ATO ID 2004/117: GST and retrospective application of a GST reverse charge agreement
Date of decision: 2 May 2003
Business line: Indirect Tax

Issue
Can the entity, a non-resident supplier making taxable supplies to a resident, enter into a reverse charge agreement under subsection 83-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) that applies retrospectively to supplies that were attributable to an earlier tax period?

Decision
No. The entity cannot enter into a reverse charge agreement under subsection 83-5(1) of the GST Act that applies retrospectively to supplies that were attributable to an earlier tax period.

Facts
The entity is a non-resident supplier. Since 1 July 2000, the entity has been making taxable supplies under section 9-5 of the GST Act, to a resident entity (recipient). At the time the supplies were made, the entity and the recipient did not have an agreement that the GST on the supplies was payable by the recipient ('reverse charged'). Both the entity and the recipient agree to have a reverse charge on future supplies and to have this agreement applied retrospective to supplies that were attributable to earlier tax periods. The entity does not carry on an enterprise in Australia nor does the entity provide the supply through a resident agent in Australia. The entity is not registered for goods and services tax (GST). The recipient of the entity's supply is registered for GST.

Reasons for decision
Summary: Under subsection 83-5(1) of the GST Act, the GST on a taxable supply made by a non-resident supplier can be reverse charged to the recipient of the supply if: The entity is a non-resident supplier making taxable supplies. The entity does not carry on an enterprise in Australia nor does it provide the supply through a resident agent in Australia. The recipient of the supply is registered for GST. Therefore, the first three requirements of subsection 83-5(1) of the GST Act are satisfied. The entity and the recipient agree that the GST on future supplies will be payable by the recipient (that is, they will be 'reverse charged'). However, the entity and the recipient want to have this agreement applied retrospectively to cover taxable supplies that were attributable to earlier tax periods. Except where a special rule applies, Division 29 of the GST Act contains the rules for attribution. The attribution rules establish the tax period in which the GST payable on a taxable supply must be paid to the Commissioner. It follows that the entity liable to pay the GST must be known at this time. As an agreement under Division 83 changes the liability for GST from the supplier to the recipient, this agreement must be in place for the tax period in which the GST is attributable. Therefore, an agreement cannot be made retrospectively to cover supplies that were attributable to earlier tax periods. Accordingly, the entity cannot enter into a reverse charge agreement under subsection 83-5(1) of the GST Act that applies retrospectively in respect of supplies that were attributable to earlier tax periods.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 Division 29 Division 83 subsection 83-5(1)
Subject references: Goods and services tax GST international services Connected with Australia Reverse charge on supplies made by non-residents GST supplies & acquisitions Creditable acquisition Creditable purpose GST enterprise GST supply Taxable supply GST tax periods Attribution rules