The Australian Treasury has recently released a draft legislation proposing amendments to the Goods and Services Tax (GST) input tax credits to ensure that the tax law operates as intended. These proposed changes aim to address certain complexities and provide greater clarity for taxpayers. In this blog post, we will delve into the key aspects of the proposed amendments and their implications for businesses.

What are GST Input Tax Credits?

Under the current GST system, businesses can claim input tax credits for creditable acquisitions, which include goods and services purchased for the purpose of carrying on their business. Input tax credits reduce the amount of GST payable on business expenses, allowing for a fair and efficient taxation system.

Proposed Amendments to Attribution of Input Tax Credits

One of the primary focuses of the proposed amendments is to ensure that input tax credits are correctly attributed to the appropriate tax periods. Often, businesses face challenges in accurately allocating input tax credits to the relevant periods in their GST returns, which can lead to unintentional errors and compliance issues.

To address this concern, the draft legislation proposes that if a taxpayer fails to claim input tax credits for creditable acquisitions in a particular GST return, they can elect to attribute those credits to a later tax period. However, this election must be made within the general time limit of four years after the GST return for the original tax period was due. This amendment aims to provide businesses with a corrective mechanism to rectify any errors in input tax credit claims and promote compliance with GST reporting requirements.

Interaction between Time Limit Rules and Commissioner's Determination

The proposed amendments also seek to clarify the interaction between the time limit rules and the Commissioner's power to determine the tax period to which a credit is attributable. This clarification is essential to avoid confusion and to ensure that taxpayers can confidently adhere to the correct attribution of input tax credits.

Effective Date and Application

If passed, the amendments introduced in the Treasury Laws Amendment (Measures for Consultation) Bill 2023: Miscellaneous and technical amendments—Spring 2023 will apply to tax periods starting on or after 1 July 2012. By applying the amendments retrospectively, the law aligns with the Australian Taxation Office's (ATO) past practices and taxpayers' expectations, providing greater consistency and certainty in GST compliance.

Deductibility of GST Payable under Reverse Charge

Additionally, the draft legislation proposes explicit amendments to section 27-15 of the Income Tax Assessment Act 1997 (ITAA 1997) to clarify the deductibility of GST payable under reverse charge arrangements. Under this amendment, businesses will be able to deduct the GST payable under reverse charge to the extent that the GST exceeds any input tax credits they are entitled to, provided that the requirements of section 8-1 are met. This clarification seeks to prevent any ambiguity surrounding the deductibility of GST under reverse charge scenarios.

Comment Period and Conclusion

Businesses and stakeholders are encouraged to provide feedback and comments on the draft legislation. The comment period is open until 23 August 2023, during which time interested parties can submit their views and suggestions to the Treasury. The proposed amendments are intended to promote clarity, fairness, and compliance in the GST system, benefiting businesses and taxpayers alike.

As these changes move through the consultation process, it is essential for businesses to stay informed about updates and seek professional advice to ensure a smooth transition to the new provisions. By aligning with the proposed amendments, businesses can enhance their GST reporting practices and maintain compliance with tax regulations.

Source: Treasury, Miscellaneous Amendments to Treasury Portfolio Laws 2023, 27 July 2023, accessed 27 July 2023.