CA ANZ urges government to delay GST input tax credit changes

CA ANZ has called for provisions relating to the attribution of GST input credits to be delayed until ATO guidance on time limits for claiming input tax credits has been finalised.

Proposed provisions relating to the attribution of GST input tax credits should be delayed until the ATO has finalised its guidance on time limits for claiming input tax credits, the Chartered Accountants Australia and New Zealand (CA ANZ).

The proposed changes in Treasury Laws Amendment (Measures for Consultation) Bill 2023: Miscellaneous and technical amendments – Spring 2023, amend the provisions in the GST Act relating to the attribution of input tax credits to tax periods.

The amendments are designed to ensure the provisions operate as intended and that input tax credits are attributable to appropriate tax periods, the explanatory memorandum states.

Under the current rules, the GST Act provides attribution rules for cases where the GST return for a tax period did not take into account an input tax credit that would otherwise be attributable to that tax period.

“Following the decision of the Federal Commissioner of Taxation v Travelex Limited [2021] HCA 8, the operation of this rule does not align with the past administrative practice of the Commissioner of Taxation and taxpayers’ expectations,” the EM said.

“The amendments provide new attribution rules which will align with the prior understanding of the law and ensure flexibility for taxpayers.”

Under the new provisions, if an input tax credit that is attributable to a tax period is not taken into account in a taxpayer’s assessment for that period, the taxpayer may elect for the input tax credit to instead be attributable to a later specified tax period.

The election must be made in the approved form and cannot be amended or revoked. It is expected that one of the approved forms for this purpose would form part of the business activity statement, allowing taxpayers to make the choice by including the credit in the business activity statement for a subsequent period.

In its submission of the proposed provisions, CA ANZ said the provisions needed to be considered contemporaneously with other expected changes involving input tax credits to ensure that the interactions work as intended.

“In particular, the proposed legislation relies on an interpretation of section 93-5 of the GST Act that is contentious,” the accounting body said.

“Until the ATO has issued finalised guidance that replaces MT2018/D1 which was withdrawn in 2019 it is difficult to determine whether this draft legislation will be fit for purpose.”

CA ANZ said there are currently three different matters regarding the attribution of GST input tax credits with each of the matters inter-related.

The accounting body said it was unclear how the exposure draft provisions would interact with Draft legislative instrument LI 2023/D13 for example.

The intent of this draft legislative instrument is to enable taxpayers to rectify GST errors from a prior tax period in a return for a subsequent tax period in certain circumstances, thus removing the need to lodge an amendment request.

“If LI2023/D13 applies then as a matter of law (by force of section 17-20 of A New Tax System (Goods and Services Tax) Act 1999, the correction affects the net amount of a later tax period,” the submission said.

“However, the Determination does not purport to affect the attribution of the errors so corrected, unless by implication. It would be useful to have an express provision dealing with attribution of GST and income tax credits under the Determination and making clear that such errors do not then fall under the proposed new subsection 29-10(4) thus needing an election to be made.”

CA ANZ also noted that the ATO is yet to release new guidance on time limits applying to an entitlement to an input tax credit.

The ATO withdrew Draft Miscellaneous Taxation Ruling MT 2018/D1 in December 2019 due to judicial decisions regarding the operation of section 47-5 in Coles Supermarkets Australia Pty Ltd v Commissioner of Taxation [2019] FCA 1582.

“Paragraphs 1.34 and 1.35 of the explanatory memorandum contemplate that the timing issue associated with section 93-5 of the GST Act has been adequately dealt with by the ATO and that there is an agreed position that it is understood by the ATO, taxpayers and the tax profession,” the submission said.

“That is not the case as the ATO has not issued a replacement to MT 2018/D1. Until there is clarity about when an amount is taken into account in an assessment it will be unclear what provision a taxpayer needs to rely on.”

CA ANZ also has two concerns about the election that is needed under proposed subsections 29(5) and (6) of the proposed amendments.

“Our members advise us that the most common situation where these provisions are needed is in relation to where a corporate has acquired a good/service during a tax period and has the tax invoice before the business activity statement (BAS) is lodged, but the accounts payable department process the tax invoice in the next tax period,” the submission said.

“Therefore, the input tax credit is claimed in the subsequent BAS. This affects approximately 20-30 per cent of tax invoices for large corporates. Subsection 29(5) allows the wrongly attributed input tax credit to be applied to a subsequent period but not a prior period. Thus, a corporate cannot elect, to have the input tax credit attributed to the correct period.”

The submission also stated that having to make an election to obtain deferred attribution is cumbersome.

“Consideration should be given to using natural business accounts to determine the legal position rather than creating an extra specific document such as an election, particularly when such issues are so systemic,” the submission said.