The transitional period - 8 July 1999 to 1 July 2000
As everyone now knows, a key component of the Federal Government's "A New Tax System (ANTS)" - the GST legislation - received Royal Assent on 8 July 1999. As a result, transitional arrangements have been implemented for contracts entered into from 8 July 1999 to make GST payable for goods and/or services which will be supplied and/or prepaid, in whole or part, from 1 July 2000. This is provided the supply is not input taxed or is GST free. It is important to note that GST applies regardless of whether the goods and/or services were paid in full before 1 July 2000. Therefore all contracts entered into from 8 July 1999 which conclude after 1 July 2000 must account for any GST liability.
If a contract fails to allow for the GST on supplies made after 1 July 2000, the supplier has no right to subsequently increase the agreed contract price in order to account for their GST liability. It is therefore imperative that all contracts for the supply of goods and services include an effective GST clause.
Essentially it is the supplier of goods and services that is responsible for collecting GST so now is the time to start factoring GST into your contracts and all business operations. Failure to properly prepare and plan all the implementation issues associated with GST could leave you carrying substantial additional costs that could put your professional practice or arts organisation in jeopardy.
If appropriate, suppliers may now charge and collect GST in the following way:
- calculate the pro rata value of the goods and/or service that relates to the period from 1 July 2000, and
- multiply the pro rata value by the GST rate of 10%, and
- add the pro rata GST amount to the base price to give a total price inclusive of GST.
GST and annual subscriptions and memberships
An example of a contract for supply of goods and services that spans over 1 July 2000 is annual or periodical membership fees or subscriptions such as those provided by theatre companies, magazine publishers, service organisations, and others. GST is payable on the portion of subscriptions which extends beyond 1 July 2000.
Pricing and the ACCC
When adjusting prices to accommodate the impact of GST, businesses need to be aware that the Australian Competition and Consumer Commission (ACCC) has been granted special powers to monitor prices and to ensure that price increases are consistent with the changes to the tax rates during the transition to the GST. It is essential that price increases can be justified on a "whole of business" basis which accounts for the net effect of the tax reforms on the cost of producing the goods and/or services.
The ACCC has released guidelines which include the following statements:
- prices should be reduced immediately to pass on the effect of any tax reductions;
- any increase in price based on the GST should include an off set for other indirect tax reductions (eg. the removal of sales tax);
- no mark up be applied other than to the GST component of the price; and
- prices should reflect only actual, not anticipated, price increases.
Businesses that fail to pass on reductions in direct taxes or use the GST as an excuse to increase prices may be subject to substantial penalties (up to $10 million for corporations and $500,000 for individuals).
Keeping informed
Most people in the arts appreciate that the introduction and implementation of the Federal Government?s Goods and Services Tax will have a major impact on the way they do business.
Unquestionably, the best way to deal with the GST challenge is to face it: keep informed, and plan a strategy which will allow you to cope with the transition to GST as painlessly as possible.
An added incentive for getting ready for the GST now is that you may gain a competitive advantage over others who are not so well prepared.
The Australian Taxation Office (ATO) is providing information on the GST in a number of ways including through its website at www.taxreform.ato.gov.au, the Tax Reform Infoline 13 2478, fact sheets, booklets including The New Tax System: Here's How It Will Affect Your Business, advertisements, etc.
Planning your GST implementation strategy - are you ready for GST?
Preparing for the GST is unlikely to be easy for individual arts practitioners and organisations, particularly with regard to additional operational and compliance requirements. But once your accounting system is set up, compliance will get easier. The toughest stage is likely to be the period leading up to 1 July 2000.
Do I need to register for GST?
If you are conducting a taxable activity, you must register for GST if the following applies to you: your annual turnover (the total value of taxable supplies made, excluding GST, of all your taxable activities) over the last twelve months has exceeded $50,000 and your turnover for the next twelve months is expected to exceed $50,000pa. Not-for-profit organisations only need to register if their annual total turnover exceeds $100,000pa.
Taxable activities do not include:
- working for salaries or wages;
- hobbies or any private recreational pursuit;
- private sales of personal or domestic items;
- making exempt supplies; or
- donations provided as unconditional gifts to not-for-profit organisations.
Advantages of voluntary registration
Businesses with a turnover under the compulsory registration threshold may choose to register if they wish.
As a GST-registered enterprise if you purchase goods or services from a GST-registered enterprise, you will be charged GST and you will be able to claim it back. If you are not GST-registered, you cannot claim back the GST charged.
Test your GST awareness
- are you required to register for GST? If not, have you assessed whether it may be to your advantage to register voluntarily?
- how will you keep up to date in the lead up to the introduction of GST?
- do you have any contracts in place that commence or extend beyond 1 July 2000? If so, what is the impact of GST on these contracts?
- are you planning any capital expenditure in the next 12 months? Taking into account the reduction and abolition of sales tax, and whether you hold a sales tax exemption, is it more cost effective to buy before or after the introduction of GST?
- which of your products and services will attract a GST and which will be GST free or input taxed?
- which goods and services required for your business will attract a GST and which will be GST free or input taxed?
- what will be the effect of the Government's other tax reforms on your business? eg changes to Fringe Benefits Tax, retention of 41% tax on wine, introduction of the PAYG (Pay As You Go) scheme, etc.
- do you conduct any business through the Internet? What additional controls and documentation do you need?
- are your company directors or committee members and staff aware of their responsibilities under GST?
- what additional resources will you need to cope with GST? eg upgrades to you accounting systems, training requirements, changes to your business documentation including invoices, etc.
- have you identified what changes are needed in your day to day business procedures eg. advertising, pricing strategies, insurance cover, legal relationships with customers/subscribers/suppliers/agents/funders?
- how are you documenting your pricing decision making process? This evidence may be crucial if subject to a GST pricing audit by the ACCC.
After addressing all of the above issues, are you confident that your business or organisation is well equipped to survive and comply with the new regime?
Tax invoices
A tax invoice is the legal document which shows the GST for a transaction. Tax invoices must contain certain information. In general, you must hold a tax invoice to claim a GST credit.
To satisfy the invoice requirements, the GST law requires the document to show:
- the Australian Business Number (ABN) of the entity issuing the document;
- the GST inclusive price of the taxable supply; and
- any other information specified in the regulations (yet to be decided); and
- compliance with the approved form requirements that may apply in particular situations.
However, until such time as the regulations governing tax invoices are finalised (and you are able to obtain an ABN) the ATO has issued a GST Bulletin Guidelines for 'tax invoices' issued by suppliers before 1 July 2000. The bulletin details the minimum requirements necessary to satisfy the Tax Commissioner that a taxable supply has been made. According to the Bulletin:
"Your recipients will not need a tax invoice if:
- you issue (or have issued) a document before 1 July 2000 for a taxable supply after that date, and
- the document contains the following information:
- your name or trading name
- your address
- the date of issue
- the price of the taxable supply (that part of the taxable supply to be made after 1 July 2000), and
- either:
A. a statement that the price of the taxable supply includes the amount of GST expected to be payable, or
B. the amount of GST expected to be payable."
Copies of the GST Bulletin can be obtained from the website www.taxrefrom.ato.gov.au or by telephoning the tax reform infoline on 13 2478.
Some Definitions
from the ATO's booklet The New Tax System: Here's How It Will Affect Your Business
Annual turnover
The value of the goods and services supplied through your enterprise for a 12-month period, excluding GST and input taxed supplies.
Australian Business Number (ABN) and registering for GST
The ABN is a new identifier for dealing with the ATO and for future dealings with other government departments and agencies. Any entity carrying on an enterprise will be able to register for an ABN and/or the GST. Existing enterprises can apply for registration commencing from November 1999 and must be registered by 31 May 2000. The registration form will allow you to register for an ABN and/or the GST at the same time.
Business activity statement (BAS)
A single form used to report your business tax entitlements and obligations, including the amount of GST paid and collected. Reporting may be monthly or quarterly, depending on your annual turnover. Enterprises with an annual turnover under $20 million can choose to report monthly which may provide better control over their cashflow.
Enterprise
Includes the commercial (not hobby) activities of an entity. Entities include an individual, a charity, a government organisation, a corporation, a partnership, an unincorporated association, a trust,
GST-free
Some supplies are GST-free, which means you do not pay GST for them, but are entitled to claim input tax credits for GST paid on the supplies you purchased or acquired to use in your business (other than for making input taxed supplies).
Input taxed
Some supplies are input taxed, which means you do not charge GST for them but neither are you entitled to input tax credits for GST paid on the things you purchased or acquired to make the supply.
Input tax credits
When you pay GST on any taxable supplies you purchase or acquire for use in your business, you can claim these amounts back from the ATO. These amounts are called input tax credits.
Taxable supplies
Include most goods and services you provide for payment or other consideration through your enterprise in Australia. Supplies are not taxable supplies if they are GST-free or input taxed. Includes grants and subsidies, copyright and other intellectual property rights eg exclusive and non exclusive licences.
Tax invoice
A document generally issued by the supplier. It shows the price of a supply, indicating whether it includes GST, and may show the amount of GST. It must also include the supplier?s Australian Business Number (ABN). You need a tax invoice to claim an input tax credit on your Business Activity Statement.
Tax payable
The tax payable is calculated by deducting GST credits (input tax paid) from GST collected (output tax) on the GST return.
Unconditional gift
A donation or payment made voluntarily to a not-for-profit organisation where there is no identifiable direct benefit to the giver. This does not include sponsorships in kind.
