The A New Tax System (Goods and Services Tax Transition) Act 1999 provides special provisions for the treatment of contracts spanning the transitional period and for the changeover from a wholesales sales tax system. The references in this module refer to this legislation unless otherwise stipulated.

The transitional rules are aimed at providing mechanisms to deal with contracts entered into prior to 1 July 2000 to ensure there is no avoidance of GST liability.

Additional discussion can be found on the fact sheets located at:

http://assist.ato.gov.au/reform/facts.htm.

There are some critical dates which need to be noted in relation to the operation of the transitional provisions:

In the absence of the time of supply rules in the Transition Act it may have been possible for a transaction to escape both GST and WST. Other transitional provisions have been introduced to avoid some goods bearing both WST and GST.

Generally:

Type of supply

When the supply or acquisition is made

Goods

When the goods are removed; or

Real property

When the property is made available to the recipient. Special provisions exist for major construction agreements.

Services

When the services are performed.

Special provisions exist for such supplies made on a periodic or progressive basis

When the thing is performed or done. Special provisions exist for such supplies made on a periodic or progressive basis

The purpose of these rules is to clarify the timing of supply because:

Examples of the operation of the time of supply rules

Example 1 : John sells tickets from January 2000 for a concert that will be held in Sydney in September 2000. As the service is being performed after the introduction of GST on 1 July 2000, John will have to account for GST on all the ticket sales (this assumes that John is registered for GST and no special exemptions have been granted).

Example 2 : Paul manufactures kitchens and delivers the necessary components on 29 June 2000 but does not install the kitchen until 2 July 2000. Paul would, if not for the abolition of WST on 1 July 2000, account for WST on the kitchen. As the goods were made available to the client on 29 June 2000 the goods are subject to WST.

Example 3 : Jenny is an accountant providing accounting services to the general public. Her annual turnover is $600,000 (for GST purposes she will account for GST on an accruals basis).

On 20 June 2000, she bills out $75,000 of work in progress to her clients. As the services have been performed prior to 30 June 2000, the relevant fees will not be subject to GST.

As an anti-avoidance measure, contracts entered into before 1 July 2000 for a supply after that date will be deemed to be subject to GST in the first tax period after that date. This measure is to prevent parties trying to avoid the operation of GST by entering into arrangements prior to the commencement of GST.

For example, if the entity runs a fun park and sells an annual pass on 1 November 1999, the entity will be required to account for GST on that part of the ticket which relates to the period after 1 July 2000. This is because, the entity `could reasonably expect entry to be used after 1 July 2000'.

If an agreement is made prior to 1 July 2000 providing for:

For example, if an entity agrees to provide maintenance for certain equipment over a 4 year period from 1 August 1999, the entity will have to account for GST on the pro-rated value of the contract relating to the period after 1 July 2000.

Other examples of progressive supplies would include:

The incidence of liability for GST will depend on a number of factors identified in the next section.

The transitional legislation contains a number of provisions dealing with contracts which are made before 1 July 2000 for supplies made on or after this date. A supply is made on or after 1 July 2000 where:

It is important to note that any supplies made on or after 1 July 2000 under a contract entered into after 8 July 1999 will be subject to GST. However, the transitional arrangements are still relevant for contracts entered into before 8 July 1999.

A reviewable contract is a contract with a "review opportunity".

The ATO will be issuing a Ruling on what constitutes a review opportunity.

There is no review opportunity. The mere inclusion of a CPI or exchange rate adjustment clause does not alter its `non-reviewable' nature.

If suppliers are not entitled to a full input tax credit then GST may apply from an earlier point in time.

In relation to contracts entered into prior to 2 December 1998:

If all the consideration was paid before 2 December 1998, supplies are GST-free until the first review opportunity.

For reviewable contracts, entered into between 2 December 1998 and Royal Assent (8 July 1999), that the GST treatment depends on whether or not the recipient of the supply is entitled to a full input tax credit:

For non-reviewable contracts entered into between 2 December 1998 and Royal Assent (8 July 1999):

There are various other transitional issues associated with the introduction of GST and an outline of these measures is now provided.

From 21 days after the date of Royal Assent to the GST legislation (ie. from 29 July 1999), sales tax was reduced to 22% for most goods which were on the 32% rate (basic luxuries eg.

This is to avoid any onerous effects on the market for these goods as consumers may hold off purchasing in anticipation of significant price reductions after the WST is removed from 30 June 2000.

will continue to be taxed at the 32% WST rate until the commencement of GST.

Where can you get more information about this?

The ATO has issued Sales Tax Bulletin Number 39 - Message about the New Tax System - Reduction of sales tax rate for some goods taxed at 32% and a Taxation Ruling SST16 - Rate reduction credit that provides guidance on how to claim a refund for the difference in WST rates for stock on hand.

Manufacturers or wholesalers who deal in any of the goods affected should charge sales tax at the rate of 22% on those goods from 29 July 1999. On the other hand, retailers who have

been charged sales tax on their stock at 32% on goods that they hold for sale on 29 July 1999 may be entitled to a credit for the difference between the amount of sales tax that was charged to them on purchase or importation and the amount they would have been charged had the rate been 22%.

Applications for the sales tax credit should be sent to the ATO any time after 29 July 1999 and the ATO encourages applications as soon as possible after that date. The ATO warns that it can only accept credit claims for up to 3 years from that date.

There are three possible treatments where a contract exists for granting a right for the remainder of an individual's life:

Special rules apply for transitional contracts involving funerals where the contract was entered into prior to 2 December 1998. The possible treatments are threefold:

The transitional provisions related to motor vehicles are designed to phase in the removal of WST and the replacement by GST. It is noted that the major impact of any price changes for motor vehicles used for private purposes will come into effect on 1 July 2000 as private users will not be able to gain the benefit of any input tax credits. It is suggested that the prices of new motor vehicles may fall after the introduction of GST, however this anticipated price reduction may be offset by a reduction in the value of second-hand vehicles.

The provisions will apply to all constructions,

However, the valuation could be at a later date if the contract is reviewable and the review opportunity occurs after 1 July 2000, but before 1 July 2005. In which case, the valuation may be performed on the date of review.

It is not necessary to get a formal valuation by a valuer or quantity surveyor if the entity's records accurately reflect the value of the work and materials permanently incorporated or affixed to the site.

GST will not apply to the settlement of an insurable event occurring before 1 July 2000.