Title: Tax Briefing GST Basics
1Tax Briefing GST Basics
- Achieving VPS Taxation Compliance
- Presented by Greg Berry
- Ernst Young
2Agenda
- Introduction to GST
- Special Rules
- BAS Completion
- Correcting GST Mistakes and Penalties
- Case Studies
3What is the GST?
- A tax system which applies
- to supplies
- for consideration
- in the course or furtherance of an enterprise
- connected with Australia
- by a registered person
- NB. But some exclusions
4Types of Supplies
- Taxable Supply
- Broad base
- GST-Free Supply
- Education, Health, Exports, Some foods etc.
- Input Taxed Supply
- Financial Services etc.
- Outside Scope
- Salaries and wages, non-registered suppliers etc.
5Supply
- Any form of supply whatsoever
- Includes (but not limited to)
- Supply of goods/services
- Provision of advice or information
- A grant, assignment or surrender of real property
- A creation, grant, transfer, assignment or
surrender of any right - A financial supply
- An entry into, or release from, an obligation
- To do anything or
- To refrain from an act or
- To tolerate an act or situation
6Consideration
- Includes any payment, act or forbearance in
connection with a supply of anything and - Any payment, act or forbearance in response to or
for the inducement of a supply of anything - Can be monetary or non-monetary
7What is an enterprise?
- Series of activities
- In the form of a business
- significant commercial activity
- intention to make profit
- size and scale of activity
- not a hobby, recreation or sporting activity
- In the form of an adventure or concern in the
nature of trade - Regular and continuous basis
- By the trustee of a fund to which deductible
gifts can be made - By a trustee of a complying superannuation fund
8What is an enterprise?
- By a charitable institution or by a trustee of a
charitable fund - By a religious institution or
- By a Commonwealth, a State or a Territory, or by
a body corporate, or corporation sole,
established for a public purpose by or under a
law of the Commonwealth, a State or a Territory - What is not an enterprise?
- Employee activities
- Private recreational pursuits or hobbies
9Connected with Australia
- Supply of goods wholly within Australia
- Supply of goods from or to Australia
- Supply of real property that is in Australia
- Supplies of anything else if either
- The thing is done in Australia or
- The suppler makes the supply through an
enterprise that the supplier carries on in
Australia (ie. permanent establishment)
10Registration
- Required to be registered if
- entity carrying on an enterprise and
- annual turnover equals or exceeds 100,000
(non-profit bodies) or 50,000 (all others) - May choose to be registered if not required to be
registered
11Taxable supplies
ATO
2
4
4
10
6 - 2
10 - 6
Wholesaler
Consumer
Retailer
Manufacturer
22
66
110
Price 20 Plus Tax 2 22
Price 60 Plus Tax 6 66
Price 100 Plus Tax 10 110
12GST-free supplies
ATO
2
(6)
4
0
6 - 2
0 - 6
Wholesaler
Manufacturer
Consumer (Overseas)
Exporter
22
66
100
Price 20 Plus Tax 2 22
Price 60 Plus Tax 6 66
Price 100
13GST-free supplies - Examples
- Some Food
- For human consumption
- Place of consumption
- Health services
- Only where supplied to the end user
- Education
- Recognised courses only
14GST-free Supplies - Examples
- Exported goods
- 60 day time limit
- Exported services
- Rights etc.
- Some services to overseas entities will be
GST-free - To be GST-free, services
- Must not be directly connected with goods or real
property in Australia - Must not be a supply of work physically performed
on goods situated in Australia when the thing is
done - However, legislation has many other requirements
15GST-free supplies - Examples
- Non-commercial activities of charitable
institutions - Water, sewerage, drainage
- Sale of a Going Concern
- All the things necessary for the continued
operation of an enterprise must be supplied - Supplier must carry on enterprise until the day
of the supply - Supplier and recipient must be registered for GST
- Supply must be for consideration
- Agreement in writing
- Grants of land by government
16Input taxed supplies
ATO
2
(0)
4
6
6 - 2
0 - 0
22
Wholesaler
Manufacturer
Consumer
Bank
66
100
Price 20 Plus Tax 2 22
Price 60 Plus Tax 6 66
Price 100
17Input taxed supplies - Examples
- Financial Supplies
- Loans
- Sale and acquisition of shares
- Interest component of hire purchase
- Life insurance
- Residential rent and residential premises
- School tuckshops and canteens
- Fund raising events conducted by charitable
institutions
18GST and input tax credits
- Supply GST Payable Input Tax Credit
- Taxable Yes Yes
- GST-free No Yes
- Input Taxed No No
19Acquisitions
- Creditable acquisitions where an entity
- Acquires anything for a creditable purpose
(defined) - The supply of the thing was a taxable supply
- The entity provides, or is liable to provide,
consideration for the supply - The entity is registered or required to be
registered - Input tax credits can be claimed in relation to
creditable acquisitions
20Acquisitions
- Creditable purpose anything acquired in
carrying on the entitys enterprise that - Does not relate to supplies that would be input
taxed or - Is not private or domestic in nature
21Importations
- An importation will be a creditable importation
where - It is imported solely or partly for a creditable
purpose and - The importation is a taxable importation
- The importer is registered or required to be
registered - Creditable purpose has similar meaning
- Taxable importation
- Goods must be imported and entered for home
consumption - Must not be a non-taxable importation
- GST paid to Customs or deferred
22Adjustments
- Adjustment events
- Bad debts
- Changes in extent of creditable purpose
23Adjustment Events
- An adjustment event is an event that
- Cancels the original supply or acquisition
- Changes the consideration for a supply or
- Causes a supply or acquisition to stop being or
become a taxable supply or creditable acquisition.
An adjustment note for a taxable supply must be
issued by the supplier within 28 days of the
supplier becoming aware of the adjustment.
24Bad Debts
- Where a debt is treated as bad, an adjustment
can be made - If a debt has been overdue for 12 months an
adjustment can be made - Where a bad debt subsequently becomes good (ie.
payment is received), entities will be required
to pay the GST back to the ATO
25Change in extent of creditable purpose
- Where an input tax credit is claimed based on
extent of creditable purpose, and the extent of
creditable purpose subsequently changes - Need to make adjustments to take into account the
change in extent of creditable purpose - Special rules for timing of adjustments to be
made
26Turnover Thresholds
- Registration
- Tax period
- Accounting for GST
- Electronic Lodgement
- Instalment
27Registration
- Required to be registered if
- entity carrying on an enterprise and
- annual turnover equals or exceeds 100,000
(non-profit bodies) or 50,000 (all others) - May choose to be registered if not required to be
registered
28Tax Periods
- May be monthly or quarterly
- Monthly if annual turnover equals or exceeds 20m
- Usually quarterly if annual turnover less than
20m
29Accounting for GST
- Cash basis if annual turnover less than
1,000,000 - Accrual basis if annual turnover equals or
exceeds 1,000,000 - pay GST on earlier of receipt of any
consideration or issue of invoice - claim credit on earlier of payment of any
consideration or receipt of invoice
30Others
- Electronic lodgement threshold
- 20 million
- Instalment turnover threshold
- 2 million
31Attribution of GST Payable
- Cash basis
- Attribute GST based on actual amounts of
consideration received - Accruals basis
- Total GST liability in relation to a taxable
supply is attributable to - The tax period in which any of the consideration
is received for the supply or - If earlier, the tax period in which an invoice
was issued relating to the supply - Note invoice can be any document notifying an
obligation to make payment and can be different
from a tax invoice
32Attribution of input tax credits
- Cash basis
- Attribute credit based on actual amounts of
consideration provided - Must hold a tax invoice
- Accruals basis
- Input tax credit entitlement should be attributed
to - The tax period in which you provide any of the
consideration for the acquisition or - If, before consideration is provided, the tax
period in which an invoice is issued - Must hold a tax invoice
33Attribution of Adjustments
- An adjustment is attributable to the tax period
in which you become aware of the adjustment - Must hold an adjustment note before a decreasing
adjustment can be made
34Documentation
- Tax invoices
- Adjustment notes
- Recipient created tax invoices and agreements
- Policies and procedures manuals
35Tax Invoices
- Need a tax invoice to claim input tax credits
- Suppliers have a legal obligation to issue a tax
invoice within 28 days of a request (where the
supply is at least 50) - All tax invoices should be inspected to ensure
they satisfy the tax invoice requirements
36Tax Invoice Format
- Format for supplies of 1,000 or more
- the ABN of the supplier
- the price for the taxable supply
- the words Tax Invoice stated prominently
- the date of issue of the tax invoice
- the name of the supplier
37Tax Invoice Format
- the name of the recipient
- the address or ABN of the recipient
- a brief description of each thing supplied and
- for each description the quantity of goods or
extent of services supplied - A statement that the total includes GST, or the
GST payable - Format for supplies of less than 1,000
- only items 1, 2, 3, 4, 5, 8 and 10 highlighted
above
38Adjustment Notes
- An adjustment note for a taxable supply gt 1000
must show - the ABN of the entity issuing it
- the words Adjustment Note stated prominently
(or tax Invoice where a credit results) - the date of issue of the adjustment note
- the name of the supplier or agent of the
supplier - the name of the recipient or agent of the
recipient - the address or ABN of the recipient or agent of
the recipient
39Adjustment Notes
- a brief explanation for the adjustment (eg REF,
REB) - the difference between the price of the supply
before and after the adjustment event and - the amount of adjustment to the GST payable or a
statement that the difference in price includes
GST. - Adjustment notes for a taxable supply lt 1,000
- No requirement to disclose
- the name of the recipient or agent of the
recipient - the address or ABN of the recipient or agent of
the recipient
40Recipient created tax invoices
- May be issued in certain circumstances by the
recipient of the supply. - May need to apply to the ATO for permission to
issue recipient created tax invoices - Need to enter into an agreement
- Format similar to tax invoices
- May reduce administration in some situations
41RCTI Agreements
- Must specify that
- The recipient can issue tax invoices
- The supplier will not issue tax invoices
- That the supplier and recipient are registered
for GST, and that each party will inform the
other if registration ceases - That the recipient will not issue a document that
would otherwise be an RCTI if the supplier fails
to comply with any of the requirements
42Policies and procedures manuals
- Policies and procedures should be documented
- Assists new staff taking over existing roles
- Assists in showing the ATO that an effort has
been made to comply with relevant taxation
requirements PS 2002/8 - DTF Tax Compliance Framework requirement
43Special Rules
44Grants and Appropriations
- Appropriations not subject to GST
- Grants may or may not represent consideration for
a taxable supply made by the grantee - Grantee may be required to issue a tax invoice to
the grantor - Alternatively, recipient created tax invoices may
be issued
45Contra Arrangements
- Where Entity A provides goods and services, and
receives payment in-kind, a contra arrangement
exists. - Both parties are liable for output tax on their
respective supplies and must issue tax invoices. - Both parties use the tax invoice received to
offset their output tax liability and claim an
input tax credit.
46Contra Arrangements
- The result is tax neutral unless
- one party is not registered and can not issue a
tax invoice or - the input tax credits are blocked for income tax
purposes (eg hospitality). - Example sponsorship arrangements
- Where sponsor is registered for GST, need to
swap tax invoices and value sponsorship
provided - Can also be a problem with timing
47Structures - GST Groups
- Membership requirements company, trust,
partnership etc - Consequences of GST Group Approval
- GST liability
- Input tax credit entitlements
- Single entity treatment for calculating input tax
credits and/or adjustments - Intra-group transactions ignored
48Structures GST Branches
- To be registered as a GST branch, the branch must
have - An independent system of accounting
- Must be able to be separately identified by
reference to - Nature of activities carried on through the
branch or - The location of the branch
- The branch must carry on or intend to carry on an
enterprise - Consequences
- Branch effectively treated as a separate entity
- Main entity treated as a separate entity
49Structures Joint Ventures
- Membership requirements
- Consequences
- GST payable is payable by the joint venture
operator and not the participant - GST input tax credits are claimable by the joint
venture operator and not the participant - Transactions between participants excluded
50Structures Non-profit sub-entities
- Special rule only applicable to charitable
institutions, a trustee of a charitable fund, a
gift deductible entity, a government school and
certain non-profit bodies - Any branch of the entity can be treated as a
separate entity for GST purposes provided - It maintains an independent system of accounting
and - It can be separately identified by reference to
the nature of activities carried on through the
branch or the location of the branch
51Special Rules Government entities
- Government entities can register for GST even
where they are not an entity and not carrying
on an enterprise - Special membership requirements for GST grouping
purposes - Some grants of land may be GST-free where
supplied by governments
52Agents
- Special rules allow agents to issue and receive
tax invoices on behalf of the principal - GST liability and input tax credit entitlement
remains with principal - Communication between agent and principal
important to ensure correct input tax credits are
claimed - Agent and principal can enter into an agreement
to treat transactions as principal to principal
for GST purposes
53Fees and charges not subject to GST
- List of various fees and charges to be exempt
from the GST released in Determination format
(over 300 pages) - Exempt fees and charges vary in each State and
Territory
54Deposits
- Deposits given as security are not treated as
consideration - unless deposit is forfeited
- until later supply proceeds, then applied as part
of consideration - Therefore, should be no requirement to attribute
GST where only a security deposit is received
55Progressive and Periodic Supplies
- Treat each progressive or periodic supply as a
separate supply, then apply normal attribution
rules - If components of supply not identifiable, use
proportion of consideration against total
consideration as a proxy - Overall supply partly connected with Australia
- Components not connected to Australia will be
treated as separate supplies with no connection - Includes treatment of leases and hire
arrangements
56Anti-avoidance provisions
- Is the dominant purpose or principal effect of a
scheme to give an entity a GST benefit? - Stronger than income tax anti-avoidance
provisions principal effect test - Commissioner may negate the avoiders GST
benefit
57Second Hand Goods
- May have a deemed input tax credit when
acquired from an un-registered entity - Exception where the supply to the entity is
taxable or GST-free - Deemed input tax credit amount (gt300 in
consideration) - 1/11 of consideration provided for acquisition
- If greater than the amount of GST payable on the
taxable supply of the goods purchased, then
1/11th of the amount of GST on the taxable supply
58Second Hand Goods
- Where GST payable on taxable supply lt 1/11 of
consideration, ITC is 1/11th of consideration
provided - Can only attribution input tax credits to period
during which consideration is received, or
invoice issued - Substitute documentation required to claim ITC
(when acquisition gt50)
59Vouchers
- Holder entitled to goods or services up to
monetary value - Where consideration for supply lt monetary value
- Supply of voucher not taxable supply
- GST payable when voucher redeemed
- Where consideration for supply gt monetary value
- excess over monetary value treated as taxable
supply when voucher purchased
60Vouchers
- Holder entitled to specific goods or services
- GST payable when voucher purchased
- No GST payable when voucher redeemed
- Increasing adjustments for unredeemed vouchers
61Business Activity Statement (BAS)
- Net amount recorded in GST Return, which is
incorporated into a Business Activity Statement - Enables GST liabilities to be off-set against
other tax liabilities such as PAYG, FBT, WET, LCT - Net amount must be substantiated by a tax invoice
for every input tax credit - Cannot record credit in Business Activity
Statement unless you have the relevant Tax
Invoice
62BAS Completion
- The use of the two methods of calculating the GST
net amount - Calculation Sheet method of BAS completion
- Derived from Accounts method of BAS completion
- Monthly BAS and Quarterly BAS
- Annual instalments
63BAS Completion
- Calculation Sheet Method
- All boxes to be completed and must be GST
inclusive - Only include items that will be taxable supplies
or that fall out through G2, G3 or G4 - Adjustments can be included in G1 or separately
at G7 but not both
64BAS Completion
- Derived From Accounts Method
- Must have adequate accounting systems to
calculate GST net amount and provide audit trails - Specifically, accounting system must have at
least - GST payable control account
- Input Tax Credit control account
- A GST adjustments control account is optional
- If meet these requirements, less detailed
information may be provided on the BAS
65BAS Completion
- Monthly or quarterly
- Subject to turnover thresholds If annual
turnover is greater than 20 million, must submit
monthly returns - If less than 20 million, can choose monthly or
quarterly - Compliance costs
- Ability to obtain refunds from ATO in a timely
manner - Ability to delay GST liability
- Annual instalments
- Must be under threshold
- Must be in a net refund position
- Must have complied with all GST return
obligations - Must have a current GST lodgement record of at
least 4 months
66Correcting GST Mistakes
- Applies to mistakes made when completing prior
BASs - Does not apply to adjustments, only to errors and
omissions - Input tax credits that could have been claimed on
an earlier BAS - eg. not aware that tax invoice was held
- Claim on any BAS, as long as tax invoice is held.
No time limit
67Correcting GST Mistakes
68Correcting GST Mistakes
69Correcting GST Mistakes
- If the limits are not satisfied, an amended BAS
must be lodged for the relevant tax period/s. - Must only correct genuine and reasonable mistakes
- Unable to use arrangements in fact sheet to
correct errors if the ATO have advised of an
intention to conduct a verification check - Must keep records to explain corrections
70Penalties for non-compliance
- Penalties may be incurred where
- Returns (BAS) are not lodged on time
- Incorrect amounts of GST are claimed/remitted to
the ATO (ie. where there is a shortfall amount) - Documentation is not retained
- Tax invoices are not issued
- General Interest Charge
- Remission policy PS 2002/8
71Case studies
- Company A carries on an enterprise and has an
annual turnover of 25 million. - Does Company A need to register for GST?
- Can Company A submit monthly or quarterly BAS?
- Company A receives a grant for 1.1 million from
a State Department - Does Company A have a GST liability or input tax
credit entitlement in relation to this grant? - What is the amount of GST liability/input tax
credit entitlement?
72Case Studies
- Company A must register for GST
- Company A must submit monthly returns annual
turnover is greater than 20 million - Where the grant represented consideration for a
taxable supply made by Company A, it will have a
GST liability of 100,000 - i.e. 1/11th of 1.1 million
73Case Studies
- XYZ Pty Ltd acquires goods from Arco
Manufacturers for 220,000 in June 2002.
However, the paperwork is delayed and XYZ Pty Ltd
only receives a tax invoice in August 2002. - Is XYZ Pty Ltd able to claim an input tax credit
in its BAS for June 2002? - If not, when is XYZ able to claim an input tax
credit?
74Case Studies
- XYZ has incorrectly claimed the 20,000 input tax
credit in its June BAS - Will XYZ be liable for any penalties?
- Can these penalties all be remitted?
- How can the mistake be corrected by XYZ on a
subsequent BAS when the tax invoice is actually
received (ie. August 2002 BAS), or does the June
2002 BAS need to be re-submitted? - Hint XYZs annual turnover is 50 million
75Case Studies
- Answer
- XYZ could be liable for shortfall penalties
because it claimed too much input tax credits - General Interest Charge may also be imposed
- Shortfall penalty may be remitted, but General
Interest Charge is likely to still apply - XYZ will have to re-submit its June BAS - 20,000
is greater than the correction limit of 10,000 - Note Correcting GST Mistakes Fact Sheet could
be used, General Interest Charge would not apply
76Conclusion
- Relatively straightforward basic concepts but
special rules complicate GST compliance - Need to be aware of all taxable supplies made so
correct amounts of GST are remitted to ATO
beware contra supplies! - Use Correcting GST Mistakes Fact Sheet to avoid
penalties and General Interest Charge
77Questions??