Whole of Government Goods

1
Whole of Government Goods Services Tax (GST)
-Accounts Payable and Accounts Receivable
PresenterDaniel Tofler 19 June 2006
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Agenda

• Purpose of this Session
• GST Basics
• Supplies
• Intra-entity or Grouped Transactions
• Machinery of Government
• Agency
• Margin Scheme
• Fuel Tax Credits Scheme
• House Keeping for GST
• Tax Invoices
• (Refreshments in foyer at 3pm for half an hour)

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GST - Purpose of this Session

• Refresh on GST Basics
• Bring you up to date on developments in GST
• Clarify any ongoing sources of confusion
• Areas in which Government struggles with GST

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GST Basics

• To claim input tax credits (ITCs)
• Hold valid tax invoice
• Must be the recipient of a taxable supply

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GST Basics (cont.)

• Types of Supplies
• - Taxable supplies
• - Input taxed supplies
• - GST-free
• - Out-of-scope supplies

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GST Basics

• Taxable Supplies
• GST must be remitted by the supplier
• 1/10th of the value of the consideration
• in the tax period during which the earliest of
  the following occurs
• Consideration is received or
• Tax invoice is issued.

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GST Basics (cont.)

• Taxable Supplies
• Examples
• Shared services provided by the business unit of
  one Department to another Department
• Medical services provided to a patient by one
  hospital under a contractual arrangement with
  another hospital
• Recipient of grant obligated to use the funding
  in a prescribed way if do not comply, grantor
  can require repayment of the funding.
• Agent can make a taxable supply on behalf of
  Principal

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GST Basics (cont.)

• Input Taxed Supplies
• If a supply is input taxed
• No GST is payable on it
• but the supplier cannot claim input tax credits
  for the GST payable on business inputs that
  relate to that supply.
• This is a No GST item on the BAS.

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GST Basics (cont.)

• Input Taxed Supplies
• Examples
• Financial Supplies
• includes provisions, acquisitions and disposals
• Includes transfer of shares, purchase of
  marketable securities, surrender of an interest
  in a trust estate.
• Residential rent stamped to notify cannot claim
  ITCs
• Sale of business by shares
• Charitable dinners where Charity has elected to
  treat as input taxed

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GST Basics (cont.)

• GST-free Supplies
• If a supply is GST-free
• No GST is payable on it
• and the supplier can claim 100 input tax credits
  for the GST payable on business inputs that
  relate to that supply.

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GST Basics (cont.)

• GST-free Supplies
• Examples
• Water
• Fresh fruit and vegetables
• Services of a medical practitioner and hospital
  treatment covered by Medicare
• Education courses
• Supplies by charities" for which nominal payment
  is received (includes Charitable institutions,
  DGRs and Government Schools)
• Cold cooked chickens

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GST Basics (cont.)

• Out of Scope Supplies
• Not regarded as subject to GST under operation
  of the GST law.
• Specifically out of scope due to the wording of
  Statute or due to ATO interpretation.
• Does not appear on BAS.

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GST Basics (cont.)

• Out of Scope Supplies
• Examples
• Penalties in certain situations
• Division 81 Determination listed taxes, fees and
  charges
• Must be listed on most recent Division 81
  Determination listing
• Amount must be paid to Government entity OR
  Private Sector entity acting as agent for
  Government
• Appropriations
• Compensation/damages/insurance settlements
  (generally)

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Supplies

• 1. Salaries on Secondments2. Employee
  Contributions

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1. Salaries on Secondments

• Department A supplying employee to other VPS
  entities (including other Departments) i.e.
  Department B
• Salary paid by Department A GST does not apply
  to salaries as internal cost
• Tax invoice made out by Department A to
  Department B for supply of services of employee
  to Department B
• This is a taxable supply and is subject to GST.

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2. Employee Contributions

• Employee contributions towards Fringe Benefits
• GST must be accounted for when after-tax
  contribution.

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Acquisitions

• 1. Entertainment2. FBT Exempt Entertainment
• 3. Funding Payments
• 4. Contra Supplies
• 5. Tripartite Arrangements
• 6. Residential Premises

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Acquisitions (cont.)

• Entertainment only claim ITCs if subject to
  FBT
• VPS Employee takes non-employee out to lunch
• FBT paid/payable on VPS Employees lunch
• GST can be claimed on VPS Employees lunch
• Non-employees lunch is not subject to FBT (as
  not an employee)
• GST cannot be claimed on clients lunch

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Acquisitions (cont.)

• FBT Exempt Entertainment
• Cannot claim GST back
• Examples entertainment expenses which are
  provided and consumed on the same day, or exempt
  meal entertainment provided by a PBI or hospital
• Can claim GST on exempt fringe benefits which are
  not entertainment (e.g. laptop computers)

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Acquisitions (cont.)

• Funding Payments
• Generally, if no supply being made by funding
  recipient, no GST.
• Problem entity providing the grant gives
  direction as to the GST treatment of the funding
  (i.e. by agreeing to gross-up for GST or not)
• Donations
• No conditions attached (eg Poor Box)
• No GST
• Appropriations
• No GST if specifically covered by an
  appropriation
• Purpose
• Amount
• Recipient (excluded from GSTR 2006/D1)
• Govt Related Entity to Govt Related Entity (eg
  VicRoads), pursuant to Appropriations Act

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Acquisitions (cont.)

• Funding Payments (cont.)
• Grants
• Consideration for supply by an external provider
  (may be government entity to government entity)
  to a consumer (eg Lakes Entrance Youth Centre)
• If a supply is made by the recipient in return
  for the funding, then subject to GST. Otherwise
  not subject to GST.
• Supply in this instance involves a legally
  binding obligation on Grantee.
• If legally binding obligation on grantee to use
  money in certain way, grant is consideration for
  taxable supply.
• Legally binding best evidenced by refund clause.
• Reimbursements?

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Acquisitions (cont.)

• Funding Payments (cont.)
• DOJ funds the Sunny Valley Community Health Co-op
  120,000 for the provision of an Arrest referral
  Program in Sunny Valley
• Issues
• ABN
• GST Registration
• Taxable Supply
• What did Minister approve?

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Acquisitions (cont.)

• Funding Payments (cont.)
• What is required of a Funding Recipient?
• Carrying on an Enterprise?
• If no ABN / exclusion letter withhold 46.5
  (PAYG)
• If ABN quoted or exclusion letter provided, pay
  100 of Grant
• If also registered for GST then Grant Recipient
• Must provide a Tax Invoice OR
• Must agree in writing to generating a Recipient
  Created Tax Invoice OTHERWISE
• Should not be paid the grant
• On-line checklist under development to assist
  process

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Acquisitions (cont.)

• Contra Supplies
• Each entity makes an acquisition from and supply
  to the other. Often when supplies made free of
  charge
• Entity A supplies advertising to Entity B in
  return for floor space for a function. No cash
  changes hands. What are the GST consequences?
• Both Entity A and Entity B have made a taxable
  supply for GST purposes for which the other
  entitys supply is consideration.
• Both supplies deemed to have taken place at the
  same market value under ATO view.
• Tax invoices need to be exchanged at time of
  first supply.

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Acquisitions (cont.)

• Tripartite Arrangements
• Arrangements involving more than one party
• Particularly in relation to certain government
  reimbursement arrangements (e.g. in the health,
  environment and water sectors), where there is
  reimbursement for supplies made to a third party.
  
• In tripartite arrangements, the recipient does
  not necessarily pay for the goods/services, which
  means that the paying entity cannot claim an
  input tax credit in relation to the payment.

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Acquisitions (cont.)

• Tripartite Arrangements (cont.)
• Example
• Water body undertakes to subsidise public for
  acquiring water saving devices
• Individuals pay half cost of item from supplier
• Supplier receives remainder of price from Water
  body after providing requisite documentation
• HAS THE WATER BODY MADE AN ACQUISITION?

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Acquisitions (cont.)

• Residential Premises
• Acquisition is an input taxed supply
• Therefore, must restrict recovery of GST on
  expenses incurred in relation to residential
  premises.
• If making acquisitions as agent, charge GST on
  agency but no GST on reimbursements.

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Intra-entity or Grouped transactions

• Intra-entity supplies made
• Internal expenses not subject to GST.
• E.g. VicFleet is a business unit of DTF so no GST
  on invoices.
• BUT if on-charges internal expenses to a GST
  entity external to the Group, taxable supply.
• Intra-group supplies/acquisitions
• All amounts should not be subject to GST

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Machinery of Government changes

• 3 month moratorium on tax invoices
• Only works if recipient name on tax invoice is
  incorrect
• Time delays for MoGs to be applied to
  administrative function
• Due diligence of assets
• Notification of suppliers
• Require legislation/administrative order to
  provide that
• all outstanding transactions/activities
  undertaken by business unit when in Dept A are
  deemed to have been made when part of Dept B.

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Agency

• The GST on costs incurred by an agent acting on
  behalf of a principal may be claimed by
• the Agent if a subdivision 153-B agreement is in
  place between the Agent and the Principal or
• the Principal only if no sub 153-B agreement is
  in place.
• In 2, above, the Principal can claim the input
  tax credits (ITCs) even if the Agent holds the
  tax invoice and it is made out to the Agent.

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Agency (cont.)

• If making supplies as Agent, no need to account
  for the GST as it is the Principals
  responsibility unless subdivision 153-B in
  place.
• ApportionmentIf make acquisition on behalf of
  both your own entity and as agent for two (2)
  other separately registered GST entities, can
  only claim 1/3 of ITCs. Remaining ITCs to be
  claimed by the two other principals based on copy
  of tax invoice held by agent (your entity).

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Agency (cont.)

• Common law v Government Agency
• GST Law technically requires separate common law
  entities for a principal/agent relationship.
• This requirement does not apply provided the
  Government entities are both separately
  registered for GST.
• You should be notified on the tax invoice request
  if agency is an issue in relation to either a
  supply or acquisition.
• Stamp saying No entitlement to ITCs due to
  agency.

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Agency (cont.)

• Example
• MET Tickets
• Purchased by Employer on behalf of employee(s)
• Written authorisation provided by employee(s)
• Employer pays GST at time of acquisition
• Who claims the ITCs?
• Employer agent - cannot claim ITCs if no subdiv
  153B agreement
• Employee repays Employer GST inclusive cost of
  ticket over 12 months
• Employee cannot claim ITCs as not registered for
  GST.

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Margin Scheme

• Written agreement must be in place between
  supplier and recipient.
• Property Group makes tax invoice request for
  which they require the application of the margin
  scheme
• One component of the supply is outside the scope
  of GST
• This is the value of the land at the time of
  acquisition or at 1 July 2000 (base value)
• Second component of the supply is taxable
• This is the increment of the price between the
  base value and the sale price.
• Recipient cannot claim Input Tax Credit.

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Fuel Tax Credits Scheme

• Applies from 1 July 2006
• Phased in over the next five to ten years.
• Refund of fuel tax credits (FTCs) via BAS
• First BAS impacted due 21 August 2006
• Credits for many uses of fuel
• Key areas on-road vehicles gt 4.5 tonnes
• off road use of vehicles.

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Housekeeping for GST

• All tax invoices for which GST has been claimed
  should be retained by the entity claiming the GST
• Agency - a copy of the original tax invoice
  should be obtained by the Principal.
• All tax invoices must be valid what is a valid
  tax invoice?

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Housekeeping for GST (cont.)

• Must be held at the time the BAS is lodged or
  reasonable effort has been made and other
  documentation to support claim is held (matter of
  ATO discretion).
• Note Try to hold off paying supplier until a
  valid tax invoice is provided.

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Tax Invoices

• For a tax invoice to be valid, the name that
  appears must be either the business name of the
  entity or a trading name registered on
  http//www.abr.business.gov.au
• Full name and ABN or address of recipient of
  supply must appear on tax invoices where supply
  1000
• No requirement for name or other details of
  recipient to appear on tax invoices for lt 1000.
• However, easier if you require consistent
  approach from supplier(s)
• At time supplier added to system, notify them of
  your invoicing requirements via pro forma letter.

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Tax Invoice (cont.)

• Value of acquisition 55 or less do not require
  valid tax invoice.
• Some sort of documentation is still required to
  claim ITC.
• GST to be stated separately or invoice total to
  state amount is inclusive of GST (use of word
  tax not acceptable)
• ATO can exercise tax invoice discretion if tax
  invoice cannot be obtained (reasonable attempts
  must be made).
• Application to ATO in writing.

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Tax Invoice (cont.)

• Requirements for Invoices
• Over 50 in value and under 1,000 in price
• The words Tax Invoice on the invoice
• Australian Business Number (ABN) of the supplier
• GST amount specified or Total Price includes
  GST
• 1,000 or more in price requirements listed
  above and also
• Name of purchaser
• ABN or address of the purchaser
• Detail of quantity supplied or extent of service
  provided

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Tax Invoice (cont.)
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Recipient Created Tax Invoice

• WHAT IS A VALID RCTI?
• - the words recipient created tax invoice
  stated prominently
• - the name of the supplier
• - the ABN of the supplier
• - the name of the recipient
• - the ABN of the recipient
• - the date of issue of the tax invoice
• - the quantity of the goods or the extent of the
  services sold

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Recipient Created Tax Invoice (cont.)

• - a brief description of the things sold, and
• - the total price of the sale (including GST).
• - If the RCTI is for taxable sales only, it must
  also
• provide a statement such as total price includes
  GST, OR
• - show the total price and a statement to the
  effect that the GST shown is payable by the
  supplier.

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Recipient Created Tax Invoice (cont.)

• If the RCTI is for both a taxable sale and either
  a GST-free or input taxed sale, it must also
• clearly identify each taxable sale
• show the total price, and
• show the total amount of GST payable separately
  and a statement to the effect that the GST shown
  is payable by the supplier
• The recipient must issue the original or a copy
  of the RCTI to the supplier within 28 days of
  when the sale is made or when the value of the
  sale is determined and retain the original or a
  copy of the RCTI.

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PAYG Withholding Tax

• Why withhold tax from a supplier?
• Invoice for 50 or more in value and no ABN on
  suppliers invoice
• Call the supplier - do they have an ABN
• OR
• No exclusion letter from supplier
• Query with supplier - advise that tax will be
  withheld if no ABN or exclusion letter
• Processing a PAYG invoice
• Allocate 100 of invoice amount
• Allocate negative 46.5 of invoice

46
GST

• ANY QUESTIONS?