How you calculate and pay GST on a progressive or periodic supply that spans 1 July 2000.

Please note that the PDF version is the authorised version of this draft ruling

Please note that the PDF version is the authorised version of this draft ruling

A special transitional rule applies when you make a supply under an agreement or an enactment and the supply is made: • for a period; or • progressively over a period; where the period spans 1 July 2000. The supply is regarded as having been made continuously and uniformly over the period. This rule applies regardless of whether the supply is made at regular intervals.

The type of supply that could be a periodic or progressive supply includes: • memberships of clubs or organisations; • magazine or newspaper subscriptions; • other subscriptions; • insurance policies; • supplies under service or maintenance contracts; • supplies by public utilities; and • public transport tickets issued for a specific period;

This rule will not apply to the extent that you supply goods or real property under a written agreement spanning 1 July 2000 for the construction, major reconstruction, manufacture or extension of a building or a civil engineering work. A separate GST Ruling addresses this issue.

The Australian Competition and Consumer Commission (ACCC) has issued guidelines to help business implement pricing strategies that ensure consumers benefit from the taxation changes and are not exposed to unnecessary price rises. The ACCC will monitor prices to ensure that all price changes are adjusted properly.

This Bulletin addresses the tax periods when GST is attributable on a progressive or periodic supply when you: • use a cash basis of accounting; • use a non cash basis of accounting; • receive payments by instalments.

This Bulletin also contains formulae to calculate GST on a periodic or progressive supply which spans 1 July 2000 when: • you wish to determine a GST inclusive price; • you have not taken GST into account when determining the price; • you wish to calculate input tax credits; • the supply is GST-free for a period on or after 1 July 2000; • the supply is GST-free or input taxed.

If you make a supply under a written agreement made before: • 8 July 1999 if the recipient is entitled to a full input tax credit for the supply; or • 2 December 1998 if the recipient is not entitled to a full input tax credit for the supply;

the supply may not be subject to GST.

If the written agreement identifies the supply and the consideration, the supply will be GST-free until the earlier of: • 1 July 2005; or • a review opportunity that arises under the agreement.

If you make a periodic or progressive supply that spans 1 July 2000, then GST is payable on that part of the consideration that is for the period on or after 1 July 2000. If your customer reimburses you for any taxes, fees or charges, these amounts will form part of the consideration, regardless of whether the tax, fee or charge that was originally imposed on you was subject to GST. An example of a tax which is commonly passed on to a customer is stamp duty. In these circumstances, GST is payable on the consideration (including stamp duty) unless the supply is an insurance policy.

Where you are making a supply of an insurance policy, stamp duty is excluded from the consideration when calculating the amount of GST payable (section 78-5 of the A New System (Goods and Services Tax) Act 1999 ).

The GST payable on the part of the supply that is for the period on or after 1 July 2000 is calculated using the following formula: GST = Consideration (excluding GST) * (days on or after 1 July 2000 / total days in the period) * 10% Example Shauna enters into an agreement to hire Owen a television for a year. 124 days of the hire period are on or after 1 July 2000. The fee (excluding GST) for the hire is $2,500. Shauna calculates the GST payable as follows: GST = $2,500 * (124 / 366) * 10% GST = $84.70 The price of the supply to Owen is $2,584.70.

Note: This calculation will not apply where you supply commercial residential premises that are predominantly for long-term accommodation (and are provided to an individual on that basis). It will also not apply where the supply is partly GST-free or input taxed. Supplies that are partly GST-free or input taxed are addressed separately in this Bulletin.

If you have entered into an agreement to make a periodic or progressive supply that spans 1 July 2000, and did not take GST into account when determining the price, GST may still be payable. Any part of the supply that is a taxable supply (generally the part of the supply that is made on or after 1 July 2000) will be subject to GST.

You calculate the amount of the consideration which relates to the period on or after 1 July 2000 (consideration for the taxable supply) as: (Price * number of days on or after 1 July 2000 * 11 / ((10 * total days in the period) + days on or after 1 July 2000))

You should include this amount at Item G1 of your Business Activity Statement.

You calculate the GST on this amount as: GST = (1 / 11) * consideration for the taxable supply. Example On 31 December 1999, Tracey enters into an agreement to supply James with membership of a gym for a year. At the time of entering the agreement, Tracey does not add GST. Instead, she decides to absorb the cost of the GST within the price of the membership. The price of the membership is $300. 184 days of the membership period are on or after 1 July 2000. Tracey calculates the amount of GST payable on James' membership as follows: Consideration for the taxable supply = ($300 * 184 * 11) / ((10 * 366) + 184) = $157.96 GST payable = (1 / 11) * $157.96 = $14.36

Note: This calculation will not apply where you supply commercial residential premises that are predominantly for long-term accommodation (and are provided to an individual on that basis). They will also not apply where the supply is partly GST-free or input taxed. Supplies that are partly GST-free or input taxed are addressed separately in this fact sheet.

When GST is attributable on a periodic or progressive supply spanning 1 July 2000, the tax period is dependent on: • when you send an invoice for the supply or receive consideration for the supply; and • whether you account for GST on a cash or non cash basis.

Where you receive consideration for a taxable supply before 1 July 2000, you attribute the GST on this supply to your first tax period on or after 1 July 2000. If you receive the consideration on or after 1 July 2000, you attribute the GST to the tax period in which you receive the consideration. Example On 1 May 2000 Jane enters an agreement to lease John a building for a year. John pays the lease fee of $20,000 in full on this date. Jane decides to absorb the cost of the GST. The lease period commences on 10 May 2000. 314 days of the lease are on or after 1 July 2000. Jane calculates her GST liability as follows: Consideration for the taxable supply = ($20,000 * 314 * 11) / ((10 * 365) + 314) = $17,426.84 GST payable = (1 / 11) * $17,426.84 = $1,584.26 attributable to Jane's first tax period.

Where you do not account on a cash basis and you invoice for a taxable supply before 1 July 2000, you attribute GST on this supply to your first tax period on or after 1 July 2000. Where you invoice on or after 1 July 2000, you attribute the GST to the earlier tax period in which: • you receive any of the consideration for the supply; or • you issue an invoice for the supply. Example Club Ltd accounts for GST on a non cash basis and lodges its BAS monthly. On 6 May 2000 it sends Kathleen an invoice for her yearly membership. Kathleen's membership fee of $200 is due on 20 May 2000 but she pays it on 1 September 2000. Club Ltd must account for the GST on Kathleen's membership in the first tax period after it sent the invoice (July 2000).

Where you provide a supply over a period and you receive the consideration progressively or periodically (i.e., in instalments) you attribute the GST for each instalment to the earlier tax period in which: • you receive any of the consideration for that instalment; or • you issue an invoice for that instalment. Example On 1 December 1999 Bill enters into an annual agreement to clean the university grounds. The agreement commences immediately. Although the amount of cleaning varies depending on the time of year, the supply is taken to be made uniformly. Bill's fee is $500 per quarter plus GST. The first quarter ends on 29 February 2000, and on this date he issues his first invoice which states that his client has twenty-eight days to pay the account. Bill calculates his liability for GST on the supply as: $2,000 * (153 / 366) * 10% = $83.61 The total price under the contract is $2,083.61 Bill remits GST on a monthly basis. His invoices and the dates when GST is payable are shown below. Date of invoice Date paid Fee net of GST ($) GST ($) Date when GST is payable using non-cash basis Date when GST is payable using cash basis Total Fee ($) 29 Feb 2000 30 Apr 2000 500.00 Nil Not applicable Not applicable 500.00 31 May 2000 20 Jul 2000 500.00 Nil Not applicable Not applicable 500.00 31 Aug 2000 25 Oct 2000 500.00 33.88 21 Sep 2000 21 Nov 2000 533.88 30 Nov 2000 2 Feb 2001 500.00 49.73 21 Dec 2000 21 Mar 2001 549.73 Example On 20 May 2000 Bill enters into an agreement to lease equipment from Jack for 12 weeks (42 days before 1 July 2000, and 42 days on or after that date). The agreement commences immediately. Bill is required under the agreement to pay $210 per fortnight. He makes all his repayments on the due date. The total fee for the period is $1,260 which includes GST. Jack accounts for GST on a cash basis and remits GST monthly. We calculate the amount of consideration which relates to the period on or after 1 July 2000 (consideration for the taxable supply) as: = ($1,260 * 42 * 11) / ((10 x 84) + 42) = $660 = 1/11 x $660 GST payable on the taxable supply = $60 As the supply (the lease) is regarded as having been made continuously and uniformly over the period, the value of the supply before 1 July 2000 is $600 ($1,260 less $600). In this instance, Jack has received $630 before 1 July 2000, but the value for the supply is only $600. Jack must treat the $30 excess as being consideration for the period on or after 1 July 2000 and must account for this amount in his first tax period. The dates when GST is payable are shown below: Period Amount GST payable (1/11 x price) Date when GST is payable Amount paid prior to 1 July 2000 for supply made after that date. $ 30.00 $ 2.73 21 Aug 2000 1 July 2000 to 14 July 2000 $210.00 $19.09 21 Aug 2000 15 July 2000 to 28 July 2000 $210.00 $19.09 21 Aug 2000 29 July 2000 to 11 August 2000 $210.00 $19.09 21 Sep 2000

Date of invoice | Date paid | Fee net of GST ($) | GST ($) | Date when GST is payable using non-cash basis | Date when GST is payable using cash basis | Total Fee ($)

29 Feb 2000 | 30 Apr 2000 | 500.00 | Nil | Not applicable | Not applicable | 500.00

31 May 2000 | 20 Jul 2000 | 500.00 | Nil | Not applicable | Not applicable | 500.00

31 Aug 2000 | 25 Oct 2000 | 500.00 | 33.88 | 21 Sep 2000 | 21 Nov 2000 | 533.88

30 Nov 2000 | 2 Feb 2001 | 500.00 | 49.73 | 21 Dec 2000 | 21 Mar 2001 | 549.73

Period | Amount | GST payable (1/11 x price) | Date when GST is payable

Amount paid prior to 1 July 2000 for supply made after that date. | $ 30.00 | $ 2.73 | 21 Aug 2000

1 July 2000 to 14 July 2000 | $210.00 | $19.09 | 21 Aug 2000

15 July 2000 to 28 July 2000 | $210.00 | $19.09 | 21 Aug 2000

29 July 2000 to 11 August 2000 | $210.00 | $19.09 | 21 Sep 2000

You use the same rules and formulae for determining the amount of input tax credit. Example Trevor takes out an insurance policy for $1,560* that covers his business assets. The policy provides cover for 222 days before 1 July 2000 and 144 days after 30 June 2000. Trevor's business only makes taxable supplies. He works out his entitlement to an input tax credit as follows. Consideration for the taxable supply = ($1,560 * 11 * 144) / ((10 * 366) + 144) = $649.59 Therefore, Trevor's input tax credit is $59.05 (1/11 of $649.59). If the policy also covers Trevor's private assets his input tax credit is reduced accordingly. For example, if Trevor acquired the policy only 60% for a creditable purpose his credit is reduced to $35.43. * When calculating the consideration for the taxable supply of an insurance policy stamp duty is excluded from the price of the supply by section 78-5 of the A New Tax System (Goods and Services Tax) Act 1999.

Where the supply is GST-free until 1 July 2005 you calculate the amount of the consideration which relates to the period on or after 1 July 2000 (consideration for the taxable supply) as: (Price * days after the GST-free period * 11) / ((10 * total days in the period) + days after the GST-free period) Example On 1 July 1999 Joe Pty Ltd entered a written agreement to provide Anne with an optional warranty. The price of the optional warranty was $700. The GST was absorbed within the price. The warranty period commenced on 1 December 1999 and is for a seven year period. The supply is GST-free until 1 July 2005, as Anne is entitled to a full input tax credit for the optional warranty. The consideration for the taxable supply is: Consideration for the taxable supply = $700 * 519 * 11 / ((10 * 2,557) + 519) = $153.18 GST = (1 / 11) * $153.18 = $13.93

Where the supply is GST-free until a review opportunity arises, and as a result of that review opportunity, the consideration changes, you calculate the consideration for the taxable supply as: ((Price * days after the GST-free period * 11) / ((10 * total days in the period) + days after the GST-free period)) + change in consideration Example On 20 December 1998 Jamie enters into a written agreement to lease a building to Don for a five year period for $5,000. The lease period commences immediately. The agreement contains an agreement to review the price on 31 December 2001. The price is reviewed and increased by $600. The consideration for the taxable supply is: Consideration for the taxable supply = (($5,000 * 719 * 11) / ((10 * 1,826) + 719)) + $600 = $2,683.62 GST = (1 / 11) * $2,683.62 = $243.97

Where you make a supply for a period spanning 1 July 2000 which is partly GST-free or input taxed, you calculate the GST using the following formula: Consideration excluding GST * (days on or after 1 July 2000 / total days in the period) * 10% * % of supply subject to GST

The consideration for the taxable supply is the GST multiplied by eleven. Example On 1 December 1999 Tony leases Julie a building for a year for $10,000 (not including GST). The upper floor of the building contains Julie's residence. On the lower floor Julie operates her antique business. 60% of the lease is in respect of the antique business. Tony calculates the GST as: = $10,000 * (154 / 366) * 10% * (60 / 100) = $252.46 The price of the supply is $10,252.46 The consideration for the taxable supply = $252.46 * 11 * = $2,777.06

Where the supply is partly GST-free or input-taxed, and you have not taken GST into account in the price, you calculate the consideration for the taxable supply as: ((Price * days on or after 1 July 2000 * 11) / ((10 * total days in the period) + days on or after 1 July 2000)) * % of supply subject to GST Example If, in the previous example, Tony decides to absorb the GST (ie., the price is $10,000) he would calculate the consideration for the taxable supply as: = (($10,000 * 154 * 11) / ((10 x 366) + 154)) * (60 / 100) = $2,664.91 GST = (1 / 11) * $2,664.92 = $242.27

If you need more information about how to calculate and pay GST on a progressive or periodic supply that spans 1 July 2000, please contact the Tax Office: • by phone on the Business Tax Reform Infoline on 13 24 78 - you can ring this number from anywhere in Australia for the cost of a local call; • in person by visiting the enquiry counter at certain Tax Offices - Tax Office addresses are listed in TaxPack, and in your White Pages telephone directory; • by A Fax from Tax , our 24 hour fax information service - simply call 13 28 60 (local call cost) on your phone or fax and follow the voice prompts; or • at our Internet site, ATO assist www.ato.gov.au

Produced by the GST Rulings Unit of the Australian Taxation Office