Further deferral of Board of Taxation recommendations

The implementation of a number of Board of Taxation recommendations that were to commence from 1 July 2011 will now be deferred.

The deferral applies to the following recommendations:

• Adopting the income tax self assessment regime for indirect taxes;
• Reforming the rules that govern change of use adjustments;
• Allowing adjustments for pre-registration acquisitions;
• Clarifying the treatment of tax law partnerships;
• Simplifying the GST grouping membership rules and allowing grouping of non-operating holding companies and trusts;
• Amending indirect tax sharing agreement provisions, and
• Introducing a reverse charge for supplies of going concerns and farm land.

The revised start date for these measures will now be the first quarterly tax period after the amending legislation receives Royal Assent, or, if more appropriate, a later quarterly tax period after Royal Assent.

According to the Budget papers, the deferral will allow additional time for the development of these measures in consultation with relevant stakeholders.

The Government will also not proceed at this stage with the 2009-10 Budget measure to provide an option to treat certain business to business supplies as taxable.

Treatment of new residential premises

In Commissioner of Taxation v Gloxinia Investments (Trustee) [2010] FCAFC 46, the Full Federal Court held that the sale by a developer of newly constructed premises that had been subject to a development lease arrangement was an input taxed supply of residential premises that was not subject to GST when sold to home buyers and investors. 

To overcome the decision in this case, the Government will introduce amendments designed to ensure that:

• From 3 October 2007, the sale of newly constructed residential premises under development lease arrangements will be treated as a taxable supply of new residential premises;
• From 1 July 2000, the granting of individual strata lot leases over newly constructed residential premises will not be sufficient in itself to make future supplies of the premises input taxed; and
• From 1 July 2000, any change in property title arrangements will not result in the premises once again becoming new residential premises. 

Transitional arrangements will apply to ensure that taxpayers who entered into arrangements on the basis of the Gloxinia decision will not be disadvantaged by the amendments provided the arrangements were entered into prior to 27 January 2011, which was the date the Government first announced the proposed amendments.  

Sales of property by mortgagees in possession

Mortgagees in possession that sell property in satisfaction of an existing debt are required to account for GST on the sale if the sale of the property by the debtor would have been a taxable supply.

In some circumstances, the mortgagees in possession may also qualify as representatives of incapacitated entities, which are governed by a distinct set of rules under the GST law that require the representative to obtain a separate GST registration in their capacity as a representative of the incapacitated entity.

The Government will amend the law to ensure that entities in the mortgage lending sector can continue to use their existing GST registration to report obligations in relation to sales of property as mortgagees in possession, rather than needing to obtain a new GST registration.  This measure will take effect from 1 July 2012.

Extending the GST instalment system to entities in a net refund position

Currently, the GST Act allows small businesses to meet their GST reporting and payment obligations by electing to pay GST by instalments on a quarterly basis with an annual reconciliation, usually at the time of lodgement of the entity’s income tax return.

However, the ability to make the election is currently denied if the entity is in a net refund position, which is generally where the entity’s input tax credit entitlements exceed its GST liabilities in the 12 months preceding the current tax period that applies to the entity.

The GST instalment system rules will be amended to allow small businesses in a net refund position to choose to access the instalment system, with an instalment amount each quarter of zero.  Any liability payable by the entity or refund owing to the entity will be reconciled in their annual GST return.  This measure will apply from Royal Assent.