Tax Briefing Regional Update

1
Tax Briefing Regional Update

• Achieving VPS Taxation Compliance
• Presented by Greg Berry Stuart Coggin
• Ernst Young

2
Agenda

• GST
• Presented by Greg Berry
• Lunch break
• FBT
• Presented by Stuart Coggin
• PAYG
• Presented by Stuart Coggin

3
GST

• ATO developments
• Grants and appropriations
• Petty cash
• Allowances and reimbursements
• Interest and penalties
• Non-monetary/barter/contra transactions
• RCTIs and agreements

4
ATO Developments

• Rulings
• Draft Rulings
• Determinations
• Draft Determinations
• Bulletins (none issued in 2002)
• Draft Bulletins (none issued in 2002)
• Compliance activity

5
Rulings GSTR

• 2002/1 Special education courses
• 2002/2 Financial supplies
• 2002/3 Prizes
• 2002/4 RCTIs and foreign currency conversions
• 2002/5 Going concerns

6
Draft Rulings GSTR

• 2002/D1 Relates to specific terms in export
  provisions
• 2002/D2 Special education courses (now GSTR
  2002/1)
• 2002/D3 Barter transactions through trade
  exchanges
• 2002/D4 New residential premises
• 2002/D5 Professional or trade courses (and
  Erratum)
• 2002/D6 Financial acquisitions threshold
• 2002/D7 Inducements re leases of commercial
  premises
• 2002/D8 Relates to specific terms in export
  provisions

7
Determinations GSTD

• 2002/1 Relates to partnerships
• 2002/2 Relates to fruit and vegetable juices
• 2002/3 Goods and delivery services
• 2002/4 Adjustments and third parties
• 2002/5 Token of appreciation given to a speaker
  

8
Draft Determinations GSTD

• 2002/D1 Relates to fruit and vegetable juices
  (now GSTD 2002/2)
• 2002/D2 Token of appreciation given to a
  speaker (now GSTD 2002/5)
• 2002/D3 Goods and delivery services (now GSTD
  2002/3)

9
GSTR 2002/2

• Input taxed treatment of financial supplies
• Inability to claim input tax credits
• De minimus rule (financial acquisitions
  threshold)
• Apportionment implications if de minimus rule
  broken
• Importance of recognising what is and isnt a
  financial supply

10
GSTR 2002/2 (cont.)

• Financial supplies listed in Regulations to GST
  legislation
• Acquisition-Supply
• Provision, acquisition or disposal
• Eg. acquisition of shares will be a financial
  supply
• Implications costs associated with the purchase
  of shares
• Implications one transaction can involve two
  financial supplies
• Purchase of overseas shares

11
GSTR 2002/2 (cont.)

• What is an interest in a financial supply?
• Mixed and composite supplies
• Financial supply provider vs. financial supply
  facilitator
• Incidental financial supplies
• Composite supply vs. incidental financial supply
• GST-free supplies and input taxed supplies

12
GSTR 2002/2 (cont.)

• Reverse charge
• Intangible supplies from offshore (eg. supply of
  services from overseas to be used to make a
  financial supply in Australia)
• Purpose of reverse charge provisions
• Reduced credit acquisitions
• Interest-free loans

13
GSTR 2002/2 (cont.)

• Issues for VPS entities
• Financial supply rules are not relevant only for
  banks!
• De minimus test important
• Consider whether input tax credit claims need to
  be apportioned
• Look out for acquisition-supplies and
  interest-free loans
• Complex area of GST legislation seek assistance
  if required
• Guide No. 15, updated July 2002

14
GSTR 2002/3

• No specific legislative guidance, apart from
  gambling provisions
• Reliance on interpretation of concepts of
  supply, taxable supply, consideration, and
  nexus between supply and consideration
• Non-monetary prizes and monetary prizes

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GSTR 2002/3 (cont.)

• Monetary prizes
• Payment of cash not a supply in itself
• May be consideration for a supply
• Consideration for taxable supply where
  participant registered for GST
• Non-monetary prizes
• Can be a supply in itself
• Contra supplies

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GSTR 2002/3 (cont.)

• Non-monetary prizes
• Where a contra supply takes place, need to
  consider implications, especially if one of the
  parties is not registered for GST
• Three possible supplies
• Supply by event holder right to participate
• Supply by participant participation
• Supply by event holder non-monetary prize

17
GSTR 2002/3 (cont.)

• Sponsorship arrangements
• Prize given to an employee
• Prize in recognition of special personal
  qualities
• Non-monetary lottery prizes
• Valuation of non-monetary consideration

18
GSTR 2002/3 (cont.)

• Issues for VPS entities
• Requirement to remit GST in relation to taxable
  supplies made
• Timing of GST liability
• Corresponding input tax credit available?
• Is the recipient of the non-monetary prize
  registered for GST?
• Consider contents of ruling when planning prizes
  to be given away more cash prizes?
• Education of staff
• Guide Nos. 12, January 2002 and 20, October 2002

19
GSTR 2002/D3

• Relates to transaction through trade exchanges
• Supplies between members
• Normal GST rules apply (eg. if goods would be
  taxable, then the supply is taxable)
• Supplies by the trade exchange
• ATO considers these to be financial supplies

20
GSTR 2002/D6

• Relates to the financial acquisitions threshold
  (FAT)
• Usually cannot claim credits on acquisitions that
  relate to making input taxed supplies (eg.
  financial supplies)
• Can claim credits on acquisitions that relate to
  making financial supplies if the FAT is not
  exceeded
• FAT must be monitored continuously to see if and
  when it is exceeded, both prospectively and
  retrospectively

21
GSTR 2002/D6 (cont.)

• FAT is exceeded during a month if, looking at the
  current month plus the next 11 and/or the current
  month plus the previous 11, assuming credits
  could be claimed on financial acquisitions
• The amount of credits on the financial
  acquisitions would exceed 50,000 and/or
• The amount of credits on the financial
  acquisitions would exceed 10 of total credits.
• A financial acquisition is one that relates to
  making a financial supply (other than a borrowing)

22
GSTR 2002/D6 (cont.)

• Ruling outlines the ATOs view on various matters
  related to the FAT including
• General concepts
• Legislation
• Meaning of various terms
• What amounts are included in calculations
• How often the FAT should be tested
• There does not appear to be much that is
  controversial

23
GSTR 2002/D7

• Relates to inducements offered to enter into a
  lease of commercial premises, by both the lessor
  and the lessee
• Inducements can give rise to taxable supplies by
  lessor, lessee or both
• Some matters addressed are straightforward but
  others are questionable

24
GSTR 2002/D7 (cont.)

• Examples addressed in the ruling
• Discounts and premiums
• Other cash payments
• Provision of goods or services
• Fit-outs
• Other work carried out on premises
• Assignment of existing leases
• Guarantees

25
GSTD 2002/3

• Separate supplies of goods and delivery
• Treat each supply separately from a GST
  perspective
• Not an issue if goods and delivery would both be
  taxable
• Becomes an issue if, for example, goods are
  GST-free and delivery is taxable
• Supply of delivered goods
• Treat as one supply from a GST perspective
• Consider the GST treatment of the goods
• Delivery may become GST-free if goods are GST-free

26
GSTD 2002/4

• Outlines requirements for valid adjustment notes
  where adjustment arises as a result of a payment
  by a third party
• For example, goods are purchased from a
  wholesaler but a rebate is received from the
  manufacturer (ie. the cost is reduced although
  the price paid to the wholesaler has not changed)
• Standard adjustment note requirements apply
  except for details such as those relating to the
  payer and the payee (manufacturer and purchaser)
  not the supplier and recipient (wholesaler and
  purchaser)

27
GSTD 2002/5

• Token of appreciation generally not consideration
  for a supply, therefore no GST
• Can be consideration in some cases
• Different tokens given to different speakers
• Character of the token takes the form of a
  payment
• The motive of the organiser
• The value of the token exceeds what is reasonable
• The public or professional profile of the speaker
  is relevant (Bill Clinton v Greg Berry)

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Compliance Activity

• ATO has moved into compliance enforcement mode
• Period of leniency is over
• Government entities are not exempt
• Review your position now, take action to rectify
  problems and risks now!
• Penalties and interest will be charged

29
Grants Appropriations

• Appropriations not subject to GST
• Grants dealt with in GSTR 2000/11
• 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

30
Petty Cash

• No GST consequences of putting money into or
  taking money out of petty cash
• Acquisitions made from petty cash funds will give
  rise to entitlement to input tax credits
  (assuming goods or services are taxable)
• Tax invoices only necessary if GST-inclusive
  amount exceeds 55
• If 55 or less, some form of record needs to be
  kept to claim a credit (eg. cash register receipt)

31
Allowances Reimbursements

• Allowances
• No GST consequences of paying an allowance
• No input tax credit entitlement unless receipts
  returned and excess returned (so that the
  allowance effectively becomes a reimbursement)
• Reimbursements
• No GST consequences of paying a reimbursement
• Gives rise to an input tax credit entitlement
  provided receipts are returned

32
Interest Penalties

• Offences and penalties under Part VI of the
  Taxation Administration Act 1953 which relate
  specifically to GST
• General offences and penalties under TAA
• Administrative penalties (Sch 1 Div 284-288)
• Judicial penalties (ss 8A-13C)

33
General Interest Charge

• Imposed by s 40 with operative provisions found
  in Div 1 Pt IIA (ss 8AAA-8AAH)
• Calculated on a compounding daily basis (s 8AAC)
• multiply GIC rate for a given day by total of
• GIC charge from previous days and
• original unpaid GIC.
• GIC Rate Monthly average yield of 90 day Bank
  Accepted Bill plus 7
• 11.96 currently

34
General Interest Charge (cont.)

• Commissioner to give notice to person liable to
  pay charge for a particular day (ss 8AAF, 8AAW)
• Upon notice GIC then due and payable to
  Commissioner at the end of that day (s 8AAE)
• Commissioner may remit all or part of charge
  payable under certain circumstances (s 8AAG)
• PS 2002/8 - ceased 30 June 2002
• ATO Receivables Policy - contains guidance but
  does not appear to specify GST

35
General Offence Penalty Provisions

• Types of penalties
• Administrative penalties (Sch 1 Div 284-288)
• Impose additional (penalty) tax in specified
  circumstances
• Judicial penalties (ss 8A-13C)
• Create offences for which persons may be
  prosecuted in court

36
Administrative Penalties

• Three general categories under Schedule 1
• Div 284 - Statements, unarguable positions and
  schemes
• Div 286 - Failure to lodge documents on time
• Div 288 - Miscellaneous administrative penalties

37
Division 284

• Subdiv 284-A - General Provisions
• Subdiv 284-B - Penalties relating to statements
• Subdiv 284-C - Penalties relating to schemes
• Subdiv 284-D - Provisions common to Subdivisions
  284-B and 284-C (exceptions, reductions
  increases)

38
Subdivision 284-A

• Object of Division (s 284-10)
• To provide a uniform administrative penalty
  regime for all taxation laws to enable
  administrative penalties to apply to entities
  that fail to meet their obligations under those
  laws in relation to
• making false or misleading statements (Subdiv
  284-B)
• taking a position that is not reasonably arguable
  (Subdiv 284-B)
• entering into schemes (Subdiv 284-C)
• refusing to provide documents to the Commissioner
  (Subdiv 284-B)
• disregarding private rulings (Subdiv 284-B)

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Subdivision 284-B

• Liability to penalty (s 284-75)
• false or misleading statement resulting in a
  shortfall amount
• statement where income tax law not applied in
  reasonably arguable way
• failure to give a return, notice or other
  document to the Commissioner by the day required
  that is necessary to accurately determine a tax
  related liability and the Commissioner determines
  the liability with the assistance of that
  document
• statement where private ruling obtained not
  applied resulting in a shortfall amount

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Subdivision 284-B (cont.)

• Key steps in application
• Is there a shortfall amount caused by the
  application of a taxation law?
• If so, does an exemption apply?
• Does a penalty provision apply? At what level?
• Do any aggravating circumstances provisions or
  automatic remission provisions apply?
• Has Commissioner exercised his discretionary
  power to remit any penalties?

41
Subdivision 284-B (cont.)

• Incremental scale of base penalties (s 284-90)
• Failure to take reasonable care - 25 of
  shortfall amount
• Recklessness - 50 of shortfall amount
• Intentional disregard of tax law - 75 of
  shortfall amount
• Failure to give return, notice or document under
  s 284-75(3) - 75 of the tax-related liability
  concerned
• Disregarding a private ruling - 25 of shortfall
  amount
• Query whether this applies to GST private
  rulings?

42
Subdivision 284-C

• Liability to penalty (s 284-145)
• Taxpayer gets a scheme benefit
• Having regard to any relevant matters, it is
  reasonable to conclude that (for a Division 165
  scheme) the principal effect, or of part of the
  scheme, taxpayer gets benefit from the scheme
  directly or indirectly
• Does not matter whether the scheme, or any part
  of the scheme, was entered into or carried inside
  or outside Australia

43
Subdivision 284-C (cont.)

• Scheme benefits and scheme shortfall amounts
  (s 284-150)
• tax-related liability for an accounting period
  is, or could reasonably be expected to be, less
  than it would apart from the scheme or a part of
  the scheme
• an amount that the Commissioner must pay or
  credit to the entity under a taxation law for an
  accounting period is, or could reasonably be
  expected to be, more than it would apart from the
  scheme or a part of the scheme
• Amount of scheme benefit is the scheme shortfall
  amount
• Base penalty amount 50 of scheme shortfall
  amount

44
Subdivision 284-D

• Exceptions (s 284-215)
• caused in whole or in part by applying a tax
  provision in a way consistent with ATO advice,
  general practices or publications
• taxpayer used reasonable care
• interpretation is supported by a decision of a
  court or the AAT

45
Subdivision 284-D (cont.)

• Increase in base penalty amount
• Increased of 20 for shortfall amounts where
• Prevention or obstruction of Commissioner to
  finding amount
• Became aware of amount but did not notify within
  reasonable time
• Recurrence of previously penalised circumstances
• Increase of 20 for scheme shortfall amounts
  where
• Prevention or obstruction of Commissioner to
  finding amount
• Previous scheme shortfall amount

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Subdivision 284-D (cont.)

• Reduction of base penalty amount (s 284-225)
• Voluntary disclosure after being told of tax
  audit and could reasonably be estimated to have
  saved significant audit time and resources - 20
  for shortfall amounts and scheme shortfall
  amounts
• As above but voluntary disclosure before being
  told of audit
• if shortfall gt 1,000 - reduction by 80
• if shortfall lt 1,000 - reduction to nil
• 80 reduction for scheme shortfall amounts
• Commissioners discretion to treat disclosure
  after audit notice as being before if
  appropriate to do so in the circumstances

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Division 284 - Other Matters

• s 298-20 ATO discretion to remit penalties
• Assessment of Div 284 penalties
• s 298-30 - requires assessment by ATO and notice
• Taxpayer may seek review of tax shortfall
  penalties
• s 298-30 - objection under Pt IVC by AAT which
  has Commissioners power of remission

48
Division 286

• Division 286 - failure to give a return, notice,
  statement or other document in the approved
  form by a particular day (s 286-75)
• Base penalty - 1 penalty unit for each period of
  28 days or part thereof (Crimes Act 1914 s 4AA -
  110)
• starts on day document is due and ends on day it
  is given
• maximum of 5 penalty units

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Division 286 (cont.)

• Base penalty amount increases according to size
  of entity
• Double base penalty if
• Medium PAYG withholder
• Assessable income or current annual turnover
  between 1m and 20m
• 5 times base penalty if
• Large PAYG withholder
• Assessable income or current annual turnover over
  20m
• s 298-20 ATO discretion to remit penalties

50
Division 288

• Taxpayer liable to prescribed Div 288 penalty
  where
• Failure to lodge BAS or notify BAS amount
  electronically under s 31-25(2) (s 288-10(a),
  (b))
• Failure to pay BAS amount electronically under s
  33-10(2) (s 288-20(a), (b))
• Failure to keep or retain a record in manner
  required (s 288-25(1))
• Failure to retain or produce a declaration made
  about an agent giving an approved form to ATO on
  taxpayers behalf (s 288-30)
• Failure to allow authorised officer to exercise
  powers to enter premises and access documents
• s 298-20 ATO discretion to remit penalties

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Other Penalties

• Judicial penalties
• ss 8B-8HA - Failure to comply with taxation
  requirements
• ss 8J-8Z - Offences relating to statements,
  records and certain other Acts
• ss 8WA-8WD - Offences relating to tax file numbers

52
Other Penalties (cont.)

• GST offences under Pt VI Div 8 of the TAA
• s 65 - Failure to comply with a direction to
  provide information
• s 66 - Failure of occupier to provide authorised
  officer entering or proposing to enter land or
  premises with all reasonable facilities and
  assistance for effective exercise of powers (30
  penalty units)
• s 70 - Failure to keep records of indirect tax
  transactions for at least 5 years (30 penalty
  units)

53
Non-monetary/barter/contra Transactions

• Where Entity A provides goods and/or services,
  and receives payment in-kind from Entity B, 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

54
Non-monetary/barter/contra Transactions (cont.)

• 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
• 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

55
Non-monetary/barter/contra Transactions (cont.)

• ATOs view contained in GSTR 2001/6
• Guide No. 8, December 2001

56
RCTIs Agreements

• 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

57
RCTIs Agreements (cont.)

• 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
• Please note, no agreement, no RCTI!

58
Questions??