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  • Key messages

    Taxable government grants and payments – The proposed reporting regime for Taxable Government Grants and Payments is due to commence on 1 July 2016. It requires legislative changes and an Exposure Draft is yet to issue.

    Notional GST – Unimproved land – The ATO is of the view that some entities, advisers and valuers are not applying GSTR 2006/6 correctly. A neutral evaluation hearing was conducted on 25 February 2015 in respect of an unimproved land dispute, with the opinion expected soon. It is anticipated that the opinion will provide guiding principles that can be applied broadly to assist interpretation of the legislation.

    Reinvention of the ATO – The ATO has embarked on a program to transform the tax and superannuation experience for Australians and has recently issued its Program Blueprint 2015.

    Adjustment events – Recent media articles have identified that some entities are overcharging government agencies. Members are reminded that recoveries of overpaid amounts in certain circumstances are an adjustment event and that increasing adjustments are required to reflect the correct ITC entitlement, if any.

    AUSkey – AUSkey and registration for Device AUSkey can raise issues for Government agencies. The website for the ABR provides detailed information and instructions, including tailored information and further technical support for Government Agencies.

    Annual compliance Arrangements (ACA) – the ATO is investigating the potential for a whole of state/territory government, whole of tax ACA, to manage the compliance relationship with government taxpayers in an open and transparent environment.

    Agenda items

    Disclaimer

    GST States/Territories Industry Partnership meeting, agendas, minutes and related papers are not binding on the Tax Office or any of the States or Territories referred to in these papers. While every effort is made to accurately record the views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.

    1. Taxable government grants and payments

    Can the ATO provide an update in relation to Taxable Government Grants and Specified Payments?

    ATO Response

    The proposed reporting regime for Taxable Government Grants and Payments requires legislative changes and is due to commence on 1 July 2016.

    Planned system

    Following feedback provided in consultation, it is envisaged the system will require all federal and state/territory government entities to report annually on:

    • Grants they pay to grant recipients, and
    • Payments they make to businesses that provide services.

    And local government entities to report annually on:

    • Payments they make to businesses that provide services.

    (Businesses include vendors such as contractors, consultants and others).

    System is planned to commence on 1 July 2016, with the first annual report being for the year ending 30 June 2017.

    The ATO is recommending a due date of 28 August – aligns with changed due date for the existing Taxable payments annual report (TPAR) for building and construction industry.

    Why is it being introduced

    Assist taxpayers to meet their tax obligations and encourage voluntary compliance by:

    • Expanding the range of information available in pre-filling
    • Informing people their income will be reported to the ATO
    • Improving compliance by dealing with those taxpayers that continue to do the wrong thing – the ATO will use the information in its data matching processes to detect and deal with non-compliance (such as non-lodgment of tax returns and omitted income).

    Reportable information may include

    For each payee:

    • ABN
    • name and address
    • gross amount paid
    • GST included in gross amount paid
    • Other information such as:
      • bank account details
      • phone number
      • email address
      • Statement by a supplier indicator
       

    For grants:

    • name of the grant program
    • date of payment

    What’s next

    The ATO has completed consultation with government entities at the federal, state/territory and local levels.

    Consultation with software developers who provide software to government has also been completed.

    We are working with Treasury to define the requirements, taking into account the feedback from consultation.

    Any questions

    Email tggp@ato.gov.au if you have questions in relation to Taxable government grants and payments.

    Meeting discussion

    The main concern for members is the requirement for impacted government entities to implement changes to their accounting systems to facilitate the reporting of the taxable government grants and payments. It was suggested by members that software providers incorporate ABN validation into their software systems. There is uncertainty as the exposure draft of the proposed legislation has not yet been released and government entities need sufficient time to implement the changes and know the extent to which government entities have to report, and any exclusions.

    2. ATO updates

    Unimproved land

    On 25 February 2015, a neutral evaluation hearing was conducted in respect of an unimproved land dispute.

    At a very general level, the facts in this dispute are:

    • A government entity used land for a particular purpose for many years. The government entity decided a number of years ago that it no longer wished to use the land for that particular purpose and commenced to sell the land;
    • The land had existing structures, facilities, utility connections and areas without trees related to its previous use by the government entity;
    • The land consisted of multiple titles;
    • At the time of sale, the structures were in a state of disrepair and had also been vandalised, including broken windows and graffiti. There is also a history of asbestos in some structures and other potential contamination on the site;
    • The purchaser of the land intended to undertake a residential development (i.e. unrelated to the previous use by the government entity);
    • A professional valuer provided an opinion that the existing structures, etc. were not improvements; and
    • The taxpayer contends that the supply is GST-free pursuant to section 38-445.

    We are anticipating that the neutral evaluator’s opinion will be provided within six weeks of the hearing, subject to further information gathering that may be required by the neutral evaluator.

    Meeting Discussion

    The ATO anticipates that the outcome of the neutral evaluation will provide guiding principles that can be applied broadly to assist interpretation of the legislation. The hearing raised issues in relation to multiple titles, highest and best use of the land and use of valuers.

    Currently the ATO view requires improvements to be looked at in isolation, that is, has there been an improvement to the land that can provide a benefit to any purchaser or has there been an improvement that adds value to the virgin state of the land. The future use of the land is not relevant and, as stated in paragraph 24 of GSTR 2006/6, determining whether a particular intervention enhances the value of the land is an objective test and should not be determined by reference to use or intended use by either the supplier or the recipient.

    Members raised the implications for an englobo block where only part of the land has been improved. ATO advised that where there are improvements on an englobo block and it is subsequently sold as a whole, the land in its entirety is determined as having been improved. If the land is subdivided and sold off as separate lots of land, only the lots of land which have no improvements on them will be determined as unimproved land.

    GST and grants

    ATO has been conducting an assurance activity in respect of Government grants where RCTIs are used to ascertain the level of compliance by grant recipients. Data was obtained from a very small number of Government entities.

    There were instances identified where GST had not been remitted by payees, Agencies could consider ensuring that grant payees are made explicitly aware of the requirement to report GST at different points in the grant process. In addition to existing content in agreements and RCTIs, agencies could consider a check box in acquittals confirming that the GST has been reported in the relevant activity statement. This may require no additional action on receipt by the payer, but provides an additional reminder of the payee’s obligation to pay GST on grants where RCTIs are used.

    Additionally there were some isolated instances where the Government grant providers were claiming ITCs when issuing RCTIs, but the grant recipients were not registered for GST at the time of the grant being paid, with some never having been registered. This suggests deficiencies in the integrity of their grant program processes. The relevant agencies have been notified where these issues were found but other agencies may have similar issues. Agencies should consider use of the ABN lookup tools to confirm GST registration of payees prior to payment.

    Meeting discussion

    Government grant providers should clearly communicate with grant recipients to ensure the correct GST treatment of a grant. Inconsistent GST treatment and potential loss of revenue is more likely to arise where government grant providers pay a taxable grant and issue a Recipient Created Tax Invoice (RCTI) as the government entity paying the grant will claim an input tax credit (ITC) as they hold a tax invoice but the grant recipient may not remit the GST on the supply.

    ABN Look-upExternal Link can be used by agencies as an internal control for determining the GST registration status of a grant recipient. There are also ABN Look-up tools to assist with checks for lists of multiple entities or where there a greater number of records to verify. The ATO also encouraged agencies to confirm GST reporting by the grant payee as part of the acquittal process for grant programs.

    Reinvention of the ATO

    The ATO has embarked on a program to transform the tax and superannuation experience for Australians. The reinvention process is looking to transform how the ATO will go about its core business to become a contemporary and service-oriented organisation. Our goal is to be a leading agency, relevant and responsive to the expectations of the community and government.

    The Program Blueprint 2015 for Reinventing the ATO has now been released to all staff and the community. The blueprint is the ATO’s vision for what we want to achieve for clients and staff, and how we’re going to get there.

    It’s a reflection of what the community and stakeholders have told us; the kind of experience they want to have when they participate in the tax and super systems. Put simply, the blueprint is our anchor point – designed to provide a clear line of sight to what we want to achieve during our reinvention journey.

    It concentrates on the three key areas of focus for the Reinvention program – the client experience, the staff experience and the culture that underpins how we create the right experience for our clients and staff.

    Meeting discussion

    ATO discussed the blueprint and the meaning of the following guiding principles for the reinvention program. These principles will guide the design and delivery of the transformed client and ATO staff experience.

    Easy to get things right – minimise red tape to deliver the right information and services at the right time using contemporary digital applications integrated with natural systems.

    Tailored experience – client interactions to be tailored and reflect people’s behaviour and circumstances with more efficient use of data.

    Excellent service – professional, respectful and timely interactions with easier access for clients to the services and information they require.

    Fair and respectful treatment – transparency and early engagement will increase certainty for clients and action taken on issues will be progressed openly and with integrity.

    Service delivered in the most effective and efficient way – focus will be on a whole of client experience.

    Review of ATO public advice and guidance products

    Phase 2 of consultation commenced on 16 February 2015 and discussed potential solutions to issues identified in phase one. In response to phase one feedback, draft recommendations are as follows:

    • Evaluate the extent to which the existing suite of products satisfies user-needs, including any gaps or overlaps
    • Revise existing products or develop new products to fill any gaps
    • Revise existing products or remove current products that create overlap
    • Explore reducing the number of products and reviewing existing products with view to moving those with lower levels of protection to products with a higher level of protection
    • Explore whether the introduction of conditionality / mutual obligations, could facilitate the issuance of increased levels of guidance providing increased levels of practical reliance for taxpayers.

    There are also draft recommendations for improvements to the processes behind the development of public advice and guidance as well as the delivery platforms for providing that advice. This includes earlier consultation to ensure our advice and guidance is better targeted to those issues that are important to the public as well as the development of a layered approach to the delivery of advice and guidance.

    Phase two consultation seeks to determine if these draft recommendations address concerns with current products, if there should be additional recommendations and to seeks views on which (if any) of these draft recommendations should be prioritised.

    Adjustment events

    Recent media articles have identified that some entities are overcharging government agencies. In some cases, agency investigations result in repayments of amounts which were previously treated as consideration, or part of the consideration, for taxable supplies to the government agencies and ITCs have been claimed. Members are reminded that recoveries of overpaid amounts in these circumstances are an adjustment event and that increasing adjustments are required to reflect the correct ITC entitlement, if any.

    Machinery of Government

    The three month period, specified by the Commissioners determination in notices of decision about treating certain documents as tax invoices, usually commences on the date specified in the Administrative Arrangements Order (AAO) or proclamation for the machinery of government (MOG) change to take place. Extensions of this time are considered on a case by case basis. Government organisations should contact us as soon as possible if they believe it may take longer than three months for them to have their tax invoices compliant.

    The ATO encourages members to contact their Client Relationship Managers in these situations so that both parties can work to find solutions to the issues preventing the government organisations in complying with the GST requirements and ATO policy.

    Meeting discussion

    The ATO is considering extending the standard three month period to six months for situations where the Commissioner has exercised his discretion to treat certain documents as valid tax invoices during machinery of government changes. The current approach has been addressed by way of a determination issued to the Treasury Department of each State and Territory and generally covers most routine MOG changes within a jurisdiction. The six month period is in recognition by the ATO of the sudden nature of MOG changes and the little preparation time afforded to Government agencies to plan for and implement the required changes in the three month period. Members agreed that the three month period can be very limiting given the size and scale of some MOG changes and the time taken to make the required changes to their systems has always been an irritant. The ATO and members agreed that a practice statement may be a more appropriate way of giving authority for this practical approach.

    3. AUSkey

    AUSkey and Device AUSkey issues experienced by Government agencies

    Issue

    AUSkey and registration for Device AUSkey have raised issues for Government agencies in relation to the following:

    AUSkey

    • Downloading AUSkey
    • Administrator access
    • Java script errors
    • Loading AUSkey onto USB devices

    Device AUSkey

    • Number of custodians for the same Device
    • Number of devices for the same custodian
    • Custodian permissions and provision of access to other users
    • Availability of a list of Device names with an explanation of its function
    • Implications for servers and downloading Device AUSkey onto a computer

    ATO Response

    Representatives from the Australian Business Register will be joining the meeting from 11.00am to 12.00pm to discuss AUSkey issues.

    Meeting discussion

    There was general discussion between the representatives from the Australian Business Register (ABR) and members about AUSkey issues and the use of Device AUSkey.

    The website for the ABR provides detailed information and instructions, including tailored information for Government agenciesExternal Link. Further support can be provided to Government agencies by contacting the ABR on 1300 AUSkey (1300 287 539) or by emailing the ABR enquiry mailbox at ABREnquiries@abr.gov.au.

    4. Lease of vacant land and subsequent improvements

    This issue was raised at the GST STIP meeting in March 2014 and an ATO response was included at agenda item 5.

    In light of some broader issues that had recently emerged about whether or not the character and GST treatment of a supply of real property by way of lease can change during the lease term, we advised that we were undertaking a review of the ATO response to this issue and that an updated ATO response would be provided in due course.

    We have not yet finalised that review. The relevant agency may wish to consider seeking a private ruling on their specific facts.

    5. GST-free education course

    GST treatment of education courses supplied through tripartite arrangements.

    Issue

    There is apparent conflict between 2 examples used in 2 separate ATO rulings.

    Background

    Example 10 at paragraph 58 of GSTR 2002/1 concerns a tripartite arrangement whereby a school engages an organisation to provide a GST-free education course to the school’s students. There are 2 supplies being a GST-free education course by the organisation to the school and a GST-free education course by the school to their students.

    Example 6 at paragraph 165 of GSTR 2006/9 concerns a tripartite arrangement whereby students enrol with a course provider for a GST-free education course. The course provider engages a supplier of teaching services to provide the GST-free education course to the course provider’s students. In this case the course provider supplies a GST-free education course to its students but the supplier of teaching services provides services that are subject to GST to the course provider.

    ATO Response

    Both the examples in the rulings provide guidance on the application of the GST law where a course provider enters into a contract with a school to provide a special education course to children and students. In both situations, the provision of the course to the school is GST-free as is the provision of the course to the students.

    The difference between the two is that in Example 6 at paragraph 165 of GSTR 2006/9, the course provider engages a teaching professional to deliver the course on their behalf. In that situation, the contract is for the provision of teaching services not the provision of the course itself. This supply will be a taxable supply provided that all the relevant requirements are satisfied.

    Meeting discussion

    ATO advised that the examples in each ruling look very similar but there are distinguishing differences between the supplies. In GSTR 2006/9 the school has acquired the services of a person to teach the course. The person is simply providing their teaching services as opposed to supplying a GST-free education course.

    6. Annual Compliance Arrangements (ACAs)

    We are investigating the potential for a whole of state/territory government, whole of tax ACA.

    An ACA is an administrative arrangement developed to manage the compliance relationship with taxpayers in an open and transparent environment.

    The ACA and Annual Review Plan (ARP) are co-designed jointly with the taxpayer so that it reflects their particular risk circumstances and appropriately addresses any relevant tax risks. The proposed activities agreed in the ARP are those that the ATO would expect government would ordinarily conduct as part of their ongoing corporate governance and risk management processes and requirements. The intention is to seek assurances by leveraging off existing governance work, process and procedures, controls and reporting, with no additional resourcing.

    Some key benefits in entering into an ACA with the ATO from a GST perspective (as an example) may include for Government entities:

    • Clear expectations of compliance agreement (for both parties).
    • Willingness to share information – openly and with transparency.
    • Risks and Issues raised and mitigated promptly.
    • Annual reviews completed to ensure expectations are being met.
    • Assurances provided that ‘government’ can demonstrate controls and reporting in place to provide maximum assurance to ATO of correct reporting.
    • Real time compliance and reporting – with ‘sign-off’ of past period reviewed.
    • Established contacts to progress and resolve emerging issues or risks.

    Meeting discussion

    The ATO discussed the potential for this new initiative with members. It aligns with the ‘tailored experience’ principle under the ATO’s reinvention program by focusing on prevention and recognising the existence of sound and robust accounting systems and procedures warrant a `lighter ATO touch’. It envisages a whole of tax assurance service to the whole of state or territory government within a jurisdiction. The ATO recognises that jurisdictions can have more centralised or decentralised models and will work collectively with state and territory treasury departments and their agencies to tailor an ACA around the existing framework unique to each jurisdiction.

    The ATO encouraged members to consider the initiative and what a whole of government ACA might look like for their jurisdiction. Members asked if it was intended for all departments and public authorities to be included to which the ATO advised that this was for each jurisdiction to determine in designing their ACA as it will depend on existing relationships or future intentions of Treasury Departments.

    7. Supply of crown land

    Supplies of crown land and encroachment of residential properties

    Issue

    To what extent does an encroachment of residential premises onto Crown Land satisfy the definition of ‘residential premises’ for the purposes of GST, where there is to be a subsequent sale of Crown land to the existing owner of the adjacent property from which the encroachment exists?

    Background

    The Department may sell small parcels of Crown Land adjacent to residential property. The sale of the Crown Land has arisen as a result of part of the purchaser’s residential premises having been built on and encroaching on the Crown Land with the resultant need to rectify the boundaries and undertake a sale and adhesion.

    It is understood that the supply may be input taxed but only in the rare case where the supply (not what is on the adjoining private property) is of ‘residential premises’, as defined in the GST Act and explained in the Ruling.

    In most cases, however, the structural encroachment (fence, shed, tank) of itself will fail to satisfy the test of what is residential and will therefore be subject to GST.

    What we are seeking clarification on, including examples, (and therefore write specific procedures and guidelines for future cases) is the circumstances where the encroachment forms part of the residential premises (including driveway access) on the adjoining private property.  At what point will the encroachment onto Crown Land satisfy the definition of ‘residential premises’ and when does it still not?

    Furthermore, if the encroachment satisfies the definition of ‘residential’ however the Crown Land being sold is substantially larger than the land occupied by the residential premise, will the entire parcel of Crown Land sold satisfy the definition of ‘residential’ or just the component the encroachment occupies?  This may occur where the Department requires the purchaser to purchase the entire piece of Crown Land and not just the area the encroachment is on.

    GSTR 2012/5 does not directly address this issue.

    ATO Response

    Applying a practical approach, the Commissioner does not consider that part of a residential premises that is physically located on Crown Land adjacent to the residential property as a result of encroachment results in that part of the premises being characterised as separate residential premises.  Where the Department sells an interest in land to the purchaser on which part of the residential premises is located, the Department makes a taxable supply where the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied.  It is not an input taxed supply of residential premises under section 40-65 of the GST Act.  Similarly, a supply of an interest in land on which a fence, shed, tank or driveway access is located will also be a taxable supply where the requirements of section 9-5 of the GST Act are satisfied.

    The Commissioner notes at paragraph 22 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises that a partially built building is not residential premises until it becomes fit for human habitation.  While the scenario raised is in a different factual context, the Commissioner considers that the supply in this scenario of an interest in land on which part of a house is located should have comparable treatment and not be characterised as a supply of residential premises.

    Meeting discussion

    The ATO advised that this is a practical approach being taken by the Commissioner because in this scenario the Crown is actually only making a supply of land.

    8. GST technical update

    Discussion of recent legislative changes, judicial decisions and published ATO rulings and guidance with GST impacts for government entities.

    9. General business

    9.1 Removing irritants and better support

    We would like to continue to work with the States and Territories to identify irritants for government agencies and receive suggestions on how the ATO can better support the government sector.

    Meeting discussion

    Members raised continued dissatisfaction with the ATO website.

    Post meeting update

    The Commissioner has recently increased the priority to broaden the scope and accelerate delivery of future improvements to ato.gov.au by 30 June 2015.

    9.2 Future GST impacts for States and Territories

    We would like the States and Territories to consider the following questions.

    • What issues from a GST perspective do the States and Territories anticipate in the future?
    • How will the States and Territories be equipped to respond to these impacts?
    • What challenges to sustainability of compliance do the States and Territories face over the next few years?
    • How effective (easier, contemporary, cost effective, more tailored) is the design of existing ATO systems for the administration of GST?
    • How can any deficiencies be shaped to become more effective?

    Meeting discussion

    No issues were raised by members.

    9.3 Other business

    Integrity of Business Systems (IBS)

    Members advised that self-assurance software designed to analyse and identify potential system errors or areas of risk were being promoted by accounting firms and, in some cases, with a guarantee that the use of such software would ensure no ATO compliance activity for 3 years.

    The ATO did not endorse any self-assurance software but advised that the use of self-assurance processes, which may include self-assurance software, is encouraged as they can enhance internal governance and minimise potential error. However, the claims made by some of the accounting firms ‘that the use of such software would ensure no ATO compliance activity for 3 years’ is incorrect in that the proposed model is restricted to the IBS risk and does not extend to compliance activity for other GST risks, eg Property , Financial Supplies, etc.

    The GST IBS cooperative assurance model remains a concept under development with further consultation and co-design required before a possible ‘user testing pilot’ of the model with a small group of large publicly listed taxpayers. This pilot will determine if the model will be extended to other large public companies and eventually to other market segments, including the government sector.

    9.4 GST STIP minutes

    The minutes from the last GST STIP meeting held on 16 September 2014 have been published on the ATO website and can be accessed via this link – GST States and Territories Industry Partnership minutes – 16 September 2014. 

      Last modified: 24 Jun 2015QC 45979