GST CLINIC: Winners and losers

GST confusion has not been limited to food items - far from it. Take, for example, companies performing services here in Australia for non-resident organisations. Does a local computer company providing technical support via modem to an organisation in Papua New Guinea, for example, charge GST on its invoices? The Taxation Department advised one such computer company that no GST was chargeable. I only hope that the company obtained confirmation of that ruling in writing. This is advice that should be heeded by all organisations that base decisions on verbal rulings obtained over the Taxation hotline.

Stories of anomalies are beginning to surface now that the first spate of Business Activity Statement (BAS) returns have been lodged. There's the pet food manufacturer who is required to pay GST on purchases of wheat but not on the colouring ingredient. Apparently the colouring ingredient is considered a "foodstuff" and therefore exempt from GST, while the wheat is not considered such.

When it comes to filling out the BAS form, the job is made considerably easier depending on the type of accounting system used. Neither collections nor inputs are likely to be nicely divisible by 11. Take the case of an importer. GST is levied at the point of entry by the Customs Department. However, the exchange rate on that day might be considerably different than that upon which payment of the invoice is finally made. Thus, the GST in such case will be more or less than 1/11 of the purchase price.

Accordingly, the legislation provides an alternative method. This method depends on whether GST amounts are accounted for separately and that the transactions within these accounts are capable of being audited. If so, then the balances in these accounts can be used to fill in the fields on the form for the amount of GST collected and paid. Provided that the level of sales and/or purchases disclosed on the form equates within reason to the amounts of GST disclosed, then this will be accepted.

Then there is the issue of small irritating amounts such as the GST charged on Fringe Benefits. Take a simple case of an entertaining expense for $220 where half the amount is subject to Fringe Benefits tax. Under the legislation in this case, half the GST forms a tax credit. Thus, the organisation is entitled to claim a $10 tax credit at the end of the next period. However, a couple of people I have spoken to consider the effort warranted is more than the return and simply treat the whole $110 as an operating expense.

Now if winners are grinners, the state premiers should be wearing a grin from ear to ear. This action by the organisation nets them an additional $10 in GST that they are not entitled to. The losers are the organisation that incurred the expense along with the Federal Government who will have their own revenues decreased by $3.40. In the organisation claiming the $10 as an expense rather than a GST tax credit, they will obtain a 34 per cent Federal Income tax relief on the $10.

Of course, entertaining is not the only area where this case might be repeated. Take bridge tolls, metre parking, petty cash items etc. Over the course of a year, this could see the states generating GST returns considerably in excess of actual entitlements.

I wonder how long before a Canberra bureaucrat twigs to the fact that their own revenues are being reduced for the benefit of the states' coffers? If so, we might expect a further complication down the road that sees the Federal Government allow expenditure claims to be limited to the net amount before GST.

It makes you feel all warm inside knowing you are dealing with a far less complicated method of indirect taxation than that which it replaced.

Marnie King is the International Business Development Manager at Solomon Software. Reach her at