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MLC709 Business Taxation Law And Policy For Service Tax

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Questions:

1. How much Input Tax Credits (ITC) could the gallery claim for the year 2016?
2. What are the GST consequences of ABC-Comp’s export of the computers to X-Corp?
3. What are the GST and custom duties implications of ABC-Comp’s importation of the drivers in aMay 2017, as well as its reimportation [of the repaired drivers] into Australia in Sept 2017?

 

Answer:

1. An individual entity registered or required to obtain the registration is held liable for GST payable relating to the taxable supplies made by the entity. The entity is also entitled to obtain the input tax credit for the creditable acquisition that is made on carrying on the enterprise. In order to make the acquisition creditable the entity is required to acquire or import the goods entirely for the creditable purpose. When there is a circumstances of partly creditable purpose the entity is not allowed to claim input tax credit unless and until “Division 131” is applicable.

The taxation ruling of “Goods and Service Tax GSTR 2000/6” is associated with the creditable purpose for the purpose of claiming input tax credits. The Australian taxation office provides that an individual can claim credit for any amount of GST that is included in the price of any goods and service that is bought by a person for the purpose of business. This is known as the GST credits or the input tax credits – a credit that forms the part of the price of an entity’s business inputs. An important consideration of claiming GST credits is that it is necessary to ensure that the suppliers are registered for GST.

As evident from the current situation of ABC Comp the company has only managed to make sales of $6,000 throughout the year. The company incurs business and input tax expenses of $5,100 for the year 2016. The “taxation ruling of GSTR 2000/6” lay down the guidance of determining the degree to which an entity for creditable purpose while making acquisition and importation enables in claiming the correct sum of input tax credits. An individual can only claim input tax credits for the acquisition which is creditable. To correctly determine the value of input tax credit entitlement relating to the creditable acquisition that a business makes, it is necessary to determine the extent of creditable purpose for such acquisition made. “Division 11 of the GSTR 2000/6” explains that a business is entitled to claim input tax credit in respect to any type of creditable acquisition that is made by entity. The main obligation for the creditable acquisition is that it needs to be entirely for the creditable purpose.   

Computation of Input Tax Credit

Particulars

Value without GST

GST @ 10%

Input Tax Credit

On Input

 

 

 

Purchase of Computer parts

 $                           1,000.00

 $     100.00

 

Overhead Expenses

 

 $  5,100.00

 

Total Input tax credit

  

  

  $        463.64

 Therefore, an input tax credit of 463.64 (1/11 x $5100) is attributable for the tax period ending 2016. As evident from the above stated explanation it can be stated that ABC Comp can claim credit for any amount of GST that is included in the price of any goods and service that is bought for the purpose of business. Similarly in the present context of ABC Comp the taxation ruling of “GSTR 2000/6” is taken into the consideration to correctly determine the amount input tax credit that can be claimed for the period ending 2016. To correctly determine the value of input tax credit entitlement relating to the creditable acquisition that is made by ABC Comp, it is necessary to determine the extent of creditable purpose for such acquisition made. The purchase of computer and other overhead expenses that was made by ABC-Comp included the GST in the price. Therefore, the business can claim an input tax credit of $463.64 for the period ending 2016.

2. According to the Australian taxation office GST is the wider based tax of 10 per cent on majority of the goods, services and other types of items that are consumed or sold in Australia. The exports of goods and services from Australia is considered as usually GST-Free. An individual is able to claim GST only when it is registered for GST. This implies that the individual business concern is not required to include GST in the price of exports. However, a business can claim GST credits in the price of purchases that is used to make the export of goods and services.

Evidences from the case facts suggest that X-Corp receives a big order from ABC-Comp and also makes a part payment for the same on 1st November. The size of order enabled the ABC-Corp to delay in exporting the computers to X-Corp and order was finally exported in May 2018. According to the Australian taxation office goods that are exported from Australia within 60 days of the two below stated events;

  1. Suppliers receiving any payment for the goods
  2. The supplier issuing an invoice for the goods

The “taxation ruling of GSTR 2002/6” is associated with the application of “section 38-185 of the GST Act 1999” that defines the supplies of goods are GST-free exports. “Section 38-185 of the GST Act 1999” is applicable only for the supplies of goods. According to the legislative context of “section 9-5” a taxable supply is occurs if an individual makes the supply for considerations or the supply is associated with Australia and an individual is required to be registered or registered under GST. The supply of goods where the goods are exported from Australia is considered as GST-free given the requirements of the “subsection 38-168 (1)” is met. The supply of goods is considered as GST-free given the suppliers exports the goods from Australia before or inside 60 days following the day on which the suppliers receives any form of considerations for the supply or when the supplier gives the invoice for the supply of goods.

The “subsection 38-168 (1)” also explains that a supply is GST-free when the supply of goods for which considerations is paid in instalments based on contract that requires the goods to be exported. The supplies are GST free when the day when the suppliers receives any form of final instalment for the consideration of supply. Similarly, in the situation of X-Corp “section 38-185” is applicable to the company as the supply of goods occurred from Australia to overseas. The supplier X-Corp was the entity and the supply of goods would be considered as the GST-free under “section 38-185” since the supplier X-Corp has exported the goods from Australia. the meaning that is provided in this ruling up to the phrase of the supplier exports that particularly focuses on whether X-Corp sends computer outside Australia in regard to the act makes sure that section 38-185 is applicable as intended. The supply of goods that was made by supplier X-Corp would be considered as the GST-free. 

 

As the supply of goods is GST-free no amount of GST is payable on the supply. However, X-Corp can claim the input tax credit for materials that was purchased.

3. The “Goods and Services Tax Ruling GSTR 2000/31” is related with the supplies related with the Australia. The ruling identifies that the supply of goods that is associated with Australia may result in the taxable supply and taxable importations. The supply of goods is not considered to be GST-free given the supplier re-imports the goods to Australia.

The import of goods to Australia may be considered as the taxable importations and it is subjected to GST. The ruling also explains that importations of things apart from goods which is supplied from the overseas nations for the purpose of use in Australia is not considered as the taxable importations. Nevertheless, the import of goods apart from the goods or the real property might be subjected to GST due to the application of operation of Division 84.

The present case facts of ABC-Comp provide that the company bought and imported internal hard-drives from the Canadian Hard-drives Ltd which is the Canadian based company. During the month of July 2017, the hard-drives became defective which resulted the ABC-Comp to ship back the drives back to Canadian Hard-drive for the purpose of repair. Following the completion of repair, ABC-Comp reimported the repaired drives back into the warehouse in Australia.

The “Goods and Service Taxation Ruling 2000/31” explains that if an individual entity makes the import of goods into the Australia, that the individual entity may be required to pay the GST on the importation given that importation is the assessable importation. With respect to “subsection 13-5(1) of the Goods and Service Taxation Ruling 2000/31” an individual making an importation of goods would be considered as the taxable supply. Under “section 15-5 of the Goods and Service Taxation Ruling 2000/31” an individual makes the creditable importation if they import goods entirely or partially for the creditable purpose and the importation is considered as the assessable importation.

The entity that makes the assessable import of goods is required to pay the GST payable on the assessable importations. The amount of tax that is levied on the assessable import is 10% of the total value of the taxable import. “Subsection 13-20 (2)” offers that the value of the assessable importation necessarily reflects the value of goods along with the cost that is incurred in bringing the goods to Australia.  

An individual entity that makes the importation of goods for the creditable purpose up to the extent that an entity import goods is generally for carrying on the enterprise. As evident in the current situation of ABC-Comp the company has made the taxable importation that are within the meaning of customs Act and importation of goods would be considered as taxable importation. Certainly in case of ABC-Comp “Division 13 of GSTR 2003/15” is applicable since the taxable importation that is entered into by the company is imported to Australia for home consumption which is in accordance with the Customs Act. The court of law in “Wilson v Chambers (1923)” stated that goods that are imported to Australia when they are bought to the port of destination for the purpose of being unloaded.

“Subsection 33-15 (1)” explains that GST on the taxable importations is payable by the importer of goods to Customs at the same time and place and in the identical manner as the custom duty is paid on the goods. Similarly, for ABC-Comp the liability for the GST falls on the company for making the taxable importation. Therefore, the sum of GST that is payable on taxable importation made by ABC-Corp stands 10% of its total value.

Import tax credits are available for the creditable importations. An organization that makes the creditable importation under the Division 15 given the entity imports the goods entirely for the creditable purpose and the importation would be considered as the taxable importation. The primary requirement for the creditable importation is that the entity should import the goods. In consistent with the scheme of the act the entity that makes the creditable acquisition can also claim the input tax credit on the creditable acquisition or the creditable importation. Similarly, for ABC-Corp it completes the custom formalities when the taxable importation was made by entering into the import of goods for home consumptions. ABC-Comp would be considered liable to pay the GST on the taxable importation and apart from this it would also be considered entitled for input tax credits for the creditable importation.

 

References

Blakelock, Sarah, and Peter King. "Taxation law: The advance of ATO data matching." Proctor, The 37.6 (2017): 18.

Braithwaite, Valerie. Taxing democracy: Understanding tax avoidance and evasion. Routledge, 2017.

Brokelind, Ce?cile. Principles Of Law 2014. Print.

Grange, Janet, Geralyn A Jover-Ledesma, and Gary L Maydew. 2014 Principles Of Business Taxation. Print.

James, Simon. 2018 The Economics Of Taxation. Print.

Jover-Ledesma, Geralyn. Principles Of Business Taxation 2015. [Place of publication not identified]: Cch Incorporated, 2014. Print.

Kenny, Paul, Michael Blissenden, and Sylvia Villios. Australian Tax 2018. Print.

McCouat, Philip. Australian Master GST Guide 2018. Print.

Nethercott, Les, Ken Devos, and Livia Gonzaga. Australian Taxation Study Manual. 2015 Print.

Pinto, Dale. "State taxes." Australian Taxation Law. CCH Australia Limited, 2011. 1763-1762.

ROBIN, H. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press, 2017.

Sadiq, Kerrie et al. Principles Of Taxation Law 2018. Print.

Sadiq, Kerrie. Australian Taxation Law Cases 2018. Pyrmont, NSW: Thomson Reuters, 2018. Print.

Taylor, C. J et al. Understanding Taxation Law 2018. Print.

Woellner, R. H et al. Australian Taxation Law 2018. Print.

Woellner, Robin, Stephen Barkoczy, and Shirley Murphy. Australian Taxation Law 2018 Ebook 28E. Melbourne: OUPANZ, 2018. Print.

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