More than one date in Australian GST

By Denham Martin

Taxwise


I am a New Zealand resident but I have business interests in Australia. Those interests involve the wholesaling and retailing of goods to both tradespeople and the general public from a warehouse in Brisbane. I am aware that the GST Bill was passed through the House of Representatives on June 30 and that GST will not apply until July 1, 2000. Will the incoming GST have any effect on my Australian business activities before that date?

I.L.P, Howick

You may be surprised to learn that GST implications could presently be flowing from your activities in Australia, notwithstanding the fact that the GST legislation has yet to receive royal assent and the implementation is set for the future date of July 1, 2000.

The first point to note is that your businesses appear to be carried out in Australia and involve the supply of goods wholly in Australia. Accordingly, your business activities would no doubt be within the ambit of Australia's GST legislation.

The second point to note is that your business activities presently would attract, to some extent, Australian wholesale sales tax (WST). Those activities will continue to do so until June 30, 2000, when GST will replace WST. However, as WST and GST are triggered at different stages of the supply/sale process, there was a potential mismatch that would have resulted in neither being payable for certain supplies. Transitional rules in the GST legislation address this mismatch.

Broadly, the effect of the transitional rules is to cause GST to be imposed on supplies that take place between July 1, 2000 and July 1, 2005 but which flow from contracts entered into prior to July 1, 2000. The exact GST treatment will depend, however, upon the nature of the parties and the nature of the contract in place, in particular:

\EE The date upon which the contract was entered into.

\EE Whether the recipient of the supply is entitled to a full input tax credit upon acquisition.

\EE Whether the contract price is reviewable (such that an opportunity may arise to vary the consideration to take account of GST) or non-reviewable.

The date the contract was entered into will fall into one of three periods: pre-December 2, 1998; December 2, 1998 to the date of royal assent; and, post the date of royal assent.

In respect of contracts entered into prior to December 2, 1998, supplies generally are not subject to output tax (in Australian parlance they are "GST-free") notwithstanding the fact the actual supply occurs in the period between July 1, 2000 and July 1, 2005. Further, where the consideration under the contract is paid in full prior to December 2, 1998 and the contract is non-reviewable all supplies, including those made after July 1, 2005, are GST-free. However, if the contract is reviewable, irrespective of payment in full prior to December 2, 1998, supplies are GST-free until the earlier of the first review opportunity or July 1, 2005.

In respect of contracts entered into between December 2, 1998 and the date of royal assent, supplies to recipients entitled to full input tax credits are GST-free. In the event the contract is reviewable, supplies to recipients entitled to full input tax credits are GST-free until the earlier of the first review opportunity or July 1, 2005. However, supplies made to recipients not entitled to full input tax credits are subject to GST from July 1, 2000.

In respect of contracts entered into post the date of royal assent, supplies under those contracts are be subject to GST from July 1, 2000.

In conclusion, you currently may have in place long-term supply contracts that have GST implications. A review of those should be undertaken, in particular to ascertain whether you can claim from the purchaser the GST amount in those instances where you will have an output liability. Certainly, any further long-term supply contracts that you enter into should be drafted to account for the consequences of Australian GST.

* Denham Martin is the principal of Denham Martin & Associates, lawyers specialising in advice on taxation and related matters.