Taxation Law - Goods And Services Tax

As everyone understands there are a number of Commonwealth Government taxes. The major ones are CGT, FBT, ICT, GST, LCT and PAYG (earn/withholding). At this stage this paper will only deal with GST legislation. The main piece of GST legislation is a new tax system (Goods and Services Tax Act 1999) which came into operation on 1 July 2000 and is payable only on supplies and importations made on or after that date. GST is charged at the rate of 10% on most goods and services consumed in Australia. It is important to keep in mind that the manipulation of GST is an offence which is punishable by fine, penalty, criminal sanction and may amount to a false or misleading claim which may contravene the Trade Practices Act 1974. Where ambiguities arise they have been traditionally resolved in favour of the taxpayer, however the pendulum has swung to look at the purpose or intent of the legislation in its overall context.

It is fair to say that GST applies to most businesses. Most businesses should have an ABN and be registered for GST so that they can charge either their customers or clients for goods and services. Effectively GST input tax credits can be claimed by all of those involved in the supply chain except the final consumer. There are a number of GST-free goods which include a number of hospital, medical, child care, religious, charitable, state-based services, education courses and duty free goods to name but a few.

Registration is central with the imposition of GST however problems can arise as there are basically three categories of potential registrants:

1 those who cannot be registered;

2 those who can be registered but do not have to be;

3 those who are required to be registered.

In order to be registered you must be carrying on an enterprise and it is mandatory where your annual turnover exceeds $50,000. Issues arise in a GST context depending upon your status e.g. employer and employee; employer and independent sub-contractor; principal and agent; partners, licensor/licensee and joint venturers. In the vast majority of cases in order to overcome any conflict the entity should have an ABN and be registered for GST provided they are carrying on an enterprise.

Complications can arise where both goods or services are sold, however the problem becomes more complicated in the services sector for some participants. An entity is liable to pay GST where it makes a taxable supply or importation. A taxable supply covers a wide range of transactions. It sounds trite to say but for there to be a taxable supply there must be a supply and this occurs when something passes from one entity to another in certain circumstances. There are mixed and composite supplies and to some extent this depends upon whether the parts of the supply may be separately identified. With mixed supplies there has to be apportionment. There has to be a consistent identifiable methodology which is adopted when dealing with these matters. Where goods are partly taxable and partly GST-free then any additional service has to be dealt with in the same way.

Ever since the introduction of the GST there have been a number of attempts by a number of tax-payers to avoid paying GST. The ATO looks strictly at the basis of the relationship between the taxpayer and any other party with whom they are dealing. For example, contractors who are service providers or putative or deemed employees. This examination goes not only to the issue of GST non-compliance but to whether or not PAYGW obligations have also been met. The following quote was taken from an ATO information bulletin with respect to the latter point: "Establishments that pay service providers are reminded of their withholding obligations, particularly the no-ABN withholding obligations where the service provider is a contractor. If the service provider does not quote their ABN or provide a statement by a supplier - reason for non-quoting an ABN to an enterprise form, the establishment must withhold 48.5% of the total payment and send the amount withheld to the Tax Office." Of course any PAYGW obligation is now satisfied at 46.5% as against the 48.5% stated above. Of course all enquiries precipitated by the Tax Office will also extend to SGL and when they are not satisfied with the so-called contractor as an independent sub-contractor they will be made accountable for any shortfall in the superannuation guarantee component.

The status of the worker is all important. The Tax Office often describe persons engaging in a particular activity as a worker and this pervades the whole approach to this area including GST, PAYG (E&W) and SGL. Questions could arise as to whether the entity is acting as an agent for the service provider for not making GST supplies to clients or could be making taxable supplies to workers for example including facilities or administrative services. One of the key questions in this area is whether or not A or B are entities which are running separate and distinct enterprises involving the supply of services? Obviously it is better for the tax office if A is an employer as it streamlines the analysis and leads to the ready identification of what taxes have to be paid where the taxpayer is non-compliant. Alternatively much the same could be said where A is the principal and B the agent or vice-versa. Alternatively some of the same arguments could be used where A is the employer and B is a contractor. However, difficulties arise where the ATO encounters licensors and licensees; lessors and lessees; and bailors and bailees in their respective industries. The question of tax compliance or non-compliance is in part tied up with the question of exploitation by B of any available asset which they have a right to use or occupy. It is further complicated by whether or not separate payments have been received or where one of the parties accepts a group payment on behalf of both.

This is a complicated area which requires the detailed attention of a pure tax lawyer to ensure you are properly advised before you commit to a course of action or have any dealings with the ATO especially where you may be or are tax non-compliant.