Australia Tax: Changes proposed for Goods and Services Tax (GST) groups and joint ventures

The Australian federal government released draft legislation on 22 January 2010 aimed at reducing compliance costs and increasing flexibility for Goods and Services Tax (GST) groups. The changes are planned to take effect from 1 July 2010.

The proposed amendments to the Goods and Services Tax Act will allow entities to self-assess their eligibility to form a Goods and Services Tax group, to make membership changes to a Goods and Services Tax group and to dissolve a Goods and Services Tax group, and to do so at any time during a tax period.

Currently, entities need to obtain approval from the Commissioner of Taxation to form, alter or revoke a GST group and to change a Goods and Services Tax group's representative member, and approvals given can only take effect from the first day of a tax period.

The proposed amendments will allow members of a Goods and Services Tax (GST) group to enter into an indirect tax sharing agreement with the Goods and Services Tax group's representative member to limit the indirect tax law liabilities of the members for tax periods in which they are a member of the Goods and Services Tax group. (Currently, each member of a GST group is jointly and severally liable for any amount that is payable under an indirect tax law by the representative member.) Subject to certain conditions, a member with an indirect tax sharing agreement will be able to leave the Goods and Services Tax (GST) group during a tax period clear of any indirect tax liabilities in respect of the tax period in which it exits.

The draft legislation includes parallel amendments for GST joint ventures and joint venture operators, also effective from 1 July 2010.

The proposed changes are being introduced in response to a recommendation of the Board of Taxation following its 2008-2009 review of the legal framework for the administration of Goods and Services Tax (GST). The government has acknowledged that the current arrangements are not optimal for the efficient conduct of business. For example, the time to obtain an approval from the Commissioner can be lengthy and can create uncertainty; allowing grouping and de-grouping only at the start of a tax period can delay commercial transactions or require unwinding transactions for Goods and Services Tax purposes to the start of a tax period; and joint and several liability can mean ongoing uncertainty for entities, even after they leave a Goods and Services Tax (GST) group.