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GST through an entity’s life cycle

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Australia’s Goods and Services Tax, better known by its acronym of GST, will be celebrating its 21st birthday in 2021. Will it receive a birthday cake?

… If it is a cake shop, a cake from a cake shop that has sales tax, and it’s decorated and has candles as you say, that attracts sales tax, then of course we scrap the sales tax, before the GST is …

Former Liberal leader John Hewson’s answer to the question of
whether or not a birthday cake would cost more or less under
the proposed GST than sales tax, in the lead up to the 1993 Federal election

GST in Australia collects approximately $65 billion in net revenue and applies to 47 per cent of Australia’s national consumption.

The Government’s Budget data shows that GST is estimated to be the third largest source of taxation revenue at almost 14 per cent of total revenue:

Taxation (accrual) revenue as a percentage of total revenue (estimates)

Source: Parliament of Australia, Budget review 2019–20: Revenue

GST exemptions often lead to significant complexity and compliance costs for Australian businesses.

For example, a delicatessen/supermarket in Australia will sell olives, ham and cheese separately all GST-free to a customer but must charge GST when they sell an antipasto platter — comprising those ingredients — to the same customer.

GST considerations arise, and decisions need to be made, as an entity traverses the GST system throughout its entire life cycle — from the commencement of its enterprise (if any) to its exit from the system.

The first question is always: ‘does an enterprise exist?’ ― an entity is not required to be and cannot be part of the GST system unless carrying on an enterprise.

If an enterprise exists ― it must then be determined whether the entity has a choice or not in relation to three key variables for operating within the GST system:

  • Registration ― voluntary vs compulsory
  • Tax periods ― monthly vs quarterly (in limited circumstances ― annual)
  • Accounting/attribution method ― cash vs non-cash (accruals).

If a choice exists for any of these variables ― the entity and their adviser need to be aware of the factors which are relevant in deciding which option to use.

When an entity is in its set-up or commencement phase, GST issues which may require discussion include:

  • pre-establishment costs;
  • government taxes, fees or charges;
  • obtaining local council approvals;
  • insurance policies;
  • financing; and
  • requirements of GST documentation.

During the operating phase, issues which need to be contemplated include:

  • mixed versus composite supplies;
  • trading with associates;
  • adjustment events;
  • denied or restricted input tax credits;
  • lodgment and payment obligations; and
  • industry specific rules.

Particular difficulties arise on cessation of the enterprise in determining at what point of time potential GST liabilities on transactions involving former assets of the entity will cease, giving rise to potential GST liabilities. Other cessation issues include:

  • determining a concluding GST tax period;
  • compulsory vs voluntary cancellation;
  • adjustment events on cessation of registration; and
  • selling the enterprise as a GST-free going concern.

Further info and training

Join us as we discuss GST in our public sessions throughout the rest of February, along with our monthly Online Special Topic presentation!

GST – from the commencement of an enterprise to its closing dives into the GST tricks, traps and time bombs, that remain as relevant today for tax practitioners as they were on 1 July 2000. Each session comes with a supporting technical paper.

Registration options: