Special rules apply to provide certain treatments for specific transactions that would otherwise be accounted for differently under the general provisions of the Act for a variety of purposes.

The Division contains a check list of all the 37 special rules contained in the legislation and where to find the relevant provisions.

If the entity makes supplies through an agent, the entity and not the agent, will need to account for the GST and be entitled to any input tax credits. The general law of agency applies such that a thing done by an agent as agent for the entity is a thing done by the entity.

The entity can claim the input tax credit when either the entity or the agent holds a tax invoice.

Likewise either the entity or the agent can issue a tax invoice, but only one tax invoice can be issued.

Similar rules apply regarding the issuing of adjustment notes for a decreasing adjustment.

If the entity is registered and sells items by lay-by, the supply is subject to GST. If the lay-by sale is cancelled, the entity may keep the payments made up to the cancellation date. The amount retained is consideration for a supply.

Where a business (the entity to which the supply is made) had made those payments in order to acquire a thing in carrying on its enterprise it would be entitled to an input tax credit of 1/11 th of the amount retained by the supplier.

This special rule applies where companies amalgamate for example, where one company takes over another company or two companies merge. The rules ensure that GST does not apply to certain transactions made as part of the amalgamation process. The application of the rule avoids unnecessary accounting costs for the amalgamating companies. It also prevents the manipulation of the timing (attribution) of GST and input tax credits.

In some cases goods which may only be temporarily imported into Australia, may not attract customs duty immediately provided the importer gives a security to Customs. In these

cases, GST is also delayed until when and if any duty is eventually payable. This means there will be no GST, unless customs duty becomes payable.

Where goods are sent overseas for repair, GST will only apply to their subsequent importation on the value of the repair or renovation and not on the entire value. This is because the goods would already have been subject to GST at the time they were initially acquired.

For example, Claudia owns a Longine watch which is now broken. The watch is sent to Switzerland for repair and returned to Australia. The value of the watch is $700, the value of the repairs is $200 and the cost of postage is $100. Claudia will need to pay GST on $300 on re-importation of the watch ($200 plus $100).

This provision operates in association with Division 13. Imported goods become subject to GST when they are entered for home consumption. In some cases, goods are regarded as being taxable even where they have not been entered for home consumption. Broadly, these categories include:

For example Mario collects model cars. He orders some model cars from England out of a catalogue. He pays $800 for the model cars which includes postage. When the goods arrive in Australia they are not required to be entered for home consumption because of the operation of paragraph 68(1)(e) of the Customs Act. However, customs duty will be payable on these goods and because of Division 114, GST will also be payable on the model cars.

Division 78 is divided into four Subdivisions canvassing, insurers, insured entities, third parties and insured entities that are not registered.

How is the insurer treated? (Subdivision 78-A)

The insurer will, in most cases, be entitled to input tax credits.

Where an insurance company makes a settlement in money or a supply or both a payment and a supply under an insurance contract, the payment or supply is treated as consideration for

an acquisition made by them. The acquisition is a creditable acquisition if the insurer settles the claim for a creditable purpose and the insurer is registered or required to be registered.

However, Subsection 78-5(3) requires that the insurance policy by the insurer to be a taxable supply (eg. not GST-free like health insurance). Section 78-10 sets out the amount of input tax credit that the insurer is entitled to. The insurer is generally entitled to an input tax credit in relation to the settlement of 1/11 th of:

For example, a registered insured pays a $660 premium, including GST, for a policy to cover its business car that is used entirely in making taxable supplies. The insurer is also registered.

The insurer accounts for $60 GST. The insured accounts for $60 input tax credit.

The car is damaged in a road accident and the repairs will cost $5,500 including GST.

The insured makes a claim of $5,500 under the policy.

The insurer pays the insured the $5,500 and accounts for an input tax credit of 1/11 th of the settlement, that is, $500. The receipt of the settlement by the insured is treated as consideration for a taxable supply and the insured accounts for 1/11 th of the settlement ($500) as GST. This leaves $5,000 to repair the car. The insured spends $5,500 to repair the car

and is entitled to $500 input tax credit as the repairs are a creditable acquisition

Where the settlement paid by the insurer is in respect of a non-taxable policy or part of the policy is non-taxable (eg. travel insurance policy that includes a health insurance element as health insurance is GST-free) no input tax credit is available to the insurer to the extent it relates to a non-taxable policy.

For example, a registered person pays a premium for a health insurance policy. Health insurance is GST-free under Section 38-55 and so no GST is included in the premium. The person makes a claim for a pair of runners, the GST inclusive price of which is $110. The insurer cannot claim an input tax credit of $10.

How is the insured treated? (Subdivision 78-B)

Where an insurance company makes a settlement under an insurance contract, the insured entity gives up a right to recover from the insurer.

If the insured is registered, the giving up of a right will be a taxable supply by acceptance of the insurance payout provided the claim related to the period when the entity was entitled to an input tax credit on the premium. This is the case even where the entity may no longer be registered for GST when the settlement is made (Subsection 78-30(3)).

The insured will have to account for GST on 1/11 th of the payment received. It will have to do so even if the payment or supply is made to another entity.

The monetary settlement is a GST-inclusive amount. The insurer has charged GST on the premium and the insured has claimed an input tax credit. In making the monetary settlement, the insurer can claim an input tax credit and the insured is required to account for GST on the amount received. In both cases there is no net GST collected.

For example, an unregistered insured pays a $660 premium, including GST, for a policy to cover its car. The insurer is registered. The insurer accounts for $60 GST. The insured is not entitled to an input tax credit in relation to the premium.

The car is damaged in a road accident and the repairs will cost $5,500, including GST.

The insured makes a claim of $5,500 under the policy. The insurer pays the insured the $5,500 and claims an input tax credit for 1/11 th of the settlement, that is $500. The receipt of the settlement by the insured is not treated as consideration for a taxable supply and so there is no GST on the settlement. This leaves $5,500 to repair the car.

The amount of excess a registered entity pays in settling a claim will not be consideration for a supply (section 78-35). Section 78-40 allows the value of the taxable supply an entity is treated

as having made on settlement to be reduced by an amount equal to 10/11ths of the amount of the excess.

Often, as part of a settlement, a supply is made to the insurance company by a registered entity.

For example, the insurance company taking possession of a car insured under its policy which has been damaged in an accident. Under the normal GST rules, the insured would have to account for GST as it would be a taxable supply.

However, Section 78-45 applies in these circumstances to ensure that the transaction is not considered to be a taxable supply and the insured does not need to account for GST.

Section 78-15 applies so that the acquisition by the insurer is not treated as a creditable acquisition.

The insurance company will, therefore, not be able to claim an input tax credit for this acquisition.

How are payments to third parties treated?

(Subdivision 78-C)

Subdivision 78-C deals with third party payments. The effect of this Subdivision is to limit the GST treatment of insurance to the parties to the insurance contract. Payments made to third parties by insurers as part of a settlement are not treated as consideration for a supply to the insurer to the extent that the payment is made in respect of a policy that does not insure the third party (Section 78-65).

Similarly, the making of a payment by an entity to another entity to discharge a liability to the entity will not be treated as consideration for a supply if that payment or supply is covered by the settlement of a claim under an insurance policy in which the insured was insured against that liability.

Therefore, there will be no GST on that payment or supply.

For example, a registered insured pays a $660 premium, including GST, for a policy to cover it for damage to others. It damages another registered entity's car that the other entity uses entirely in making taxable supplies. The insurer is also registered. The insurer accounts for $60 GST on the premium. The insured accounts for a $60 input tax credit.

The damages to the other entity are $5,000. the insured makes a claim of $5,500 under the policy (the policy has been written to anticipate the GST consequences of any settlement).

The insurer pays the insured the $5,500 and accounts for an input tax credit of 1/11 th of the settlement, that is, $500.

The receipt of the settlement by the insured is treated as consideration for a taxable supply and the insured accounts for 1/11 th of the settlement ($500) as GST. This leaves $5,000 to pay to the other entity. The insured pays the other entity $5,000. The other entity has received $5,000, but this is not considered a taxable supply, so there are no further GST implications.

(Subdivision 78-D)

As noted earlier, an insured who receives a settlement in respect of a policy for which input tax credit was claimed for the GST included in the premium is required to account for GST even if no longer registered or required to be. In this case, Sections 78-80, 78-85 and 78-90 provide for how the now unregistered entity has to account for the GST payable (this will require a special return).

This is sometimes referred to as the `reverse charge' rule. This rule ensures that GST will be payable on a supply not involving goods or real property (e.g. intellectual property rights)

that is made outside Australia but is consumed here. It applies where the supply is going to be used other than solely for a creditable purpose.

While importation of goods would be subject to GST on importation there is no general provision imposing GST on importation of intangible things.

This rule makes the recipient in Australia and not the supplier account for the GST on the supply, hence the reverse charge tag.

For example, if not for Division 84, a supply of a thing that is not goods or real property, such as an intellectual property right, could be made outside of Australia when the thing is for consumption within Australia.

Under Subsection 9-25(5), it would not be subject to GST because the supply would not be connected with Australia, and therefore would not be a taxable supply. There would be no GST on the thing under the GST on importation provisions as GST is charged on the importation of goods only.

Division 84 will make this a taxable supply and makes the recipient of the supply, rather than the supplier (who may not be in the Australian GST system), liable to pay the GST.

The payment of fines, taxes and charges may be consideration for a supply. This means that GST will be included in such a tax.

The Commonwealth Treasurer will issue a determination specifying certain taxes to be excluded from GST.

Certain statutory refund schemes exist which provide for a refund of deposits on the return of certain containers. This division allows input tax credits for the acquisition of returnable

containers from people not making taxable supplies. The return of soft drink bottles to the corner store is useful to illustrate the operation of the section, As the bottles are returned to the store by consumers they are not taxable supplies and the shopkeeper would have no entitlement to an input tax credit on the consideration paid. The special rule in Division 93 allows an input tax credit on 1/11 th of the consideration for the acquisition.

If an entity supplies the property of another registered entity (the debtor) to a third entity in or towards the satisfaction of a debt that the debtor owes the entity, the entity will be responsible for accounting for GST on that supply even if the entity is not registered.

Under these circumstances, the Commissioner will require the entity to furnish a return to the ATO.

Not all supplies in satisfaction of a debt are taxable. Only those supplies which would have been taxable if made by the debtor are taxable. The supply is not a taxable supply :

(Division 132)

Where the entity acquires or imports something for which the entity is not entitled to a full input tax credit (due to some partial use for making financial supplies), the entity will need to make an adjustment if the entity later sells the thing in a taxable supply.

The legislation sets out the method to calculate the amount of the adjustment the entity must make.

If a supply is made up of a mixture of goods or real property, or anything other than goods or real property, and only part of the supply is connected with Australia, the supply will be treated as separate supplies (Subsection 96-5(1)).

Division 96 provides for GST or input tax credit to be calculated only on the value of the supply that is connected with Australia. If not for this special rule, the amount of GST or input tax credit in respect of the supply may be calculated on the entire supply.

Where part of the supply is merely incidental to the other part of the supply, the minor incidental part is treated in the same manner as the other part. Therefore, in this instance, the supply is not treated as separate supplies (Subsection 96-5(4)).

Generally, non-residents and Australian residents going overseas will be able to obtain a refund of GST paid on goods purchased in Australia and taken overseas as accompanied baggage.If the goods are subsequently brought back into Australia, GST will be payable on the value exceeding any duty free allowance the entity may be entitled to at that time.

Further details on how the refund scheme is to operate is to be provided for in regulations under the GST legislation.

Taxable supplies of goods in bond are given a higher value than would otherwise apply, because the price of a supply in bond does not include any customs duty or excise duty that would be included after entry of the goods for home consumption.

Subsection 108-5(1) ensures that GST is calculated on the value of the supply including a component for the amount of any customs or excise duty that would have been paid if the goods had been entered for home consumption.

The legislation contains a number of provisions dealing with transactions between associates. These rules ensure that supplies to associates without consideration are brought within the GST system and that supplies to associates of an entity for inadequate consideration are properly valued for GST purposes.

The GST law adopts the definition of associate as per the definition in the Income Tax Assessment Act 1997. This definition is extremely broad and includes relatives and closely connected trusts and companies.

There are three circumstances pursuant to Division 72:

If an entity receives a supply from an associate without consideration and the entity is not entitled to a full input tax credit, the input tax credit is worked out as if the entity had paid full market value (including GST) for the supply.

For example, Joe is a plumber registered for GST and supplies plumbing services to his sister Sarah. Sarah is also registered as a hairdresser. The market value of the services was $550.

Sarah did not pay her brother any consideration despite the services being performed partially (50%) in relation to her hairdressing business.

Joe will account for $50 ($550 divided by 11) and Sarah will be entitled to an input tax credit of $25 ($50 multiplied 50%) in the tax period in which the plumbing services were performed.

For example, if Sarah had not been registered and paid $110 for the supply, Joe would attribute $50 as GST payable ($550 divided by 11). The GST is attributed to a tax period when the plumbing services are performed. Sarah would not be entitled to an input tax credit as she is not registered.

If Sarah was registered, she would be entitled to the appropriate input tax credit amount.

To avoid the need for gambling operators to charge GST on every bet taken, special rules have been made for the gambling industry. These rules apply to gambling in casinos, gaming machines in clubs and hotels, lotteries, raffles, betting on racing and other events.

Determination of GST on every bet would be prohibitive to the gambling industry, hence the amount of GST on gambling is calculated:

Accordingly, gambling operators are only entitled to input tax credits for the acquisition of non-money prizes.

If the non-money prize has been donated, the entity to which the goods or services are donated will not be entitled to any input tax credit. Therefore, GST will equal 1/11 th of the total margin.

For example, where the gambling is a raffle, GST will be imposed on the margin which is the total ticket sales less money paid in the prize pool. However, where the prize is not money, GST will apply to the margin being total ticket sales as no cost is imposed on the donated goods.

GST is payable if second-hand goods are supplied by a registered entity.

If an entity buys second-hand goods, from an unregistered entity there will be no GST in the price.

Under the general GST rules the entity is not entitled to an input tax credit. However, the special rule in this division allows an entity to claim an input tax credit where goods are acquired from an unregistered entity and the registered entity subsequently supplies the goods in a taxable supply.

The input tax credit is the lesser of:

However, the availability of the input tax credit is dependent upon the following conditions:

The rules for attributing the input tax credits, where the value of the acquisition is $300 or more, are different to the general attribution rules in section 29-10.

The tax period in which the input tax credit can be claimed is linked to the tax period in which the subsequent taxable supply of the second-hand goods is made (section 66-15). If the value of the acquisition is less than $300 the general rules in section 29-10 apply.

If a registered entity makes a taxable supply of a freehold interest in land, strata unit or long-term lease the supply is subject to GST. GST will generally be calculated on the full value of the supply and input tax credits can be claimed if the property is acquired by a registered entity.

Division 75 alters the general rules by allowing the entity to choose to calculate the GST applicable to the transaction in a concessional manner by using a margin scheme. The margin scheme applies to interests held on 1 July 2000 and supplies of interests after that date.

GST is 1/11 th of the margin for the supply.

The margin is the

The cost of any improvements to the land made after 1 July 2000 is not included in the original purchase price.

If the original purchase price is more than the sale price there is no positive margin.

The method is to ensure that GST is payable on the value added by the enterprise, for example, the value added by a property developer who supplies new houses.

Interests held on 1 July 2000.

the value as at 1 July 2000 must be used to work out the margin on the supply - not the original purchase price.

No.

If a purchaser acquires property from an entity that calculated the GST liability under the general rules (Section 9-70) and later resells the property, the GST liability can only be calculated using the general rules. The vendor cannot choose to calculate GST for the supply using the margin scheme.

Where an entity acquires real property from a supplier who has calculated GST on a margin scheme, input tax credits are not available (Subsection 75-20(1)).

However, the purchasing entity may choose to apply the margin scheme when making a subsequent taxable supply of the property.

(Division 87)

Section 87-25 allows a supplier of long term commercial accommodation to choose whether to apply Division 87 to the supply of commercial accommodation or to apply Subdivision 40-B and treat all supplies of long term accommodation as input taxed. Once a choice is made to treat these supplies a particular way, the supplier cannot change that choice for 12 months.

Division 87 provides two different methods for valuing supplies in commercial residential premises.

The provisions alter the general position by allowing the value of the supply of long term residential accommodation to be lowered, facilitating long term occupants of those residences paying a reduced amount of GST.

Division 87 will only apply where the accommodation is long term. Accommodation is only long term where provided for a consecutive period of 28 days or more.

The two methods of valuation allow a reduction of the value of the supply to an individual where:

Commercial residential premises are defined to include hotels, inns, hostels, camping grounds and accommodation connected with primary or secondary schools. The supply of a home unit in a townhouse complex would not be a commercial residential premises as it lacks the requisite commercial nexus.

Subsection 87-20(3) defines `predominantly used for long term accommodation' as where at least 70% of the occupants are long term residents.

Treatment where accommodation provided at premises which predominantly provide long term accommodation.

The method of calculation under this scenario is:

For example, where an individual stays at a boarding house providing long term accommodation to over 70% of residents for more than 27 days, the value of the rate charged per night will be reduced. If the charge per night was $110 ($100 plus 10% GST), the reduced value of the supply would be $55 with GST to be payable of 10%. That is, GST payable on the supply would be $5.50.

Therefore, the charge to the individual would be $105.50 per night, being the sum of the tax exclusive value of $100 plus GST of $5.50.

The method of calculation under this scenario is:

It is also possible for the supplier to choose to treat all supplies of long term accommodation as input taxed. In doing so, the supplier will be unable to claim input tax credits related to the supply of the long term accommodation.

Generally, security deposits are refunded when the entity meets necessary obligations. To avoid the payment of GST followed by an adjustment on the refund on such deposits, special provisions will apply.

The payment of a security deposit is not treated as consideration for a supply (and hence not subject to GST), unless the deposit is forfeited or applied against the consideration for the supply.

If the deposit is forfeited or is applied towards the consideration for the supply, GST is paid on the amount of the deposit. The GST is attributed to the tax period in which the deposit is forfeited or is applied towards the consideration.