*This update applies to businesses that are GST registered from 1 December 2012, or intend to apply for GST registration in the future*
Under regulation 40 of the GST (General) Regulations, GST incurred prior to the date of GST registration are allowed as "pre-registration input tax claims" on the basis that they are attributable to taxable supplies to be made after the date of GST registration, and subject to other conditions being satisfied.
The IRAS has now released, in greater detail, a 17-page guide on when such claims are allowed. Further, where pre-registration input tax claims are incurred in relation to supplies straddling the GST registration, apportionment of such pre-registration input tax is required. The guide explains the situations and the apportionment methods to be used for the purpose of calculating the pre-registration input tax allowed. The latter section was not a requirement in the past and is now a new requirement introduced by the IRAS.
While the rules governing pre-reigstration input tax has been in place since 1 April 1994, the IRAS has granted a concession for the above guide to apply to businesses that are registered for GST with effect from 1 December 2012 only.
Based on our preliminary review of the e-Tax guide, the claim for pre-registration input tax from 1 December 2012 has become more complicated and will require additional time and effort by businesses in reviewing their claims, in particular where the supplies made straddle the GST registration date. Why? To begin, the rules governing pre-registartion input tax for goods and services are different. In addition, IRAS has introduced apportionment methods for the claims (different apportionment methods are used based on the nature of goods/services incurred as well as the scenarios). Some may find it difficult to apply the GST concepts and rules, especially if the business is newly registered for GST.
Do bear in mind that such claims can only be made in the first GST return. Penalties may apply if there are errors in the GST return, in this case, for wrongful claims of input tax.
(Note: We have written to IRAS to clarify on one of the examples in the guide. Under Section 6.1 of the guide, it was mentioned that services supplied more than 6 months prior to the date of GST registration is not claimable. However, in Example 8 (Pg 10), the services were incurred more than 6 months prior to the GST registration date, and was allowed partially as an input tax as they related to goods sold after the date of GST registration.
Clearly, this goes against the rules under the GST regulations for claims of pre-registration input tax on services. We are still awaiting a response from the IRAS on this matter. Hence, if you have situations similar to Example 8, you may wish to hold back on such pre-registration input tax claims. [Afternote on 11 Dec 2012: IRAS has confirmed that the above is indeed an error. Corrections will be made to the example.])
If you require any assistance, please feel free to contact us at Ask@GSTaxConsultancy.com or at Tel: 6652 5509.