Government introduces law to give effect to 2018-19 Federal Budget measures 

The Government has introduced Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018 into Federal Parliament. The Bill makes a number of amendments to give effect to the 2018-19 Federal Budget including application of the GST to online hotel bookings, and amendments to the luxury car tax on re-imported cars.  ATO guidance on when supplies are connected to Australia 

The Australian Taxation Office (ATO) has issued the following rulings which provide guidance on when supplies of real property and goods are connected with Australia for purposes of the Goods and Services Tax (GST): 

  • GST Ruling GSTR 2018/1 considers when supplies of real property are connected with the indirect tax zone (Australia). The Ruling, which applies form 22 August 2018, replaces GS determination GSTD 2004/3 which has been withdrawn. 
  • GST Ruling GSTR 2018/2 updates and replaces GSTR 2000/31, and discusses when supplies of goods are connected with Australia. The Ruling applies from its date of issue, 18 September 2018. However, aspects of the Ruling that relate to supply by way of continued lease of goods, apply in working out net amounts for tax periods starting on or after 1 October 2016. 

GST property withholding regime - three months in 

The GST withholding regime (GSTW regime) came into effect from 1 July 2018 for supplies of certain types of real property made under Contracts of Sale entered into on or after that date. Under this regime, affected purchasers are required to withhold and remit to the ATO an amount on account of GST on the purchase of the relevant property. 

A number of important practical issues have arisen over the course of the last three months since the GSTW regime was implemented that vendors and purchasers will need to be aware of. These are as follows: 

  • GST Property Credit Withholding Account (GSTW Account). Vendors are entitled to a credit (the GSTW Credit) for the GSTW amount paid by purchasers at settlement, which is paid into the GSTW Account and transferred to the Running Balance Account (RBA) upon lodgment of the Business Activity Statement (BAS). The GSTW Credit is transferred to the RBA in a lump sum with the description 'GST property credits automatic transfer' and will have an effective date of the BAS due date. While the GSTW Account has not been visible to date in either the business portal or tax agent portal, the ATO has advised that the GSTW Account should be visible from early October 2018. Until then, vendors will need to rely on the email confirmations that the ATO issues to the vendor once the GSTW Amount has been processed by the ATO. These notifications are sent to the email address currently registered with the ATO. 
  • Vendor notifications and GST groups. Where the vendor is a member of a GST group (but not the representative member), then the vendor notification to the purchaser and the forms lodged by the purchaser to the ATO (referred to as Form 1 and Form 2 respectively) must state the name and ABN of the representative member of the vendor's GST group, rather than the name and ABN of the vendor itself. We have seen a number of instances where the vendor’s details have been specified on the notificationsand forms, which has resulted in the GST Credit being paid into a GSTW Account for the vendor rather than for the representative member and not being appropriately allocated to the representative member's RBA upon lodgment of the GST group BAS. It is necessary to correct this error for each property transaction by contacting the ATO and requesting that the GSTW Credit be transferred from the GSTW Account of the vendor to the GSTW Account of the representative member. 
  • GSTW Credit Availability. The 'effective date' of the GSTW Credit is the settlement date of the property, meaning that the GSTW Credit for settlements within a particular month is in the GSTW Account and available to be transferred to the RBA upon lodgment of the BAS for that month provided that the GSTW payment has been made by the purchaser and processed by the ATO by the time the vendor lodges its BAS for that tax period. Typically, the ATO requires four business days to process electronic payments. Cheque payments mailed to the ATO are subject to postal service delivery times, but should be processed within four business days once received by the ATO. Prior to lodging the BAS for the relevant tax period, vendors should undertake a month end reconciliation to ensure that all expected GSTW Credits are in the GSTW Account. 
  • Cancelled Sales. Current guidance published by the ATO states that the GST property settlement withholding notification (i.e. Form 1) does not need to be cancelled where the contract does not settle. Notwithstanding this published guidance, the ATO recently advised in its webinar that Form 1 is required to be cancelled where settlement has fallen through. Whilst there are no penalties for failing to cancel the form, we would expect that the ATO may pursue purchasers who do not make the GSTW amount on the settlement date specified on Form 1. 

ATO guidelines on inbound tour operators and agency 

The ATO has issued draft Practical Compliance Guideline (PCG 2018/D7) which provides preliminary guidance to inbound tour operators providing or arranging Australian tour packages including accommodation and non-accommodation components for non-residents.  

By way of background, where an entity acts as an agent of the non-resident to arrange an Australian tour package (when the non-resident is outside Australia), any commission that is charged to the non resident in respect of that package will be GST free. This is contrasted with the outcome where an entity is acting as a principal, the entire supply (which includes any mark-up or profit margin) may be subject to GST.

In recognition of the complexities in determining whether an inbound tour arrangement is one of agent or principal, the draft Guideline describes circumstances in which the Commissioner of Taxation will not apply compliance resources to examine whether an entity acts as an agent for nonresident clients for the purposes of the GST law. Comments were due on 21 September 2018.

Tribunal finds no entitlement to input tax credits 

The Administrative Appeals Tribunal (AAT) has considered the taxpayer’s entitlement to input tax in the following cases: 

  • Mango Reef Pty Ltd v Commissioner of Taxation [2018] AATA 3091 – The Tribunal affirmed the Commissioner’s objection and penalty decisions, and was not satisfied that the taxpayer had made creditable acquisitions of scrap gold. As such, they were not entitled to input tax credits. 
  • Sunlea Enterprises Pty Ltd as trustee for Drummond Cove Unit Trust v and Commissioner of Taxation [2018] AATA 2792  – The Tribunal affirmed the Commissioner’s  decision that a trust involved in a property development joint venture was not entitled to input tax credits on project management costs charged by a related party. The AAT was not satisfied that the relevant invoices were valid tax invoices, and found there was insufficient evidence to establish that there was a real transaction behind the invoices.  

Indonesia-Australia sign CEPA 

Indonesia and Australia have signed a Comprehensive Economic Partnership Agreement (CEPA). The agreement provides the grains, live cattle, dairy and horticulture sectors with greater certainty of access and lower tariffs. The agreement will also support Australian industrial producers in areas such as steel, copper and plastics. Australian service industries including health, mining, telecommunications, tourism and education will also have greater access to Indonesia’s growing economy. 

US trade developments 

Since our last update, the following trade developments by the United States have occurred: 

  • The United States further escalates tariffs against China. 
  • The United States and Mexico negotiated terms for a new trade agreement that would replace the existing North American Free Trade Agreement (NAFTA), but would not include Canada. The United States and Canada continue talks to bring Canada back in to any revised trade arrangement, so that the new North American trading regime would remain tripartite.