How to get your GST reporting right

GST is a major tax compliance issue for SMEs. It is part and parcel of their daily operations. And they need to get it right.

According to the Australian Tax Office, some taxpayers are incorrectly including so-called “out-of-scope” supplies in their Business Activity Statements (BAS).

In general terms, out-of-scope supplies refer to sales where goods are delivered from a place outside Australia to another place outside Australia. These supplies are outside the scope of the GST Act and do not need to be reported in BAS.

So how does the ATO keep track of this?

The ATO collects and shares information and data with a number of external sources including the Department of Immigration and Border Protection. It then compares this information to amounts reported on BAS. The ATO says discrepancies between information reported in BAS and data provided by the department may result in taxpayers being chosen for compliance action such as checks or even audits.

The ATO warns taxpayers that are including out-of-scope supplies in their BASs should review their reported sales at labels G2 and/or G3. Mistakes affecting GST payable should be corrected. If there is no effect on GST payable, the ATO says taxpayers do no need to do anything further; however, they should exclude all out-of-scope supplies and correctly report all sales at labels G2 and G3 on their future BAS.

Here are some common scenarios and how the ATO would address them:

• Not including out-of-scope supplies in the BAS means the business’s BAS and income tax return do not reconcile. What if they are selected for a review? The ATO says it is aware of the different reporting obligations and says this will not be cause for scrutiny. These supplies should be coded to “No Tax” in the taxpayer’s GST accounts and not reported in their BAS.
• An SME has been reporting like this for years, why is the ATO telling me this now? Research undertaken of compliance activities and data sharing between the ATO and the Department of Immigration has found the inclusion of out-of-scope supplies in the BAS is a common issue among taxpayers. Getting it right reduces the chances of having unnecessary contact with the ATO, saving time and money.
• Do I include out-of-scope sales in label T1 “PAYG Instalment Income” in the BAS? The ATO says yes, such sales still need to be included under label T1.

GST accounting methods for food retailers

Simplified accounting methods (or SAM) for GST purposes have been around for a while now. The ATO introduced SAM to make it easier for a business to account for GST. Food retailers are one example.

A business may be eligible to use a SAM if it meets all of the following conditions:

• It is registered for GST
• It is a retailer that sells both taxable and GST-free food at the same premises (unless the business wants to use what is known as the purchases snapshot method – see below)
• The relevant turnover of the business is not more than $2 million

Many small food retailers buy and sell products that are taxable as well as products that are GST-free. Others buy taxable and GST-free products and sell only taxable products. Depending on the point-of-sale equipment they use, accurately identifying and recording GST-free sales separately from those that are taxable can be difficult, which makes accounting for GST complicated.

The ATO has released details of simplified GST accounting methods for food retailers.

The SAM for food retailers is designed to help businesses work out the amount of GST they are liable to pay at the end of each tax period. There are five methods and the ATO says taxpayers need to choose which method is the best for their business:

• Business norms method – apply standard percentages to sales and purchases
• Stock purchases method – take a sample of purchases and use this sample
• Snapshot method – take a snapshot of sales and purchases and use this
• Sales percentage method – work out the percentage of GST-free sales in a tax period and apply this to purchases
• Purchases snapshot method – take a snapshot of purchases and use this to calculate GST credits

Taxpayers cannot use the averaging involved in the methods to set prices, with prices to be set in line with guidelines from the Australian Competition and Consumer Commission. After electing to use a SAM, a business cannot change its method of GST accounting in the first 12 months.

The ATO recently released a guide that covers eligibility conditions to use a SAM, the difference between the five SAMs, how to choose a SAM, how to notify the ATO which SAM is elected, record-keeping requirements, and how to complete an activity statement.

Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.