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  • GST Stewardship Group minutes 19 May 2016

    Meeting details

    Venue: ATO Offices, Level 12 Conference Room 706, 52 Goulburn Street, Sydney

    Date: 19 May 2016

    Start: 9.30am Finish: 12.30pm

    Chair: Kevin O'Rourke

    Secretariat: Alison Zeitlhofer, Indirect Tax, contact phone: 02 6216 1013

    Members

    Tim Dyce

    Deputy Commissioner, Indirect Tax, ATO (Co-Chair)

    Paul Southwell

    Assistant Commissioner, Indirect Tax, ATO

    Gordon Brysland

    Assistant Commissioner, Senior Tax Counsel, ATO

    Giles Wilmer

    Director, Commonwealth Taxes Unit, Queensland Treasury

    Kevin O'Rourke

    Chartered Accountants Australia and New Zealand (Co-Chair)

    Chris Plakias

    Head of Tax, GST and Technology Westpac, Member Australian Bankers’ Association

    Ken Fehily

    Principal, Fehily Advisory, Member CPA Australia

    Paul Nielsen

    Chairman, Board of Directors, Council of Small Business of Australia

    Andrew Howe

    Director, Greenwoods and Freehills Pty Ltd, Member Property Council of Australia

    Bastian Gasser

    The Tax Institute

    Andrew Sommer

    Partner, Clayton Utz, Member Law Council of Australia

    Paul Suppree

    Assistant Director, Corporate Tax Association

    Guest attendees

    Neil Olesen

    Second Commissioner, Client Engagement, ATO

    Stephen Howlin

    Assistant Commissioner, Indirect Tax, ATO

    Deborah Jenkins

    Assistant Commissioner, Indirect Tax, ATO

    Apologies

    George Nikolaou

    Coles Finance

    Professor Michael Walpole

    Professor and Associate Head of School (Research), School of Taxation & Business Law, University of NSW

    Christopher Lyon

    Small Business Tax Division, The Treasury

    Agenda summary

    • Welcome
    • Applying GST to services and intangibles imported by consumers – implementation update
    • Improving the refund process
    • Input tax credit estimators
    • Update on safe harbours / GST Rulings including members feedback on the ATO process re timing, adequacy, appropriate consultation etc.
    • Update on Division 93
    • Update on industry issues in terms of new developments / business models / safe harbours
    • Next steps summary and close

    Discussion summary

    Welcome Kevin O'Rourke

    Kevin O'Rourke opened the meeting.

    Minutes of 25 February 2016 endorsed with no outstanding action items.

    It was noted that due to caretaker conventions it was not appropriate to have discussion on Budget measures.

    It was agreed that going forward meeting minutes will be endorsed out of session, and published on the internet as final.

    Apologies were noted. Second Commissioner Client Engagement Neil Olesen, Assistant Commissioner Stephen Howlin and Assistant Commissioner Deborah Jenkins were welcomed to the meeting as guests.

    Applying GST to services and intangibles imported by consumers – implementation update – Stephen Howlin and Paul Southwell

    A PowerPoint presentation titled ‘Australian GST on Intangibles Project Implementation’ was provided, the main points included:

    • the Taxation and Superannuation Laws Amendment (2016 Measures No 1) Act 2016 received royal assent and became law on 5 May 2016
    • the Business to Business (B2B) laws apply from 1 October 2016 and the Business to Consumer (B2C) laws apply from 1 July 2017
    • communication strategies are being developed to inform businesses and other interested parties of the enactment of the new laws, with new and updated guidance products being prepared
    • Compliance strategies are being developed in collaboration with overseas agencies and the OECD
    • from 1 July 2017, GST is payable on supplies of digital products and other services imported by Australian customers
    • non-resident suppliers will be required to register for GST, charge GST to customers, lodge returns and pay the GST collected to the ATO. We are designing digital gateways that will make registration (no POI), lodgement and payment as simple as possible. Under the simple registration, no ITCs will be available. A non-resident that incurs GST can opt for the full registration and will be subject to normal POI requirements.
    • the domestic registration limit of $75 000 will apply to non-resident businesses
    • where supplies are made through an electronic distribution platform, the operator of the platform and not the supplier, must register, and report and pay the GST to the ATO.

    Discussion points included:

    • communications for non-resident taxpayers and advisers will need to be clear that registration of the non-resident supplier for GST purposes does not in itself create a permanent establishment for income tax purposes
    • to connect with overseas clients it would be beneficial to engage with the ‘Big 4’ accounting firms
    • there may be attempts by consumers to falsely claim to be in business. It should be noted that it is an offence and those who undertake this practice are liable to penalty.
    • ABN Proof Of Identity (POI) requirements for full registration is not just for refund integrity purposes.

    Action:

    Due date:

    Responsibility:

    A – 19/05/16

    Friday 15 June 2016

    Steve Howlin

    Consider whether an agent representative, for example, could register on behalf of all the businesses they represent and submit one registration, and one return each period representing the totality of their clients’ obligations.

    Improving the refund process – Tim Dyce

    The ATO invests a large number of resources in refund integrity.

    Pre-issue refund integrity activities provide significant net revenue returns with no leakage from the system.

    Four out of five refunds that are stopped are subsequently released; we would like to greatly improve on this statistic and reduce the number of refunds stopped.

    Significant costs are carried by both government and business because of the time lag involved when a refund is stopped, including delayed cash flows and GST administration costs.

    Although we have made some major inroads in streamlining the refund integrity system, it is important that we continue to have better identification of BAS subject to validation and improve the risk metrics.

    We need to ensure that we safeguard the GST system, noting that recently we have seen a number of offshore fraudulent low value refund claims.

    There was general agreement that it would be valuable to participate in a workshop to explore opportunities to improve the refund process.

    Action:

    Due date:

    Responsibility:

    B – 19/05/16

    Friday 15 June 2016

    Secretariat

    Arrange for a confidential concept brief on the refund integrity process incorporating individual experiences from members. Organise a workshop to look at ways for improving the current refund integrity process.

    Input tax credit estimators – Tim Dyce

    The ATO position on the use of ITC estimators is provided in the guidance note, ‘Using an ITC estimators to calculate your input tax credits’ [Guidance Note] which was issued to interested parties in September 2014.

    An ITC estimator is a methodology that estimates ITC credits in respect of late posted tax invoices. These are invoices that the organisation may hold, but has not processed in the accounting system by the end of a tax period. It has been marketed by some advisors to various organisations and, in some cases, implemented without the assistance of advisors.

    There are various ITC estimation methodologies. Each relies on estimates, averages or percentages based on historical data to determine the unclaimed ITC entitlement for a particular tax period. The estimated amount is then claimed in addition to the ordinary GST credits derived from tax invoices that have been processed in the accounting system, resulting in a one off ITC claim in the first tax period in which the estimator is used. In subsequent tax periods the estimated claim amount is (effectively) reversed out and re-claimed resulting in a nil net GST impact. This will continue until such time as the original estimate is revised.

    The ATO understands those who are utilising ITC estimators are predominately in the construction and mining industries. Use is not limited to the large market sector.

    There is concern that businesses might ‘set and forget’ the estimate. Voluntary disclosures indicate that this is occurring. Businesses need to regularly review and revise their estimates by calculating actual late posted invoices for past periods. Our current advice is that business should also compare actual late posted invoices in past periods to the estimates used and make adjustments in periods where the estimate is found to be overstated.

    The ATO is currently reviewing the practical use of estimators. Following this review, the ATO is likely to communicate more broadly that estimators can be used but extreme caution should be used to ensure the method does not result in overestimates and a process should be in place to regularly review and revise estimates every six months.

    The ATO is not looking to cease or discourage this process, rather to ensure that if adopted, it is implemented and applied correctly.

    Members commented that the administration costs required to implement and maintain an accurate estimate are likely to outweigh the benefit arising from the time value of money for many taxpayers. This practice is most likely to be cost effective only for large taxpayers. Any messages from the ATO need to be targeted at a broad audience. When business undertakes a merger there can be difficulties establishing the new approach suitable for claiming input credits when one business is using ITC estimators and the other is not.

    Action:

    Due date:

    Responsibility:

    C – 19/05/16

    Friday 12 August 2016

    Steve Howlin

    Arrange for an out of session confidential paper on communication messages for members and seek members' feedback.

    Update on safe harbours / GST Rulings including members' feedback on the ATO process re timing, adequacy, appropriate consultation etc. – Deborah Jenkins

    The ATO recently formed the Public Advice and Guidance Centre (PAG) led by Will Day, Deputy Chief Tax Counsel, Tax Counsel Network. The PAG Centre is responsible for managing and maintaining Public Advice and Guidance issued by the ATO.

    A Law Companion Guide (LCG) is a public ruling. The ATO will issue the LCG in draft when a Bill is introduced into Parliament, or soon thereafter. The LCG, when finalised, expresses the Commissioner's view on how recently enacted law applies to a class of taxpayers, or to taxpayers generally, and provides practical implications of recently enacted law in ways that go beyond mere questions of interpretation. The LCG will help taxpayers understand from day one how the law will apply to them.

    Practical Compliance Guidelines (PCG) are a form of guidance that contain practical compliance solutions for taxpayers and often the ATO’s view of relative levels of tax compliance risk across a spectrum of behaviours or arrangements. PCG can provide useful insights into the practical implications of tax laws and associated ATO administrative approaches.

    The GST Safe Harbour Group has considered and consulted on several potential safe harbours including barter, and apportionment for credit unions and retirement villages.

    Barter: In the early stages we considered the possibility of developing a legislative instrument which essentially waived the need for a tax invoice if commercial documentation was available that contained much of what would be required in a tax invoice. We are now considering an alternative approach that would take the form of a PCG. A draft PCG is being considered by Tax Counsel Network representatives in our Public Advice & Guidance Unit, to confirm if this guide is suitable for this product. A July outcome is anticipated.

    Apportionment for Credit Unions and Retirement Villages: Data for the credit union sector has shown some consistency which would suggest a fixed rate of apportionment may be appropriate and we are now working with the sector to get a sense of the compliance cost savings. There is a wide disparity of apportionment rates amongst retirement villages and as such, a fixed rate safe harbour may not be feasible for retirement villages.

    Review of private advice findings report was released in April 2016 and is available via ATO Lets Talk - http://lets-talk.ato.gov.au/rpaExternal Link. This feedback is being considered and recommendations are expected to be released in mid-2016.

    Update on Division 93– Kevin O’Rourke

    The significant issue highlighted through discussion on Division 93; regarded four year time limits pertaining to claiming input tax credits. There is a ‘mismatch’ between the period of review provisions and the provisions of Division 93 of the GST Act. It was agreed that the ATO should explore the possibility of a legislative fix or use of the statutory remedial power first.

    Action:

    Due date:

    Responsibility:

    D – 19/05/16

    Friday 15 June 2016

    Gordon Brysland

    Provide feedback to group on best process course of action to address the four year time limits in relation to claiming input tax credits.

    Update on industry issues in terms of new developments / business models / safe harbours – open forum

    There are currently no GST systemic issues that members are seeing that are posing new or different challenges.

    There is the potential in the future for a third category class between employer and contractor; that may shift the legal category to emerge.

    It was agreed that this item will continue to be included in future agendas.

    Next steps summary and close – Kevin O’Rourke

    Neil Olesen provided observations of the meeting; including the following points:

    • it was very positive to witness conversation throughout the meeting around the administration of the GST system
    • Statutory remedial powers are well worth pursuing, they are used in revenue negligible situations and have the potential for the system to work better
    • Practical Compliance Guidelines enables us to shift away from the 'black and white' and look at the boundaries. They should provide comfort where taxpayers are operating between the flags; there is no benefit to the system if we step away from the guidelines we issue.
    • Reinvention is a long course change program but the benefits to client groups will be both short term and long term. Lots of engagement is needed to shape thinking.

    Refund Process Workshop 5 July 2016 in Canberra and the next full meeting is scheduled for 25 August 2016 in Melbourne. The meeting concluded at 12:30.

    Action:

    Due date:

    Responsibility:

    E – 19/05/16

    Friday 15 June 2016

    All members

    Suggest agenda topics for future meetings.

     

      Last modified: 21 Jun 2016QC 49405