GST Stewardship Group key messages 1 September 2020

Welcome and introduction

Kirsten Fish opened the meeting with an acknowledgment of country, noted apologies and welcomed Alex Affleck as the new representative for the ATO’s Tax Counsel network replacing Gordon Brysland. Andrew Howe gave an overview of the agenda noting the need for confidentiality where appropriate.

Public Advice and Guidance update

The ATO provided a paper giving an update on the status of Public advice and guidance (PAG).

JobKeeper extension

The ATO is currently planning and preparing PAG for the extension of JobKeeper. Updates for existing public ruling products and web guidance on ato.gov.au are being considered.

Business as usual PAG

The ATO is currently considering the appropriate time and available resourcing to commence consulting and publishing business as usual (BAU) PAG which was put on hold noting that technical work continued to the extent that resourcing allowed.

Financial services

An exception to the BAU PAG pause on consultation was the financial services PAG where the suite of products was already well advanced and given its priority and the industry impacts, consultation and finalisation of these products continued. The key focus of the suite of guidance is on ensuring that the taxpayers’ approach to determining their entitlements to input tax credits is driven by an analysis of their costs, and how the costs are objectively intended for use in making supplies.

Credit cards

Practical Compliance Guideline PCG 2019/8 ATO compliance approach to GST apportionment of acquisitions that relate to certain financial supplies and Goods and Services Tax Ruling GSTR 2019/2 Determining the creditable purpose of acquisitions in a credit card issuing business were finalised in December 2019 and apply from 1 January 2020.

Transaction accounts and home loans

The ATO has published a suite of draft PAG products to provide interpretative and practical guidance on the apportionment of GST costs in relation to transaction accounts and home loans.

The ATO expects to finalise all four products in September 2020 with an application date from 1 October 2020.

Draft Goods and Services Tax Determination GSTD 2019/D1 Goods and services tax: Development works in the Australian Capital Territory

The draft GSTD provides the ATO view on the GST treatment of arrangements between government agencies and private developers in the context of land development in the Australian Capital Territory. In particular, the draft GSTD considers whether building works and associated site works carried out by developers, on land they have acquired under a long-term Crown lease, are non-monetary consideration for the supply of that lease by a government agency (on behalf of the Commonwealth Government).

The comments period was extended due to requests from COVID-19 impacted clients. The ATO is currently reviewing this feedback. It is anticipated that the Determination will go to the Rulings panel potentially in October.

Adjustable beds

The market for adjustable beds has evolved and there is an issue of whether products are a GST-free medical aid or a lifestyle product that is widely used by people without an illness or disability. The ATO is developing a GSTD to address the issue that will apply prospectively.

A member noted that they had experience with these technical issues and offered to discuss the issues out of session.

Government grants

To address common queries being made on the income tax and GST consequences of COVID-19 related grants issued by states and territories we have updated our web guidance on government grants. This provides clearer information to the community when assessing if their grant is subject to GST and therefore if the grant needs to be included when calculating turnover for JobKeeper eligibility.

Issues register

The ATO is considering moving the GST issues registers on ato.gov.au to the legal database. The legal database currently contains the issues which are public rulings for the purposes of the Tax Administration Act. The non-binding issues which provide the history to the issue will be moved where this context is still required.

Members’ comments

There are some concerns with the stability of the legal database, and it may not be wise to move the issues register at this time. The ATO stated that some work was done recently on the legal database that should have improved its stability.

Should the Development leases determination remain in draft until the related litigation has been completed? The ATO will consider this and may discuss with the Rulings panel.

GST disputes

The ATO provided a paper giving information on GST objections and litigation. The following key points were noted:

• GST objections have continued to decline in numbers over 2019–20
• COVID-19 has had an effect on GST disputes from March to June 2020 with a significant number of businesses impacted
• for GST disputes in litigation, the overall number of matters has decreased in 2019–20, but the litigation ratio has increased 11% on the previous year
• Review and Dispute Resolution continues to use a suite of strategies to prevent and minimise GST disputes
• Small business is the largest client market for GST objections
• common topics of GST disputes vary according to the client segment
• drivers of disputes include lack of understanding of technical issues, penalties, and record keeping
• The ATO is undertaking a new approach to objections which involves an initial assessment to identify the level of complexity and priority of the objection. The outcome of the assessment will impact the way the ATO deals with the objection. For example, an objection identified as being highly complex and of high priority will result in the ATO engaging with the taxpayer or their representative within 24–48 hours. Low complexity and low priority objections may mean the ATO takes two weeks to allocate the objection.
• GST disputes tend to be on the highly complex end with multiple issues often turning on the facts and evidence
• at 30 June 2020 there were 97 litigation cases on hand with the extent of taxable supplies and property topics the major issues.

Members’ comments

Does PAG need to be reviewed for common technical issues raised at objection? The ATO advised that every six months the key topics are identified and provided to the PAG unit to consider if changes are necessary to a range of products, for example website information, call centre scripts or PAG.

What is the relationship between Private Binding Ruling requests (PBR) and objections? The ATO advised that there are limited disputes from PBRs. The ATO agreed to supply the data for private rulings and related objections. It was suggested that the interrelationship between advice and objections may be a valuable agenda topic for a future meeting.

Are current cases still going through the normal review and facilitation processes? The ATO advised that this is the case however there has been a significant reduction in requests for the use of alternate dispute resolution processes.

Integration of GST across the ATO

The ATO provided a paper for this agenda item.

Following the change to the ATO’s Client Engagement structure, work to deliver the GST administration program is being delivered through a dispersed delivery model – primarily through the client experience lens with a GST Program ‘hub’ located in the Small Business line.

Multiple areas of the ATO have responsibility for delivering the outcomes of the program. Kirsten Fish is the GST custodian with overarching accountability for the administration of the program. Deputy Commissioners in the Client Engagement Group administer the GST within their respective markets. Sue Goodear is the GST program lead ensuring the ATO effectively administers the GST program as outlined in the GST Administration Performance Agreement and provides governance and assurance to the states and territories on the ATO’s administration of the GST.

Sue Goodear noted in her presentation that while people had been ‘lifted and shifted’ into different areas of the ATO, managing the reporting and planning process has not been that straightforward or simple.

The ATO has set out a vision and mission statement for GST:

• GST vision – our GST administration is contemporary, expert, has integrity and provides value for money.
• GST mission – to contribute to the economic and social wellbeing of Australians by fostering willing participation in the GST system.

The GST program is particularly focused on accountabilities under the GST Performance Agreement, developing a more sophisticated understanding of client behaviour risks and their relativities, delivering a holistic client experience and maintaining GST expertise across the ATO.

Members’ comments

The inclusion of ‘value for money’ in the vision is a key and positive difference. This will require a change of mindset.

The paper provided the current cost to the ATO of administering the program. This does not cover the cost that businesses incur for taxpayers to comply with the law.

Large market taxpayers are noticing an increased effort and interaction to satisfy the requirements of ATO.

A focus on the risk lens is important and critical.

The attribution of costs for GST collection will be more difficult under the new model where GST management is no longer in a separate business line.

The delivery of an integrated experience of GST and income tax for small business is a good approach but this may not be the right approach or look the same for large businesses as they generally have specialised areas dealing with the GST.

The ATO noted that Sue Goodear will continue to engage the stewardship group as matters are advanced, particularly work on the risks.

Agency updates

Treasury update

Treasury provided the group with a written report about the status of key Treasury legislation since the group last met noting that the government has prioritised legislative measures that support businesses impacted by the Coronavirus, improve regulation in the financial services industry, and further strengthen the integrity of the tax system.

In addition to the Treasury Legislative update circulated the following Bills have also passed both Houses in the Federal Parliament in recent days:

• Treasury Laws Amendment (Your Superannuation, Your Choice) Bill 2019, first introduced 27 November 2019 and passed on 25 August 2020, amends legislation so that it will no longer be possible for an employer to deny choice of a superannuation fund to individuals on the grounds that they are employed under an enterprise agreement or workplace determination that specifies their fund for them.
• Treasury Laws Amendment (2020 Measures No. 2) Bill 2020, first introduced 13 May 2020 and passed on 25 August 2020, gives effect to several measures, including:
  • combatting multinational tax avoidance through amending the hybrid mismatch rules to ensure they operate as intended
  • introducing a general category of deductible gift recipient (DGR) for men’s and women’s sheds and updates to the list of DGRs to include eight new entities
  • broadening the amounts that employers can voluntarily report under the Single Touch Payroll rules to include employer withholding of child support deductions and child support garnishee amounts
  • enabling the disclosure of protected information, relating to the JobKeeper Scheme, to the Fair Work Commission and the Fair Work Ombudsman
  • establishing frameworks under which Australia may buy additional shares of capital stocks from the International Bank for Reconstruction and Development and the International Finance Corporation of the World Bank Group to provide financial assistance and advisory services to developing countries
   
• Coronavirus Economic Response Package (JobKeeper Payments) Amendment Bill 2020, first introduced 26 August 2020 and passed on 1 September 2020, facilitates the extension of the JobKeeper scheme to 28 March 2021.

ATO update

The ATO provided a paper giving an update on a wide variety of matters. A member questioned whether e-invoicing was going to be aligned with other jurisdictions’ requirements for invoices?

Member discussion

Paul Suppree provided a detailed paper on the need for more granular information on the cost of GST compliance to be provided to better inform community debate on tax policy, tax administration and levers of tax compliance.

Points made by Paul:

• the ATO has over time made significant inroads into public transparency of its activities with the publication of increasing levels of data and its compliance programs
• there is no specific breakdown of the amount of GST collected or borne by entity size
• the GST cost of collection is decreasing but this is largely driven by the revenue increase
• the ATO costs of collection are higher per dollar of revenue raised for GST than other taxes. This is likely due to several variables.
• GST adjustments to large business are a relatively small component of overall ATO direct compliance results
• the overall GST gap is good when compared internationally
• while the ATO publishes an enormous amount of information on its performance, including GST collections and economy wide GST tax gap, there is a relative lack of granular information in relation to the amount of GST collected via market segment
• the ATO has had a focus on GST assurance but need to understand why resources are being applied to mainly compliant taxpayers particularly in the large market.

JobKeeper update

Changes were announced during August 2020 to adjust the reference date for employee eligibility. Changes mean that:

• eligible employers will receive the JobKeeper payment for each eligible employee that was employed by them as at 1 July 2020
• more employees can qualify – see eligible employees.

From 28 September 2020, once legislation is passed, eligibility for the JobKeeper payment will be based on actual rather than estimated turnover in the relevant periods. The payment will be stepped down and paid at two rates.

Currently 98% of JobKeeper payments are being paid within four days. From the compliance work the ATO is undertaking, there is an absence of systemic fraud. Compliance is focused on fundamental issues, for example business and employee eligibility, turnover and multiple claims.

While the ATO is ensuring eligibility as a key element of the program, there is a strong commitment to stopping future payments but not seeking repayment of incorrect monies.

For the extension to JobKeeper there has been some selective and targeted consultation.

The ATO will provide taxpayers with the turnover from the 2019 quarterly business activity statement. The amount provided would generally be used for the turnover comparison. If an alternative figure is used, the taxpayer will need to identify they are using an alternative test and why they are using it.

It should also be noted that legislation has been passed that enables the disclosure of protected information relating to the JobKeeper scheme, to other government agencies such as the Fair Work Commission and the Fair Work Ombudsman.

Members' comments

The speed of service by the ATO has been extraordinary and the ATO is to be congratulated.

Concerns with new businesses and businesses that are not eligible because they lodge annually rather than quarterly. The ATO noted there has been significant advocacy on these issues however the ATO is required to administer the law as legislated.

Public Groups and International Justified trust

The ATO will be conducting an integrated approach for the Top 1000 entities covering both income tax and GST.

The Top 1000 program was established in 2016 and will be completed in December 2020. Under the program specialist income tax teams engage with a taxpayer using tailored approaches to assure the taxpayer is reporting the right amount of income tax or identifying areas of tax risk for further action.

The Top 1000 combined assurance program will operate from 2020 to 2023 and will build on the previous assurance approach with a combined assurance review (CAR) of income tax and GST.

The income tax component of the CAR will be tailored based on the assurance rating obtained in the previous review. The GST component will help the ATO to better understand the Top 1000 population and identify taxpayers requiring further investigation through a six-month GST assurance review.

Guiding principles for a CAR:

• apply the justified trust methodology
• leverage and build on what the ATO has learnt
• expectation that taxpayers are better prepared
• provide client self-assessment tools to obtain assurance.

A CAR will be tailored to the taxpayer having regard to:

• previous assurance rating and how they have addressed the next actions set in their tax assurance report
• the taxpayer’s response to the questionnaire and evidence provided
• whether the taxpayer has applied the ATO-published guidance.

The GST component of the CAR will be structured around four areas:

1. tax governance
2. treatment of new and significant transactions
3. specific GST risk areas
4. alignment between accounting and tax.

There will not be an overlap of review periods. If a taxpayer was reviewed in the last 6–12 months their review will occur sometime in the future. The assurance program will operate over a three-year period.

Members’ comments

Where cases require a full GST review will the work undertaken in the CAR be incorporated? The ATO noted that this will occur and is likely to substantially reduce the time for the full review.

What is the breakup of the current income tax assurance outcome? The ATO noted that it is broadly 30% high assurance, 50% medium assurance and 20% low assurance.

How do taxpayers get a copy of the GST Governance, Data Testing and Transaction Testing guide as it is not yet publicly available? For a copy of the GST Governance, Data Testing and Transaction Testing Guide, email Top1000GSTProgram@ato.gov.auThis link opens in a new window or Top100@ato.gov.auThis link opens in a new window. The ATO is working towards making this available on the legal database.

Meeting close

Co-chairs Kirsten Fish and Andrew Howe thanked members for their contribution to the meeting.

Attendees

Apology