When the goods and services tax was introduced, it was a red letter day for the tax office, and the tax man is more keen than ever to keep the GST rolling. By TERRY HAYES of Thomson Legal & Regulatory
By Terry Hayes of Thomson Legal & Regulatory
The advent of GST in Australia was a boon for the tax office, providing the opportunity to collect more information on more businesses than ever before. And collecting that information regularly means the tax office can keep more frequent tabs on what businesses are doing.
Of course, being in business means tax (including GST) is a major issue. This has not escaped the tax office and in the current year, it has a special focus on identifying and taking action against SMEs that claim false or unsubstantiated input tax credits and/or fail to report large amounts of GST. The tax office G-man is watching!
The key to claiming GST input tax credits is being registered for GST. Businesses with annual turnover below $50,000 don’t have to register for GST, although they may do so if they choose. However, all businesses with an annual turnover of $50,000 or more must register for GST, and to do that, they will need an Australian Business Number (ABN).
A business can apply for an ABN in several ways – electronically, through the Australian Business Register, through the Government’s Business Entry Point Website, on a paper application, available by contacting the tax office on 13 28 66; or through a tax agent.
The $50,000 turnover threshold can be tricky and needs to be watched. Very small businesses must continually monitor their turnover and as soon as they realise their current or projected annual turnover is $50,000 or more, they only have 21 days to register for GST. This is a potential trap for busy business operators and one they need to be aware of.
Even if a business is not required to register for GST, it can still obtain an ABN. However, once the ABN is obtained, the details of the business are added to the Australian Business Register, which is the central collection, storage and verification system for basic identity information about all business entities with an ABN.
It’s not difficult to see how the information trail starts to add up for government agencies like the tax office. Businesses can also use the register to access or check their details, or even search the public register.
A little “GST 101” puts things in perspective here.
Put simply, a business needs an ABN and GST registration in order to claim GST credits for any GST it has paid for goods and/or services it has used in the business. And the tax office is on the lookout for false input tax credit claims, so not complying with these rules is not an option.
A business that supplies goods or services to another business will need to quote an ABN on its invoice to that business to avoid a nasty tax sting. If it does not quote the ABN, that other business must withhold tax at the top marginal rate when it pays for its goods.
Put bluntly, a business is required to withhold 46.5% of any payments it makes to another business where that business does not quote its ABN. Ouch!
When a supplier to your business does not have an ABN, if the price charged includes GST, your business cannot claim the GST input tax credit for that supply. If the total payment for the goods or services is more than $50 excluding any GST, your business will have to withhold 46.5% of the payment and pay it to the tax office. That’s how it works.
Sometimes a business may experience a delay in getting its ABN. In these circumstances, where a supplier of goods to your business says it has applied for an ABN but has not yet received it from the tax office, your business could offer to delay the payment for a few days until the ABN is received. That way, you don’t miss out on important supplies and both businesses, and the tax office, are happy.
Under the law therefore, not quoting an ABN results in a hefty tax penalty, but one that can be easily avoided – just quote that ABN.
Paying in cash may be a temptation, but that means a business has no tax invoice with which to claim GST credits for what it has purchased. The odd small cash transaction might occur for some businesses but, ultimately, they are missing out on valuable GST credits that will effectively increase their costs. So being properly registered is the key to avoiding this.
And don’t forget that the tax office is watching. Very recently, an Adelaide man was sentenced to two years and 10 months jail (with a 12-month non-parole period) for tax fraud of over $300,000.
Between July 2001 and March 2003, the man lodged personal and company activity statements containing inflated GST credits seeking to claim just over $233,000 in fraudulent refunds. He attempted to obtain a further $90,000, but the refunds were stopped after routine tax office checks identified inconsistencies in the activity statements.
And don’t forget that the Tax Office is watching. Very recently, an Adelaide man was sentenced to 2 years and 10 months jail (with a 12-month non-parole period) for tax fraud of over $300,000. Between July 2001 and March 2003, the man lodged personal and company activity statements containing inflated GST credits seeking to claim just over $233,000 in fraudulent refunds. He attempted to obtain a further $90,000, but the refunds were stopped after routine ATO checks identified inconsistencies in the activity statements.
GST is such an everyday tax that keeping on top of issues such as those described above means a business can get on with what it does best – business (and keeping the G-man off your back!).
Terry Hayes is the senior tax writer at Thomson Legal & Regulatory, a leading Australian provider of tax, accounting and legal information solutions; www.thomson.com.au
To read more stories on tax by Terry Hayes click here.