• GST States and Territories Industry Partnership minutes 17 March 2014

    Meeting details

    Venue:
    Treasury Building
    Corporate Training Room
    Level 1
    21 Murray Street
    Hobart

    Date: 17 March 2014

    Start: 10.30 am
    Finish: 3.00pm

    Chair: Rachel Johnston

    Attendees

    The following table lists the attendees of the meeting, and the state or organisation they represent.

    Name

    State/organisation

    Robert Enright

    ACT

    Christine Havas

    CWLTH

    Harold Glenwright

    NT

    Daniel Fielding

    QLD

    Julie Sinclair

    SA

    Rachel Johnston

    TAS

    Jenni Skyner

    WA

    Martyn Lyons (Secretariat)

    ATO

    Attendees via phone

    The following table lists those who attended this meeting by phone, and the state or organisation they represent.

    Name

    State/organisation

    Adam McIntosh / Joan Cram

    NSW

    Kate Edwards

    VIC

    Meg Haseldine (Guest speaker)

    ATO

    Margaret Lake (Minutes)

    ATO

    Key messages

    • UPDATE - Trading names – A new regulation has been made so that trading names as at 28 May 2012 shown on the Australian Business Register can continue to be shown until 31 October 2018. However, new trading names cannot be added. Consideration should be given to registering any business names with ASIC.
    • UPDATE - Taxable government grants and payments – In the 2014-15 Commonwealth Budget, the government announced deferral to 1 July 2016 of the proposed measure to require reporting by government related entities of taxable government grants and specified other government payments.
    • Notional GST - The ATO is of the view that some entities, advisers and valuers are not applying GSTR 2006/6 correctly. We are continuing with business as usual processes such as issuing private rulings, conducting audits and reviews, and managing objections.
    • UPDATE - Refunds - Tax Laws Amendment (2014 Measures No. 1) Act 2014 received Royal Assent on 30 May 2014 to ensure that excess goods and services tax (GST) paid is only refundable in certain circumstances. The new Division 142 applies to all tax periods commencing on or after 31 May 2014.
    • ANAO Implementing Better Practice for Grants Administration guide- Among other things, the guide recommends consideration of tax issues early in the development of grant programs and to seek advice where appropriate, consistent with previous STIP discussions.
    • Increasing digital interactions with the ATO – All entities with a GST turnover of $20m or more are required to report and pay electronically. The ATO has begun issuing penalty warnings from the 24 February 2014 to government related entities that have not transitioned to electronic lodgement. Other groups of government entities are also being encouraged to interact digitally regardless of their GST turnover.
    • Lease of vacant land where the tenant constructs residential premises on the land during the lease period and subsequent renewal of lease - refer Agenda item 5.
    • Contractor payments - Government related entities should ensure that payees status as employees or contractors are correctly determined. Payments to members of government boards are subject to PAYG withholding.
    • Appropriations – Determining if a payment is covered by an appropriation is dependent on the specific facts. ATO ID 2013/54, in relation to secondments where the payment is covered by subsection 9-17(3), was updated on 28 February 2014. ATO ID 2001/474 covers a secondment where ATO ID 2013/54 does not apply.
    • Division 81 - Government entities should take a reasonable risk management approach when determining the GST outcome for payments potentially subject to Division 81. A reasonable risk management approach should be adopted and would include Government entities drawing on the concepts in publicly available ATO information in their decision making process and seek advice from the ATO when there is doubt.
    • Alternative Dispute Resolution (ADR) – The ATO seeks to resolve disputes co-operatively with all taxpayers, including State entities, through a variety of mechanisms including ADR. The ADR will certainly continue as a mechanism as it has proved to provide successful outcomes in resolving disputes while reducing the burden of cost of litigation for both the taxpayer and the ATO. A notional GST ADR process has been developed in consultation with States and Territories as there was not scope for judicial review and will continue to remain in place to manage notional GST disputes.
    • Registration - Government entities can phone the ATO on 13 28 66 between 8.00am and 6.00pm, Monday to Friday to request a copy of the Application for ABN registration for government organisations (NAT 2946).
    • Integrity of business systems - The majority of Governance and risk management checklists have been completed and returned to us and are progressively being assessed. The checklists reviewed to date have varied in completeness from comprehensive to very basic. Where an organisation has not provided us with a sufficient level of assurance, we plan to undertake further assurance work, such as a risk workshop.

    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. Trading names and the Australian Business Register

    Members were advised of the following update on 4 March 2014:

    Treasury consultation - proposed regulations in relation to unregistered business names that are currently on the Australian Business Register

    Some government entities have previously raised issues in respect of trading names, especially in relation to tax invoices.

    On 25 February 2014, proposed regulations were published on the Treasury website for consultation in relation to unregistered business names that are currently on the Australian Business Register. The proposed regulations would ensure that unregistered business names that were on the Australian Business Register (ABR) before 28 May 2012 can continue to be publicly disclosed by the Registrar of the ABR until 31 October 2018.

    Further information is available on the Treasury website - treasury.gov.au/ConsultationsandReviews/Consultations/2014/ANTS-ABN-Amendment-Display-of-Trading-Names-Regulation-2014External Link. Any comments should be directed to the nominated Treasury representative. The closing date for comments is 11 March 2014.

    2. Taxable government grants and payments

    Members were advised of the following update on 13 February 2014:

    Taxable government grants and payments

    In May 2013, the Government announced a new measure - 'Tax compliance — improving compliance through third party reporting and data matching'. 

    The discussion paper for this measure has now been released on the Treasury website treasury.gov.au/ConsultationsandReviews/Consultations/2014/Improving-tax-complianceExternal Link. Taxable government grants and payments section commences on page 10.  Any submissions on the discussion paper are due to Treasury by 11 March 2014. 

    The ATO will continue to work with industry throughout the implementation of this measure.  If you have not already indicated your interest in being involved in the consultation process and you wish to do so, please contact:

    • tggp@ato.gov.au or
    • Robert Muscat on (03) 9275 4834 or
    • Maria Llorca on (03) 9937 9211

    A further update on the progress of the Taxable Government Grants and Specified Payments data matching project was provided at the meeting:

    ATO update

    On 6 November 2013, the Government announced its intention to proceed with the 2013-14 Budget measure: ‘Tax compliance — improving compliance through third party reporting and data matching.’

    This measure is designed to improve taxpayer compliance by enhancing the information reported to the ATO by a range of third parties through the introduction of new reporting regimes, including in respect of:

    • Reporting of taxable government grants that government entities pay recipients for a specified purpose, and
    • Reporting of specified government payments made by a government entity to a supplier (such as contractors or consultants) for the provision of services.

    This measure is currently scheduled to commence from 1 July 2014. The legislation to support this measure is not yet in place, so the information below may change as a result of the consultation process (refer to the above update regarding the discussion paper).

    In respect of Taxable government grants and payments, it is proposed that government entities would be required to report annually to the ATO the taxable grants and specified payments that they make to grant recipients and suppliers for services that have been provided to them.

    The proposal will impact all levels of government – federal, state, territory and local and is likely to include statutory authorities and government business enterprises.

    The information likely to be reported for each grant or payment recipient includes:

    • ABN (for grants and payments made to businesses);
    • TFN or date of birth (for grants made to non-business individuals);
    • full name;
    • address;
    • gross amount paid;
    • total GST (if applicable);
    • BSB and account number; and
    • other contact details such as phone number or email address.

    The ATO will undertake consultation on the administrative aspects of the system.

    Meeting discussion

    Concern was expressed by members at the proposed commencement date of 1 July 2014 by which time they will need to have processes in place to capture the required information under the new regime. This will be a huge task for government particularly in times of reducing budgets and members agreed the proposed implementation date was an unrealistic expectation. There is a level of complexity to payments made under Government grant programs and members foresee potential difficulty in extracting the required data.

    Members advised they have made submissions to the Government raising a number of issues they identified with the proposed regime. For example, issues associated with programs for grants or subsidies whereby the payments are made directly to third parties on behalf of the recipient to the payment. Government entities have little knowledge of whether payments are taxable in the hands of the recipient and therefore this aspect could create issues with the pre-filling of certain information to taxation returns. Also the penalty implications if the payees do not provide specific information as requested by the Government entity as payer, such as Tax File Numbers or dates of birth, which are required to be reported under the proposed regime.

    3. ATO updates

    Notional GST

    The ATO held discussions with advisers to entities that have been involved in unimproved land issues on 26 November and 12 December 2013.

    The purpose of the first teleconference was to introduce a managed Alternative Dispute Resolution (ADR) process in respect of unimproved land disputes, given the inability to litigate notional GST disputes, and to seek adviser engagement in progressing and resolving issues. The managed ADR process outlined envisaged identifying lead cases for neutral evaluation, by a retired High Court or Federal Court judge, with other cases being parked to reduce costs for entities generally.

    The ATO also highlighted that restrictions of refunds (as per section 105-65 of the Taxation Administration Act 1953 and as per MT 2010/1) are applied with the support of States and Territories and that any contrary contentions by government related entities would need to be raised with their relevant treasury.

    At the teleconference, advisers concerns related primarily to the ATO not being bound in respect of an adverse opinion regarding a question of law and that entities would be required to fund neutral evaluation on a 50:50 basis.

    The ATO advised that it was not appropriate for the law to apply differently to one entity compared to other entities and that the views of one evaluator should not necessarily override the ATO view which had been developed in consultation with the community. However, if that situation arose, the ATO would seriously consider the evaluator opinion in consultation with the community and, if the view is to be changed, it would be changed for all entities. In respect of costs, the ATO advised that, if cost was a significant blocker, we would seriously consider covering the cost of the neutral evaluator, but entities would need to fund their own costs.

    Advisers were asked to provide feedback on the managed ADR process and were also asked to identify broad categories and possible candidates for lead cases.

    At the second teleconference, it was advised that major government land organisations would be meeting in February 2014 to develop a group position in respect of the meaning of unimproved land in various situations, subject to review by their advisers, to provide to the ATO.

    Given this, the ATO agreed to suspend the managed ADR process in respect of major government land organisations, but it would still be open to other government entities to individually continue with ADR if that was their preference.

    The ATO is of the view that some entities, advisers and valuers are not applying GSTR 2006/6 correctly. Ultimately, we expect that some of these unimproved land issues can only be dealt with through ADR, given notional GST limitations for litigating, but ADR is dependent on engagement with us through that process. In the absence of any ADR progress, we will continue to apply our view and confirmed that we would continue with business as usual processes such as issuing private rulings, conducting audits and reviews, and managing objections.

    Meeting discussion

    There was general discussion on the issues with notional tax and the ATO encouraged members to consider case law references in their decision making process.

    The courts have considered issues in respect of ‘improvements’ on many occasions and cases, as referenced in GSTR 2006/6, indicate the following:

    • Any operation of man on land which has the effect of enhancing its value comes within the definition of 'improvement' (Morrison v. Federal Commissioner of Land Tax (1914) 17 CLR 498 at 503);
    • We are concerned with the value at the relevant date of the physical consequences which endure to the land of the acts whereby the land attained a quality and usefulness additional to that which it had in its virgin state (Commonwealth of Australia v. Oldfield (1976) 133 CLR 612 at 620); and
    • Presumably, a purchaser of land, if he considered this question at all, would determine that the amount to be attributed to value of improvements would be equal to the amount which he gained or saved by reason of the improvements having been made, he being thereby relieved from the necessity of making them (Lewis Kiddle and another v. Deputy Federal Commissioner of Land Tax (1920) 27 CLR 316 at 320).

    An improvement may be as simple as clearing of the land of its natural vegetation or improving pasture. 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. An actual purchaser may have a specific intention for the land such that a particular intervention is of no direct value to them. However, the appropriate objective test is whether the intervention would give the land attained a quality and usefulness additional to that which it had in its virgin state for any potential purchaser and that they would be relieved of cost of effecting that intervention.

    For example, habitable social housing on land sold by a State Housing Authority to a developer who intends to demolish the houses and construct strata units would be considered by the developer to be a detriment to the value of the land. However for GST purposes, the houses are ‘an improvement on the land’. Paragraph 35 of the ruling provides an example of a house that a purchaser may demolish is nonetheless an improvement that enhances the value of the land.

    Some facts may be relevant to determining the value of the land, but may not be conclusive or necessarily relevant to whether there are any improvements on the land. For example, the highest and best use of the land will be relevant to determining the overall value of the land. However, highest and best use does not determine if a particular intervention objectively enhances the value of the land in the context of Oldfield and Kiddle.

    Payment of refunds of overpaid GST– Bill tabled

    Members were advised of the following update on 24 February 2014:

    Exposure Draft Legislation and Explanatory Material– Refunding excess GST

    Treasury have released Exposure Draft Legislation and Explanatory Material proposing amendments to the previously announced measure to restrict GST refunds.

    The intention of the proposed amendments is to clarify the circumstances in which taxpayers are entitled to refunds of overpaid GST.

    Treasury has published the Explanatory Material and Draft Legislation to their website. A link to this material is below.

    treasury.gov.au/ConsultationsandReviews/Consultations/2014/Refunding-excess-GSTExternal Link

    Treasury is inviting submissions from all interested individuals and organisations. The closing date for comment is Friday, 28 February 2014.

    Members were advised of the following update on 1 April 2014:

    Payments of refunds of overpaid GST-Bill introduced to Parliament

    Tax Laws Amendment (2014 Measures No. 1) Bill 2014-Payment of refunds of overpaid GST was introduced to Parliament on the 27th March, 2014. The Bill clarifies the circumstances in which taxpayers are entitled to refunds of overpaid GST by replacing s 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) with proposed Division 142 of the A New Tax System (Goods and Services Tax) Act 1999.

    These changes are based in part on recommendation 45 of the Board of Taxation review of the legal framework for the administration of GST.

    More information

    You can find information on the bill and explanatory material at Payments of refunds of overpaid GST on the ATO New Legislation webpage.

    Implementing Better Practice for Grants Administration

    Grants administration is an important activity for many Government entities and the ANAO published a Better Practice Guide on the administration of grants on 6 December 2013. While this guide has been developed for Commonwealth entities, States and Territories may find some of the content useful. In respect of taxation, the guide also recommends consideration of tax issues early in the development of grant programs and to seek advice where appropriate, consistent with previous STIP discussions.

    The guide can be accessed via the following link - www.anao.gov.au/work/better-practice-guide/implementing-better-practice-grants-administration  

    Meeting discussion

    ATO advised members that this guide was not an ATO document and had been included in the agenda to draw attention to members of the recommendations of the ANAO particularly the point to consider the taxation consequences of government programs upfront in the planning process. Members agreed this was best practice but not always easy to achieve in every circumstance.

    4. Increasing digital interactions with the ATO

    In line with global trends and community expectations, and in keeping with the government’s digital strategy, the ATO is progressing away from paper to interacting digitally. This includes our interactions with government entities for GST and PAYG.

    Entities with a GST turnover of $20m or more are required to report and pay electronically (s31-25 and s33-10 of the GST Act). The first phase of this activity is moving these entities from lodging paper to electronic. We have been providing direct support to these entities. Penalties will apply if the entities do not report or pay electronically, although penalties and interest are not applicable to Commonwealth government entities.

    The ATO has begun issuing penalty warnings from the 24 February 2014 to phase one entities that have not transitioned to electronic lodgement. The penalty warnings will advise entities they will be required to lodge their March activity statement (and any future activity statements) electronically or risk the imposition of a penalty for failure to comply.

    Other groups of government entities are also being encouraged to interact digitally regardless of their GST turnover. Phase two involves schools and, as it is unlikely these entities will have ATO Relationship Managers, the ATO will be working with Education Departments in each State or Territory to assist the schools with their electronic transition. Phase three will involve councils and any remaining government entities.

    Meeting discussion

    Members sought confirmation of what methods of payment constitute an electronic payment for the ATO.

    ATO advised post meeting that electronic payment is the preferred method for it to receive payments. Electronic payments include tax payments made electronically to the ATO by Electronic funds Transfer, BillPAY, Direct Credit or Direct Debit.

    5. Lease of vacant land and subsequent improvements

    Attention

    In light of some broader issues that have 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 are undertaking a review of ATO response to this issue. An updated response will be provided in due course.

    End of attention

    Background

    An agency leases vacant land from a remote area organisation under a 20-year lease. GST is included in the lease. The lease could be renewed at the end of the lease period. The agency claims input tax credits in respect of the lease.

    The agency constructs residential premises on the land for occupation by agency staff working at the location. The residential premises will become the property of the lessor at the expiration of the lease.

    Issue

    1. Does the GST treatment of vacant land change if the lessee constructs residential premises on the land?

    ATO position - No.

    1. Is the answer to question 1 different if the lease is renewed at the end of the lease period?

    ATO position - Yes.

    ATO Response

    Issue 1

    The definition of residential property in the GST Act does not include vacant land. This is because vacant land is not capable of being occupied as a residence or for residential accommodation as it does not provide shelter or basic living facilities.

    In the scenario presented to us, the Organisation is supplying an interest in vacant land by way of a 20 year lease to the Agency. The subsequent construction of residential premises on the land by the Agency will not change the nature of that supply, which will remain a taxable supply of vacant land.

    On the other hand, when the Agency provides the residential premises to its staff, it will be making an input-taxed supply. Once it starts using that land for the purpose of providing the residential premises to its staff, the Agency will have an increasing adjustment under Division 129 of the GST Act for a change in the extent of creditable purpose in relation to its lease of the land.

    References:

    • GSTR 2012/5 - Goods and Services tax: residential premises
    • Decision Impact Statement – South Steyne Hotel Pty Ltd & Ors v Commissioner of Taxation [2009] 74 ATR 41
    • GSTD 2012/1 - Goods and services tax: what are the goods and services tax consequences following the sale of residential premises that are subject to a lease?
    • GSTD 2012/2 – Goods and services tax: what are the goods and services tax consequences following the sale of commercial premises that are subject to a lease?
    • ATO ID 2010/22 – Goods and Services Tax – GST and land supplied by way of a long term lease on the condition that residential premises are constructed on the land
    • GSTR 2006/4 – Goods and services tax: determining the extent of creditable purpose for claiming input tax credits and making adjustments for changes in the extent of creditable purpose

    Issue 2

    The ATO view regarding tenants’ fixtures is that, in the absence of specific State or Territory Legislation governing when property in fixtures passes to a landowner and/or whether any compensation is payable by the landowner to the tenant in respect of a fixture, the general property law principles will apply. Under general property law, a fixture becomes part of the land and property in the fixture passes to the landowner at affixation.

    Normally, in the relevant jurisdiction of the Agency, property in a fixture passes to the landowner upon affixation. We note however that in the scenario presented to us it is mentioned that the residential premises will become property of the lessor at the expiration of the lease. In any case, when a new lease is signed by the parties at the expiration of the existing one, the new lease will be for land and fixtures (which have become property of the Organisation). That is, the Organisation will be leasing residential premises to be used for residential accommodation by the staff of the Agency. Such a supply will be input-taxed under section 40-35 of the GST Act.

    Please note that the passing of property in a fixture to a landowner at affixation, or at some other time under specific State or Territory legislation, constitutes a supply for GST purposes. Such a supply will be taxable where the requirements of section 9-5 of the GST Act are satisfied. Where the relevant parties are associates, the application of Division 72 of the GST Act also needs to be considered.

    Reference:

    • Goods and Services Tax – Industry Issue – Primary Production Industry Partnership – Tenants fixtures (Issue 6.5.2 of the Primary Production Industry Partnership Issues Register)

    6. Contractor payments by Government entities

    Meg Haseldine, ATO Senior Director, gave members a presentation on employer obligations and the correct tax and superannuation treatment of employees and contractors, including appropriate use of the “Statement by supplier” form when a supplier does not quote an ABN.

    A paper was circulated to members at the meeting.

    Meeting Discussion

    It was queried by a member whether Government board members were employees and the payment of fees to these members were caught by the PAYG withholding regime.

    The ATO advised that payments to members of government boards would be subject to PAYG withholding and provided the following confirmation post meeting:

    Under subsection 12-45(1) in Schedule 1 to the Taxation Administration Act 1953, an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as a person who is otherwise in the service of the Commonwealth, a State or a Territory.

    Members of boards would be considered to be in the service of the Commonwealth, a State or a Territory. It would be inappropriate to accept a ‘statement by supplier’ from board members. The activity would not entitle the board member to an ABN, and in any case even if they were able to quote an ABN they had acquired for other purposes, this would not relieve the paying agency from the obligation to withhold.

    7. GST and appropriations

    The issue concerns subsection 9-17(3) of the GST Act and the GST status of payments between government agencies, provided the requirements of the subsection are met.

    The question stems from the definition of appropriation and the payments within various levels of government agencies that don’t appear to be directly linked to appropriation.

    Payments such as:

    • rent or other operating type expenses payable to another government directorate when the payments are set on a cost recovery basis;
    • grant payments distributed throughout a directorate in accordance with their original purpose; 
    • examples of payments that cannot be traced back to a specific appropriation but are generally thought to have originated from an appropriation.

    Issue

    Are we safe in relying on the assumption that, aside from the commercial revenue activities of a small number of agencies, most government payments are ultimately funded by an act of appropriation and can thus be assumed to satisfy the requirements of the definition?

    ATO response

    We refer to our response to Issue 6.2 in the minutes of the GST STIP meeting held 17 September 2013.

    The response outlines the cascading nature of payments under appropriations and explains in detail what is covered by an appropriation. It provides guidance to determine the source of payments noting constitutional requirements in each jurisdiction.

    Given that the circumstances may be fact dependent, entities should consider applying for a private ruling where they remain uncertain.

    Meeting discussion

    The ATO advised that there is no broad answer to the above question and they can only respond to the specific facts of each situation.

    There was general discussion about determining the types of payments covered by an appropriation. ATO commented that, where appropriated funds are mixed with other non- appropriated funds and a payment is made using those combined funds, it may not be possible to say that the payment is covered by an appropriation. However, where an agency receives appropriated funds which are required to be quarantined and accounted for separately, then a payment using those funds can be covered by an appropriation.

    In some cases, government departments receive funds other than through annual appropriations, such as fees and charges paid pursuant to Acts that they administer. The ATO understanding is that these fees and charges form part of the consolidated fund for the Commonwealth, State or Territory and require an Act to allow the government department to retain those funds and to appropriate those funds from the consolidated fund, even though there may not be a physical transfer to and from the consolidated fund. Examples of retained funds being appropriated in such a manner are section 29 of the Financial Management Act 1994 (Vic), section 23 Financial Management Act 2006 (WA) and section 28 of the Financial Accountability Act 2009 (Qld). Payments made using those retained funds, regardless of whether combined with other appropriated funds, will be covered by an appropriation.

    At a practical level, payments between departments and agencies that are part of the legal entity being the Crown in that jurisdiction will be covered by an appropriation as the ATO understands that the funds paid would form part of the consolidated fund for the jurisdiction. Similarly, payments by those same departments and agencies to other entities would be covered by an appropriation. However, once the payment is made to a separate legal entity, regardless of whether that entity forms part of the broader Commonwealth, State or Territory, any on-payment by that separate legal entity will be less likely to be covered by an appropriation.

    If there is insufficient evidence to satisfy the requirements of paragraph 9-17(3)(b), it would not be appropriate to treat a payment as having been covered by an appropriation. However this does not mean that relevant enquiries should not be made to determine if the provision is satisfied.

    Members raised ATO ID 2013/54 regarding secondments. The ATO advised that there were problems with the ATO ID in respect of reasoning and this has now been fixed. The ATO ID was updated on 28 February 2014. ATO ID 2001/474 covers a secondment where ATO ID 2013/54 does not apply.

    8. Government page on ato.gov.au

    A page on the ATO website, GST rulings and determinations for Government, has been removed. This page had not been updated for a considerable period of time. It also referred to a number of draft rulings, some rulings that had been replaced and did not reflect more recent information relevant to government entities.

    The GST Update Digest which is distributed to STIP members and to most large State and Territory entities on a quarterly basis includes current material that previously appeared on this page.

    9. General business

    9.1 Future GST impacts for States and Territories

    The following questions are a standing agenda item which is considered by the States and Territories for discussion at the meeting.

    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, cheaper, more personalised) is the design of existing Tax Office systems for the administration of GST?

    How can any deficiencies be shaped to become more effective?

    Meeting discussion

    The following issues were raised for discussion:

    Division 81

    ATO sought feedback from members on whether the Law Administration Practice Statement for Division 81 has been of assistance to government entities in determining if payments are not consideration for a supply and exempt under Division 81. Members responded that the practice statement had helped in part by resolving issues with some payments but not all.

    ATO advised of their concern with the volume of private rulings being received despite the issue of the practice statement, including seeking advice on large numbers of fees and charges which appeared to be straightforward. ATO requested that Government entities take a reasonable risk management approach when determining the GST outcome for payments potentially subject to Division 81. ATO considered that it a reasonable risk management approach would include Government entities drawing on the concepts in publicly available ATO information in their decision making process and seek advice from the ATO when there is doubt.

    Alternative Dispute Resolution

    Members asked the ATO if the broad processes under Alternative Dispute Resolution (ADR) will continue into the future. ATO advised they seek to resolve disputes co-operatively with all taxpayers, including State entities, through a variety of mechanisms including ADR. The ADR will certainly continue as a mechanism as it has proved to provide successful outcomes in resolving disputes while reducing the burden of cost of litigation for both the taxpayer and the ATO.

    A notional GST ADR process was developed in consultation with States and Territories as there was not scope for judicial review and will continue to remain in place to manage notional GST disputes.

    Registration process

    There was discussion on the registration process and how the different taxes, such as GST and FBT, each have various registration methods which burdens a government organisation with unnecessary layers of difficulty.

    ATO advised that the Relationship Manager is an excellent starting point for registration enquiries and there is also the Large Service Team which caters for large government entities that do not have as dedicated Relationship Manager.

    A link to the registration process for government organisations on the ATO website is provided below together with an outline of that process:

    Government registration process

    Online registration for an Australian business number (ABN) and other tax obligations is not available for government organisations.

    A paper Application for ABN registration for government organisations (NAT 2946) has been developed for this purpose. This process allows government organisations to apply for:

    • an ABN
    • goods and services tax (GST)
    • a fuel tax credit
    • pay as you go (PAYG) withholding
    • fringe benefits tax (FBT)
    • luxury car tax (LCT)
    • wine equalisation tax (WET)
    • a tax file number (TFN).

    Government entities can phone the ATO on 13 28 66 between 8.00am and 6.00pm, Monday to Friday to request a copy of the Application for ABN registration for government organisations (NAT 2946).

    This form, when completed, should be signed by the authorised contact person and posted to the address listed on the form.

    Alternatively, it may be faxed to the ATO on 1300 130 905.

    Integrity of Business Systems – Government workshops

    There was discussion on the outcomes from the Government workshops held late last year for Integrity of Business Systems.

    Members also queried if there was a workshop planned in the coming months for government agencies at the Commonwealth level.

    The following update was provided to members post meeting on 26 March 2014:

    Integrity of Business Systems (IBS)

    Commonwealth workshop

    The risk management area responsible for coordinating and conducting IBS workshops for government has advised there are currently no plans to schedule a workshop for Commonwealth entities.

    IBS checklists from government IBS workshops

    The majority of Governance and risk management checklists have been completed and returned to us and are progressively being assessed. The checklists reviewed to date have varied in completeness from comprehensive to very basic. Where an organisation has not provided us with a sufficient level of assurance, we plan to undertake further assurance work, such as a risk workshop.

    Follow-up action identified by entities

    Most agencies strongly agree with the statement “Our overall GST governance and risk management processes and frameworks support and provide appropriate assurance that our organisation’s GST obligations are being met”.

    A number of the entities identified follow-up action is required on the following matters:   

    • BAS preparation spread sheets need to be protected to limit access
    • an issues log needs to be created 
    • current systems do not prevent the use of incorrect tax codes.  In other instances the net and gross amounts are incorrectly shown on the BAS system report. There are also issues with:   
      • Bad Debt processing
      • Insurance Settlements
       

    Other observations

    Departments identified systems limitations with SAP. A large proportion of entities use SAP yet haven’t identified any of the shortcomings. To ensure the risk is isolated we will need to confirm what the issues actually are and other departments are not using the same SAP version.

    Most entities manually transfer totals from spread sheets for lodgement of BAS – most of these spread sheets are unprotected – very few departments see this as an issue that they would address.

    There was also great variation in the documentation of GST processes and procedures – in some entities this seemed quite minimal while with others it was quite comprehensive. One department has their GST process and procedures in a very comprehensive and easily accessible electronic documentation package. The package details how to process different transactions and provides process maps and examples within the procedures. Others were a lot more basic (i.e. issues log is kept in a lever arch folder and added to when new issues and questions arise).

    The issue of succession planning and the existence of a “Key man” was not identified as an issue however from some of the checklist responses it was quite evident that there was a lot of reliance on one person– usually the Tax Accountant.

    9.2 GST STIP minutes

    The minutes from the last GST STIP meeting held on 17 September 2013 have been published on the ATO website and can be accessed via this link – GST States and Territories Industry Partnership minutes – 17 September 2013.

      Last modified: 08 Aug 2014QC 41693