Goods and Services Tax Obligations in Australia - Essay Example

Question 1: Edgar GST Obligations Issue Is Edgar having Goods and Services Tax (GST) obligations for a ride-sourcing service? Rule A supply for consideration is the first step in the principle rule towards there being GST tax obligation.1 For there to be a supply for consideration, the rule requires three fundamental principles as follows: According to paragraph 22 onwards, there must be a supply According to paragraph 74 onwards, there must be payment According to paragraph 100 onwards, there must be a sufficient nexus between the payment and the supply for a consideration to be warranted as a supply General principle in determining GST tax obligation is the concept of supply and for that matter, a taxable supply. Subdivision 9-A provides detailed analysis of taxable supplies in Australia. On the other hand, Section 9-5 provides specific requirements for consideration regarding a taxable supply. This section provides that an activity amounts to a taxable supply in case: A party makes the supply for specific consideration The party involved makes the supply in the course or in furtherance of an entrepreneurial pursuit that s/he carries on The supply is having connection to Australia and The party is registered or is supposed to be registered On the other hand, the principle rule holds that the supply will not be considered taxable to the extent that the service or goods supplied is GST-free and in some cases, input taxed. Additionally, a supply for consideration is not likely to be considered as taxable supply until it meets other requirements as provided for under section 9-5.2 Again, if a supply is not having any connection with Australia or a case where the party or entity making the supply is not registered and not required to be registered for GST then the law requires that the supply not to be considered as a taxable supply. In accordance with section 9-10(1) supply is considered as 'any form of supply whatsoever.3 Without limiting general meaning to the term supply, subsection 9-10(2) details non-exhaustive list of what include but not limited to: A supply of goods A provision of advice or information A supply of services Furthermore, subsection 9-10(2) provides detailed analysis of two distinct aspects of a supply; something that passes such as services and a right of obligation. Application In accordance with GST Act, there cannot be GST on supply unless it is considered as a taxable supply. The act of “he drives his car for Ryder, a ride-sourcing service” as undertaken by Edgar amounts to the concept of supply as it satisfies subsection 9-10(2) of ‘a supply of services.’ Indeed this is the entry point that Edgar should be told GST system considers. Furthermore, supply has been defined broadly in court cases such as Uber BV v Commissioner of Taxation where the courts gave different interpretations of supply including the fact that UberX services constituted the supply of “taxi travel” within the meaning in s 144-5(1) of the GST Act.4 We consider that ‘drives his car for Ryder’ as an undertaking would be considered as ‘supply’ in accordance with paragraph 9-10(2)(g). However, whether the supply that accrued him $11,000 in 2016-17 income years would be a considered a taxable supply would be dependent on specific requirements of section 9-5 being met as it has been the case with other court cases including FKYL vs. Commissioner of Taxation5 where an interpretation of section, 9-10(2)(g) was subject to s 40-75 of the GST Act. In accordance with section 9-15, the payment Edgar receives qualifies his ‘drives his car for Ryder’ as an aspect of ‘consideration’ in accordance with GST provisions. The section outlines that a payment is regarded as consideration if it is connected with the supply or in response to the supply. Having outlined that indeed ‘drives his car for Ryder’ was a supply, Edgar’s indulgences further meets section 9-15 of what amount to ‘considerations.’ This interpretation was given by the court in the case involving Anderson vs. Commissioner of Taxation where trustee of a trust was liable for GST on taxable supplies made by the trust.6 Conclusion Based on the principle of supply and consideration as provided for in GST Act and court cases that have reflected Edgar’s case, has GST obligations. Question 2: GST Obligations GST Obligations Issue Can changes in Australian GST system affect GST Obligations in U.S where Australian customers download songs, mobile phone applications, and games? Rule Changes to the Australian GST system concerns offshore suppliers of services and intangibles to Australia consumers. This amendment to the system extended the previous scope of the GST supplies of services as well as intangibles to consumers based in Australia. The details of such changes are in accordance with schedule 1, item 1, paragraph 9-25(5)(d) of the GST Act. This section provides for taxation of supplies of intangible goods including downloading and streaming of music, movies, apps, e-books, games and other digital products. Consequently, paragraph 9-25(5)(d) of the GST Act provides that these supplies will receive similar GST treatment regardless of whether they are supplied by a local or foreign company/supplier. Accordingly, GST will invoke test of supply in accordance with” Paragraph 22 onwards, there must be a supply Paragraph 74 onwards, there must be payment Paragraph 100 onwards, there must be a sufficient nexus between the payment and the supply for a consideration to be warranted as a supply Other consideration in the changes are that the entity or party who receives that supplies will be considered as Australian consumer when s/he meets the following provisions of schedule 1, item 3, subsection 9-25(7) of the GST Act: The entity is considered Australian resident (however, this might not be solely as they are resident of the external territory where there is no application of GST) The entity is not registered s/he is required to be registered for GST or The person/entity does not acquire the supply to any extent for the purpose of an enterprise they undertake Subdivision 38-E of the GST Act provides guidelines on determining the concept of supply, consideration and Australian consumer. In such case, an Australian consumer is determined if the entry is an Australian resident with the definition of Australian consumer defined in the GST law. Subsection 84-81(1) overrules the provisions of subsection 84-81(3) noting that that an electronic distribution platform operator can only be deemed responsible for GST on a supply that is only connected with Australia because of Subdivision 84-C. Under new amendment system, electronic distribution platform operator is deemed supplier if the operator engages in the following: Authorises the charge to the customer; Authorises the delivery to the customer; or Sets the terms and conditions under which the supply is made Application To begin with, Apricot LLC is a company registered in Baltimore, United States of America will attract GST liability under the amendments since the recipient acquired the supply of songs, mobile phone applications, and games as priced in the range $0.99 to $100. Additionally, the recipients of Apricot LLC are final consumers (if Apricot LLC was supplying to business entities they would have been exempted since business entities would be paying tax to the relevant authorities). Again, Apricot LLC attention should be brought to Division 84 of GST Act which already have broader explanations ensuring that the recipients of their intangibles pay GST on the portion of the their acquisition for which they will not have an input tax. This is actually the extended nexus (Australian consumer)7. The invocation of this point is that the supply made by Apricot LLC is directed to Australian residents (not being residents in an external territory). Since Apricot LLC is making the digital supplies through electronic distribution platform they will be deemed the supplier in accordance with section 9-10(1). As a result, they are obligated to attend to the specific requirements of Australian GST obligations including but not limited to payment of the GST to the ATO and at the same time, collect the same amount from Australian consumer(s). Conclusion Apricot LLC is under GST obligations to pay the GST to the ATO regarding money collected from Australian residents by acting as electronic distribution platform operator/supplier of downloaded songs, mobile phone applications, and games.8 Question 3: Allan GST Consequences of Receiving Bitcoin Issue What are GST consequences working as computer programmer (as a sole trader) and having received payment from Bitcoin? Rule GST has provisions that bring obligations imposed on electronic distribution services. As such, schedule 1, item 4, section 84-55 now shifts the responsibility for the GST liability from a supplier of internet related materials including software to the operator of an electronic distribution service for which the processes of supplies deemed intangible were made. However, this may not be the case where GST authorities determine that the operator did not have the control regarding any of the main or key elements of the supply. A service, in accordance with GST’s schedule 1, item 4, and section 84-65 is treated as an electronic distribution in the event that it is a service done through which the processes of supplies are made to end users and that they are made and delivered to end users through electronic communication that further satisfies Electronic Transactions Act 1999. Again, schedule 1, item 4, section 84-60 provides that a supply of inbound intangible consumer supply will be considered so when it involves supply of anything other than real property or goods not done wholly in the indirect tax zones. In accordance with schedule 1, item 4, paragraphs 84-55(2)(b) and (c) in as much as the operator of the electronic distribution services are regarded as the supplier, the processes of supplying is considered under this schedule as having been done or made through the enterprise of the operator and for that matter and consideration the supply for which the supply was made the be real supplier. Application To begin with, Allan (as a computer programmer) as paid by Bitcoin is considered to be making the digital supplies through electronic distribution platform to Poe Programmers Pty Ltd or making it possible for Poe Programmers Pty Ltd to access one of his jobs he did to Bitcoin in June 2017. As such, Allan is making the digital supplies through electronic distribution platform and thus, deemed the supplier in accordance with section 9-10(1). As a result, they are obligated to attend to the specific requirements of Australian GST obligations including but not limited to payment of the GST to the ATO and at the same time. Poe Programmers Pty Ltd is presenting a tax invoice collect the same amount from Allan.9 Since section 9-10(1) treats Allan as the supplier, he will be liable for the GST that can be payable on the supply and the supply to Bitcoin will be included in his GST turnover for all the purposes undertaken on June 2017, including whether he is registered or is required to register for GST. Allan is also entitled to and liable for any adjustments presented by Poe Programmers Pty Ltd especially those which come as a result of the supply. In addition, schedule 1, item 4, section 84-55 shifts responsibility for the GST liability from Bitcoin as supplier to the Allan as the operator of the programming. However, this may not occur in case Allan has little or no control of any of the key aspects or elements of the supplied programmes. Conclusion Based on different schedules of amended GST systems, Allan will have to remit the amount indicated as a tax invoice from the customer, Poe Programmers Pty Ltd for receiving bitcoin. Question 4: Claiming Tax Input Credit Issue Can Virginia claim input tax credits for her mortgage as a result of her ‘side-business’ when she rents out her spare bedroom for weekends? Rule Beginning with mortgages, disposal, provisions or acquisitions of an interest in or under mortgage or a charge over a real or personal property is considered as a potential financial supply under GSTR, r 40-5.09(3) (item 3). As a matter of fact, item 3 will possibly treat as a financial supply a mortgage over both personal and real property. As a result, the key difference between personal property and real property will not be important, other than to the level that it is relevant to the issue or question of nexus. Having realized that potential financial supply under GSTR, r 40-5.09(3) (item 3) include mortgage, a financial supply, as well as a supply of any right to receive a financial supply are considered as input tax in accordance with sections 9-30(2) and 40-5(1).10 The interpretation of this position is that a maker of financial supplies will not be obligated to pay GST considering the fact that the maker receives for the supply. However, s/he will not, based on the principle of general rule, be able to make a claim on input tax credits regarding GST charged on his/her business input. However, this is to an extent that the acquisition of the input is found to be related to the making of financial supplies. The interpretation of this position is that financial and non-financial institutions will be obliged to absorb GST costs that are passed on to them by their enlisted suppliers (considered as input GST) since they will not have the ability to pass these GST costs to their customers just like makers of taxable supplies will. In addition to this, makers of financial supplies are therefore effectively regarded as an end consumer to whom the burden of GST will ultimately pass to. Courts have even input taxed different types of commissions or fees that were based on financial services that could possibly be taxable. Such cases arise where the services are considered not to be related to financial supplies but deal with arrangement of financial supplies in accordance with subdivision 40-A of the GST Act and specifically, item 13 in section 40-5(2). Application As tax payer, Virginia will be obligated to pay GST tax on her taxable supplies she makes and consequently, she will be able to recover this amount as input tax credits from amount she collects from a ‘side-business’ that accrued to $1,375 between April and June 2017. Makers of financial supplies in this case will not be concerned with accounting for the accumulated GST however, but their concern will be how they will be able to recover input GST costs. On the other hand, Australian GST system unique feature concerns the reduced tax credit scheme that Virginia will be entitled to. This is a scheme that allows her side business to make a claim that is proportionate of input tax credit for this particular GST costs as it is related to making financial supplies. Virginia however, will not be entitled to a full input tax credit instead; she will recover up to 75% of the input GST costs that were passed to her by the supplier. Conclusion Concluding from subdivision 40-A of the GST Act and specifically, item 13 in section 40-5(2), Virginia is entitled to a claim of input tax credits for her mortgage as a result of her ‘side-business’. Read More