GST for FMs and Management
Accountants
Anne Harvey – Group Tax Manager, Corporate Finance
Eric McCallum – Group Tax Accountant , Corporate Finance
14 August 2012
Objectives
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When does GST apply
Understand GST Codes
Common GST Mistakes
GST application- Courses,Workshop,Conference
Imports and Exports
Grants and Appropriations
Specific GST areas in relation to Charity
Contractors and VN1 form
When does GST apply
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When is it applicable
Taxable sales
 price includes GST
 pay GST on sales
 claim GST on purchases
 1/11th of Total invoice/sale
price
Taxable supply
 for consideration
 in course of furtherance of
carrying on enterprise
 connected with Australia
 registered or required to be
registered
 not GST free or input taxed
When is it not applicable
• GST free sales
 Basic food - meat, milk,
bread, fruit and vegetables
 Most education, child care,
health
 Some exports
• Input Taxed sales
 Residential property
 Financial transactions
 Cannot claim GST credit
How Does GST work
Issue Tax invoice
Supplie
r
Raises
Tax
Invoice
Purchase
r
Receives
Tax
Invoice
$1100
• Taxable Sale
$1000
• GST on sale
$100
Receives Tax Invoice
$1100
• Purchases
$1000
• GST charged
$100
Total Sales on BAS
$1100
• Sales $1000
• Remit GST
1/11th to ATO
$100
Total Acquisitions
on BAS $1100
• Acquisition
$1000
• Claim ITC for
GST $100
Cash Received
$1100
• Net revenue
$1000
• GST paid to
ATO $100
Cash Payment
$1100
• Net Expense
$1000
• GST claimed
from ATO $100
UNSW
Sponso
Recipient
r
GST Codes: Acquisitions – AP/ Expenses/Credit Card
1.
2.
Taxable – AC/AO
GST Free – FRAC/FRAO
1.
Most goods and services
2.
3.
Imports – IMAC/IMAO
3.
4.
Input Taxed – ACIT/AOIT
5.
Non deductible – NIAC/NIAO
5.
6.
7.
Out of scope – EXCL
Advances - EXAD
6.
7.
Basic food; consumed/used
overseas i.e. international airfare,
accommodation
Customs clearance e.g.
Equipment; overseas
subscriptions
Financial supplies, residential
accommodation
Cannot claim GST, no Tax
Invoice, student entertainment
Taxes, wages, donations
Travel Allowance, Advance
4.
“C” in AC, FRAC, etc refers to Capital. “O” in AO, FRAO, etc refers to Other.
GST Codes: Supplies – Account Receivable/ Billings
1. Taxable – SALE
2. GST Free – FREE
1. Most services
2. Accredited Education courses
3. Exports – EXPT
4. Input Taxed – ITAX
3. Overseas customer
4. Some Kensington College
rent
5. Gifts, No supply made
5. Out of Scope - EXCL
Claiming ITC for GST charged
• Tax Invoice showing GST or GST inclusive price
• Can rely on other supporting documentation issued by supplier if
minor defects in Tax Invoice
• Purchase $82.50 or less (including GST) with Tax invoice, Receipt,
invoice, docket
• Sale < $1,000 – Tax Invoice, name & ABN of supplier, date,
description, if each item is taxable sale, $ GST or Total price includes
GST.
• Sale $1,000+ also show buyer’s name or ABN
Common GST Mistakes
• Mixed Supplies – need to enter Taxable items and GST free items on
separate lines with GST code
• Assume GST applies to total – check for GST free
• Use GST code from PO - check if agrees to Tax Invoice
• Relying on default GST codes in EMS
• Tax calculated in system not agree to GST on Tax invoice – may
need to split lines
• Deposits – claiming GST on deposit. Adjust on final Tax invoice
• Credits from prior month. Check GST charged on Invoice.
Risk to UNSW if GST Not charged
 If Taxable Supply UNSW still have to remit 1/11th of total amount to ATO
 Loss of revenue received by UNSW – only 10/11ths.
 Audit risk – inadequate processes and controls
 Penalties and Fines
 Reputational risk
 BAS amendments
Courses/ Workshop/Conferences
GST
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Non-accredited units (of Tertiary course)
Admin services not directly related to
education course - academic hire, nonresident application fee, textbook
Conferences
Seminars
Workshops
CPD training
Adult and community education available to
non- residents only
Hobby and recreational course
Self development, public speaking
GST free
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Tertiary course determined by Education
Minister in Student Assistance Act 1973
section 5D(1)
Other course determined by Education
Minister
One unit of tertiary course – enrolment
Course materials, student amenities fee
Excursion/field trip
Vocational course
Adult and community education
 Likely to add to employment related
skills
 Determined by Education Minister
 Run by Higher Education Institution/
recognised body
Imports
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GST is generally applicable on the importation of goods. The GST is based
on the customs value of the goods and a $1000 threshold applies.
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The UNSW is registered under the ATO GST deferral scheme where the
GST is calculated by the customs agent and transferred directly to the ATO.
The actual GST payable is allocated to the next BAS return due and is
claimed as a “Input Tax Credit” at the time of the next BAS lodgement.
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Goods that would be GST free or input taxed if supplied in Australia do not
attract GST when imported.
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Managed by Procurement
Exports
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GST is designed to be a tax on the consumption of goods and service in
Australia.
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Where goods or services are consumed overseas they will generally be GST
free.
The goods must leave Australia within 60 days of receiving any payment or
60 days of sending the invoice.
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Export of services are generally GST free where the effective use and
enjoyment of the service takes place outside of Australia.
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Services connected with goods or real property situated outside of Australia
are also GST free.
Difference between Grants &
Appropriations
Grant
1. Can be consideration for a supply
2. Could be made by a private entity
to a government entity or vice
versa
3. Can be made by an individual,
body corporate or legal entity.
4. A competitive Grant could be open
to private companies and
government related entities
Appropriation
1.
2.
3.
4.
Is not part of a commercial
transaction and would
normally reflect the noncommercial activities of
government.
Is between government and
government related entities.
The authority behind an
appropriation is to be found
in an appropriation Act of
Parliament or other
legislation.
Is only available to
government or government
related entities.
Grants
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Where the Grant is consideration for a supply made by the UNSW then the
Grant will be subject to GST. If sufficient connection between supply and
payment – basic GST rules.
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Since the gross amount received by the UNSW is reduced by the GST
payable (1/11th of the receipt), the treatment of the GST should be agreed
during the initial negotiations. This will enable both parties to align their GST
treatment, minimise the risk of one party being left out of pocket by the GST,
and limit any subsequent conflicts.
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Certain grants that are completely unconditional and are not tied to a
material supply will be GST free and treated like a donation or gift.
Appropriations
Previously
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GST Act paragraph 9-15(3)(c)
Payment made by GRE to another GRE is
not consideration for GST purpose if
payment specifically covered by
appropriation under Australian law
New legislation -1/7/2012
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Be Appropriation under Australian law
Payment made by GRE to GRE
Specifically covered by appropriation
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No GST – outside scope of GST
For appropriation to not be provision of
consideration for supply current requirement to
be specifically covered by appropriation
removed – (no need to specify GRE recipient
by name, or generically)
If payment by GRE, can be paid to GRE and/or
non Govt – not appropriation
New “non-commercial” test satisfied
Non commercial activities of GRE not subject
to GST
 9-15(3)(c) only apply where payment can only
be made to GRE
 Non-commercial activities of GRE – No GST
 Payment from GRE to GRE, covered by
appropriation, non commercial – not
consideration – No GST
 If payment to GRE for commercial supply-GST
 If margin above cost of supply – GST
Appropriations
Non-commercial test
Consideration
(for a supply)
≠
Anticipated or actual cost
of GRE Supplier making:
• the supply, or
• any other related supply
Appropriation made by
GRE under Aust law to
GRE Supplier for making
a supply
≥
+
3rd party payments
(monetary and nonmonetary)
3rd party payments – in connection with, or in response to, or inducement of the supply or any other related supply
Is supply by GRE? – No, not appropriation, out of scope, usual GST rules. If yes …
Is payment to Government and Private (co contribution)? If yes …
Is there a margin? Yes, failed non-commercial test. GST on Government and non Gov’t supplies.
If determine non commercial – document reasons why
Appropriations
Sponsorship & Scholarships
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Where the UNSW receives funding for a scholarship and the sponsor
receives a material benefit; then the funding is a taxable supply.
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A material benefit might include advertising, promotional material and
naming rights; it would not include simply acknowledging a sponsor during a
speech.
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Where there is no material benefit being received by the sponsor then the
funding would be GST free.
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Generally there is no GST on the scholarship payment to the student since
the student is not running an enterprise and is not providing a supply for
consideration. In most cases the University is acting as a collection agent on
behalf of the student.
Donations
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A taxable supply involves the supply of a good or service for monetary or
non-monetary consideration.
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A donation is when there is no “material benefit” going to the donor and
consequently there is no supply for consideration.
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A material benefit could include rights to intellectual property, early research
results, a contractual obligation, marketing, advertising and promotion;
acknowledgements such as a mention in a periodical or newsletter would
normally be a material benefit.
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Activity reports and progressive expenditure reports are not a supply or
material benefit.
Sale of Second Hand Capital
Equipment
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Sale of second hand equipment is a taxable supply and consequently 1/11th
of the sale price must be remitted to the ATO.
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As the UNSW is a charitable institution if the sale price of the second hand
equipment
 is less than 50% of the market value then the supply is GST free, or
 is less than 75% of the original purchase price paid the supply is also
GST free.
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Given that the original purchase price is often easier to substantiate than the
current market value; it may be worthwhile to look up the cost on the Fixed
Assets Register prior to negotiating the final sale price.
Security Deposits
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Security deposits and deposits used as part payments are treated differently
for GST purposes.
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A security deposit is held as security until completion of an obligation and is
returned upon the successful completion of the obligation. The initial
payment of the security deposit and the return of the security deposit are not
subject to GST.
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A security deposit that is forfeited or applied to form part of the consideration
is subject to GST.
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If offset on final payment, GST should be accounted for at end, with GST on
full transaction and credit for security deposit.
Student Accommodation
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Accommodation for student during semesters in input taxed residential
accommodation and falls outside the definition of commercial residential
premises.
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Demolition and construction costs include GST and to the extent that a
building is used to make input taxed supplies the GST “Input Tax Credits” on
the demolition and construction costs cannot be claimed.
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The GST legislation allows for the non-commercial operations of charities to
be GST free where certain criteria are met. In the case of student
accommodation the amount charged to students must be below 75% of the
market value for the non-commercial criteria to be met.
Student Accommodation continued:
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The UNSW has engaged a property valuer to determine the market value of
the student accommodation to be supplied at Gate2 and the Kensington
Colleges in order to ensure compliance with the non-commercial operations
of a charity criteria.
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As the UNSW is a charity for taxation purposes meeting the non-commercial
operations of a charity criteria means that the supply of student
accommodation is GST free.
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The benefits of the accommodation supply being classified as GST free are
that the student receive more affordable accommodation and the UNSW can
claim GST “Input Tax Credits” on the construction and on-going costs.
Contractors and VN1 Form
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All new Vendors to complete VN1 form – process and system to manage
VN1 form has questions in relation to the services provided and ABN status
To assess if employee or contractor
Assess for PAYG withholding, Superannuation and Payroll Tax
Vendor Classification assists in identifying for upfront Payroll Tax exemption,
ongoing Payroll tax assessment or SGC.
If “Refer HR” – needs to be referred to HRC for setting up in HR system.
Cannot be paid through AP.
Standard UNSW Contact
 Sole Trader Contractor Agreement
 Other Entity Contractor Agreement (Company, Partnership, Trust)
NFP Sector update
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10 May 2011 reforms to NFP sector announced
Creation of Australian Charities and NFP Commission (ACNC) – National
regulator, establish and maintain database of charities, one-stop-shop for
charities, oversight on financial and governance practice. Est. by 1/10/12.
Statutory definition of Charity due 1/7/13. Charitable status of entity
reassessed against definition. Some entities potentially lose tax exempt
status if not meet definition. Ensure focus activities on education or other
charitable purposes.
Reform to better target NFP tax concession. NFP taxed on income of
Unrelated commercial activities, where profits not directed back to entities
altruistic purposes. Applies from 1/7/12 to new unrelated commercial
activities commenced after 10/5/11.
Restating “In Australia” special conditions. Operate and pursue purposes
principally in Australia. Income tax exemptions, DGR status. May place
restrictions on overseas operations that could jeopardise tax concessions.
Questions
• Further Information
Contact: Anne Harvey - Ext 51635. Email: a.harvey@unsw.edu.au
Eric McCallum – Ext 52825, Email: ericmac@unsw.edu.au
Lucy Lowe – Ext 51204, Email: l.lowe@unsw.edu.au