Goods and services tax (GST)

Input tax credit claim out of time

In The Trustee for SBM Trust and Commissioner of Taxation [2015] AATA 174, the Administrative Appeals Tribunal (AAT) held that a taxpayer was out of time to claim input tax credits (ITCs), even though the credits related to creditable  acquisitions that were made before amendments to the law in 2010 (the introduction of Division 93) that imposed a four year time limit on the making of claims. The acquisitions occurred in tax periods (relevant periods) in the 2005 and 2006 years, and the taxpayer sought to claim the ITCs in 2012 by revising its Business Activity Statements (BASs)  for those relevant periods.

In dismissing the taxpayer’s claim, the AAT said that the purported revision of the BASs was not the proper course for the taxpayer to take, and that by not including the ITCs in the original BASs of the relevant periods, the ITCs ceased under subsection 29-10(4) of the GST Act to be attributable to those periods. Instead, the ITCs became attributable to the first subsequent tax period for which a GST return taking the ITCs into account was given to the Commissioner. It was not in dispute that the taxpayer could have included the claims in the original BASs for the relevant periods.

Under section 93-5 of the GST Act (as it relates to these circumstances), a taxpayer ceases to be entitled to an ITC where the credit was not included in a GST return of the taxpayer lodged (or required to be lodged) with the Commissioner within 4 years of the ITC being attributable under subsection 29-10(1) of the GST Act. As the  taxpayer did not include the ITC claim in a GST return lodged with the Commissioner within the 4 year claim period, the AAT held that the taxpayer was no longer entitled to an input tax credit for the GST incurred in the price paid for those acquisitions.

GST changes on cross-border intangibles

On 9 April 2015, the Australian Treasurer announced that the government will be introducing new GST measures aimed at overseas companies supplying digital services into Australia. The Treasurer stated that "a company providing intangible services into Australia, such as media services or so on, wherever they are located they should charge GST on those services."

There are no specific details yet as to the proposed changes, however, they are widely anticipated

to be announced in the May 2015 Budget (on 12 May 2015).

Preliminary issues for consideration include how broad the interpretation of 'intangible services' will be (in some OECD countries it includes software; in others it doesn't), what the proxy will be for consumption in Australia (credit card billing address or otherwise), whether the changes will impact Business-2-Consumer transactions only (or also Business-2-Business), the date of effect of the changes and whether there will be a registration threshold under which overseas entities will

not be required to remit any GST on these types of supplies.

The most pressing issue for taxpayers affected by similar VAT/GST changes in other countries is the time period provided for implementation and ensuring that there is sufficient time to make any necessary systems changes.

More details will follow next month pending an announcement in the Budget."

Customs

Customs and excise measures introduced into the Commonwealth Parliament or as legislative instruments or regulations include the following:

  • Excise Regulation 2015 registered on 30 March 2015 repeals and remakes the Excise Regulations 1925 due to sunsetting.
  • Customs Regulation 2015 registered on 30 March 2015 replaces the Customs Regulations 1926 which will sunset on 1 April 2015 in accordance with section 50 of the Legislative Instruments Act 2003.
  • Customs (International Obligations) Regulation 2015 registered on 30 March 2015 replaces relevant provisions of the Customs Regulations 1926 which relate to Australia’s international obligations.
  • Customs and Other Laws (Repeal and Consequential Amendments) Regulation 2015 registered on 30 March 2015 repeals the Customs Regulations 1926 and amends the Maritime Powers Regulation 2014 and Migration Regulations 1994 to update references.

Narrower interpretation applied to Tariff Concession Orders following AAT Cases

The recent Administrative Appeals Tribunal (AAT) decision in Brand Developments Aust Pty Ltd v Chief Executive Officer of Customs [2015] AATA 215 (Brand Developments) has solidified a shift in the approach of the Australian Customs and Border Protection Service (ACBPS) when it comes to interpreting Tariff Concession Orders (TCO). In Brand Developments, the AAT has confirmed that the ACBPS is correct in taking an incredibly literal and narrow interpretation of TCOs.

The decision in Brand Developments also affirms the AAT's previous consideration of this matter in Toro Australia Group Sales Pty Ltd v Chief Executive Officer of Customs [2014] AATA 187 (Toro). In both cases, the AAT held that if parts and accessories were not specifically included in the TCO description, this would result in the TCO not applying to the imported goods in their entirety because the imported goods need to fit the TCO description precisely. The AAT stated in Toro that "To fit the description precisely means that the goods have no more or no less of the characteristics set out in the description...".

The key lessons from these two cases are:

  • The ACBPS' restrictive approach to TCO interpretation means that many common parts and accessories that are imported as standard with your goods, may result in excluding your imported goods from TCO's unless these standard parts and accessories are specifically mentioned in the TCO.
  • Whilst we are of the opinion that the ACBPS' approach is unrealistic, our recent experience shows that the ACBPS will apply its strict interpretation even to the most insignificant of components.
  • Particular concern should be paid to retail sets and composite goods, where the ACBPS has demonstrated that it will not tolerate even the application of broadly worded TCOs to the imported goods.
  • When applying for new concessions, importers need to ensure that the TCO description has sufficient specificity to not be challenged. This means importers must consider all the parts and accessories imported with the goods, regardless of how minute, and whether these items need to be specified in the actual TCO description
  • The ACBPS will consider the original "stated use" agreed to during the actual TCO application process in their assessment and interpretation of the TCO's applicability to your goods. This approach means that even if your goods fit the TCO description, you may be denied eligibility on the grounds that the TCO was never intended to cover your goods.

In practice, we have seen the ACBPS adopt this narrow interpretation of TCOs in recent tariff advice decisions and in its audit activity. This includes importers being subjected to targeted intervention by the ACBPS for misuse of broad TCO descriptions that many in the industry would consider clearly applies to the goods.

It is common practice for importers and brokers to apply TCOs to goods which meet all the criteria in the TCO description, but exhibit an additional trait/s not listed in the description. It is equally common practice for importers and brokers to apply broadly described TCOs without considering whether standard parts and accessories that are imported with the goods may put at risk the TCO applicability. Whilst historically this approach was not contested by the ACBPS, these more recent AAT decisions represent a significant departure in the ACBPS' interpretation of TCOs.

Our experience suggests most businesses fail to undertake regular reviews of the use and applicability of TCOs in their importing practices which may pose the risk of sanctions and/or prosecution. Under the Infringement Notice Scheme, misuse of a TCO resulting in a loss of duty can attract a penalty of $7,650 or 75 per cent of the duty short paid, whichever is the greater, per transaction.

Senate inquiry to cover Wine Equalisation Tax

On 25 March 2015 the Australian Senate moved to set up an inquiry into the Australian grape and wine industry. The terms of reference include an examination into the impact of the Wine Equalisation Tax rebate on the grape and wine industry supply chains. Submissions to the inquiry can be made until 22 May 2015 and the Committee is due to report back to the Senate by 11 November 2015.