Latest GST Advice from the Australian Tax Office

Transcription

1 Latest GST Advice from the Australian Tax Office After a number of meetings and discussions, the ATO has finally and formally responded to questions arising out of the previous advice concerning PCO s, clients and the GST. This advice provides clarification on the issue of: (1) Whose ABN (2) GST treatment of surpluses and advances (3) Whether international clients are entitled to claim back the input tax credits on acquisitions made in Australia. With regard to the GST treatment of surpluses, the advice states that this depends on whether the PCO has entered into a written agreement with the client to act as a Principal for GST purposes (called a Sub-division 153-B arrangement) in order to provide the complete service to the client of handling all GST related matters. In the case of the international corporate client, say for an incentive conference, the advice indicates that effectively there is a financial incentive for an international client to register for GST in order to claim back the GST input tax credits on all acquisitions. In other words, if a large international company spends $55,000 on accommodation, food & beverage, entertainments etc, then the local agent (PCO) can claim back the $5000 GST provided that the client is registered. Any enterprise (even an international one) can register for GST in Australia and although that may be a hassle, for large amounts of money, it may be worthwhile. It also for this type of conference, effectively achieves zero rating something the industry was seeking before the GST was introduced. For association conferences, and for conferences where there are supplies (delegate fees etc) as well as acquisitions (ie expenditure), the ability to claim ITC s is also available but of course, as we all know, so is the necessity to charge and pay GST. As part of the discussions, MIAA also wanted to receive written confirmation that international corporate clients were not forced to register. This depended on the definition of Turnover which was confirmed as relating to supplies (approx = sales) as opposed to acquisitions. To view this info click here. If you have any questions relating to this ATO advice provided to MIAA, please Jenny Lambert at jennyl@miaanet.com.au. To: Meetings Industry Association of Australia Attention: Jenny Lambert Dated: 12 July 2001

2 Dear Jenny, RE: Professional Conference Organisers (PCO's) You wrote to us on 21 November 2000 asking: 1. Are excess and shortfall payments subject to GST? 2. Who needs to provide an ABN on the invoice the agent or principal? 3. Can the resident PCO claim Input Tax Credits on behalf of the non-resident principal? You advise us of the following facts: The members of the MIAA are conference organisers and deal primarily with non-resident entities wishing to undertake conferences in Australia. The resident agents wish to claim the input tax credits on behalf of the non-resident client (principal). The non-resident in the majority of situations is not making any taxable supplies connected with Australia. The question is, does this still entitle the agent to register as representative of the non-resident principal for GST purposes for the specific purpose of claiming input tax credits? We have made the following decision: 1. The treatment of excess and shortfall payments between an agent to a principal depends on whether a section 153-B of the A New Tax System (Goods and Services Tax) Act 1999, (the GST Act"), arrangement is entered into. The scenario explained to you in the advice received from our Perth Office is then correct. (See Reasons for Decision). 2. Either the ABN of the principal or agent can be used. But only one ABN can be used and only one tax invoice can issue by either the principal or the agent. 3. The resident agent can register for the non-resident principal and claim input tax credits on behalf of that non-resident principal, provided that the non-resident is registered or required to be registered for the purposes of GST. Why we have made this decision: 1. The treatment of the excess and shortfall payments will depend on whether the PCO is acting in a principal to principal relationship or principal to agent relationship. If the PCO is strictly acting as an agent then there is no

3 consideration for services involved between the two parties. The monies are held on behalf of the principal and this is then regarded as the transfer of cash between the two parties. However, where there is a principal to principal relationship then there is consideration received for each of the separate supplies made between the parties. I refer you to the following example that you had forwarded to me and confirm that this is the correct procedure to follow. Special rules apply for principals and agents where they have entered into an arrangement under Sub-division 153-B. These rules set out how GST is accounted for in the arrangement. The rules address how a commission or similar payment (e.g. a fixed management fee) is treated as well as how the surplus or shortfall under the arrangement is treated. Under a normal agency relationship (where Sub-division 153-B is not used) the transfer of funds (shortfall or surplus) would not be considered to be a taxable supply hence would not be subject to GST. Under a 153-B arrangement, however, such a transfer of funds is subject to GST as part of the basic operation of the special rules. Similarly, commission or similar payments (such as management fees) are treated differently under a 153-B arrangement than under a normal agency relationship. It is not possible to mix the two different systems. If you operate under a Subdivision 153-B arrangement you must follow all of the special rules. A Sub-division 153-B arrangement is designed to reduce the administrative burden on the principal in a relationship with most of the invoicing and accounting for GST being done by the agent. However, the overall net result for each party should be the same. That is, the net GST liability for each party is the same regardless of whether normal agency rules apply or a 153-B arrangement is used. The treatment of commission and similar payments and any surplus/shortfall under a 153-B arrangement is designed to ensure this. The requirements under a normal agency relationship and under a 153-B relationship can be contrasted as follows: 1. Normal agency relationship: The principal has the GST liability on taxable supplies (e.g. registration receipts) and is entitled to input tax credits on acquisitions. This is the case regardless of whether the agent issues tax invoices and makes payments on behalf of the principal.

4 The agent has the GST liability on commission or management fee charged to the principal. The principal would be entitled to an input tax credit. There is no GST on any mere transfer of funds, e.g. the transfer of any surplus or shortfall. This is the case as a mere transfer of funds is not a taxable supply under general GST provisions. 2. Sub-division 153-B arrangement: The agent is taken to have made supplies and acquisitions in their own right. The agent has a GST liability on the taxable supplies (e.g. registration receipts) and is entitled to input tax credits for acquisitions. For each of the supplies and acquisitions the agent is taken to have made, the principal is taken to have made a corresponding supply or acquisition with the agent. The principal is not expected to separately account for GST on each supply and acquisition deemed to be made with the agent. It is sufficient that the principal accounts for GST on the end balance they have with the agent. This allows the principal to account for GST on only one transaction at the completion of the arrangement. This is effectively accounting for GST on the shortfall or surplus from the arrangement. The commission or similar payment (e.g. management fee) payable to the agent must be taken into account in working out the shortfall/surplus. Such a payment cannot be separately accounted for GST under a 153-B arrangement. This is specifically stated in subsection of the GST Act. I have prepared an example to show how GST is accounted for under the 2 systems. It can be seen that the end net liability for each party is the same under each system. Example: Registration receipts - $11000 (inclusive of GST) Various expenses Management fee - $6600 (inclusive of GST) - $3300 (inclusive of GST) 1. Under normal agency relationship: principal has initial GST liability of $1000 on registration receipts;

5 principal entitled to input tax credit of $600 on expenses; principal entitled to input tax credit of $300 on management fee; net GST liability for principal therefore is $100. agent has GST liability of $300 on management fee; agent not entitled to any input tax credit; net GST liability for agent therefore is $300. As a result, the principal makes a profit of $1,000, and the agent receives a management fee of $3,000. The total GST to be remitted to the ATO is $ Under Sub-division 153-B arrangement: agent has initial GST liability of $1000 on registration receipts; agent entitled to input tax credit of $600 on expenses; agent transfers surplus to principal. Amount of surplus is $4400 (i.e. $11000 less $6600) less management fee of $3300 equals $1100. principal has GST liability on the transfer of the surplus. Principal has no input tax credits. Net liability for the principal is therefore $100. agent entitled to input tax credit of $100 on the transfer of the surplus. net liability for the agent is therefore $300. This is calculated by initial liability of $1000 less input tax credits of $600 and $100. As a result, the principal makes a profit of $1,000, and the agent receives a management fee of $3,000. The total GST to be remitted to the ATO is $ There is the requirement that either the ABN of the agent or principal be present on the tax invoice. The tax invoice can be provided by either the principal or the agent. I refer you to paragraphs 35 and 36 of Goods and Services Tax Ruling Goods and services tax: tax invoices, (GSTR 2000/17), where it states that the ABN of the agent can be shown instead of that of the principal.

6 3. The resident PCO (agent) can only act as an agent for the non-resident principal if the non-resident is registered for GST or required to be registered. Refer to division 57 of the GST Act. To make it administratively easier for non-residents who are not actually carrying on an enterprise in Australia, a resident agent can be appointed to look after their GST obligations and entitlements. The only requirement that the non-resident must meet is that it is either registered for GST in its own right or required to be registered. The $50, turnover threshold figures as contained in Division 23 of the GST Act, that we discussed, comes into play in this decision. The non-resident is required to be registered under the GST Act if: (a) it is carrying on an enterprise; and (b) its annual turnover meets the registration turnover threshold. If however the non-resident does not reach these turnover thresholds, then the non-resident can still register for GST provided it meets the requirements of Division 23 of the GST Act. This advice is a public ruling. I have attached explanatory notes on the date of effect, duration of this advice and your review rights. Please contact Michael Kranitis on if you have any further queries regarding this matter. Yours faithfully (Michael Kranitis) for Rick Matthews DEPUTY COMMISSIONER OF TAXATION Goods & Services Tax EXPLANATORY NOTES Effect This general advice sets out the ATO view about the operation of the GST law that may apply to an entity's circumstances. To the extent that this general view applies to an entity's circumstances, the Commissioner will be bound by that advice. If an entity wishes for specific advice dealing with its individual circumstances it should apply for a private ruling using the 'Application for GST Private Ruling' form available at or by calling the Tax Practitioner Information Line on Duration

7 You may rely on this advice until it is withdrawn by a public ruling or there is a change in the legislation affecting the treatment of the subject matter of this advice for GST purposes. Additional Question to ATO NEW QUESTION Note: In respect of your concerns about turnover thresholds and the $50, rule please note that this turnover as set out in Division 188 of the GST Act, specifically relates to supplies made by an entity. This turnover for GST purposes does not include acquisitions. (Expenditure) Therefore, all international clients who make supplies connected with Australia, whose annual turnover from those supplies, (not acquisitions), is or is likely to be A$50, or more are required to be registered for GST. In your example, if the international corporate client spends A$60, on an incentive conference on the Gold Coast, it has made acquisitions not supplies. Where it: (a) does not have an agent in Australia, that international client is not required to register for GST, unless its annual turnover from supplies connected with Australia are likely to be A$50, or more. However, if the client wishes to claim back the input tax credits charged to it, it is entitled to register for GST, as it is carrying on an enterprise and it matters not whether that enterprise is carried on in Australia. (b) does have an agent acting on the client's behalf, that international client is not required to register for GST, unless its annual turnover from supplies connected with Australia are likely to be A$50, or more. However, if the client wishes to claim back the input tax credits charged to it, it is entitled to register for GST, as it is carrying on an enterprise and it matters not whether that enterprise is carried on in Australia. The agent is required to be registered for GST where the international client has elected to register. (Refer section GST Act)