One of the fundamental concepts in the GST law is attribution which determines the periods in which to account for GST liabilities and input tax credits (ITCs).
For the most part, entities would apply the general rules but occasionally a special rule applies. One of the more interesting rules is found in section 29-10(4) but is often overlooked.
The basic attribution rules are set out in Division 29 of the GST law, and they differ depending on whether or not the entity accounts for GST on a cash or accruals basis.
If an entity accounts for GST on a cash basis, the entity will attribute the GST payable on a taxable supply based on the extent to which consideration has been received. Similarly, for acquisitions, an entity is only entitled to claim ITCs to the extent that consideration has been provided in a tax period.
If an entity does not account for GST on a cash basis (i.e. the entity uses an accruals basis), the entity will attribute all the GST payable to:
- the tax period in which any of the consideration for the supply is received; or
- if, before any consideration is received, an invoice is issued relating to the supply – the tax period in which the invoice is issued.
This means that the entity on the accruals basis may have to account for GST payable on a supply before actually receiving payment for the supply.
An entity on an accruals basis would similarly attribute all the ITC for a creditable acquisition to the earlier of the tax periods in which:
- the entity provides any of the consideration; or
- an invoice is issued for the acquisition.
This means that the entity may be entitled to ITCs before actually paying for the acquisition.
Irrespective of whether an entity uses the cash or accruals basis, an ITC is not attributable to a tax period if the entity does not hold a tax invoice for the acquisition when they lodge their BAS for that tax period. While the attribution rules would normally include the ITC in that BAS, if they do not hold a tax invoice they need to defer claiming the ITC. The entity would attribute the ITC to the first tax period for which they have a tax invoice when they lodge their BAS.
For example, assume an entity on an accruals basis (and with quarterly BASs) makes a creditable acquisition on 28 June 2016 for $1,100 (including GST), pays for the item and is provided with a receipt. Ordinarily the entity would expect to include the $100 GST credit in the June 2016 Quarter BAS. However, on 27 July 2016 when preparing the BAS the entity discovers that while they have a receipt, it is not a tax invoice. The entity contacts the supplier and requests a tax invoice, but does not receive the tax invoice until 16 August 2016. Assuming the June 2016 BAS is due to be lodged on 28 July 2016, as the entity does not hold the tax invoice at that time the $100 is not attributable to the June 2016 BAS. Instead, it will be attributable to the September 2016 BAS.
Section 29-10(4) states:
(4) If the GST return for a tax period does not take into account an input tax credit attributable to that tax period:
a) the input tax credit is not attributable to that tax period; and
b) the input tax credit is attributable to the first tax period for which you give the Commissioner a GST return that does take it into account.
Note: Section 93-5 or 93-15 may provide a time limit on your entitlement to an input tax credit.
The Explanatory Memorandum to the Bill that introduced this provision explains the reasoning and operation of this section as follows:
As the law currently stands, an entity is required to attribute an input tax credit to the first tax period in which it holds a tax invoice (subsection 29-10(3)). There may be situations where an entity does not become aware that it holds a tax invoice in respect of a creditable acquisition until after it has lodged its GST return for the tax period. For example, in the case of a larger entity, when the accounting section lodges a GST return it may not be aware that another part of the entity holds a tax invoice for a creditable acquisition, and does therefore not claim its input tax credits for that acquisition in the GST return.
In these situations the entity is unable to claim their entitlement to the input tax credit in the next tax period but must instead lodge an amended GST return for the tax period in which it should have claimed the input tax credit.
Item 2 inserts new subsection 29-10(4) in the GST Act to allow an entity to postpone the attribution of an input tax credit to any tax period after it holds a tax invoice. Where the GST return for the tax period states a net amount that does not take account of an input tax credit that was attributable to that tax period, then the input tax credit is:
- not attributable to that tax period;
- andattributable to the first tax period for which the entity takes it into account in its GST return.
New subsection 29-10(4) does not affect the operation of subsection 29-10(3). An entity can still claim input tax credits in the first tax period in which it holds a tax invoice.
The references to s.93-5 or s.93-15 in the note to s.29-10(4) are to the general four year time limit in which an entity can claim an ITC.
By way of example, an entity on an accruals basis (and with quarterly BASs) makes a creditable acquisition on 28 June 2016 for $1,100 (including GST), pays for the item and is provided with a tax invoice. Ordinarily the entity would expect to include the $100 GST credit in the June 2016 Quarter BAS. However, on 27 July 2016 when preparing the BAS the entity forgets to include the acquisition and the $100 ITC is not claimed in the June 2016 BAS.
When preparing the September 2016 BAS, the entity identifies the administrative error. The entity can go back and amend the June 2016 BAS, or it can include the $100 ITC in the September 2016 BAS (or a later BAS). If the $100 ITC is included in the September 2016 BAS then s.29-10(4) operates to treat that acquisition as having been attributed to the September 2016 BAS and not to the June 2016 BAS.
Therefore, if an entity has made a creditable acquisition and holds a tax invoice, and forgets or fails to claim the ITC in that tax period, the entity can either go back and amend the BAS for that tax period, or it can rely on s.29-10(4) and include the ITC in a BAS for a later tax period, provided that the ITC is claimed in a tax period within the four year limit.