The Explanatory Memorandum (EM) to this amending legislation indicates that the supply of property tax advice by a local tax agent to a non-resident property owner in the course of preparing the owners tax return is subject to GST because the acquisition of the advice is indirectly related to an input taxed supply of the rental property.
The question that arises in this context is whether it is only the advice that is subject to GST or whether it is the supply of the total tax return preparation service (of which the advice in this case could be considered to be only one element or component of that service) .
Background
The relevant amending legislation in this case is contained in Tax Laws Amendment (2004 Measures No. 6) Act 2005. Its purpose is to ensure that services supplied by an Australian real estate agent from 1 April 2005 to a non-resident owner of rental property will be subject to GST if the owner intends to make a supply of the property by way of renting or selling (excluding the sale of new residential premises) it.
Industry view / suggested treatment
We believe that the most appropriate treatment in this case would be for the supply of tax agent services and/or tax advice to non-resident property owners to continue to be GST-free as was the situation prior to the recent amendments. Alternatively, if GST is to apply in this situation, it is imperative that the ATO clarify whether GST is to apply to the supply of the tax return preparation service or only to the tax advice component, and if the latter, how the tax advice component should be determined for GST purposes.
There may, of course, be situations where a local tax agent provides property tax advice to a non-resident property owner separately from the preparation of that persons tax return (see example 3 in draft taxation determination TD 2004/D22), in which case GST may only apply to the supply of this advice and not to the supply of the tax return preparation service.
Technical references
Tax Laws Amendment (2004 Measures No. 6) Act 2005 and the relevant EM, particularly the following extract:
Delia, a non-resident landlord of Australia, owns a rental property on the Gold Coast. She acquires tax advice in the preparation of a tax return from a local tax agent which includes advice on the rental property. The acquisition of the advice is indirectly related to an input taxed supply of the rental property. The supply of this advice is not GST-free under section 38-190 because of the operation of subsection 38-190(2A).
There is no direct ruling product at this stage as this Act was only enacted in late March 2005. As noted above, however, draft taxation determination TD 2004/D22 may be relevant to certain aspects of the matter.
Impact on clients
Where a tax agent provides advice to a client (including a non-resident property owner) in the course of preparing a clients return, the agent would normally just charge the client a single fee for the preparation of the return rather than separating the total charge into separate components. If the new rules only require the property advice component to be subject to GST then the agent would need to identify that part of total tax return preparation cost that related to the advice on the rental property (perhaps by way of a reasonable apportionment of the total return cost) and apply the GST to that component only. Alternatively, the agent may decide to provide the tax advice separately from the tax return preparation service. Either way, there would clearly be an increase in compliance costs for both parties.
A broad range of tax agents are likely to be potentially affected by this measure, given that it affects all those agents who prepare tax returns for non-resident residential landlords.
While the precise revenue implications may depend on the type of action taken by the ATO (i.e. GST-free treatment, applying GST to the advice component or the supply of the tax return preparation service), they would not appear to be material regardless of which approach is adopted.
Priority of issue where ATO view is required and why
High priority. As the amending legislation referred to above is now operative, there is a clear need to clarify the position in this area as soon as possible to minimise compliance costs and also ensure that inadvertent non-compliance with the new provisions does not arise. Adoption of the GST-free solution as proposed would avoid these problems.
Has previous advice been sought from the ATO?
We are not aware of any previous advice being sought from the ATO on this matter.
