Private ruling: GST and attribution of GST payable and input tax credits
Date of advice: 28 July 2016
Published: September 2016

Ruling: Q4: Why does the Australian Taxation Office need to have this GST money for four months and then return it to me? Advice Under subsection 31-5 of the GST Act, when you are registered or required to be registered for GST you must give to the Commissioner a GST return for each tax period. As you account your GST on a cash basis and report your GST quarterly, you will attribute the GST for your taxable supply to the quarterly tax period in which you receive the payment for this supply under subsection 29-5(2) of the GST Act. You will also attribute the input tax credit for the creditable acquisition you are entitled to in the quarterly tax period you hold a tax invoice under subsections 29-10 (2) and 29-10(3) of the GST Act.


Relevant legislative provisions: A New Tax system (Goods and Services Tax) Act 1999 section 9-5 | A New Tax system (Goods and Services Tax) Act 1999 section 29-5 | A New Tax system (Goods and Services Tax) Act 1999 section 29-10 | A New Tax system (Goods and Services Tax) Act 1999 section 31-5 | A New Tax system (Goods and Services Tax) Act 1999 section 38-185 | A New Tax system (Goods and Services Tax) Act 1999 section 38-355

Reasons for decision: Summary: Division 9 of the GST Act is about taxable supplies and this division defines taxable supplies, states who is liable for the GST and describes how to work out the GST on supplies. Under section 9-1 of the GST Act GST is payable on taxable supplies and under section 9-40 of the GST Act an entity must pay the GST payable on any taxable supply that it makes. There is no provision in the GST Act that exempts an entity from not paying the GST payable on taxable supplies. You therefore cannot be exempted from not paying GST on the taxable supplies that are being made to you. The supply made by the manufacturer to you is different to the supply made by the freight forwarder to you and the GST status of the supplies is under different section of the GST Act. We will now consider the GST status of each supply. | Detailed Reasoning - GST status of the supply of the manufactured goods by the manufacturer to you.: GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the GST Act if: a) the supplier makes the supply for consideration; and b) the supply is made in the course or furtherance of an enterprise that the supplier carries on; and c) the supply is connected with Australia; and d) the supplier is registered or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. The supply of the manufactured goods from the supplier to you satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act as: a) the supplier makes the supply for consideration; and b) the supply is made in the course of an enterprise that the supplier carries on; and c) the supply is connected with Australia as the goods are made available to you in Australia; and d) the supplier is registered for GST since the supplier is charging GST for tis supplies to you. However, the supply of the manufactured products is not a taxable supply to the extent that it is not GST-free or input taxed. There is no provision under the GST Act that makes the supply of these manufactured goods an input taxed supply. Since the manufactured goods are exported, it is relevant to consider whether the supply of the manufactured goods may be GST-free under section 38-185 of the GST Act. GST-free supply Under item 1 in the table in subsection 38-185(1) of the GST Act (item 1) a supply of goods is GST-free where the supplier exports them from Australia and the export occurs before or within 60 days after: • the day on which the supplier receives any of the consideration for the supply; or • if on an earlier day, the supplier gives an invoice for the supply - the day on which the supplier gives the invoice. Item 1 requires that the supplier is the entity that exports the goods. Goods and Services Tax Ruling GSTR 2002/6 provides guidance on when supplies of goods are GST-free exports. Paragraph 28 of GSTR 2002/6 states: 28. A supplier is considered responsible for delivery of the goods to the ship or aircraft operator even if the supplier arranges for another party, such as a freight forwarder or consolidator to deliver the goods to the carrier, on the supplier's behalf. However, where another party acting on behalf of the recipient delivers the goods to the ship or aircraft operator, the supplier is not the exporter. From the facts given, you are the one contracting the freight forwarder to organise for the exportation of the manufactured goods from Australia. Accordingly, the requirement in item 1 is not satisfied as the supplier is not the entity that is exporting the manufactured goods from Australia. A supplier who is not the exporter may still be treated as the exporter where the recipient exports and the requirements of subsection 38-185(3) are met. If so, the supply can still be GST-free. Under subsection 38-185(3) a supplier who has not exported goods, is treated as having exported them for the purposes of items 1 or 2 if the following conditions are met: a) before the goods are exported, the supplier supplies them to an entity that is not registered or required to be registered, (paragraph 38-185(3)(a)); b) that entity exports the goods from Australia, (paragraph 38-185(3)(b)); c) the goods have been entered for export within the meaning of section 113 of the Customs Act; (paragraph 38-185(3)(c)); d) since their supply to that entity, the goods have not been altered or used in any way, except to the extent (if any) necessary to prepare them for export, (paragraph 38-185(3)(d)); e) the supplier has sufficient documentary evidence to show that the goods were exported (paragraph 38-185(3)(e)); and f) if that entity is covered by paragraph 168-5(1A)(c) - the supplier has a declaration by that entity stating that: i. a payment has not been sought under section 168-5 for the supply (subparagraph 38-185(3)(f)(i)); and ii. if the goods are wine (within the meaning of the A New Tax System (Wine Equalisation Tax) Act 1999 ('Wine Equalisation Tax')) - a payment has not been sought under section 25-5 of that Act for the supply (subparagraph 38-185(3)(f)(ii) of the GST Act). However, if the goods are reimported into Australia, the supply is not GST-free unless the reimportation is a taxable importation. From the information received you are the recipient of the supply and are registered for GST. Paragraph 38-185(3)(a) of the GST Act is not satisfied. In this instance subsection 38-185(3) is not applicable to the supply made by the supplier to you. The supply of the manufactured goods is therefore a taxable supply under section 9-5 of the GST Act. There is no other provision in the GST Act that will make the supply of the manufactured goods GST-free. GST is therefore applicable to the supply of the manufactured goods to you. | Detailed Reasoning - GST status of the supply made by the freight forwarder: The arranging of the international transport of goods covered by item 5 in the table in subsection 38-355(1) of the GST Act is GST-free under item 7 in the table in subsection 38-355(1) of the GST Act (item 7). Under paragraph (a) of item 5 in the table in subsection 38-355 a supply of international transport of goods, subject to subsection 38-355(2) of the GST Act is GST-free. Subsection 38-355(2) of the GST Act provides that paragraphs (a) and (b) of item 5 and item 5A in the table in subsection 38-355(1) of the GST Act do not apply to a supply to the extent that the thing supplied is done in Australia, unless: • the recipient of the supply is a non-resident and is not in Australia when the thing supplied is done; or • the supply is done by the supplier of the transport of the goods from or to Australia (whichever is relevant). When the freight forwarder supplies its services of arranging for the international transport of the manufactured goods to you, the supply made by the freight forwarder satisfies the requirement in item 7 and is therefore GST-free under that item. | Detailed Reasoning - Question 3: 'Associate' is defined in section 195-1 of the GST Act to have the meaning given by section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). Generally, associates are those entities that, by reason of family or business connections, might appropriately be regarded as being associates of a particular entity. Some examples of an associate of a company, other than a company in the capacity of trustee, include: • a partner of the company or a partnership in which the company is a partner • a trustee of a trust estate under which the company or associate benefits • another entity (including a natural person) that, acting alone or with another entity or entities, sufficiently influences the company • an entity (including a natural person) that, either alone or together with associates, holds a majority voting interest in the company • a second company that is sufficiently influenced by the company or the company's associate • a second company in which a majority voting interest is held by the company or the company's associate. You advised that your only relationship with the manufacturer is with regards to the transactions as outlined in the Licence Agreement and you are not a relative, partner or stockholder of the manufacturing company. In this instance you cannot be considered to be an associate of the manufacturer under section 195-1 of the GST Act as the requirements in subsection 381(1) of the ITAA 1936 are not satisfied. You and the manufacturer are therefore independent entities making supplies to each other and each will account for the supply made to each other independently. | Detailed Reasoning - Lodgement of BAS: Under subsection 31-5(1) of the GST Act, if an entity is registered or required to be registered for GST it must give to the Commissioner a GST return for each tax period. Under subsection 31-5(2) of the GST Act, the entity must give the return whether or not its net amount for the tax period is zero or it is liable for GST on any taxable supplies that are attributable for the tax period. You are registered for GST and have opted to report your GST on a quarterly basis. Accordingly, you must lodge your quarterly BAS by the due date with the ATO under section 31-5 of the GST Act. Under section 27-10 of the GST Act you can elect to have monthly reporting for your BAS. If you elect to report your GST monthly you will need to lodge your BAS monthly. It is a business decision whether to report GST monthly or quarterly. If reporting your GST on a quarterly basis is a financial issue you can elect to report your GST monthly by contacting our call centre on 13 28 89 between 8.00a.m and 5.00p.m Monday to Friday. | Detailed Reasoning - Other information: The following information is provided as they will be assist you in reporting and accounting your GST. | Detailed Reasoning - Attribution of GST payable and input tax credits: Taxable supplies Under subsection 29-5(2) of the GST Act if you account for GST on a cash basis, you attribute the GST payable on a taxable supply to the tax period in which you receive consideration for the supply, but only to the extent that the consideration is received in that tax period. This means that if, in a particular tax period you receive only part of the consideration for a supply, you attribute GST on the supply only to the extent that the consideration is received in that tax period. Goods and Services Tax Ruling GSTR 2000/29 provides guidance on the attribution of GST payable and input tax credits when an entity accounts for GST on a cash basis and provides the following example in regard to attribution of taxable supplies at paragraphs 15 to 17: | Detailed Reasoning - Example 1: 15. Zayn has a small business designing and hand-printing silk fabrics to order for the fashion industry. He accounts for GST on a cash basis and has three month tax periods. 16. Akbar Creations orders a design run of 100 metres for $3,410. Zayn receives payments as follows: • deposit of $110 on 29 December 2000 (this deposit is subject to forfeiture and is not applied as consideration until 22 May 2001); • payment of $2,200 on delivery on 22 May 2001 (Zayn issued an invoice on 22 May 2001 showing the due date for payment of the balance of $1,100 as 20 June 2001); and • payment of the balance of $1,100 on 16 July 2001. 17. GST on the supply is attributed as follows: • GST payable of $10 (1/11 x $110 received 29 December 2000) is attributable to the tax period ending 30 June 2001. • GST payable of $200 (1/11 x $2,200 received on 22 May 2001) is attributable to the tax period ending 30 June 2001. • GST payable of $100 (1/11 x $1,100 received on 16 July 2001) is attributable to the tax period ending 30 September 2001. In regard to the royalty payment that you receive from the manufacturing company, the GST on this taxable supply will be attributed to the tax period in which you receive the payment for this supply. Creditable acquisitions Under subsection 29-10(2) of the GST Act if you account for GST on a cash basis, you attribute the input tax credit for a creditable acquisition to the tax period in which you provide consideration for the acquisition, but only to the extent that you provided the consideration in that tax period. This means that if, in a particular tax period, you have paid only part of the total consideration for an acquisition, you are entitled to an input tax credit but only to the extent that you provided the consideration in that tax period. For example, if in a particular tax period you paid $5,000 as part of the consideration for an acquisition, you attribute 1/11th of the consideration that you provided in that tax period, that is 1/11th of $5,000, as the input tax credit to which you are entitled in that tax period. However under subsection 29-10(3) of the GST Act, an input tax credit is not attributable to a tax period if you do not have a tax invoice for the acquisition when you lodge your Business Activity Statement ('BAS') for that tax period You attribute the input tax credit to the first tax period for which you have a tax invoice when you lodge your BAS. If the BAS for a tax period states a net amount that does not take into account an input tax credit attributable to that tax period, the input tax credit may be attributable to a later tax period under subsection 29-10(4) (subject to the four year time limit contained in Division 93 of the GST Act). Paragraphs 21 and 22 in GSTR 2000/29 provide an example on attribution of creditable acquisitions and state: | Detailed Reasoning - Example 2: 21. Aimee is registered for GST and accounts for GST on a cash basis in three month tax periods. On 25 June 2001, Aimee purchases stock for her dress shop for $7,700. She pays $3,300 on 25 June 2001 and is issued with an invoice asking for payment of the balance within 30 days. She pays the balance of $4,400 on 18 July 2001. 22. Input tax credits for the acquisition are attributable to tax periods as follows: • an input tax credit of $300 (1/11 x $3,300) is attributable to the tax period ending 30 June 2001. (Aimee had obtained a tax invoice before lodging her BAS for this tax period. The tax invoice shows the GST payable for the taxable supply as $700). • an input tax credit of $400 (1/11 x $4,400) is attributable to the tax period ending on 30 September 2001. You will claim a GST refund on the taxable supply in the tax period you have made the payment to the manufacturer and hold a tax invoice. Accordingly, you will claim an input tax credit for the creditable acquisition of the manufactured goods you made from the manufacturer in the tax period you hold a tax invoice for the payment you have made to the manufacturer under subsections 29-10 (2) and 29-10(3) of the GST Act.

Question 1: Can the goods and services tax (GST) you pay to the manufacturer of the goods that you export be waived because you are a sole trader and always receive a refund? | No, you cannot be exempted from paying GST on the taxable supply made by the manufacturer to you despite the fact that you always receive a refund because there is no provision in the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) that allows an entity to be exempted from paying the GST payable on a taxable supply. | Question 2: The manufacturer charges you GST on your exported goods but your freight forwarder does not. Why when both are Australian companies? | The supplies made to you by the manufacturer and the freight forwarder are different, and the GST status of each supply is determined under different sections of the GST Act. | The supply made by the manufacturer to you is a supply of goods in Australia. The supply is a taxable supply under section 9-5 of the GST Act. | The supply made by the freight forwarder is organising the international transport of goods to an overseas purchaser. The supply made by the freight forwarder is GST-free under item 7 in the table in subsection 38-355(1) of the GST Act. | Can you and the manufacturer be considered 'associates' rather than independent entities and so have the GST waived for exported goods? | No because your arrangement with the manufacturer does not satisfy the meaning of 'associate' as defined in section 195-1 of the GST Act. | Relevant facts: You are a sole trader and are registered for GST. You account your GST on a cash basis and submit your BAS every quarter. | You are the owner of a design for a product and you are the sole supplier of products that are being manufactured as per your design. . | In a Licence Agreement with an Australian manufacturer you have granted the manufacturer the right to use your design to manufacture products as per your design. In return you will receive royalty payments for the provision of this right. | The only relationship you have with the Australian manufacturer is the manufacturing under the Licence Agreement. You are not a relative, partner or stockholder of the manufacturing company. | You undertake the marketing and administration, attend to all sales inquiries and organise the finance and exportation of the products while the Australian manufacturing company manufactures the products for you. | An overseas purchaser will contact you via your contact page on your website. You will send them a price list, ask for extra details and provide them with a quote for the goods, freight and insurance. If this is accepted, they will send you an official Purchase Order and a deposit. | Once you have received an order from a purchaser, usually by email, and the deposit has been made to your bank account, you send details and a completion deadline to the manufacturer and they make the product. The overseas purchaser is not registered for GST in Australia and no GST is charged to the overseas customers. | You have overall responsibility for ensuring the goods are made on time by the manufacturer, and are picked up by a truck organised by your freight forwarder who has been provided with export shipping requirements and purchaser's details by you. Your freight forwarder corresponds by email or phone with the manufacturer to co-ordinate a time for pick-up by truck and you keep in touch with both to ensure there are no problems. | After the product is made, it is crated on time to be freighted to the purchaser by a date they prefer and then sent to the customer by the manufacturer once you have inspected it at the manufacturer's factory. The crate or container is picked up by a truck and taken to an Australian port, then shipped or flown to the overseas purchaser. The purchaser usually collects it from the port and has it delivered to their preferred place in the overseas country. | You do not pay the manufacturer by instalments for the manufactured goods. | Once an order is completed and payment received into your bank account from an overseas customer, you deduct your royalty from the payment. You send the remainder to the manufacturer plus an additional 10% for GST for the supply of their manufacturing services to you. | As the sales of your products are primarily to overseas entities who will not pay anything in advance, and orders maybe received up to several months before payment is made, your ongoing business activities is more reliant on credit. This creates a negative cash flow until you lodge your quarterly activity statement and claim a refund of the GST paid to the manufacturer. In addition, sales of your products are unpredictable and there is no guarantee of orders resulting from the many enquiries that you receive, so a positive cash flow is already an ongoing difficulty. | Reasons for decisions: Note : Where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.