Draft GST Ruling on Single RE Fees

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The Commissioner has released a Draft GST determination (GSTD 2013/D1) setting out his view on the treatment of ‘single RE fees’. The Draft determination also sets out a suggested means of apportioning a single fee between 55% and 75% RITC rated elements.

On 8 May 2013, the Commissioner released GSTD 2013/D1, dealing with the application of item 32 of subregulation 70-5.02(2) of the GST Regulations to a single fee charged to a managed investment scheme (MIS) that is a recognised trust scheme from a Responsible Entity (RE). Comments are required by 5 June 2013, and the GSTD is proposed to apply from 1 July 2012, when item 32 came into operation.

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In the first GST general anti-avoidance matter to be considered by the High Court of Australia, the Court has unanimously allowed an appeal by the Commissioner of Taxation (Commissioner) in relation to the application of the GST general anti-avoidance rules (GAAR). In finding for the Commissioner, the High Court held that despite the taxpayer’s arrangement involving a series of choices or an agreement each of which were expressly provided for under the GST law (choices), the GST benefit obtained was “not attributable” to these choices, but to the wider arrangement.

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The government has released a new exposure draft on the proposed changes to the GST refund rules which are still intended to take effect from 17 August 2012 (the date of the original announcement). While the new draft purports to address concerns with the initial version, it still leaves a number of questions for taxpayers.

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A recent decision of the Federal Court involving the GST adjustment provisions has the potential to significantly impact property investors who have purchased residential premises as a GST-free going concern.

On 6 February 2013, the Federal Court handed down a decision which may affect investors acquiring residential premises which are subject to lease. The case, MBI Properties Pty Ltd v Commissioner of Taxation [2013] FCA 56, follows the earlier decision of South Steyne Hotel Pty Ltd v Commissioner of Taxation [2009] FCAFC 155, in which the Full Federal Court held, among other things, that the sale to MBI of certain units in a serviced apartment complex subject to leases to a management company, were GST-free supplies of going concerns.

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In a majority decision, the High Court has found that GST is payable by Qantas when a customer books and pays for domestic air travel, but subsequently cancels the booking or does not turn up for the flight, and does not receive a refund of the unused fare.

This case concerns the fundamental issue of whether in these circumstances, Qantas makes a supply to the passenger for consideration and therefore, whether the supply is a taxable supply pursuant to s9-5 of the A New Tax System (Goods and Services Tax) Act 1999.

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The Commonwealth Government has released exposure draft legislation which proposes to amend the goods and services tax (GST) law to ensure that overpayments of GST are only refunded in limited circumstances. On 17 August 2012, the Treasury released exposure draft legislation and explanatory material on changes to the rules concerning refunds of overpaid GST. These changes seek to address the implications of the Full Federal Court’s decision in All Sports v Commissioner of Taxation [2011] FCA 824 ('Sportsbet'). The Sportsbet decision meant that a taxpayer could obtain a refund for overpaid GST, without the need to repay this amount to the customer, where the excess arose due to a miscalculation of the GST payable.

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On 29 May 2012, amendments to the GST financial services regulations were released, including wide ranging new regulations relating to the reduced input tax credit treatment of supplies acquired by managed investment schemes and superannuation funds. The new rules apply from 1 July 2012.

The amendment regulations introduce a new item 32 of GST regulation 70-5.02(2) under which supplies acquired by a 'recognised trust scheme' on or after 1 July 2012 will be eligible for a 55 per cent reduced input tax credit (RITC). Certain specified services will remain eligible for the 75 per cent RITC.

The amendment regulations contain various changes to the exposure draft regulations issued by Treasury in January this year.

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On 30 May 2012, the Australian Taxation Office issued GST Ruling GSTR 2012/2: Financial assistance payments outlining the Commissioner's view on when a payment of financial assistance is consideration for a supply. The new ruling replaces GSTR 2000/11: Grants of financial assistance, which is withdrawn effective 30 May 2012.

Payers of financial assistance are typically, but not limited to, Governments, Government agencies, non-profit bodies and charities.

GSTR 2012/2 replaces a ruling which was relied on by many entities granting financial assistance in the Government and not-for-profit sector, where that financial assistance did not satisfy the requirements of a Government appropriation. While the core themes of GSTR 2000/11 remain the same in the new ruling, many of the examples have been updated and refined and the obligations arising as a result of grant payments explored in more detail to determine whether or not an obligation to remit GST falls on the recipient of a grant of financial assistance. Unlike the draft, GSTR 2012/2 does not consider the implications of financial assistance payments made under tripartite arrangements which is disappointing, given that so many Government grant arrangements involve a third party. Taxpayers will have to rely on the ATO's guidance in GSTR 2006/9 in that regard.

Unlike the old ruling, GSTR 2012/2 confirms that in relation to repayment clauses, these are no longer viewed by the ATO as determinative of a supply being made by the recipient of the grant payment. The new ruling contains an example of a situation where a repayment clause does not give rise to a taxable supply by the recipient of the grant funding payment.

The new ruling addresses situations where there is an insufficient nexus between the payment made by the grantor and a supply, such as where the thing supplied by the payee is merely incidental. It also provides a more comprehensive analysis of the creation of expectations between the parties and whether or not this gives rise to a supply (the original ruling stated that the creation of mere expectations was insufficient to create a supply).

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After a lengthy and at times frustrating consultation process with the States, Federal Treasury has finally released its draft regulations for Division 81 for broader consultation. While cutting it fine in terms of the looming deadline of 1 July 2012, the proposed draft is most welcome.

Since the new principle based approach was announced in the 2010-11 Federal Budget, agencies were assured that the application of the new approach to its fees and charges would be a seamless one and that the treatment of fees and charges should be the same as in the old regime.

However, it became very clear very early on that this wasn't going to be the case. Since the legislation took effect from 1 July 2011 it was obvious that very serious surgery would be required to expand and clarify the application of Division 81 using the regulation making power if it was to work as intended.

Faced with the pending deadline of 1 July 2012 when the "grandfathering" period is currently due to expire, agencies (and the Australia Taxation Office (ATO), which has been inundated with ruling requests) have attempted to determine the likely GST treatment of fees and charges knowing full well that any initial determination made was likely to be affected - even overturned- by the pending regulations.

The proposed draft addresses the main concerns government agencies have had with the new Div 81 legislation. And even better, the Draft Regulations extend the "grandfathering" period by an additional 12 months to 1 July 2013, providing a much needed breathing space for agencies to accurately identify any changes required and seek certainty from the ATO where needed.

A more detailed analysis of the changes is set out below. The Draft Regulations and related documentation can be accessed on the Treasury website.

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Gun Plans Don’t Conflict With Justices’ ’08 Ruling

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Legal experts say the decision in the case, District of Columbia v. Heller, has been of mainly symbolic importance so far. There have been more than 500 challenges to gun laws and gun prosecutions since Heller was decided, and vanishingly few of them have succeeded.

The courts have upheld federal laws banning gun ownership by people convicted of felonies and some misdemeanors, by illegal immigrants and by drug addicts. They have upheld laws making it illegal to carry guns near schools or in post offices. They have upheld laws concerning unregistered weapons. And they have upheld laws banning machine guns and sawed-off shotguns.

Nor does Heller impose any major hurdles to many of the most common legislative proposals in the wake of the Newtown shootings, said Adam Winkler, a law professor at the University of California, Los Angeles, and the author of “Gunfight: The Battle Over the Right to Bear Arms in America.” Among the responses that Heller allows, he said, are better background checks, enhanced mental health reporting and a ban on high-capacity ammunition clips.

There is one major possible exception to the trend, and it is quite fresh. Last week, a divided three-judge panel of the United States Court of Appeals for the Seventh Circuit, in Chicago, struck down an Illinois law that banned carrying loaded guns in public. Judge Richard A. Posner, writing for the majority, said the ruling was required by the Heller decision.

The Heller case, decided by a 5-to-4 vote, struck down a ban on handguns kept in the home for self-defense, saying it violated the Second Amendment.

After the shootings on Friday in Newtown, which killed 20 children and 7 adults before the gunman took his own life, policy makers — mostly Democrats — have called for tougher gun laws. Of the 12 deadliest mass shootings in American history, six have occurred since 2007.

The proposed measures include bans on some kinds of weapons and ammunition magazines, more sharing of information among government agencies, and an expansion of the settings in which background checks are required. In California, Democratic lawmakers are seeking to regulate ammunition sales more tightly.

The main obstacle to the passage of such measures is likely to be politics, not constitutional law, scholars say.

“We are aware of the problem of handgun violence in this country,” Justice Antonin Scalia wrote for the majority in the Heller decision. “But,” he added, “the enshrinement of constitutional rights necessarily takes certain policy choices off the table.”

Still, the decision also contained a long list of laws and regulations that would, the court said, be unaffected. Among them were “laws forbidding the carrying of firearms in sensitive places such as schools.”

“Nothing in our opinion should be taken to cast doubt on longstanding prohibitions on the possession of firearms by felons and the mentally ill,” Justice Scalia wrote. Government buildings in general could still ban guns. And the court said it had no quarrel with “laws imposing conditions and qualifications on the commercial sale of arms.”

Justice Scalia added that laws banning “dangerous and unusual weapons” are “another important limitation on the right to keep and carry arms.” He gave an example: “M-16 rifles and the like.”

When the case was argued in 2008, Justice Scalia suggested that other kinds of weapons and ammunition could be regulated. “I don’t know that a lot of people have machine guns or armor-piercing bullets,” he said. “I think that’s quite unusual.”

Jonathan E. Lowy, director of the Brady Center to Prevent Gun Violence’s Legal Action Project, said the Heller decision thus did very little to restrict possible Congressional responses to the Newtown shootings.

The Supreme Court has not yet ruled on an issue left open in Heller: whether the Second Amendment forbids blanket bans on having guns for self-defense outside the home. Last week, the Seventh Circuit said it did.

The two central words in the phrase “to keep and bear” have different meanings, Judge Posner wrote, and the second one “is unlikely to refer to the home.”

“A Chicagoan,” he wrote, “is a good deal more likely to be attacked on a sidewalk in a rough neighborhood than in his apartment on the 35th floor of the Park Tower.”

Judge Posner reviewed the empirical literature about the practical consequences for crime and safety of bans on carrying guns in public, and he found it inconclusive. Justice Stephen G. Breyer came to a similar conclusion about gun-control laws generally in his dissent in Heller.

“Anyway,” Judge Posner wrote, “the Supreme Court made clear in Heller that it wasn’t going to make the right to bear arms depend on casualty counts.”

A ban short of a blanket prohibition might be permissible, he added, and the court gave the Illinois Legislature 180 days to enact a new law. One suggestion: it could prohibit guns “merely in particular places, such as public schools.”

The decision is in tension with recent ones from federal appeals courts in New York and Virginia, which is often a sign that an issue is heading to the Supreme Court.

For now, though, there is something like consensus that the court’s existing decisions will not stand in the way of most legislative responses to the recent shootings.

In a speech to the Brady Center in October, former Justice John Paul Stevens, who dissented in Heller and retired in 2010, said the decision was wrong but limited.

“Even as generously construed in Heller,” he said, “the Second Amendment provides no obstacle to regulations prohibiting the ownership or use of the sorts of automatic weapons used in the tragic multiple killings in Virginia, Colorado and Arizona in recent years. The failure of Congress to take any action to minimize the risk of similar tragedies in the future cannot be blamed on the court’s decision in Heller.”

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