The GST is in the news again, with the possibility that the rate may change, or that the GST base be expanded by winding back some of the existing exemptions.
All that is not as straightforward as might be thought. Legislation is required and the agreement of the states and territories is required for a rate change. Not an easy proposition.
Leaving aside all that speculation, at a much more basic level, the application of the GST law continues to cause problems for businesses. The ATO regularly reviews how taxpayers are complying with the GST laws and compiles lists of common errors which it releases publicly in an effort to help people get their GST right.
Recently, the ATO outlined some common errors it has found in relation to GST on imports and exports. GST is payable on imports, regardless of whether or not the business is registered for GST, although any input tax credit paid on importation is only available for GST-registered businesses. On the other hand, exports are generally GST-free, but only if the strict conditions in the GST law are met.
The common errors the ATO identified include:
Incorrectly accounting for the on-sale of imported goods
Some taxpayers have apparently not accounted for the on-sale of imported goods on their BAS (business activity statement). When imported goods are on-sold, taxpayers are required to report the sale and account for the GST even if they have paid GST on the importation. This includes goods imported under the current $1000 low value imported goods threshold. The ATO says the on-sale is to be reported on the BAS and GST is payable, unless the supply is GST-free or input taxed. Those who are registered for GST and import the goods for a creditable business purpose can claim an input tax credit for the taxable importation.
GST liability for installing and assembling imported goods
Usually, the importer of goods is responsible for the GST associated with their importation or subsequent on-sale. In some situations, however, someone who does not import the goods may be liable for GST. If a business installs or assembles goods that have been imported into Australia, it will have a liability to account for GST even if it is not the importer. These supplies are taxable and must be included on the BAS, the ATO said.
Incorrectly classifying exports
Taxpayers may believe themselves to be the exporter, however, when the terms of delivery are analysed, this is not always the case. The ATO says a change to a taxpayer’s International Commercial (Inco) delivery terms (e.g. delivered duty paid to ex-works) in an agreement can alter their circumstances. This could potentially lead to the taxpayer no longer being considered the exporter and GST becoming payable on the supply.
Incorrectly classifying supplies of services as not connected with Australia
If a service is physically performed in Australia, it is a supply connected with Australia and so will be subject to Australian GST law. This would be the case even if the supplier was a non-resident or the recipient of the supply is outside Australia. Non-residents physically performing services in Australia would be required to register and account for GST where they exceed the $75,000 registration threshold. In cases where the supply is to a recipient that is outside of Australia, these supplies are generally GST-free.
Incorrect reporting of non-resident refunds
Non-residents registered for GST in Australia may be able to claim input tax credits for GST paid on acquisitions for their business. However, the ATO says they must remember that when they register for GST, they are required to report and pay GST on supplies which are connected with Australia. According to the ATO, non-residents commonly register to claim input tax credits but fail to account for GST on taxable supplies they make which are connected with Australia where the value of the supplies exceeds the registration threshold of $75,000.
Non-residents and non-deductible expenses
The ATO says non-resident businesses registered for GST in Australia should be aware that registered businesses are not entitled to claim input tax credits on certain purchases. Under the GST law, input tax credits cannot be claimed for expenses that are non-deductible for income tax purposes eg purchases that are of a private nature, entertainment provided to employees, and entertainment expenses. For a business that is registered for FBT, this may alter whether it can claim input tax credits for certain non-deductible expenses provided to employees.
Like all matters tax, GST is complex and has its own peculiarities. Correctly complying with the GST laws is important for any business, so it is essential they are sure what the law requires of them.
Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.