Proposed Amendments to GST Input Tax Credits: Ensuring Clarity and Compliance

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.

When the juices are GST-free

Q: The ATO says bottled water is GST-free, and fruit/vegetable juices are GST-free if they're over 90% pure. Peggy sells bottled juices in her café, where most customers dine in, but some also take away drinks. She wants to know if she should charge GST on bottled drinks.

Is GST required for foreign services?

Q: M company, jointly owned by Australian and UK shareholders, does similar business in both countries under the same brand. M company, based in Australia, hires a digital marketing agency for advertising design. It then passes on some of the design costs to the UK company. Does the UK company need to pay GST for the design services?

GST Adjustments

Q: Fiona Wilkes bought a car for $33,000 in October 2011 for her delivery business, with plans to use it 90% for business and 10% for personal use. Over the years, the car's usage changed. How does this affect the net amount of GST?

GST relates to the sale of commercial property

Q: A client wants to know about the GST implications of selling commercial property as a going concern. Since there's no GST on the property sale itself, what about other expenses like commission and legal fees that do have GST? Can the GST on these be claimed?

GST about provision of overseas services

Q: I'm planning to hire a US IT consulting firm. They'll send invoices to my company, and I'll pay them in US dollars. Do they need any special permits to consult in Australia? Do they require an ABN? Will the US firm have to pay GST?

Change of Supply; adjustment of input tax credit

Q: Leia Caldwell, a property developer with GST, initially intended to sell 10 townhouses as new residential premises, making each sale taxable for GST. She claimed $300,000 in input tax credits for construction materials. Later, she decided to lease three townhouses instead of selling them. Since she's now renting them out as residential properties, they're considered input taxed supplies, meaning she can't claim input tax credits for them.

Lease agreement; Inducement payment; GST consequences

Question: Tim West and Associates, a partnership of solicitors registered for GST, are moving to new rented office space. They negotiated with the landlord to receive $30,000 as an inducement fee to enter the new lease. What are the GST implications for both parties?

Answer: When they enter the lease, it's considered a service provided by the landlord to the solicitors' partnership. Since it's a commercial lease, not a residential one, it's not exempt from GST. Both the landlord and the solicitors' partnership are likely registered for GST.

According to GST laws, the partnership (the tenant) made a supply by agreeing to the lease, and the $30,000 they received is the consideration for this.

Following GST rules, the partnership needs to remit GST to the ATO, which is $30,000 divided by 11, equaling $2,727.27.

Also, if a lessee pays a premium to secure a lease, the lessor needs to account for GST on that premium.

Note: If either the lessor or lessee pays to end a lease, GST responsibilities depend on who makes the payment. If it's the lessor, the lessee needs to account for GST, and if it's the lessee, the lessor must account for GST.

Got questions? Reach out to Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.

GST of acquisition & sell investment property

Q: My client, who runs a childcare business as a sole trader and is registered for GST, bought land to build an investment property. Can she claim GST on the building costs? What happens if she decides to sell the property once it's built?

A: Since the investment property isn't linked to the childcare business, it's considered a separate venture. If the property will be rented out, which counts as a business activity, the question is whether the building costs can be claimed for GST.

To claim GST on the building costs, the building must be acquired for a GST-eligible purpose. This means if the client gets the building as part of her business activities, she can claim GST. But if the building is for making supplies that are exempt from GST, like renting out residential premises (like a house), then she can't claim GST on the building costs.

If she sells the building, whether GST applies depends on what kind of building it is. If it's commercial, then GST applies when she sells it. If it's residential and sold as "new residential premises," GST applies too. However, if she holds onto the building for at least five years before selling it, it's not considered "new residential premises," and GST doesn't apply when she sells it. In any case, if the building is sold as a commercial building or "new residential premises," she can claim GST on the building costs.

If you have any questions, feel free to contact Tax Ideas Accountants & Advisers at+61 2 83181545. You can also book an appointment through our live calendar.


GST for the sold of commerical property

Q: A husband and wife bought a residential property in 2011, initially leasing it out as a café. Later, they started a beauty therapy business together until they divorced in 2014. The partnership ended, and one of them continued the business as a sole trader. Now they want to sell the property, and a buyer who isn't registered for GST wants to purchase it as a residential property. What are the GST implications? Is a balancing adjustment needed, considering the partnership ended in 2014?

A: If they sell the property as a residential unit, it triggers a balancing adjustment under the GST Act. This means they need to adjust for any GST they previously claimed when they bought it. The adjustment happens annually, usually at the end of June. Since the property was originally bought by the partnership as part of a GST-free deal, the situation remains the same even though the partnership ended.

If you need help, contact Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.


GST of purchase an easement

Question: We have a client who got $82,000 (excluding GST) from Origin Energy for the option to buy an easement on their property. The client isn't registered for GST because their income is less than $75,000 per year. But since the payment is over $75,000, do they need to register for GST and tell the tax office about the GST on the option money? The option is a one-time payment, so they don't have to register for GST regularly. Also, how do they deal with tax for the option to buy the easement and when they actually buy it? Are these considered Capital Gains Tax (CGT) events, and what counts as the cost base? For example, are legal fees the only cost for the option? And is a portion of the land's cost base the cost for buying the easement?

Any GST liability incur when selling farmland?

Client: A private company owned a large piece of rural land. They sold part of it before under a special tax rule for farmland. Now they're planning to subdivide the rest into two parts: one big and one small with an old, unusable house and some farm equipment. The small part has never been used. Here are the questions:

GST for the boat

Q: One client is looking into purchasing a boat for personal use. Here are the details:

GST of the Company

Question: Mr. A runs a mortgage broking business through a company with his wife. The company hasn't registered for GST because its turnover is below $75,000. Now, Mr. A is also driving for Uber using the company's ABN but owns the car himself. Does the company need to register for GST now that it's earning from Uber? And does it need to charge GST on its mortgage broking services too? How can the company claim car expenses and GST for Uber driving, and can it pay Mr. A back for those expenses?

GST of the sale of SMSF commerical property

Question: A self-managed superannuation fund (SMSF) wants to sell a commercial property for around $1.1 million. They aren't registered for GST. Do they need to register for GST for the month of the sale since the property sale exceeds $75,000? And will the sale include GST?

GST for the sale of farmland

Q: A client bought farmland in October 1997 and has been farming there since. They're now negotiating to sell it. If the buyer plans to use the land for farming, no GST applies due to a farming business exemption.

GST for the workcover

Q: My client, a payroll service provider, has collected Workcover fees from clients but hasn't received the assessment for the 2016 year yet.

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