Transactions involving nominations
(Clauses 15 and 18)
Summary of proposed amendments
The GST legislation is to be amended to clarify that, in transactions involving nominations, when a contractual purchaser nominates another person to receive the goods or services from the contractual vendor, the GST treatment should be determined on the basis of the transaction’s economic substance. The amendment will ensure that the GST Act 1985 provides guidance regarding the GST treatment of transactions that involve more than two parties.
The amendment will apply from 1 April 2011.
New section 60B will be added to the GST Act 1985 to clarify the GST treatment of transactions involving nominations – that is, when a contractual purchaser nominates another person (a nominee) to receive the goods or services from the contractual vendor.
In these circumstances, the GST treatment will depend on which party provides payment for the supply of goods or services:
- In transactions when the contractual purchaser provides the full payment for the supply, there will be only one supply from the vendor to the purchaser. The purchaser will be the only party entitled to an input tax deduction (section 60B(2)).
- When a nominee settles the transaction by paying the full purchase price to the vendor, the proposed rules will treat the arrangement as involving one transaction – from the vendor to the nominee (section 60B(3)).
- When both a contractual purchaser and the nominee contribute to the payment for the supply, the proposed new rules will treat the transaction as involving a single supply between the vendor and the purchaser, with the purchaser being entitled to the input tax deduction (section 60B(4)). However, the purchaser and the nominee will be able to override this default rule by explicitly agreeing that the supply of the property be treated as a supply by the vendor to the nominee. No such agreement can, however, be made if the purchaser has already claimed input tax in relation to the supply.
- Notwithstanding the above, when a contractual purchaser and the nominee have a different registration status, the transaction will be always treated as involving a single supply between the vendor and the nominee, with the nominee being entitled to the input tax deduction, if any (new section 60B(5)).
- Under other changes proposed in the bill (clause 10), GST-registered vendors will be required to charge GST at the rate of 0% on any supply to a registered person involving land or in which land is a component. The proposed nomination rule for situations when a purchaser and the nominee have a different registration status may potentially affect whether such a transaction is zero-rated.
The proposed nomination rules will also affect the tax invoice requirements. In normal circumstances, a taxpayer must have a tax invoice to claim an input tax deduction. In transactions involving nominations, a nominee may not have the tax invoice as it may have been issued to the purchaser. In these circumstances, new section 24(7B) will require a nominee to maintain records that would allow information such as the name and address of the supply, the date of the payment for the supply, a description of the goods supplied, and the payment for the supply to be ascertained.
GST is often described as a tax on transactions. Most transactions involve only two parties – a contractual vendor and a purchaser – and much of the GST Act operates on that assumption. The GST Act is not generally designed to cater for transactions involving nominees. Nominee transactions would ordinarily involve a purchaser nominating another person (a nominee) to receive the goods and/or settle the transaction.
In the absence of appropriate guidance, taxpayers have sometimes been uncertain about the GST treatment of nominee transactions, especially in relation to claiming input tax deductions.
The Government consulted on the proposed legislative clarification of the nomination rules as part of the 2009 discussion document, GST: Accounting for land and other high-value assets. Submitters on the discussion document generally supported the proposed approach to determine the GST treatment of transactions involving nominations on the basis of the transaction’s economic substance. The bill reflects this approach and gives taxpayers greater certainty when entering transactions involving nominees.