ap_gst15

Who Pays GST? A Registered Entity

which makes a Taxable Supply -

Who has to pay GST - An Registered Entity which makes a Taxable Supply

When does an entity have to register? When turnover exceeds $50,000

What if an entity is required to register, but does not do so?

Who has to pay the GST? (Section 9-40)

The entity making the taxable supply is liable for the GST. The GST is 10% of the value of the taxable supply. Value is 10/11 th of the price.

When does an entity have to register?

If an entity is required to be registered for GST, it must apply for registration within 21 days of becoming required to do so. The requirement will arise of when the entity becomes aware that its annual turnover meets or exceeds the registration turnover threshold.(penalty for entities failing to apply for registration when they are required to do so (Section 42 of the Taxation Administration Act 1953).

Annual turnover (Division 188)

When determining whether or not annual turnover meets the registration turnover threshold, an entity must calculate both the current annual turnover and the projected annual turnover.

Current annual turnover (Section 188-15) is the value of all supplies made or likely to be made during the current month and supplies made during the previous 11 months.

Projected annual turnover (Section 188-20) is the value of all supplies made during the current month and all the supplies likely to be made for the next 11 months.

In determining current annual turnover, and projected annual turnover exclude:

those supplies that are input taxed;

supplies for no consideration (other than certain supplies to associates – see section 72-5); and

supplies not connected with the enterprise of the entity.

In addition to excluding the above, the entity excludes from estimation of the entity’s projected annual turnover any supplies made or likely to be made:

by way of a transfer of capital asset;

as a consequence of ceasing an enterprise; or

as a result of substantially and permanently reducing the size or scale of the enterprise.

If both the current annual turnover and the projected annual turnover are below the registration turnover threshold an entity may still be required to be registered if the Commissioner is not satisfied that the projected annual turnover is below the registration turnover threshold.

How does an entity work out the value of its supplies?

Exclude any GST. For example, in the case of an entity making a taxable supply of, say a computer for $3,300, then it works out the value of this supply as 10/11 ths of $3,300 or $3,000.

What if an entity is required to register but doesn’t? (Section 25-15) The Commissioner has the power to backdate an entity’s registration (Section 25-10).

Backdating registration requires GST to be paid on taxable supplies made from that date, but also allows input tax credits to be claimed on acquisitions, provided the correct documentation is held.

However, an entity may find that it will not be in a position to recover the GST to be remitted to the ATO from customers (penalties apply for failing to apply for registration when required to do)

What obligations does registration bring?

Must account for GST on any taxable supplies it makes.

Must issue tax invoices if requested to do so

Business Activity Statement for each tax period.

Cancellation of registration (Subdivision 25-B)

An entity must apply to cancel its registration within 21 days of ceasing to carry on an enterprise.

The Commissioner must also cancel an entity’s registration if satisfied that the entity is no longer required to be registered and believes that the entity will not be required to register for at least 12 months.

There is a penalty for failing to apply for cancellation when required to do so (Section 42 of the Taxation Administration Act 1953).

An entity may also apply for cancellation of registration if turnover falls below the registration turnover thresholds (eg. $50,000 or $100,000 for non-profit organisations). However, the entity must have been registered for at least 12 months. In other words, an entity cannot register one day and then decide it would be in a better position by not being registered and thus seek to opt out of the GST system the following week.

Thus, if an entity has the option to register voluntarily it will need to consider the implications carefully before exercising that choice.

Are there any consequences from cancellation?

Yes. If an entity’s registration is cancelled it will need to make an adjustment in relation to any input tax credits it has, or is entitled to, in respect of assets held immediately before ceasing to be registered.

The reason for the adjustment is that the assets are being taken out of the GST system.

The adjustment operates to claw back any input tax credits on the value of assets taken outside the GST system.

Division 138 deals with adjustments on cessation of registration.

Branch registration (Division 54)

An entity is able to register a branch separately for GST purposes providing:

the branch has an independent accounting system;

the branch can be separately identified by the nature of its activities or its location;

the Commissioner is satisfied that the registered entity is or intends to carry on an enterprise through the branch; and

the registered entity is not a member of a GST group

Can an entity only register some of its branches?

Yes

NB Transfers from one branch to another or a transfer to the parent company will be subject to GST where the supplies are taxable supplies.

Forming a GST group

companies, partnerships, trusts(Division 48)

Technically entities cannot ‘register’ as a group or joint venture. However, they can apply to the ATO to be treated as a group.

(This measure is aimed at reducing unnecessary administration costs. Companies within a group can supply things to other members of the group without paying GST.)

Requirements for Companies (Section 48-10).

each company must:

be registered for GST;

be a member of the same 90% owned group as all other members of the GST group;

have the same tax period and account for GST on the same basis (ie. cash or other than cash basis); and

not be a member of another GST group.

Can non-profit bodies form a GST group?

Yes.

And they do not have to comply with the 90% ownership test, but all must belong to the same non-profit association.

What does it mean to be a part of a GST group?

Groups are effectively treated as one entity for GST purposes. One entity, the ‘representative member’

becomes responsible for lodging the GST return on behalf of all members.

The representative member is responsible for all the GST payable and is entitled to all input tax credits that the members of the GST group have that relate to supplies and acquisitions made outside the GST group.

The representative member must be an Australian resident.

Any transactions between members of a GST group are not treated as being taxable supplies or creditable acquisitions.

Subdivision 48-C deals with various administrative matters such as approval of new members to the Group, removing members, approving replacement representative members etc.

GST joint ventures (Division 51)

Limited to joint ventures for the exploration or exploitation of mineral deposits (eg metal ores, petroleum, natural gas and related hydrocarbons, sands and gravels) or for a purpose stated in the regulations. (other specific participation requirements - Section 51-5)

For other Registration issues eg Australian Business Number , etc - refer to Division 23