The New Tax System and inter-library lending (ILL)

Types of lending arrangement
There are three types of inter-library lending transaction: those for which payment is made either through payment of money or through the use of vouchers; those provided as part of a contra deal arrangement where some items are effectively swapped (as occurs in some consortia); and those provided free-of-charge as a public good. Most libraries in Australia follow the Australian Interlending Code, developed by the Australian Council of Library and Information Services in 1998.

ILL for which payment is made is GST-liable, whether the payment is in money or vouchers. The delivery charges on which the cost of the transaction is based are set out in the Australian Interlending Code.

Where inter-library lending takes place as a kind of contra deal, where effectively, one library provides materials to a library in another organisation on the assumption that the second will - in due course - provide materials to the first, and therefore no charges are levied, GST will be payable. A value to which the GST will apply should be attributed. This value could be derived from the Australian Interlending Code. Each library involved in resource-sharing arrangements will be responsible for remitting to the ATO the GST on the transactions where it has supplied material. Each library may also be entitled to input tax credits.

Sometimes, libraries provide inter-library lending services free-of-charge for the public good. This is particularly the case with libraries with highly-specialised collections. In these circumstances, the provision of inter-library lending may be considered a donation, and therefore no GST will apply. However, it is essential that the services are provided without any conditions and that the recipient is not expected to provide anything in return, otherwise the character of the donation is lost and GST will apply. In addition to the 'no strings attached' condition, both the requesting and the supplying library must be dealing at arms length. That is, on terms which would be offered to other libraries.

In summary, any ILL transaction, except for those which are clearly identifiable as donations, are liable for GST and the supplying library will be expected to remit the GST to the Tax Office, even where they have received no payment.

Administration of interlending and the GST
Interlending has always required librarians to maintain records of which items were sent to which libraries and when their return is expected. The voucher system was introduced originally to help librarians to simplify the payment system, by batching the financial transactions associated with resource-sharing and minimising the number of transactions dealing with relatively small sums of money. In the development of new procedures for implementing the GST in ILL, the batching of financial transactions will be important.

It is important for librarians to work with the finance section of their organisation to ensure that the record-keeping and accounting procedures adopted for ILL are feasible and appropriate to the professional demands of both information professionals and accountants.

As part of their discussions, libraries - together with their finance section - should determine the regularity of their reporting and the format for their reporting. It is important that the reporting be straightforward and so far as possible based on existing reporting mechanisms. PricewaterhouseCoopers has suggested that a single form could be used to notify the finance section of the relevant details of each transaction, regardless of whether the library is in the position of the supplier or recipient of the service. This may be appropriate for libraries with a low volume of interlending traffic.

GST-compliant tax invoices for inter-library lending and document-supply transactions are required for transactions over $50.00. However, even though most individual ILL transactions will have a value less than $50.00, documentation will have to be kept to verify that the GST was paid by the requesting library. A system based on tax invoices is therefore the most appropriate form of documentation for most libraries, even if the value of goods or services is less than $50.00.

The Australian Tax Office (ATO) has advised ALIA (10 April 2000) that it will accept as a tax invoice, a request bearing a rubber stamp imprint incorporating all necessary information required on a tax invoice such as: request for payment stating the price and that this is 'GST-inclusive', quoting the ABN and date of supply, and titled 'Tax invoice'.

The discussions between information staff and thier finance section should also determine whether special accounts will need to be opened to manage the payments of GST and how money will be debited from and credited to that account and to other accounts in the organisation related to the payment of GST.

It is likely that many organisations will establish a GST account, from which GST liabilities are remitted to the ATO each tax period. Within the library, an ILL income account may already exist or one may be established to manage the GST payments. At each reporting period, GST to be paid would be transferred from the library's ILL income account, by a journal transfer, into the organisation's GST account. The decisions on how to manage the GST input tax credits and remittances should be made in collaboration with the finance section.

The National Library of Australia has provided a description of the way in which it proposes to handle the payment of charges for use of its document delivery system, outlining the Kinetica Document Delivery Payments Service, the monthly account system and the credit-card payment system.

Libraries - large and small - will use either cash payments, a mixture of cash payments and ALIA ILL vouchers or ALIA vouchers alone. Vouchers are a form of currency and therefore the redemption of the vouchers by a library and subsequent cash payments from ALIA are not subject to GST, although GST will be applied to the administrative handling charge on purchase of the vouchers.

In a framework of invoice and cash payment, the voucher system can still be an attractive way of paying for inter-library loans. Libraries will have to decide how frequently they will purchase and redeem vouchers. The decision will depend on the number of transactions, whether a library is a net lender or a net borrower and on the demands of the finance section of the organisation. A likely frequency could coincide with the GST tax periods, that is, either monthly or quarterly, although many libraries will purchase and redeem vouchers in the same way that they have always done.

The following simple example, based on one developed by PricewaterhouseCoopers shows how voucher-based transactions would take place after 1 July 2000. It differs from the way transactions would have been carried out up until 1 July 2000 in the documentation to be kept and the reports which have to be sent to the ATO.

1. The library purchases from ALIA a stock of vouchers. If the library has been a net lender, and therefore holds a number of vouchers representing the cost of particular ILL transactions, they may choose to purchase only vouchers to cover the cost of the GST on the transaction. So, a library holding eighty-seven $3.00 vouchers, may choose to purchase a book of $0.30 vouchers. Or, they may choose to cash in the vouchers they hold and start afresh by purchasing vouchers which include the GST component.
2. ALIA supplies the vouchers, including GST in the administrative cost of supplying the vouchers.
3. The library requests a copy of a journal article from another library.
4. The supplying library sends the item requested and a tax invoice for the transaction, being the standard ILL rate of $12.00 plus the GST of $1.20 and keeps a record of the transaction.
5. The requesting library pays with vouchers to the value of $13.20 and keeps a record of the transaction.
6. At the end of the tax reporting period (either monthly or quarterly), the library will reconcile all of its ILL transactions. That is, it will calculate the amount of GST collected from ILL and the amount of GST paid to other libraries for ILL, which can be claimed as an input tax credit. The input tax credit can be offset against the GST collected.
7. It will then notify the finance section of the amount of GST to be paid or claimed for the tax period and will remit (or claim) that amount to the Tax Office. The summary of the transactions will be included in the Business Activity Statement for the tax period.
8. If a library at the end of the relevant tax period is in a position where they have to remit money to the ATO, vouchers may need to be forwarded to ALIA for redemption; ALIA will endeavour to make payment before the library is required to remit to the ATO, that is, before the twenty-first day of the month following the tax period. At the same time, the library will make arrangements for a journal transfer from its income account to the organisation's GST account (if that is the arrangement made within the organisation.) The income from the redeemed vouchers will be paid into the income account, to maintain a credit balance.
9. If a library is in a position where they can expect a payment from the ATO of input tax credits which exceeds the amount of GST payable, they will not need to redeem vouchers and can keep them for future use.

A librarian in an academic library has described how he believes inter-library lending will operate in the library where he works, using the voucher system. He indicates:

'From the point of view of this library we see no real difficulty in coping with GST and continuing to use vouchers for the payment of interlibrary loans. Effectively, from 1 July the cost of each standard interlibrary loan will increase to $13.20 ($12.00 standard fee, plus $1.20 GST). ALIA has already stated that vouchers will shortly be available to allow libraries to deal with the GST increase. What then needs to change?

'We will have to keep an internal record of each ILL, both received and sent and account for the amount of GST each represents, remembering that where there is a 'no charge' agreement in place we still have to pay $1.20 GST on the transaction assuming it is a standard ILL.

'At the end of each month we will then remit to the finance section a return of ILLs, appropriate documentation and a journal transfer form to authorise the transfer of the net amount of GST owing from the library's ILL income account to the institution's GST account so they can write the cheque for the government.

'As we happen to be net lenders, then from time to time we will need to cash some of our ALIA vouchers in to top-up the income account and allow the GST to be drawn from it. At present, we are trying to keep a float of $500.00 of vouchers and will cash in the excess from time to time. Net borrowers will, of course, have to make provision for the costs or credit internal charges to the account.

'Why bother? some people suggest. ALIA vouchers have always represented - and still continue to represent - the easiest and most cost-effective way of dealing with ILL charges. The paperwork involved in using credit-cards, drawing cheques or paying cash is just not worth it and Kinetica is not ubiquitous. We believe in providing a good service to other libraries and part of that involves meeting their diverse payment needs. GST has changed nothing - apart from requiring more paperwork and generating a lot of hot air.'

Tax invoice requirements
The ATO has issued Draft GST Ruling 1999/D10 which sets out the requirements for tax invoices and what is the approved form of a tax invoice. To be entitled to claim an input tax credit, generally you must hold a tax invoice. A tax invoice for a taxable supply must: be issued by the supplier, unless it is a recipient-created invoice; set out the ABN of the organisation that issues it; set out the price for the supply; contain such other information as the regulations specify; and be in the approved form. An invoice in electronic form is a tax invoice - if it provides all the information required by the legislation.

A supplier does not have to issue a tax invoice and a recipient does not have to hold one to claim an input tax credit if the value of the taxable supply is $50.00 or less. However, documentary evidence is required to support all input tax credit claims. For most supplies, a value of $50.00 corresponds with a price of $55.00.

This threshold applies on the basis of the taxable supply as a whole. This means that the requirement to issue and hold a tax invoice applies to a transaction where the total value (excluding GST) of the taxable supply of the items, when added together, exceeds $50.00. For example, if the transaction comprises the sale of five items, each with a value of $20.00, a tax invoice is required because the total value of the taxable supply exceeds $50.00.

This is general information about the law. It is not intended to be a substitute for independent legal advice and it should not be relied upon for this purpose.