Archive for April, 2010

Last week we looked at Tax Invoices and mentioned that some businesses that were not registered for GST were ripping off the public by adding GST to their invoice. There is no requirement to register for GST when you start a business. The requirement comes in when you expect your turnover to exceed $75,000 per annum. At this point you must register.

If you employ a handyman, painter, plumber etc to do a job around the home, and they quote an ABN and charge GST, you can check their GST registration by going to our website, selecting “useful links” and click on “check an ABN”. In the event they are not registered and you have paid, contact the ATO on 13 128 66 and dob them in.

In business, at times it is not practical for the supplier to create a tax invoice and the purchaser actually creates the invoice. This is known as a “Recipient Created Tax Invoice” or RCTI.

Recipient created tax invoices are usually issued where the purchaser determines the quantity purchased and the value of that purchase. This can occur with agricultural products where the value of what has been delivered has to be calculated, be it Wheat, Wool etc.. Similarly, the delivery of precious metal recycling whereby the value of the product being sold is determined by the purchaser. Coal mining is another example whereby the owner of the coal does not mine the coal but an international company would do that and pay for the coal as it is extracted, determining the amount of coal extracted and the price payable for that coal.

Not everyone can issue RCTIs with the Commissioner of Taxation determining that RCTIs may only be used in certain industries. These determinations are contained in a series of RCTI Determinations, which can be found at www.ato.gov.au and include, for example Road Transport, labour services and Financial Planning Services. It should be noted that many of the RCTI determinations contain further requirements and definitions that must be satisfied before the RCTI Determination can be relied upon.

For an RCTI to be issued there are several conditions that must be satisfied.

They include:

• both the supplier and recipient must be registered for GST
• the recipient must issue the tax invoice to the supplier within 28 days of determining the value of the taxable supply and the recipient and the supplier must have in place a written agreement in relation to the RCTI . This agreement must specify amongst other things, details of the supplies to which the agreement relates, that the recipient must issue tax invoices in respect of the specified supplies and that the supplier and recipient acknowledge that they are registered and will notify the other party if the registration ceases.

For the invoice to be valid, it must contain the same details as required for a tax invoice for more than $1,000 as discussed last week.

As we are all aware, every time we buy or sell something an invoice of sorts is produced, whether it be computer generated, hand written or produced by a cash register.

The introduction of the GST, some 10 years ago, meant that an invoice became more important especially if business wanted to claim back the GST paid for its purchases. This meant the introduction of “Tax Invoices”. A tax invoice is a particular type of invoice which contains specific items of information needed for the effective operation of the GST system.

Where a business is registered for GST and completes its monthly or quarterly BAS to settle its GST holdings with the ATO, the business can only claim an input tax credit if it holds a valid tax invoice. Where a business claims an input tax credit on the basis of a tax invoice that does not comply with ATO requirements they may be exposed to penalties in addition to being denied input tax credits.

The GST Act requires that tax invoices be in the approved form as set out in Section 388-50 in schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA).

These requirements are:

For an invoice of more than $1,000 the tax invoice must state the words “tax invoice” prominently; the date of issue; the suppliers name and ABN; the name of the recipient; the address and ABN of the recipient;  a brief description of the item(s) supplied; for each description, the quantity of goods or the extent to which the service was supplied; the GST inclusive price of the item supplied and

–    if the GST payable is 1/11th of the total price the tax invoice must also state “the total price includes GAST” or the amount of GST

if the GST is payable is less than 1/11th of the total price, the tax invoice must state the amount payable (excluding GST) and the total amount of GST payable.

For an invoice of less than $1,000, the tax invoice must state the words “tax invoice” prominently; the date of issue; the suppliers name and ABN (this is important); a brief description of the item(s) supplied; the GST inclusive price of the item supplied and

–    if the GST payable is 1/11th of the total price the tax invoice must also state “the total price includes GST” or the amount of GST ;

if the GST is payable is less than 1/11th of the total price, the tax invoice must state the amount payable (excluding GST) and the total amount of GST payable.

This tells us that the requirements for an invoice of less than $1,000 are basically the same as for an invoice of more than $1,000 except it is not necessary to provide; the name of the recipient; the address or ABN of the recipient and the quantity of goods or the extent of the service supplied.

It is important to note that in order to claim the GST paid, a valid tax invoice must exist, and the person charging the GST must be registered for GST. Unfortunately there are a lot of businesses out there that charge GST, are not registered for GST and have effectively charged you an extra 10% for their services.

To check if the provider of the goods or services is actually registered for GST you can go to our website, select “Useful Links” and Check an ABN”.  By the way, you do not need a tax invoice for purchases of less than $75.00 which, in most cases is a receipt for fuel purchases.

Next week we will look at RCTI’s.

The Tax Office certainly makes a rod for it’s own back when creating new tax laws, but then it is not the ATO that makes the law, it only interprets it and then the Courts decide as to whether the ATO interpretation is correct or not. This is what makes tax law so interesting and challenging.

Two interesting cases have been heard in recent months. One concerns GST and the definition of bread. As the law stands, GST does not apply to bread, but it does apply to crackers, biscuits, wafers and pretzels. This case concerns the Mini Ciabatte, this is not a car but an Italian bread, or so claim the importers and Italian food experts. The ATO say it is a cracker. The difference, about $85,000 in GST

In a landmark case in the Federal Court in Melbourne, expert witnesses from Italy and Australia have lined up to say the Tax Office is wrong. During three days of evidence, they broke the Mini Ciabatte – to consider the cracking sound it made – and discussed the subtle differences in cell structure between crackers and flat breads, the flakiness versus the crunch when put to the bite test, and the amount of yeast, oil and protein found in bread and crackers.

The importer if the Mini Ciabatte also imports Grissini Breadsticks, which are a bread,  The makers of the Mini Ciabatte say that the fermentation process for making the product is exactly the same as in bread making. The ATO claimed that Coles sold the product under its biscuits and cookies category but the defence also noted that it was sold alongside other savoury products, including the Mini Toast, sold GST free as a bread..

An Australian cereal chemist who vouched for the product as a bread, Dr Ken Quail, came under intense questioning. As,Dr Quail held the the product, Mr Jeremy Geale, the barrister for the Deputy Commissioner of Taxation , suggested Dr Quail crack it. “and what was the sound you heard when it cracked? Mr Geale asked.

“A crack” Dr Quail replied.

“A crack. A crisp crack?”

“Yes”

But the defence countered by suggesting the same exercise be conducted with other exhibits that the Tax Office had agreed were breads, including Lazat flat bread, Panne Croccante, Vita Vigor Grissini Breadsticks and Mini Toasts.

“Because all of those items are GST free and they crack” the defence argued.

Mr Geale conceded this point and the court was spared a prolonged crack test. Final submissions will be considered during February.

Another case involving the taxpayers money concerns the glasses you wear. GST applies to the frames but not the lens. This is known as a mixed supply and if the frames are sold at a discount then the GST component is reduced so the price is even cheaper. This case was important because it meant that if a product was sold that combined GST free goods with GST applicable goods then the amount of GST charged has to be pro-rated.  In this case the supplier claimed a GST refund of $132,670 after finding that customers should only be charged GST on the price of the frames, not for the price of the frames and lens together. The Administrative Appeals Tribunal agreed and also found that the supplier did not have to pass on the GST refund to consumers.  Another win for small business?

All this because the Greens made sure GST did not apply to everything.