GST for FMs and Management Accountants

Anne Harvey – Group Tax Manager, Corporate Finance

Eric McCallum – Group Tax Accountant , Corporate Finance

14 August 2012

Objectives

• When does GST apply• Understand GST Codes• Common GST Mistakes• GST application-

Courses,Workshop,Conference• Imports and Exports• Grants and Appropriations• Specific GST areas in relation to Charity• Contractors and VN1 form

When is it applicable• Taxable sales

price includes GST pay GST on sales claim GST on purchases 1/11th of Total invoice/sale price

• Taxable supply for consideration in course of furtherance of

carrying on enterprise connected with Australia registered or required to be

registered not GST free or input taxed

When is it not applicable • GST free sales

Basic food - meat, milk, bread, fruit and vegetables

Most education, child care, health

Some exports

• Input Taxed sales Residential property Financial transactions Cannot claim GST credit

When does GST apply

How Does GST workIssue Tax invoice$1100

• Taxable Sale $1000

• GST on sale $100

Total Sales on BAS $1100

• Sales $1000• Remit GST 1/11th

to ATO $100

Cash Received $1100

• Net revenue $1000

• GST paid to ATO $100

Receives Tax Invoice $1100

• Purchases $1000

• GST charged $100

Total Acquisitions on BAS $1100

• Acquisition $1000

• Claim ITC for GST $100

Cash Payment $1100

• Net Expense $1000

• GST claimed from ATO $100

Supplier

Raises Tax

Invoice

Purchaser

Receives Tax

Invoice

Sponsor

UNSW

Recipient

1. Taxable – AC/AO2. GST Free – FRAC/FRAO

3. Imports – IMAC/IMAO

4. Input Taxed – ACIT/AOIT

5. Non deductible – NIAC/NIAO

6. Out of scope – EXCL7. Advances - EXAD

1. Most goods and services

2. Basic food; consumed/used overseas i.e. international airfare, accommodation

3. Customs clearance e.g. Equipment; overseas subscriptions

4. Financial supplies, residential accommodation

5. Cannot claim GST, no Tax Invoice, student entertainment

6. Taxes, wages, donations

7. Travel Allowance, Advance

GST Codes: Acquisitions – AP/ Expenses/Credit Card

“C” in AC, FRAC, etc refers to Capital. “O” in AO, FRAO, etc refers to Other.

1. Taxable – SALE2. GST Free – FREE

3. Exports – EXPT4. Input Taxed – ITAX

5. Out of Scope - EXCL

1. Most services2. Accredited Education

courses

3. Overseas customer4. Some Kensington College

rent5. Gifts, No supply made

GST Codes: Supplies – Account Receivable/ Billings

• Tax Invoice showing GST or GST inclusive price• Can rely on other supporting documentation issued by

supplier if minor defects in Tax Invoice• Purchase $82.50 or less (including GST) with Tax invoice,

Receipt, invoice, docket

• Sale < $1,000 – Tax Invoice, name & ABN of supplier, date, description, if each item is taxable sale, $ GST or Total price includes GST.

• Sale $1,000+ also show buyer’s name or ABN

Claiming ITC for GST charged

• Mixed Supplies – need to enter Taxable items and GST free items on separate lines with GST code

• Assume GST applies to total – check for GST free• Use GST code from PO - check if agrees to Tax Invoice• Relying on default GST codes in EMS• Tax calculated in system not agree to GST on Tax invoice –

may need to split lines• Deposits – claiming GST on deposit. Adjust on final Tax

invoice• Credits from prior month. Check GST charged on Invoice.

Common GST Mistakes

If Taxable Supply UNSW still have to remit 1/11th of total amount to ATO

Loss of revenue received by UNSW – only 10/11ths.

Audit risk – inadequate processes and controls

Penalties and Fines

Reputational risk

BAS amendments

Risk to UNSW if GST Not charged

GST

• Non-accredited units (of Tertiary course)

• Admin services not directly related to education course - academic hire, non-resident application fee, textbook

• Conferences • Seminars• Workshops• CPD training• Adult and community education

available to non- residents only• Hobby and recreational course• Self development, public speaking

GST free

• Tertiary course determined by Education Minister in Student Assistance Act 1973 section 5D(1)

• Other course determined by Education Minister

• One unit of tertiary course – enrolment• Course materials, student amenities

fee• Excursion/field trip• Vocational course• Adult and community education

Likely to add to employment related skills

Determined by Education Minister Run by Higher Education

Institution/ recognised body

Courses/ Workshop/Conferences

• GST is generally applicable on the importation of goods. The GST is based on the customs value of the goods and a $1000 threshold applies.

• The UNSW is registered under the ATO GST deferral scheme where the GST is calculated by the customs agent and transferred directly to the ATO. The actual GST payable is allocated to the next BAS return due and is claimed as a “Input Tax Credit” at the time of the next BAS lodgement.

• Goods that would be GST free or input taxed if supplied in Australia do not attract GST when imported.

• Managed by Procurement

Imports

• GST is designed to be a tax on the consumption of goods and service in Australia.

• Where goods or services are consumed overseas they will generally be GST free.

• The goods must leave Australia within 60 days of receiving any payment or 60 days of sending the invoice.

• Export of services are generally GST free where the effective use and enjoyment of the service takes place outside of Australia.

• Services connected with goods or real property situated outside of Australia are also GST free.

Exports

Grant

1. Can be consideration for a supply

2. Could be made by a private entity to a government entity or vice versa

3. Can be made by an individual, body corporate or legal entity.

4. A competitive Grant could be open to private companies and government related entities

Appropriation

1. Is not part of a commercial transaction and would normally reflect the non-commercial activities of government.

2. Is between government and government related entities.

3. The authority behind an appropriation is to be found in an appropriation Act of Parliament or other legislation.

4. Is only available to government or government related entities.

Difference between Grants & Appropriations

• Where the Grant is consideration for a supply made by the UNSW then the Grant will be subject to GST. If sufficient connection between supply and payment – basic GST rules.

• Since the gross amount received by the UNSW is reduced by the GST payable (1/11th of the receipt), the treatment of the GST should be agreed during the initial negotiations. This will enable both parties to align their GST treatment, minimise the risk of one party being left out of pocket by the GST, and limit any subsequent conflicts.

• Certain grants that are completely unconditional and are not tied to a material supply will be GST free and treated like a donation or gift.

Grants

Previously

• GST Act paragraph 9-15(3)(c)• Payment made by GRE to another GRE

is not consideration for GST purpose if payment specifically covered by appropriation under Australian law

Be Appropriation under Australian law Payment made by GRE to GRE Specifically covered by appropriation

No GST – outside scope of GST

New legislation -1/7/2012

• For appropriation to not be provision of consideration for supply current requirement to be specifically covered by appropriation removed – (no need to specify GRE recipient by name, or generically)

• If payment by GRE, can be paid to GRE and/or non Govt – not appropriation

• New “non-commercial” test satisfied• Non commercial activities of GRE not subject

to GST

9-15(3)(c) only apply where payment can only be made to GRE

Non-commercial activities of GRE – No GST Payment from GRE to GRE, covered by

appropriation, non commercial – not consideration – No GST

If payment to GRE for commercial supply-GST

If margin above cost of supply – GST

Appropriations

Appropriations

Consideration(for a supply)

Non-commercial test

Anticipated or actual cost of GRE Supplier making:• the supply, or• any other related supply

Appropriation made by GRE under Aust law to GRE Supplier for making a supply

3rd party payments (monetary and non-monetary)

+≠ ≥

3rd party payments – in connection with, or in response to, or inducement of the supply or any other related supply

Is supply by GRE? – No, not appropriation, out of scope, usual GST rules. If yes …Is payment to Government and Private (co contribution)? If yes …Is there a margin? Yes, failed non-commercial test. GST on Government and non Gov’t supplies.

If determine non commercial – document reasons why

Appropriations

• Where the UNSW receives funding for a scholarship and the sponsor receives a material benefit; then the funding is a taxable supply.

• A material benefit might include advertising, promotional material and naming rights; it would not include simply acknowledging a sponsor during a speech.

• Where there is no material benefit being received by the sponsor then the funding would be GST free.

• Generally there is no GST on the scholarship payment to the student since the student is not running an enterprise and is not providing a supply for consideration. In most cases the University is acting as a collection agent on behalf of the student.

Sponsorship & Scholarships

• A taxable supply involves the supply of a good or service for monetary or non-monetary consideration.

• A donation is when there is no “material benefit” going to the donor and consequently there is no supply for consideration.

• A material benefit could include rights to intellectual property, early research results, a contractual obligation, marketing, advertising and promotion; acknowledgements such as a mention in a periodical or newsletter would normally be a material benefit.

• Activity reports and progressive expenditure reports are not a supply or material benefit.

Donations

• Sale of second hand equipment is a taxable supply and consequently 1/11th of the sale price must be remitted to the ATO.

• As the UNSW is a charitable institution if the sale price of the second hand equipment is less than 50% of the market value then the supply is GST free, or is less than 75% of the original purchase price paid the supply is also

GST free.

• Given that the original purchase price is often easier to substantiate than the current market value; it may be worthwhile to look up the cost on the Fixed Assets Register prior to negotiating the final sale price.

Sale of Second Hand Capital Equipment

• Security deposits and deposits used as part payments are treated differently for GST purposes.

• A security deposit is held as security until completion of an obligation and is returned upon the successful completion of the obligation. The initial payment of the security deposit and the return of the security deposit are not subject to GST.

• A security deposit that is forfeited or applied to form part of the consideration is subject to GST.

• If offset on final payment, GST should be accounted for at end, with GST on full transaction and credit for security deposit.

Security Deposits

• Accommodation for student during semesters in input taxed residential accommodation and falls outside the definition of commercial residential premises.

• Demolition and construction costs include GST and to the extent that a building is used to make input taxed supplies the GST “Input Tax Credits” on the demolition and construction costs cannot be claimed.

• The GST legislation allows for the non-commercial operations of charities to be GST free where certain criteria are met. In the case of student accommodation the amount charged to students must be below 75% of the market value for the non-commercial criteria to be met.

Student Accommodation

• The UNSW has engaged a property valuer to determine the market value of the student accommodation to be supplied at Gate2 and the Kensington Colleges in order to ensure compliance with the non-commercial operations of a charity criteria.

• As the UNSW is a charity for taxation purposes meeting the non-commercial operations of a charity criteria means that the supply of student accommodation is GST free.

• The benefits of the accommodation supply being classified as GST free are that the student receive more affordable accommodation and the UNSW can claim GST “Input Tax Credits” on the construction and on-going costs.

Student Accommodation continued:

• All new Vendors to complete VN1 form – process and system to manage

• VN1 form has questions in relation to the services provided and ABN status

• To assess if employee or contractor• Assess for PAYG withholding, Superannuation and Payroll Tax• Vendor Classification assists in identifying for upfront Payroll Tax

exemption, ongoing Payroll tax assessment or SGC.• If “Refer HR” – needs to be referred to HRC for setting up in HR

system. Cannot be paid through AP.

• Standard UNSW Contact Sole Trader Contractor Agreement Other Entity Contractor Agreement (Company, Partnership, Trust)

Contractors and VN1 Form

• 10 May 2011 reforms to NFP sector announced• Creation of Australian Charities and NFP Commission (ACNC) – National

regulator, establish and maintain database of charities, one-stop-shop for charities, oversight on financial and governance practice. Est. by 1/10/12.

• Statutory definition of Charity due 1/7/13. Charitable status of entity reassessed against definition. Some entities potentially lose tax exempt status if not meet definition. Ensure focus activities on education or other charitable purposes.

• Reform to better target NFP tax concession. NFP taxed on income of Unrelated commercial activities, where profits not directed back to entities altruistic purposes. Applies from 1/7/12 to new unrelated commercial activities commenced after 10/5/11.

• Restating “In Australia” special conditions. Operate and pursue purposes principally in Australia. Income tax exemptions, DGR status. May place restrictions on overseas operations that could jeopardise tax concessions.

NFP Sector update

• Further Information

Contact: Anne Harvey - Ext 51635. Email: a.harvey@unsw.edu.au Eric McCallum – Ext 52825, Email: ericmac@unsw.edu.au

Lucy Lowe – Ext 51204, Email: l.lowe@unsw.edu.au

Questions