Issue 137, 6 October 2006

Welcome to the latest issue of Thomson's Tax & Accounting Insight, your free news service for tax and accounting professionals.

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Articles in this edition include:

• GST and transitional leases: Tax Office accepts it was wrong

• Tax Commissioner on global tax administration

• Claiming input tax credit on corporate credit card statements

• Thomson special offers and product news

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GST and transitional leases: tax office accepts it was wrong

The Tax Commissioner has announced that the Tax Office accepts that its interpretation of the effects of the decision in FCT v. DB Reef Funds Management Limited (2006) 62 ATR 699 was wrong. In that decision, the Full Federal Court dismissed the Commissioner's appeal from an earlier single judge decision and effectively held that a transitional lease was not subject to GST. The issue was whether the supply of a lease of commercial premises entered into before the commencement of GST had ceased to be GST-free due to a review opportunity in 2001.

Supplies made under certain contracts signed before GST was introduced were GST-free until the earlier of 1 July 2005 and when a 'review opportunity' arose under such contracts: section 13 of the GST Transition Act. The Tax Office says the rationale for this concession was that businesses would otherwise have had to bear the burden of the GST with no opportunity to 'pass on' the GST to their customers, since they signed the contracts before they could reasonably be expected to have anticipated the impact of GST in negotiating prices under those contracts.

The Commissioner said he wanted to give business clear guidance about section 13, and in particular, about when a review opportunity occurred under their particular contracts, so business could be confident that the Tax Office would regard them as complying with their GST obligations. To this end, the Commissioner dealt in depth with section 13 in GST Ruling GSTR 2000/16 (Transitional arrangements: GST-free supplies under existing agreements).

One question the ruling addressed was whether a review opportunity arose under section 13 if only some of the consideration for a supply was reviewable on a particular occasion.

The ruling (at paragraph 152) took the view that it would be sufficient if most of the consideration was capable of review.

The Commissioner said he considered this view struck a 'reasonable balance between the interests of the supplier and of the recipient in light of the object of section 13, was commercially realistic, was supportable as a matter of interpretation and was consistent with the limited overseas case law on a similar provision'.

The Commissioner considered this balance was reasonable because it would be detrimental to recipients to wholly deny them input tax credits if most of the price of a supply had been reviewed to a GST-inclusive level.

Conversely, he considered it would be detrimental to suppliers to impose GST on the whole of a supply if only a small part of the price could be reviewed to reflect the impact of GST.

This is an excerpt from an article that appeared in Thomson's InTax (October 2006); Australia's best independent monthly tax magazine. It provides concise reports of the latest tax news, plus the practical implications of tax developments in an easy-to-read magazine format. To find out more, phone Thomson Customer Service on 1300 304 197 or click here.

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Tax Commissioner on global tax administration

The Tax Commissioner Mr D'Ascenzo gave an address in Sydney on 26 September 2006 concerning the impact of globalisation on tax administration. Points he made included: 

• The Tax Office is examining tax haven misuse by sharing information and best practice with Canada, France, Germany, Japan, the United Kingdom and the United States through the Seven Country Forum on Tax Havens. 

• The Tax Office has commenced negotiations for tax information exchange agreements with 10 of the 33 non-OECD financial centre jurisdictions. 

• The Commissioner said that 20 years ago, the transfer pricing risks were largely about the cost of goods imported into Australia by international related parties. He said that risk remains today, but there is an 'increased outbound risk and an increasing risk associated with services and intangibles'. 

• Regarding cross-border finance, the Tax Office is seeing some cases that duplicate tax benefits, such as deductions or credits across countries. It is also seeing cases that seek a different revenue or capital classification in different taxing jurisdictions. 

This article appeared in ATP's daily Latest Tax News (Thursday 26th September). With tax fast-moving and ever changing - EVERY DAY, practitioners rely on Thomson ATP's daily Latest Tax News for quick, accurate, comprehensive information - no compromises. When you need to know what's new in tax and related news every day, there's only one place to look - LTN. To find out more, click here.

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Claiming input tax credit on corporate credit card statements

A very useful Tax Office ruling that many GST registered entities may not be familiar with is the ruling on corporate credit card statements and the entitlement to claim an input tax credit without holding a tax invoice.

In GSTR 2000/26, the Tax Office sets out the circumstances where a GST registered entity that holds a corporate credit card statement issued by certain credit providers can claim an input tax credit for a creditable acquisition without holding a tax invoice for that acquisition.

GST registered entities can claim back the GST incurred in making a creditable acquisition. 

This article appeared in Thomson's Client Alert Newsletter Service. Client Alert is a monthly newsletter that promotes your business and develops your client's awareness of upcoming tax issues. To find out more, phone Thomson Customer Service on 1300 304 197 or click here.

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Thomson special offers and product news

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