While many businesses are focusing on meeting ever changing health regulations as well as the health of their customers and staff. The tax side of things shouldn’t be neglected, especially GST. The ATO has recently provided some insights on its methodologies for selecting entities for its GST assurance programs as well as how it tailors its compliance approach and the tools it has at its disposal. While the ATO notes that reviews usually conclude with recommendations of specific actions and follow-up, in some instances, a different approach such as audit may be taken.
As most Australian companies focus on the health of their customers and staff at this critical time, it is important to not neglect the business side of things, especially GST. Recently, the ATO provided an update on one of its GST assurance programs. While aimed at large public and multinational companies, the methodologies on how entities are selected and how it tailors its compliance approach provides insights on all levels of GST compliance.
Under the program, the ATO notes that taxpayers are usually selected for review or compliance measures based on a range of risk factors including their significance to the system. When it notifies taxpayers that a review is about to commence, there is time for the taxpayer to consider making voluntary disclosures of any tax concerns.
During the actual review, the ATO will be looking at the overall GST performance of the business, the type and size of business activities, GST risk management and governance, and any information from prior engagements including income tax dealings.
The purpose of the review is for the ATO to obtain assurance that the business has:
appropriate GST risk and governance frameworks that are applied in practice;
exhibit none of the risks identified in the market in general;
appropriate transactions (ie new, large or atypical transactions); and
correct GST treatment of various streams of economic activity.
Reviews conducted would be comprehensive and typically involve the previous complete financial year including details of systems and BAS walkthroughs. Data and transaction testing are expected to be conducted focusing on three consecutive BAS periods. In addition, the ATO notes that when reviewing the tax control framework for GST purposes, it will consider the periodic tax controls testing program, data controls, and documented GST control framework as the three fundamental controls.
What is perhaps the most interesting element in the ATO update on GST assurance is the development and testing of a GST analytical tool (GAT) to help it better understand why accounting and GST result vary and identify questionable areas. In essence, the GAT uses a standard method statement applying a top-down approach to identify and understand variances between accounting figures reported in audited financial statements and GST reported on the BAS.
The method statement starts with the revenue and expenses reported in the profit and loss and works through a series of adjustments to compare this information with annualised BASs covering the financial reporting year. The four key steps include grouping variances, non-GST bearing items (permanent differences), balance sheet and cash flow items (temporary differences), and other adjustments (offsetting items which may be industry specific).
According to the ATO, while the GAT cannot be used for taxpayers with predominantly input taxed supplies, with most other taxpayers, it will allow an understanding of what parts of accounting reported revenue represents taxable supplies, GST-free supplies, input taxed supplies, and transactions that are not supplies for GST purposes. At the end of a review, the ATO states that it will share its findings of identified GST risks, recommend specific actions and follow-up. However, in some instances, it says a different approach may be taken (ie audit).