The Australian Taxation Office (ATO) has recently released two (2) draft rulings which will have implications for many of our readers.
Draft Taxation Ruling GSTR 2011/D1 - dealing with Tax Invoices
and Draft Taxation Ruling TR 2011/D2
This ruling sets out the ATO’s views on the meaning of “charitable” and “funds established for public charitable purposes”.
The ruling rewrites the previously issued taxation ruling TR 2005/21 in light of recent court decisions. Some of the main changes in the draft ruling include:
- the addition of new key terms such as “charitable purpose”, “public charitable purposes”, “purpose”, “objects”, “sole purpose”, and “tax law”
- an entity can be charitable if it has a purpose of generating public debate with a view of influencing legislation, government policies or activities as long as the subject matter comes within the four (4) heads of charity (relief from poverty, needs arising from old age, sickness and distress, as well as the advancement of education);
- a charitable organisation’s status will not be affected by non-charitable political activities which are incidental;
- the charitable status of an institution will not be affected by it carrying on a business or commercial enterprise to give effect to its charitable purpose;
- the objectives in the constitutional documents as well as the activities performed, are the main factors when determining the purpose of a charitable institution;
- an institution can be charitable even if its activities are not intrinsically charitable;
- an institution with the power to accumulate funds can still be charitable; and
- where the objects of an institution are charitable, the fact that it can distribute surpluses to owners or members in furtherance of those objects does not preclude it from being charitable as long as certain conditions are met.
Trustees whose only function is the management of a trust fund consistent with the terms of a trust deed will not qualify as a charitable institution.
The ATO considers the enquiry as to the purpose of a charity to be a holistic one. It is the substance and reality of the institution’s purpose that must be determined. The objectives in the constituent documents of an institution, and the activities by which those objectives are achieved, are the main factors to be considered in determining the purpose of the institution.
Where state legislation extends charitable status to various purposes, those purposes are not, as a result, also deemed to be “charitable” for Commonwealth taxation purposes. According to the ATO, only Commonwealth legislation is intended to apply, and does apply, for Commonwealth taxation purposes.
Draft Taxation Ruling GSTR 2011/D1
This ruling seeks to achieve the following in relation to tax invoices:
- set out the minimum information requirements for a tax invoice;
- explain when a document is in the approved form for a tax invoice;
- explain the circumstances when a recipient of a supply can treat a document as a tax invoice even though it does not meet all ATO requirements;
- explain when a document is taken to be a tax invoice for the purposes of a GST group even though the group member that is the recipient of the supply is not identified in the document; and
- include a summary of the circumstances where the ATO has determined that a taxpayer can claim GST without a tax invoice.
The ruling specifies that a tax invoice must include information to establish the identity of the supplier, and the recipient if applicable. Information sufficient to identify the supplier includes, the legal name of the entity, the business name, or the trading name. A tax invoice must also include sufficient information to identify the things supplied including quantity and price.
A tax invoice must also contain enough information to determine the extent to which a supply is a taxable supply. The ATO says this requirement will be satisfied if the tax invoice includes:
- the amount of GST payable for each supply; or
- a statement of the extent to which the supply is taxable supply; or
- identifying each taxable supply with a corresponding statement of the extent to which the supply is a taxable supply.
The document must make clear that it was intended to be a tax invoice or a recipient credit tax invoice. This must be satisfied by reference to the document itself. The ATO says other documents relating to the intentions of the supplier are irrelevant.
Circumstances in which a tax invoice need not be held include where:
- the value of the taxable supply is less than $75; or
- the GST is reverse charged; or
- a recipient is claiming GST for a creditable importation.
If you wish to discuss how either of these draft tax rulings may impact upon your situation, please contact Ellingsen Partners.