell your goods to claim the inputtax credit.

Note: You can only claim input tax credits for GSTincluded in the price you pay for supplies acquiredfor your business if you are registered for GST. Thisis why you may choose to register even if your annualturnover is less than $50,000.

Wholesale sales tax creditWholesale sales tax is being abolished and will be

replaced by GST from 1 July 2000. If you have beencharged sales tax on goods you hold for sale or exchangeat the start of 1 July 2000, you can claim a credit for thisstock if you are registered for GST.

The credit does not apply to:stocks held for manufacturing;stocks of most second-hand goods;goods held for hire or lease;business consumables such as stationery; oralcoholic beverages.

What is subject to GST?Most goods and services consumed in Australia will

be taxable supplies, that is, they will be subject to GST.However, no GST will be charged on GST-free

supplies and input taxed supplies.

GST-free suppliesIf supplies are GST-free you will not charge GST

for them but you will be entitled to input tax credits forGST included in the price you paid for the things youacquired for use in your business.

GST-free supplies include basic food, exports,sewerage, water and drainage, eligible childcare, the saleof a business as a going concern, non-commercial activitiesof charities and most education and health services.

Note: Wages and salaries paid to employees andsuperannuation contributions paid on behalf ofemployees are not subject to GST.

Input taxed suppliesIf supplies are input taxed you do not charge GST

on the supply but neither are you entitled to input tax creditsfor anything acquired or imported to make the supply.Input taxed supplies include most financial supplies,supplies of residential rent and residential premises, andsome supplies of precious metals.

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ImportationsEveryone has to pay GST on taxable importations.

This includes businesses that are registered for GST aswell as those that are not registered. Customs collectsGST on taxable importations. The taxable value forimportations is equal to the customs value plus the cost ofinsurance and freight of the goods plus any customs dutypayable on the import.

For more information on how GST relates toimportations, see the ATO publication, Importing & TheNew Tax System.

3. ACCOUNTING FOR GSTYou will claim input tax credits and account for GST

payable on your Business Activity Statement at the end ofeach tax period.

Tax periodsTax periods are the reporting periods for GST and

can be quarterly or monthly. Quarterly tax periods areperiods of three months ending on 30 September, 31December, 31 March and 30 June. Monthly tax periodsend on the last day of each calendar month.

If your annual turnover is less than $20 million, yougenerally have quarterly tax periods. However, you maychoose to have monthly tax periods. You can make thischoice when you register for GST or, if you decide laterto change your tax periods to monthly, notify the ATO.You can change back to quarterly tax periods (after at least12 months) if your annual turnover is still under $20million.

Monthly tax periods are compulsory if:your annual turnover is $20 million or more;you will be carrying on an enterprise for lessthan three months;you have a history of failing to comply withyour tax obligations; oryour income tax year does not end on 30 June.

You can end your tax periods up to seven days earlieror seven days later than the standard tax periods if youwant to line up your tax periods with your commercialaccounting periods. If you do this it will not change thedate for lodging your Business Activity Statement ormaking payments.

EXAMPLE

Changing your tax periodNicholas runs a building business. His normalaccounting practice is to balance the accounts everyFriday. Nicholas has quarterly tax periods. As 31March falls on Tuesday, Nicholas ends his tax periodon Friday 3 April so that he does not have to make aspecial balance on the Tuesday. Nicholas' next taxperiod starts on Saturday 4 April rather than on 1April. His Business Activity Statement for the taxperiod ending on 3 April, and any payment, is stilldue on 21 April.

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Ifyou have monthly tax periods because your annualturnover is $20 million or more, you can apply to theCommissioner of Taxation to change your tax periods toline up with your commercial accounting periods.

Note: You may find that the introduction of GSTpresents cash flow benefits, as GST included in theprice of goods and services you supply during a taxperiod is not payable to the ATO for up to 21 daysafter the end of that period.

Attributing GST and input tax credits to taxperiods

There are some rules about how to work out whichtax period your GST amounts belong to, that is, which taxperiod they are attributed to. The rules for attributing GSTpayable and input tax credits to tax periods are different,depending on whether you account for GST on a cash basisor not on a cash basis.

There are two methods of accounting for GST - ona cash basis or not on a cash basis (also referred to asaccruals). To determine what method of accounting youcurrently use, look at your invoicing procedures and whenyou record payments and sales.

If you issue or receive an invoice but do not accountfor the sale or purchase until the cash is received or paid,you are using a cash basis.

If you account for the sale or purchase at the timeyou issue or receive an invoice, you are not using a cashbasis.

Many businesses use a combination of the twomethods. However, from 1 July 2000 businesses will haveto choose only one method of accounting for GST.

Cash basisIf you use a cash basis of accounting you account

for the GST payable when you receive payment for ataxable supply, and claim input tax credits when youactually pay for acquisitions. In other words, you cannotclaim an input tax credit until you have paid for the goodsand services, and you do not have to pay the ATO the GSTincluded in the price of a supply until you receive paymentfor that supply.

You can use a cash basis of accounting for yourbusiness if:

your annual turnover is $1 million or less; oryou are properly accounting on a cash basisfor income tax purposes (as outlined inIncome Tax Ruling TR 98/1).

If you have an annual turnover of more than $1million and you do not account on a cash basis for incometax but wish to account for GST purposes on a cash basis,contact the ATO for more information.

Non-cash basisIf your annual turnover is $1 million or less you can

use a non-cash basis of accounting for your business. Ifyour annual turnover is more than $1 million you must

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account for GST on a non-cash basis unless the ATO givesyou approval to use a cash basis.

If you do not use a cash basis you will account forall GST payable and all input tax credits in the earlier of:

the tax period in which a tax invoice is issuedrelating to that supply; orthe tax period in which any of theconsideration is received or made.

EXAMPLE

Accounting on a non-cash basisSanto's Electrical Services provides electricalservices to fit out a house for a builder for $33,000(including $3,000 GST) on 30 September. Santogives the builder an invoice on the day of the service,but payment is not due for 30 days.

Santo's tax period ends on 30 September. As hedoes not account for GST on a cash basis, the $3,000GST payable is attributable to the tax period endingon 30 September even though the builder has notpaid him. The builder's input tax credit is attributableto the tax period ending 30 September (provided thebuilder does not account for GST on a cash basis)because an invoice has been issued.

Note: To maximise your cash flow and minimise youradministration costs, think about:

• how you acquire and supply goods andservices;

• your terms and conditions of trade;• your debt collection strategy and terms

of settlement;• your accounting system; and• future contracts.

Regardless of which accounting method you use,you cannot claim an input tax credit until you receive atax invoice (unless the GST-exclusive value of the supplyis $50 or less).

Tax invoicesYou must have a tax invoice to claim an input tax

credit for a creditable acquisition.In most cases tax invoices are issued by suppliers.

In some special cases they may be issued by recipients ofsupplies. If you make taxable supplies, your registeredcustomers will need tax invoices to claim input tax creditsfor acquisitions with a GST-exclusive value of more than$50. If you are asked to provide a tax invoice, you haveto do so within 28 days of the request from the purchaser.For this reason you might choose to issue all your invoicesin a form which satisfies the requirements for a GST taxinvoice.

You should have a tax invoice before you lodge aBusiness Activity Statement claiming the input tax credit.If you don't have the tax invoice, you cannot claim the

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input tax credit until you receive it. If you obtain a taxinvoice in a later tax period, you can claim an input taxcredit in that period.

Tax invoices are not required if the GST-exclusivevalue of the supply is $50 or less. However, you shouldhave some documentary evidence to support all input taxcredit claims.

Certain information must be shown on tax invoices.

Note: Invoices in electronic form are tax invoices ifthey provide all the information required.

ImportationsTax invoices are not required for taxable

importations. However, you must have the relevantdocumentation issued by Customs (rather than thesupplier) to support input tax credit claims.

Note: Registered contractors must issue a taxinvoice to you to enable you to claim an input taxcredit. As unregistered contractors are not able toissue tax invoices, you will not be entitled to an inputtax credit for an unregistered contractor's services.

Payments and refunds of GSTThe amount you have to pay to the ATO is the

difference between:the GST you include in the price of sales youmake; andthe input tax credits you are entitled to forGST included in the price paid on things usedin your business.

This amount has to be paid on or before the 21stday of the month following the end of your tax period.

If the amount of input tax credit owed to you isgreater than the GST on your sales, you will receive arefund. The ATO must pay this amount within 14 days ofyou lodging your Business Activity Statement. If paymentis made after this time, interest is payable by the ATOunder the Taxation (Interest on Overpayments and EarlyPayments) Act 1983.

EXAMPLE

Amount to payMartin's Brickworks makes sales totalling $220,000(including $20,000 GST). The GST payable isattributable to the quarterly tax period ending on 30September. In the same period Martin is entitled toinput tax credits of $15,000 for GST included in theprice paid for goods and services used in hisbusiness. Martin has to pay $5,000 (that is, $20,000­$15,000) to the ATO by 21 October.

AdjustmentsFrom time to time you may need to make an

adjustment to the amount of GST owed or refunded. Thismay occur if:

EXAMPLE

Amount of refundIf Martin has input tax credits of $25,000 (becausehe purchased a large amount of supplies), he wouldbe owed $5,000 by the ATO. If Martin lodges hisBusiness Activity Statement by 21 October, he shouldreceive the $5,000 refund from the ATO by 4November. This is assuming that Martin does nothave any other tax debts that would be offset againstthis amount.

each taxable supply;the amount of GST payable (in relation to thetaxable supplies); andthe total amount payable for the supply.3.

Supplies of $1,000 or moreTax invoices for taxable supplies of $1,000 or more

must include:1. the Australian Business Number of the

supplier;2. the GST-inclusive price of the taxable supply;3. the words "tax invoice" stated prominently;4. the date of issue of the tax invoice;5. the name of the supplier;6. the name of the recipient;7. the address or the Australian Business

Number of the recipient;8. a brief description of each thing supplied;9. the quantity of the goods or the extent of

services supplied; or10. when GST payable is exactly 1/11 th of the

total price, either a statement along the linesof "the total price includes GST", or the GSTamount.

Supplies of less than $1,000Tax invoices for taxable supplies of less than $1,000

must include:1. the Australian Business Number of the

supplier;2. the GST-inclusive price of the taxable supply;3. the words "tax invoice" stated prominently;4. the date of issue of the tax invoice;5. the name of the supplier;6. a brief description of each thing supplied; and7. when GST payable is exactly 1111th of the

total price, either a statement along the linesof "the total price includes GST", or the GSTamount.

Taxable and non-taxable suppliesIf the tax invoice is for a taxable supply and either a

GST-free or input taxed supply, the tax invoice must alsoshow:

1.2.

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all or part of a supply or purchase is cancelled;the price for a purchase or supply is altered(such as when you provide or become entitledto a volume discount or early paymentdiscount);a supply becomes taxable or a purchasebecomes creditable;a supply stops being taxable or a purchasestops being creditable;the purpose of your purchase changes; oryou have bad debts or you fail to pay a debt.

If you have accounted for GST payable or input taxcredits on an earlier Business Activity Statement and oneof the above events occurs, you may have paid either toomuch or too little GST, or claimed too much or too littleinput tax credit.

In these instances you need to make an adjustmenton your Business Activity Statement for the tax period inwhich the change happens. Depending on thecircumstances, this will either decrease or increase theamount of GST payable by you or the amount the ATOhas to refund.

You make an adjustment on the Business ActivityStatement that covers the tax period when the changehappens or when you find out about the change.

Adjustments because of a change in price

SuppliesIf, after you have accounted for GST on a supply

you made, there is an increase in the consideration youreceive or are entitled to receive for the supply, you willhave paid too little GST.

To make up for this, you should make an adjustment.This will increase GST payable in the tax period whenyou find out about the change. If you make an adjustmentfor a supply, you are required to issue an adjustment noteto the recipient of the supply, who can then make anadjustment if necessary.

AcquisitionsIf you have to pay more for an acquisition than you

thought when you claimed your input tax credit, you willhave claimed too little input tax credit. You make thisadjustment in the tax period in which you find out aboutthe change to the payment amount or, if you account forGST on a cash basis, in the period in which you actuallypay the additional consideration.

You should make an adjustment if you have claimedtoo much input tax credit, for example, if what you paidfor your acquisition is actually less than you thought itwould be. To correct this, you need to make an adjustmentto reduce your input tax credit.

EXAMPLE

Adjustment where consideration is reducedGraeme operates a small construction business. Forthe September 2000 quarter tax period, Graeme

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claimed input tax credits of $80 for stationerypurchases of $880 (including $80 GST). In Octoberthe wholesaler gives Graeme a volume discount of$110 for purchases made in the September quartertax period.

Graeme has claimed too much input tax credit. Thecorrect amount of input tax credit for the stationerypurchases is $70 (the GST included in the reducedconsideration of $770).

To correct this, Graeme should make an adjustmentthat reduces his input tax credits by $10 in theDecember quarter tax period.

(Note: The wholesaler will have an equivalent, butopposite, adjustment.)

If the supply to you has a value greater than $50,you must have an adjustment note before you can claimthe additional input tax credit.

Adjustments because of a change in useThe amount of input tax credit you are entitled to

depends on how much you plan to use the acquisition orimportation in your business. You work out this amountat the time you make the acquisition or importation.

Over time your actual use may vary from yourintended use, so you may have to make adjustments tomake sure that you have not claimed too little or too muchinput tax credit. You only have to make these adjustmentswhere the GST-exclusive amount you paid for theacquisition or importation was more than $1,000 and itdoes not relate to making financial supplies.

EXAMPLE

Planned use changesSarah buys a computer in May to use in her business.She intends to use the computer 75 per cent forbusiness purposes and 25 per cent for privatepurposes. Sarah is entitled to an input tax credit of75 per cent of the full input tax credit at the time ofpurchase.

After using the computer for 14 months, Sarahcalculates that she actually uses it only 50 per centfor the purpose of her business. The input tax creditthat Sarah should have received is 50 per cent ofthe full input tax credit, not 75 per cent. Sarah willneed to make an adjustment on her Business ActivityStatement.

The requirement to make adjustments for a changein use continues over a number of years depending on theprice of the acquisition. These adjustments are made in

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Note: An acquisition or importation that relates tobusiness finance, such as financial supplies, will havedifferent adjustment periods.

adjustment periods. The adjustment period ends on, or asclose as possible to, 30 June. To provide an adequateperiod of time for you to assess use, your first adjustmentperiod is the tax period that starts at least 12 months afterthe end of the tax period in which you claimed the inputtax credit for the acquisition or importation.

The number of these adjustments periods you havefor an acquisition or importation that does not relate tomaking financial supplies depends on the GST-exclusiveamount paid for the acquisition. This is explained in thetable below.

Adjustment notesWhen an adjustment is in relation to a taxable supply,

you will need to issue an adjustment note to your businesscustomer so the customer can claim an additional inputtax credit. An adjustment note is like an amended taxinvoice and may contain similar information to a taxinvoice.

You must issue the adjustment note within 28 daysof a request by your customer or, if earlier, within 28 daysof becoming aware of the adjustment.

Adjustment notes are not necessary if the GST­exclusive value of the supply is $50 or less.

More information on the content of adjustment noteswill be provided in an ATO ruling.

Adjustments because of bad debtsIf you are not accounting for GST on a cash basis,

you may need to make adjustments if:you make a taxable supply and the whole orpart of the consideration has been due for 12months or more (or you write off the amountas a bad debt);you recover all or part of the amount that hasbeen due for 12 months or more (or theamount is written off);in a previous tax period, you claimed an inputtax credit for an acquisition and an amountyou still owe for the acquisition has been duefor 12 months or more (or is written off bythe supplier); oryou pay an amount which you owe for anacquisition and the amount has been due for12 months or more (or was previously writtenoff as a bad debt by the supplier).

4. OTHER GST ISSUES

ExportsGoods and services exported will be GST-free. This

means that businesses can claim input tax credits for theGST included in the price of goods and services they useto produce exports, even though they do not include GSTin the price of the exports.

Exports will be GST-free if they are exported within60 days of either receiving payment or issuing an invoicefor the goods, whichever is the earlier.

You must keep records showing the goods wereexported within the 60 days for them to be GST-free.

These records could include:airway bills;bills of lading;evidence from the Australian Customs Servicethat the goods were exported; orevidence that the goods arrived in the countryof destination, provided by the customsauthorities of that country.

Note: You will not need an adjustment note foradjustments for a change in use or for bad debts.

If you receive payment for an export in instalments(in accordance with the terms of a contract), the exportwill still be GST-free if you export the goods within 60days after either receiving any of the final instalment orthe date of the invoice for the final instalment.

EXAMPLE

ExportsElphick's construction company has a contract withan overseas customer to build a support frame thatwill take six months to build. It will be exported 30days after completion. Payment for the contract ismade in six monthly instalments, with the finalpayment due on completion. Elphick's constructioncompany will not issue invoices for the monthlyinstalments.

The supply is GST-free if Elphick's constructioncompany exports the frame within 60 days of receiptof the final instalment.

Note: If a person exports the stock or equipment onyour behalf, then this person acts as your agent. Anytransaction performed by your agent is consideredto be performed by you, therefore your exports willstill be GST-free (if they meet the exportrequirements).

ContractsSupplies made from 1 July 2000 under contracts

entered into on or after 8 July 1999 (when the GST becamelaw) will be subject to GST.

Number ofadjustmentperiods

NoneTwoFiveTen

GST-exclusive amountof consideration forthe acquisition

$1 ,000 or less$1,001 to $5,000$5,501 to $499,999$500,000 or more

ACLN - Issue #68

To protect tax revenue and to ensure a level playingfield for all businesses and consumers, the Governmenthas introduced some transitional rules. These rules arefor· contracts and agreements entered into before theimplementation of GST, where these involve the supplyof anything on or after 1 July 2000.

If you are entering into any contract (as a supplier),you may need to consider the effects of GST whennegotiating the contract price. This is particularlyimportant for contracts spanning the transitional period,as you may end up being liable to pay GST and not beingable to recover it from your customer.

The impact of GST on contracts entered into before8 July 1999 which span the transitional period will varydepending on:

the date on which the contract is entered into;the date on which full payment is made;whether the contract is reviewable or non­reviewable; andwhether your customer is entitled to full inputtax credits.

Leasing, rental and hire purchaseLeases, rental and hire purchase arrangements are

contractual arrangements. They are a taxable supply andtherefore any payments are subject to GST. Registeredbusinesses will be entitled to input tax credits for the GSTincluded in the price of a lease, rental or hire purchasearrangement used for their business operations.

However, during the transition to GST some specialrules apply. These rules are for contracts and agreementsentered into before 1 July 2000 which involve supplyinganything on or after 1 July 2000. These contracts maygive rise to GST obligations relating to the period after 1July 2000.

Certain credit transactions similar to loans arefinancial supplies and are input taxed. The ATO willprovide more information on financial supplies.

Transitional arrangementsTransitional rules apply to property transactions

where the contract is made before 1 July 2000, and theproperty is made available, that is, settlement takes placeon or after 1 July 2000 (for example, off-the-plan saleswhere deposits are taken before GST implementation butsettlement takes place afterwards).

For more information on contract arrangementsplease refer to the ATO's transitional fact sheet, GSTtransitional arrangements - contracts which span theimplementation ofGST, which is available from the websiteat www.taxreform.ato.gov.au or by phoning the BusinessTax Reform Infoline on 13 24 78.

Valuation rules for construction contractsSpecial valuation rules apply to construction

agreements made before 1 July 2000 for the supply ofgoods or real property made available after that date. Thevaluation rules apply to the supply ofgoods or real propertywhere the supply is the construction, major reconstruction,manufacture or extension of a building or civil engineeringwork.

41

Broadly, GST is payable on the difference betweenthe value of the supply of the building or civil engineeringwork and the value of materials permanently incorporatedin, or affixed to, the site at the start of GST.

Generally, these rules require you to value all thework and materials permanently incorporated on the worksite on 1 July 2000. This date may vary according to theterms of your contract.

GST is only payable on the supply to the extent thatthe value of the supply exceeds the valuation of workcompleted on 1 July 2000.

ValuationsThe ATO issued a bulletin, GSTB 1999/2, on 14

September which discusses the transitional rules forconstruction contracts that span 1 July 2000. The bulletinexplores the different valuation methods commonly usedin the construction industry and the method acceptable totheATO.

The acceptable method is the value of workcompleted on a trade by trade basis against the total valueof each trade usually using a measured Bill of Quantities.

The value of all work and materials that arepermanently affixed to the site will be the total of allcertified progress claims made up to and including 30 June2000.

Alternatively, the ATO will generally acceptvaluations where the work is assessed by a recognisedperson, or by an in-house employee with the samequalifications or experience as a recognised person.

Recognised persons include architects, valuers, civilengineers or quantity surveyors.

An independent valuation will generally be requiredwhere the supplier is a self-employed builder, or a buildingcompany that does not normally employ a person withthe recognised qualifications or experience. In these casesadequate records may not exist to determine a value fromthe builder's own records.

Valuations must be undertaken before the end of thefirst tax period (in other words, monthly or quarterlyperiod) after the operative date. You can apply to theCommissioner of Taxation for an extension of time ifnecessary. The operative date will generally be 1 July2000, however, it may change dependent on the terms ofthe contract.

You should refer to the ATO bulletin GSTB 1999/2for a full explanation of how to value constructioncontracts.

For further information on contract arrangementsplease refer to the ATO's transitional fact sheet, GSTtransitional arrangements - contracts which span theimplementation ofGST, which is available from the websiteat www.taxreform.ato.gov.au or by phoning the businessTax Reform Infoline on 13 24 78.

Barter dealingsIf you provide goods or services under a barter

arrangement you will have to pay GST on the market value(including GST) of a thing or things provided as

ACLN - Issue #68

consideration for the goods and services you have supplied.However you will be entitled to claim an input tax creditfor the GST included in the price of the materials you useto make the supplies. Barter dealings include agreementsyou may have with another contractor where you do somework for the contractor and the contractor does somethingin return.

Selling residential propertyGST will apply to the sale of all newly constructed

residential property from 1 July 2000, whether bought byan owner occupier or as an investment. However, GSTwill not apply to the sale of residential properties that arenot new. They will be input taxed.

Note: Charges for water supplies, sewerage anddrainage services will be GST-free.

A standard contract for the sale of land, such as thoseapproved by the law societies or real estate institutes ineach state, provides for the payment of a deposit with thebalance payable on completion in exchange for a dulyexecuted transfer.

The liability for paying GST under such a contractgenerally arises when settlement takes place. If a contractis not a standard contract the vendor (or seller)· needs toexamine the terms of the contract to determine when theliability arises. When a deposit paid by the buyer onexchange of the contract is held by a stakeholder, as trusteefor the vendor and buyer, it only becomes subject to GSTif it is either forfeited or applied as part consideration forthe purchase (this usually happens when settlement takesplace).

For land transactions GST will generally be payableon the full selling price. However, a seller may choose tocalculate the GST under the margin scheme. Informationon how the margin scheme works is outlined later in thisbooklet.

Incidental selling costsGST will apply to incidental costs associated with

selling all types·of property. Incidental property sellingcosts include: fees charged by solicitors, surveyors, pestand building inspectors, accountants and financial advisers.

EXAMPLE

Incidental selling costsNatasha sells her house for $150,000. The agentcharges a 2 per cent selling commission of $3,000plus $300 GST, that is $3,300.

Advertising costs amount to $330, including $30 GST.Legal and other associated costs add up to $825,including $75 GST.

Included in the price Natasha has paid for theincidental costs on the sale of her house is $405 GST.However, the sale price of the house itself will notinclude GST.

42

First home buyersFrom 1 July 2000 first home buyers may be eligible

for non-means tested assistance of $7,000 under the FirstHome Owner's Scheme. The scheme will be administeredby the individual States and Territories.

Bodies CorporateA body corporate (sometimes known as an owner's

corporation) with an annual turnover of $50,000 or more,must register for GST. A body corporate with an annualturnover of less than $50,000 may choose to register.

Note: Turnover includes amounts contributed aslevies by proprietors.

A registered body corporate will be required toinclude GST in the amounts levied on proprietors. Thebody corporate will be entitled to input tax credits for theGST included in costs such as electricity, management,cleaning, repair and maintenance services. It will also berequired to lodge a Business Activity Statement for eachtax period.

A registered proprietor will be entitled to claim inputtax credits for GST included in levies relating tocommercial properties.

Selling commercial propertyGST will apply to the sale of all new or existing

commercial property from 1 July 2000. Most sellers ofcommercial property will be registered for GST andtherefore GST will be payable on the selling price.However, if a seller is not registered for GST then GST isnot payable on the sale.

If the property is made available to the buyer after30 June 2000, GST will apply to a sale of any newlyconstructed commercial property. Made available willusually mean the date of settlement, as the buyer obtainsaccess to the property at that time. The seller must payGST on the full amount of the sale price of the property.

If the buyer is registered for GST they will be ableto obtain an input tax credit for the GST included in theselling price of the commercial property unless it is usedto make input taxed supplies. In this circumstance theseller may choose to calculate the GST payable using themargin scheme. However, there are restrictions on thecircumstances in which the margin scheme can be used.Information on how the margin scheme works is containedbelow. Unregistered buyers will not be able to claim inputcredits.

Sale of farmlandThe supply of farmland will be GST-free if the

supplier has carried on a farming business on the land forat least five years before the sale. In addition, the purchaserof the farm land must intend to operate a farming businesson the land.

A large farm may be subdivided into a number ofsmaller farms and sold off. These supplies are GST-freeprovided each of the farms can operate separately.

ACLN - Issue #68

Margin schemeThe margin scheme, in relation to property

transactions, allows for a reduced amount of GST to bepaid. It applies to the supply of freehold interests in land,strata units and long-term leases, including those held on1 July 2000.

If you are registered or required to be registered forGST and you make a supply of a freehold interest strataunit or a long-term lease, the supply is subject to GST.GST may be calculated on the full value of the supply oron the margin.

EXAMPLE

Margin SchemeOn 12 May 2000 Bill, a property developer, has ablock of land to sell. He aims to sell the block inNovember 2000 for $100,000 plus the GST on thesale.

Without using the margin scheme, Bill would need tosell the block for $110,000 to cover the GST payableon the sale. The GST would be 1/11 th of the saleprice $10,000.

However, under the margin scheme Bill could sellthe block for less than $110,000 and still clear$100,000.

The block is valued at $80,000 as at 1 July 2000.

Under the scheme GST is only calculated on thedifference in value between 1 July 2000 valuationand the final sale price. If he sells the block for$102,000, the margin is $22,000. The GST payableon the margin is 1/11 th of $22,000 being $2,000 thatBill has to pay to the ATO.

Bill would therefore be able to market the block at alower price of $102,000 and make the price moreattractive to prospective private buyers who cannotclaim an input tax credit, for example, a financialinstitution.

The margin scheme cannot be used if a purchase ofproperty is acquired through a taxable supply where GSTwas calculated without using the margin scheme.

EXAMPLE

Sale of propertyIf Bill buys a block of land in September 2000, whereGST was not calculated using the margin scheme,and claims an input tax credit for the GST includedin the purchase price, then he would not be able touse the margin scheme when he sells the property.

43

If Bill buys the block from a private owner, no GSTwould have been included in the price and no inputtax credit would be available. Bill would have theoption of using the margin scheme when calculatingthe GST payable on his subsequent sale of theproperty.

How to calculate GST on the margin of a supplyYou calculate GST on the supply as l/llth of the

margin.The margin is your sale price (including GST) less

your original purchase price or if you held the interest on1 July 2000, the valuation of that interest at that date.

You should not include the cost of any improvementsto the land made on or after 1 July 2000 when you workout the original purchase price.

If your original purchase price is more than yoursale price then under the margin scheme, no GST is payableon the sale because there is no positive margin.

The margin scheme ensures that GST is payable onlyon the value added by your enterprise, for example, thevalue added by a property developer who supplies newhouses.

Ifyou purchase land and subdivide it, you apportionthe purchase price over the total number of subdividedblocks of land.

Note: Where the margin scheme is utilised, thepurchaser cannot claim an input tax credit. This isirrespective of whether the property may becommercial premises, as the transaction isspecifically excluded from being a creditableacquisition under the scheme.

EXAMPLE

Margins on subdivided landHilary Enterprises Pty Ltd, a mid-sized developer,acquires a block of land on the outskirts of Adelaidefor $300,000 in July 2000. The block is subdividedinto 6 blocks of equal size and amenity.

The company chooses to use the margin scheme tocalculate the GST payable on the subsequent saleof the blocks. In these circumstances it is appropriateto apportion the consideration for the acquisitionequally to the 6 blocks, that is, $50,000 each. Thecompany sells four blocks for $75,000 each, thismeans the margin on each block is $25,000. TheGST payable for each block sold by the company is1/11 th of the margin, that is $2,273.

The company later sells the remaining two block for$90,000 each (including GST). The margin on thesetwo block is $40,000. The GST the company isrequired to pay on the sale of the last two blocks is 1/11 th of the $40,000 margin, that is $3,636 per block.

ACLN - Issue #68

Had the company opted for the full taxation ratherthan the margin scheme, the GST liability on the saleof the initial four blocks would have been $6,818 perblock (that is, 1/11th of the sales price of $75,000).The later sale of the remaining two blocks would haveresulted in GST of $8,182 (that is, 1/11 th of the saleprice of $90,000) per block. However, a registeredbuyer of the block would be able to claim input taxcredits for the GST under this treatment, to reducethe net cost.

The seller of a property may choose to only applythe margin scheme on sales to buyers who cannot claiminput tax credits, such as private individuals. If thepurchaser is in a position to claim input tax credits, theymay prefer not to purchase under the margin scheme. Thisis because while GST would be payable on the wholevalue, the purchaser can claim the GST as an input taxcredit.

Margin method for freehold interests, strata unitsor long-term leases held on 1 July 2000

If you were registered or required to be registeredfor GST on 1 July 2000 and you held a freehold interest,strata unit or a long-term lease at that date and you wantto use the margin scheme to calculate the GST payable onthe sale, you must use the value of the interest, unit orlease as at 1July 2000 to work out the margin on the supply.You do not use the original purchase price.

EXAMPLE

Off-the-plan salesStrong Building Services Pty Ltd is building 12 townhouses and selling them off-the-plan for $200,000each. The town houses will be completed in earlyAugust 2000 and settlement will be due then.

Strong Building Services will have to pay GST onthe sale of the town houses as they are madeavailable to buyers on or after 1 July 2000. Thecompany chooses to use the margin scheme, so GSTwill only be payable on the value added after 1 July2000. Strong Building Services Pty Ltd obtain avaluation for each town house at $150,000 on 1 July2000. The margin for calculating GST on each townhouse is $50,000, that is, the selling price of $200,000less the valuation amount of $150,000.

If the value of the freehold interest, strata unit orlong-term lease held on 1 July 2000 is more than yoursale price, then under the margin scheme no GST is payableon the sale because there is no positive margin.

If you were registered or required to be registeredfor GST after 1 July 2000, you must get a valuation on theday of effect of your registration or the day on which youapply for registration (if it is earlier).

44

The ATO will issue the requirements for valuationsunder the margin scheme.

New residential propertyGST will be payable on the sale of new residential

property where the property is made available on or after1 July 2000, including situations where the constructioncommenced before 1July 2000. However, the vendor maychoose to apply the margin scheme.

Withholding tax obligationsUnder the new PAYG legislation currently in

Parliament, the withholding obligations of labour hirefirms and their clients will be simpler. A business (a labourhire firm) will have a withholding obligation if it makes apayment to a worker, who is an individual performing workunder a labour hire arrangement.

A labour hire arrangement exists where anintermediary (the labour hire firm) arranges for anindividual to carry out work directly for clients of thelabour hire firm. Under such an arrangement, there is nocontract between the client and the individual worker.

EXAMPLE

Labour hire arrangementStaffprovider Ltd keeps a database of skilled personswho are willing for their services to be provided tothird parties. Corporate Pty Ltd requires the servicesof a computer programmer and contacts StaffproviderLtd. Staffprovider arranges with Corporate to providethe services of a computer programmer in return forpayment. Staffprovider then contracts with Jane forher to do the computer programming for Corporate.Staffprovider must withhold amounts from paymentsit makes to Jane under the arrangement with her.

There are various types of agency arrangements thatare not labour hire arrangements for PAYG purposes. Forexample, recruitment or placement agency arrangementsgive rise to a contractual relationship between the clientbusiness and the worker. The client business will usuallyhave the withholding obligation, depending on the natureof the relationship.

Note: If you use a contractor who does not have anABN, then under the proposed PAYG system youwill be required to withhold tax from each paymentyou make to them at the top personal tax rateincluding the Medicare levy (48.5 per cent). You willhave to account for these withholdings and send anytax withheld to the ATO.

Voluntary agreement for withholding taxA business and a contract worker who is an

individual, and who has an Australian Business Number("ABN") can make a voluntary agreement to bring thework payments into the PAYG withholding system, if thework payments are not subject to any other PAYGwithholding.

ACLN - Issue #68

If the business and the contractor make a voluntaryagreement the business will withhold tax instalments frompayments it makes to the worker and send them to theATO. The contract worker will not be required to payquarterly instalments for that income.

If there is a voluntary agreement, the contract workerwill be excluded from GST, except if the businesscontracting the employee makes input taxed supplies. Thismeans that GST will usually not be payable on suppliesmade when a voluntary agreement is in place.

The exception will occur when a contract worker issupplying services to a business that is not entitled to inputtax credits, for example, a business that supplies financialservices to its customers.

EXAMPLE

Voluntary agreementJeannie runs a small computer programmingenterprise. She contracts with Big Ships Inc, a shipbuilding company, to help develop software that willassist in the design of ships. Jeannie and Big Shipsmake a voluntary agreement so that Big Shipswithholds from the payments to Jeannie. Jeanniecannot include GST in the price she charges for theprogramming services she provides to Big Ships.

Date of purchase

From 1 July 2000 up toand including 30 June 2001

From 1 July 2001 up toand including 30 June 2002

From 1 July 2002 onwards

45

Jeannie's friend Jim runs a similar enterprise andcontracts with Big Bank Inc to help develop a newprogram for internet banking. Jim and Big Bank makea voluntary agreement so that Big Bank withholdsfrom the payments to Jim. Big Bank makes financialsupplies that it does not have to charge GST on, andis not entitled to claim input tax credits for GSTincluded in the price of the things it buys to make theinput taxed supplies. Jim registers for GST and mustinclude GST in the price he charges for theprogramming services provided to Big Bank.

Input tax credits for new motor vehiclesThe price of motor vehicles is expected to fall for

both business and consumers after wholesale sales tax isabolished and GST is introduced on 1 July 2000.

To smooth the transition in the motor vehicle market,input tax credits for GST included in the price ofnew motorvehicles (which will further reduce vehicle costs forbusiness use) will be phased in over a two-year period, asshown in the following table.

Percentage* of GST payable ona new motor vehicle** that isavailable as an input tax credit

o

50

100

* This percentage is based on the vehicle being acquired and used solely for business purposes.** Motor vehicles include bodies for motor vehicles and semi-trailers.

Full input tax credits are available from 1 July 2000if:

the purchase is for a second-hand motorvehicle, body or trailer;you would have been entitled to exemptionfrom wholesale sales tax on the purchase ofthe vehicle, if it is still applied; oryou acquired or imported the motor vehicle,trailer or body as trading stock, unless it isheld for hire.

EXAMPLE

Input tax creditsBarry runs a construction business. On 25September 2000 he purchases a new prime moverfor $165,000. The GST included in the cost of the

prime mover is $15,000. Barry is not entitled to aninput tax credit for the $15,000 as he purchased theprime mover between 1 July 2000 and 30 June 2001.

On 5 October 2001 Barry purchases a new trailer forhis prime mover for $55,000. The GST included inthe cost of the trailer is $5,000. Barry is entitled toan input tax credit for 50 per cent of the GST includedin the price, that is $2,500 as he purchased the trailerbetween 1 July 2001 and 30 June 2002.

Reduced fuel costsFrom 1 July 2000, the Government will introduce a

number of changes to the taxation of petrol and diesel fuel.

ACLN - Issue #68

Duties payable on petrolManufacturers or importers of petrol and diesel fuel

currently pay excise and customs duty. With theintroduction of GST, these duties will be reduced so thatthe pump price of these commodities need not rise.

Input tax credit for petrol and diesel used byregistered businesses

Under GST, registered businesses will also pay lessfor petrol and diesel fuel by claiming an input tax creditfor the GST payable on fuel used for business purposes.

Diesel Fuel Rebate Scheme extendedThe Diesel Fuel Rebate Scheme will be extended to

provide the full rebate to rail transport and marine use aswell as all existing qualifying uses, including agriculture,fishing and mining.

Other like fuels will also be covered by the revisedDiesel Fuel Rebate Scheme.

Grant for on-road uses of diesel and alternativefuels

In addition to the rebate for off-road activities, theGovernment will provide a grant in relation to certain on­road uses of diesel and alternative fuels. Combined withinput tax credits for fuel used for business purposes, thiswill further reduce fuel costs for eligible on-road users.

For more information on the changes to diesel fuelplease contact the Diesel Fuel Infoline on 1300 657 162or refer to the ATO's fact sheet Diesel Fuel Rebate Schemeand the introduction of the Diesel and Alternative FuelsGrants Scheme, available from the website atwww.ato.gov.au.

Equipment spare partsYou may purchase and hold spare parts for a long

time in order to minimise equipment down-time. The inputtax credits for GST paid on business inputs can be claimedwhen you receive an invoice for them (if you use the non­cash accounting basis) or pay for them (if you use thecash basis). There is no need to track the use of spareparts before claiming input tax credits.

Personal protective equipmentPersonal protective equipment will attract GST.If purchased by you as an employer, you will be

able to claim input tax credits for the GST included in theprice paid on such goods.

If purchased by your employees, both you and youremployees will be unable to claim input tax credits.However, the employee could still claim a deduction inhis or her personal income tax return, subject to the incometax rules governing deductions for uniforms.

You are entitled to input tax credits forreimbursements you make to employees for expenses theyincur that are directly related to their activities as youremployee. The employee must obtain a tax invoice forthe goods and services purchased. You will need to obtainthe tax invoice for the supply from your employee.

46

EXAMPLE

ABC Builders Company buys safety boots, overalls,hard hats and safety glasses for one of its employees,Lee, to use on a site. The equipment costs $440(including $40 GST).

ABC Builders will be entitled to claim an input taxcredit for GST included in the price of the protectiveequipment they issue to Lee.

Lee cannot claim the GST as an input tax credit if hebuys the protective equipment himself as he is notregistered for GST.

Industry training for employeesCertain education courses will be GST-free

including:adult and community education courses likelyto add to the employment related skills of theperson undertaking the course where thecourse is an approved course; andprofessional and trade courses if thequalifications are an essential pre-requisite toemployment in a trade profession oroccupation.

For more information on education courses, see thebooklet on Higher Education & The New Tax System,available from the ATO website atwww.taxreform.ato.gov.au or by phoning the business TaxReform Infoline 13 24 78.

Note: GST is usually payable on your industryassociation subscription. However, if your businesspays the subscription cost, it will be able to claim aninput tax credit for the GST included in the price ofthe subscription.

InsuranceThe supply of most types of general insurance is a

taxable supply and is subject to GST. General insuranceincludes policies for motor vehicles, third party property,fire, theft and loss of income insurance.

This means that businesses registered for GST onsettlements made under any of their insurance policies ifthey are entitled to an input tax credit for the GST paid onthe policy.

However, as a transitional measure, businesses thatare registered for GST are not entitled to an input tax creditfor GST paid on an insurance policy until 1 July 2003,unless they notify the ATO (on the approved form) thatthey are claiming input tax credits for their insurancepolicies. The notification can only be made once.

The notification can be made with your registrationfor The New Tax System or with one of your BusinessActivity Statements.

ACLN - Issue #68

Note: If you do not notify the ATO that you intend toclaim input tax credits on your insurance policies,you will not have to pay any GST when you receivea settlement under those policies.

However, if you notify the ATO that you intend to claiminput tax credits on your insurance policies, GSTis payable on settlements made under thosepo!icies.

Second-hand goods

Purchases of second-hand goods from anunregistered entity

If in carrying on your business you buy second­hand goods from an unregistered entity, you will not payGST in the price of the goods. However, even though noGST was included in the price, you generally are allowedto claim an input tax credit if:

you are registered for GST; andyou buy second-hand goods that yousubsequently sell as a taxable supply.

The amount you are entitled to claim is the lesserof:

l/llth of the price paid for the goods; orthe amount of GST payable when you on-sellthe goods.

The credit can be claimed for the tax period in whichyou receive payment for the goods when you on-sell them,or the period in which you issue an invoice for the sale ofthe goods (if you are using a non-cash basis of accountingfor GST).

If the value of the second-hand goods is less than$300, you can claim the input tax credit when you pay forthe goods or receive an invoice for them.

If you are accounting for GST on a cash basis, youcan claim the input tax credit in the period in which youreceive payment for the on-sale. If you only receive part­payment in a period, you can only claim part of the inputtax credit in that period.

Purchases of second-hand goods from aregistered entity

If you purchase second-hand goods from a registeredbusiness, this is treated in the same way as any sale betweentwo registered businesses - GST will be payable on thesupply and an input tax credit will be available for GSTincluded in the price.

Second-handgoods on handat the start of 1 July2000

This entitlement to an input tax credit for second­hand goods purchased from an unregistered entity extendsto goods you hold for sale at the start of 1 July 2000. The

47

rules for calculating and claiming input tax credits forsecond-hand goods held on this date are the same as forsecond-hand goods purchased on and from this date.However, you can only claim a credit for those second­hand goods that are held at the start of 1 July 2000 for thepurpose of sale or exchange.

Sale of a going concernThe supply of a going concern is GST-free in the

following circumstances:the purchaser must be registered or requiredto be registered for GST;the supplier must carryon the business untilit is sold;all of the things required for the continuedoperation of the business must be supplied;andboth parties must agree in writing that thesupply is of a going concern.

Note: When selling your business you shouldconsider selling it as a whole, that is, your premises,vehicle, equipment and contracts, as a supply of agoing concern will be GST-free.

5. LIST OF DEFINITIONSThese are some of the new terms used in this

booklet.

AcquireAcquire includes buying goods and services for your

enterprise, and other transactions as explained in thedefinition of acquisition.

AcquisitionAcquisition is a very broad term. It includes what

you buy (goods and services and anything else) for yourenterprise. It also includes many other transactions, suchas getting advice or information, taking out a lease ofbusiness premises or hiring business equipment.

AdjustmentsAdjustments are the changes you may need to make

on your Business Activity Statement to increase ordecrease your net GST amount payable or refundable fora tax period.

The changes may be needed to:vary the GST payable on supplies you havemade because something has happened tochange the GST payable by you, and includedon a previous activity statement; orvary the input tax credits for your acquisitionsbecause something has happened to alter theamount of input tax credits you claimed on aprevious activity statement.

ACLN - Issue #68

Adjustment noteAdjustment notes are generally issued by suppliers.

They detail changes to consideration for a supply. Youwill need an adjustment note from the supplier before youcan claim additional input tax credits for an acquisitionfor which you have been required to pay more.

Adjustment periodThis is the tax period in which you may need to

make some adjustments for acquisitions or importations.These are the adjustments to claim more or pay back someinput tax credits because your planned use of an acquisitionor importation in your enterprise has changed. Theadjustment period for these adjustments is the tax periodwhich ends as close as possible to 30 June. All otheradjustments are done in the tax period in which you findout about the need to make the adjustment. This may notbe the tax period which ends on 30 June.

AttributingAttribution rules determine to which tax periods your

GST payable an input tax credits belong. The rules forattributing GST payable and input tax credits to tax periodsare different, depending on whether you account on a cashbasis or a non-cash basis.

Australian Business NumberThe Australian Business Number is the new

identifier for your dealings with the ATO and for futuredealings with other departments and agencies.

Business Activity StatementThis is the single form you use to account for GST

and some other taxes. A Business Activity Statement(sometimes referred to as an activity statement) must belodged by a registered entity for each tax period.

ConsiderationConsideration has a wide meaning for GST

purposes. Any payment (in money or kind) made in returnfor a supply is consideration. It includes doing somethingor not doing something in response to a supply, or to getsomeone to make a supply.

Creditable acquisitionYou make a creditable acquisition if:

you acquire a thing for a creditable purpose;the supply of a thing to you is a taxable supply;you provide, or are liable to provide,consideration for the supply; andyou are registered or required to be registered.

Creditable purposeThis applies to something acquired in carrying on

your enterprise. Remember that an acquisition for makinginput taxed supplies or acquired for private use is not for acreditable purpose.

48

EnterpriseAn enterprise includes an activity or series of

activities done in the form of a business or in the form ofan adventure or concern in the nature of trade.

EntityAn entity is an individual (for example a sole trader),

a body corporate (a company), a corporation sole (anongoing paid office, for example a bishopric), a bodypolitic (for example a local government body), apartnership, an unincorporated association or body ofpersons, a trust, or a superannuation fund.

GST-free supplyIf a supply is GST-free you do not charge GST on

the supply, but you are entitled to input tax credits foranything acquired or imported for use in your enterprise.

Input tax creditYou are entitled to an input tax credit for the GST

included in the price you pay for an acquisition or theGST paid on an importation if it is for use in yourenterprise, but not to the extent that you use it to makeinput taxed supplies. You will need to have a tax invoiceto claim an input tax credit (except for purchases of $50or less).

Input taxed supplyIf a supply is input taxed you do not charge GST on

the supply, but neither are you entitled to input tax creditsfor anything acquired or imported to make the supply.

MarginThe amount by which the consideration for the

supply exceeds the consideration for the acquisition of afreehold interest, stratum unit or long-term lease.

Margin SchemeThe GST payable on a taxable supply of a freehold

interest, strata unit or long-term lease may be calculatedunder the margin scheme

Residential premisesLand or building occupied or intended to be

occupied as a residence, including a floating home.

SuppliesSupplies include the goods and services sold in your

enterprise. They also include many other transactions suchas when you provide advice or information, lease outcommercial premises or provide hire equipment. Not allsupplies are taxable supplies.

SupplySupply is a very broad term and includes selling

goods and services, providing advice or information, andother transactions as explained in the definition of supplies.

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Taxable importationsGST is payable on importations unless the goods

qualify for certain customs duty concessions or would havebeen GST-free or input taxed if they had been supplies.GST is payable on taxable importations regardless ofwhether you are registered or required to be registered forGST purposes.

Taxable supplyThe term is widely defined to include most supplies

(goods, services and anything else) you make. A supplyis not a taxable supply if it is GST-free or input taxed.

Tax invoiceA tax invoice is a document generally issued by the

supplier. It shows the price of a supply and indicateswhether it includes GST and may show the amount ofGST. It must show other information, including theAustralian Business Number of the supplier. You musthave a tax invoice before you can claim an input tax crediton your Business Activity Statement (except for smallamounts). If you do not have a tax invoice you shoulddelay making a claim until you do.

Tax periodA tax period is the length of time for accounting for

GST on your Business Activity Statement. It may bequarterly or monthly, depending on your annual turnover.Quarterly tax periods are periods of three months endingon 31 March, 30 June, 30 September and 31 December.Monthly tax periods end on the 1st day of each calendarmonth. An activity statement must be lodged for each taxperiod.

ATO's kind permission for the publication of thisbooklet in ACLN is gratefully acknowledged.

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