20 May 2020
As a result of COVID-19, the Australian Government and the Australian Taxation Office (ATO) have announced new measures to help businesses with their tax payments in these uncertain times. These include:
- The option to defer the payment dates of amounts due through the business activity statements (BAS).
- Allowing businesses on a quarterly reporting cycle to opt into monthly goods and services tax (GST) reporting to obtain quicker access to GST refunds they may be entitled to.
However, there are also existing GST rules in place which businesses can use to maximise their cash flows. This article discusses the new concessions as well as the existing GST rules which may have been overlooked by businesses in these uncertain times.
BAS payment extensions
Businesses impacted by COVID-19 can defer the payment dates of amounts due through BAS lodgements. An extension of up to six months may be available and is considered on a case by case basis according to the business’ specific circumstances. The extension applies to all amounts reportable on the BAS such as GST, luxury car tax (LCT), wine equalisation tax (WET) and pay as you go (PAYG) Instalments.
Opting into monthly BAS cycles
Businesses impacted by COVID-19 currently on a quarterly reporting cycle and who are usually in a net GST refund position, can opt into monthly GST reporting to obtain quicker access to their refund amounts.
Businesses should note that once they choose to change to monthly reporting they will need to remain on this reporting cycle for at least 12 months.
Because of the uncertainty stemming from COVID-19, businesses may consider cancelling contracts for the supply of goods and services they have previously entered into.
In this event, suppliers would generally be entitled to claim a decreasing adjustment in the BAS for that subsequent tax period in respect of the GST paid in the BAS for the earlier tax period, where:
- They have accounted for GST for the supply of goods and services in a particular tax period in respect of these contracts.
- The contract is cancelled in a subsequent tax period.
On the flip side of such cancelled contracts, the customer will need to make an increasing adjustment in the BAS for the tax period in which the contract was cancelled if an input tax credit was claimed in the BAS for the previous tax period.
Bad Debt Relief
Under the general GST rules, businesses that have not received payment from their customers more than 12 months after the due date of payment are entitled to GST bad debt relief.
Bad debt relief also applies when a business writes off a debt as bad in its books, regardless of whether that debt has been overdue for 12 months or not.
Using bad debt relief, businesses are entitled to make a decreasing adjustment in their BAS in respect of the GST that has been previously remitted to the ATO for these sales.
Businesses with purchase invoices dated within an earlier tax period but entered into their accounts after the end of that earlier tax period, can still include these purchase invoices in the BAS for the earlier tax period. They do not have to wait to claim input tax credits for the GST included on such tax invoices until the BAS for the subsequent tax period.
Consider whether it is possible to process invoices for inclusion in the BAS for the earlier tax period where:
- You have large business expenses that bear significant GST costs.
- Tax invoices have been received after the end of a particular tax period.
Businesses could also consider implementing a continuous process which identifies such purchase invoices in respect of each relevant BAS. Both scenarios can provide an immediate and significant cash injection.
Where taxable supplies are made between associated companies, GST usually applies. GST is accounted for by the supplier and remitted to the ATO and the recipient entity claims that GST as an input tax credit (subject to its usual GST recovery position).
Depending on the companies’ GST return cycles and when invoices are raised, there can be a time delay between when the GST is paid to the ATO by one associated company and when the refund is received by the other associated company.
One way to mitigate this is to form a GST group, as supplies and acquisitions between members of the same GST group are generally disregarded for GST purposes. If GST does not apply, there is no cash flow impact on such transactions between associated companies.
Not all associated entities may be eligible to form a GST group and it’s important to note there are other consequences arising from the formation of a GST group, which may or may not be desirable. Proper consideration is needed and appropriate advice should be sought before making any decisions.
If not already registered, businesses that regularly import products from overseas should consider registering for the Deferred GST Scheme (DGST).
Under the standard rules, GST is payable to Customs if and when the goods are entered into Australia for home consumption. Whilst this GST can generally be claimed as an input tax credit, a refund may take up to almost four months for quarterly remitters.
Under the DGST, the import GST is not payable when the goods are imported but deferred to the next monthly BAS. As the deferred import, GST can be claimed as an input tax credit, which off-sets the payment. There is no net cash flow impact to the business.
To register for DGST, businesses must meet certain conditions such as reporting GST on a monthly basis and lodging and paying online.
If you require more information or assistance with the more complex matters such as bad debt relief, purchase accruals and implications of GST grouping, please contact the Tax Advisory team.
Findex has developed a Government Stimulus Health Check and free Business Wellbeing Toolkit to help businesses manage potential risks and take full advantage of eligible stimulus assistance. Book your Health Check here.