What should not-for-profits be aware of in accounting for GST?
Written by the ATO
The GST legislation allows
for two alternative tax periods one of three months and the other of
one month. If a not-for-profit has an annual turnover of $20 million or
more they must elect to have a one-month tax period under s27-15. All
not-for-profits with a turnover below $20 million can elect whether to
account monthly or three monthly. Not-for-profits that have substituted
accounting periods (those that do not match the financial year) are
also able to account on three-month or monthly tax periods.
The GST legislation allows
for entities to account for GST on either a cash or non-cash basis.
Charitable institutions, trustees of charitable funds or gift
deductible entities may choose to account on a cash basis even if their
annual turnover exceeds the threshold of $1 million under s29-40 (2).
The GST legislation states
that certain information must be specified on tax invoices in order to
make them valid tax invoices. This information can be found in various
ATO publications including the industry booklets. You should also be
aware of the Ruling GSTR 2000/17 on tax invoices.
Questions and Answers
- Is there potential
for a hybrid accounting approach that incorporates both cash and
accruals for processing GST payments and refunds?
There is no provision
to allow a hybrid form of accounting, an organisation must choose
either cash or accrual. The legislation makes concessions to allow
charitable institutions to account on a cash basis even if their
turnover exceeds the cash accounting turnover. The accounting method
chosen by an entity may be different for GST from their established
- What tests will be
applied to "tax input credits"?
taxable or GST-free supplies will be able to claim input tax credits
for any purchases that are creditable acquisitions which are made as
part of their enterprise. Where the supplies are input taxed the entity
is not entitled to input tax credits that relate to that supply.
If you are exempt from
income tax, an acquisition that you make that would be a
non-deductible expense under the Income Tax Assessment Acts is not
a creditable acquisition, for example, entertainment, club and leisure
- Will lease rentals
charged to charities on motor vehicles be subject to GST, or will this
depend upon the use to which the vehicle is put?
Lease rentals will be
subject to GST. Normally the charity will be entitled to an input tax
credit if the vehicle is used in the enterprise.
- Where you have an
entity registered for GST offering goods and/or services that are GST
free, GST taxable and GST input taxed, do you have to identify which
inputs relate to which outputs?
A registered entity
will be entitled to input tax credits in respect of GST paid, provided
what was acquired was used in carrying on their enterprise. The only
exceptions to this are where the acquisition relates to the provision
of input taxed supplies, or where the acquisition is of a private or
Accordingly, it is not
necessary to distinguish between acquisitions utilised in making
taxable supplies and those utilised in making GST free supplies. In
either case, input tax credits are allowable provided the above
conditions are met.
It will be
necessary however to identify any acquisitions that were wholly or
partly put toward the provision of input taxed supplies. Where an
acquisition was wholly utilised in generating input taxed supplies, no
part of the GST paid in respect of the acquisition may be claimed as an
input tax credit. Where an acquisition was partly used for making input
taxed supplies, it will be necessary to apportion the use between
taxable/GST free supplies on the one hand and input taxed supplies on
the other. The extent to which the acquisition relates to the provision
of input taxed supplies would not give rise to an input tax credit.
Draft Goods and
Services Tax Ruling GSTR 1999/D14 sets out the apportionment
methodologies which the ATO considers are acceptable for calculating
input tax credits where an acquisition or importation is used partly
for a creditable purpose and partly in the provision of input taxed
- Are there any
advantages in accrual accounting for GST versus cash accounting to the
smaller operator? Is it necessary for an organisation to change their
Any advantage of one
accounting method against the other would be dependent on the type of
organisation, its structure and the accounting system it currently has
in place. Charitable institutions, trustees of charitable funds and
gift deductible bodies may choose to account on a cash basis whether or
not their turnover exceeds the cash accounting turnover threshold of $1
000 000. Charities registered for GST will be able to choose the
accounting method that best suits the requirements and circumstances of
- Can the return be
missed one month if there was not much to claim back and added to the
next month to avoid a claim for what might be only a small amount?
There is no provision
for such an arrangement. If you are registered you must give the
Commissioner a Business Activity Statement (BAS) for each tax period.
You must provide a BAS whether or not your net amount is zero for the
tax period or whether or not you are liable for GST on any taxable
supplies in that period. However, if during a particular tax period you
are not liable for any GST or entitled to a refund, you may only be
required to provide information in a modified form (see subsection
- What is the
likelihood of there being simplified accounting for charities?
Currently there are no
simplified accounting methods specifically for charities. Division 123
of the GST legislation provides that the Commissioner may make a
determination for retailers who make supplies under subdivision 38-G of
the GST Act. A retailer is defined as someone who supplies goods.
Consequently charitable institutions, trustees of charitable funds and
gift deductible entities that make non-commercial supplies of goods
under sections 38-250 or 38-255 may be able to take advantage of the
provisions in Division 123.
At this point in time
the Commissioner has not made a determination about simplified
accounting methods for the charitable sector. Negotiations between
several larger charities that run family stores or thrift shops and the
ATO are currently underway and it is anticipated that a determination
on a simplified accounting method for the sector will follow this
- An organisation
undertaking a wide range of service delivery may have to deal with a
variety of GST treatments. Given that organisations within this sector
have limited resources what options are available to help reduce the
cost of compliance for these different treatments?
Compliance costs for
such organisations should only be marginally higher than for those
organisations that attract only one kind of GST treatment. Once market
value is determined (and hence what is commercial/non-commercial) then
for the purposes of claiming input tax credits there is only a need to
apportion where a charity makes input taxed supplies. Where an entity
makes a combination of GST-free and taxable supplies the entity is
entitled to full input tax credits for all their acquisitions that
relate to taxable and GST-free supplies and there would not be any need
to match inputs to the different supplies. The charity would need to
record the GST collected in making taxable supplies.
- To larger charitable
organisations the cost of tracking internal transactions for GST
purposes will be substantial. Are there options available that might
reduce this compliance cost?
will need to think carefully as to the best way to structure their
operations in order to minimise their overall compliance cost. Where
organisations have a large volume of internal transactions they may
decide to group for GST in order to minimise the cost of accounting for
these transactions. Alternatively, using the GST branch option may be
more appropriate where the entity operates through a divisional or
- What about increased
costs incurred as a result of loss of sales tax exemption especially in
the purchase of motor vehicles?
Sales Tax (WST) exempt organisations are not completely free from WST
because there is a degree of imbedded WST in the goods and services
they purchase. Also, the cost of motor vehicles should decrease as a
result of the introduction of GST, so it is unlikely there will be an
increase in costs as a result of a loss of the WST exemption. Entities
will pay GST on vehicle purchases and where they are a registered
entity they may claim an input tax credit on their creditable
acquisitions. While there will be a phasing in of input tax credits for
motor vehicles, WST exempt organisations, will be able to claim full
input tax credits from the date of implementation.
- Compliance costs for
community housing associations could be very high since there will need
to be monitoring of income and expenditure across the three classes of
transaction, GST-liable, GST-free or input taxed.
There are a number of
options by which community housing organisations can be examined to
determine whether their operations are commercial or not. Each involves
different compliance costs and varies depending upon location and
movements in the rental markets. The options are:
- Examine each
rental transaction on a case by case basis.
- Average the total
number of rents for that organisation and determine the overall
"commerciality" by comparison with the 75% rule.
- Assess the overall
operations of the entire community-housing sector and determine the
commerciality of the sector as a generality.
What is the position
of the ATO with regard to these three options?
The GST is a
transaction-based tax. It applies each time a thing is supplied.
Compliance costs associated with the nature of the tax cannot be
addressed by allowing averaging of the consideration of supplies. It is
important to recognise that input tax credits will be available
regardless of whether the supply is commercial or non-commercial
provided the supply is not input-taxed. A concession of averaging would
allow commercial supplies to become GST-free which is not appropriate.
provide both GST-free and input taxed services need to use full cost
allocation systems for all their overheads to ensure they are not
claiming GST reimbursement on that proportion associated with input
providing both GST-free and input -taxed supplies would be required to
allocate overheads between these types of supplies. Where acquisitions
or overheads cannot be directly attributed to supplies then they would
need to apportion on a reasonable basis.
- It is our
understanding that transactions that are less than $50 may not be
required to have a tax invoice. If no tax invoice is provided on
transactions such as petrol purchases and such transaction relates to
religious services, how can credits be claimed?
Under s.29-80, it is
not necessary to have a tax invoice in order to claim input tax credits
where the tax exclusive value of the acquisition does not exceed $50.
Despite this, it is
still necessary for the recipient to be able to verify purchases made.
For example, a standard cash register receipt or hand written receipt
should be retained.
- What will happen
if one part of the organisation makes an error? Will there be a penalty
for the entire organisation, the CEO/public officer or the Managing
organisation is responsible for the errors made by its officers and
employees. For example, if an employee who is responsible to issue tax
invoices has failed to do so, then the organisation is liable to
penalty under the Taxation Administration Act 1953.
An organisation may
consist of a number of discrete parts. Those parts may elect to be
members of a GST group. The members of a GST group are jointly and
severally liable to pay any amount that is payable under the GST law by
the representative member of the group. Any offence against the GST law
that is committed by the representative member of the group is taken to
have been committed by each of the members of the group.
Where a GST branch
has been established, liability for GST errors made by officers in that
branch remains with the parent entity.
Where a GST
sub-entity has been established liability for GST errors by officers in
that sub-entity rests with the sub-entity.
- Where a "GST tax
invoice" is not received from the supplier, are there any circumstances
where I can still claim the input credit?
GSTR 1999/2 is a draft
Ruling that outlines the transitional arrangements in relation to
claiming an input tax credit without a tax invoice.
You are entitled to an
input tax credit for a creditable acquisition without holding a tax
invoice where you hold a document issued before 1 July 2000 for a
taxable supply made on or after that date and the document contains the
- the supplier's name
or trading name;
- the supplier's
- the date of issue;
- the price of the
taxable supply and a statement indicating that the price includes GST
(if the supply is for a period that spans 1 July 2000, the taxable
supply is that part of the supply to be made on or after 1 July 2000);
- the amount of the GST
To claim an input tax
credit you can rely on any document that satisfies these
requirements. This includes documents such as insurance renewal notices
and subscription notices, for example, subscriptions for trade
magazines, online legal research and information, motor registration
and subscriptions to professional associations.
- Where a supplier
fails to provide a tax invoice what documentation will need to be
maintained for compliance purposes? What will the audit procedures be?
Every taxpayer that
makes a taxable supply taxable importation, creditable acquisition or
creditable importation, must keep records that record and explain all
transactions and other acts engaged in by the taxpayer that are
relevant to that supply, importation, acquisition or dealing.
maintain their records for five years from the time of completion of
the transactions or acts to which they relate.
- Is it true that we
can lodge our GST return by the first of the month and the ATO must pay
our refund within fourteen days or pay interest?
If the amount of
input tax credit owed to you is greater than the GST on your supplies
you will receive a refund. Any refund due will be applied against your
other tax liabilities before an amount is refunded. The Commissioner
must pay the refund within 14 days of you lodging your Business
Activity Statement (GST return) for that tax period. Interest is
payable under the Taxation (Interest on overpayment, Early
payments) Act 1983. The Commissioner may offset your refund against
other liabilities you may have.
- Is an insurance
claim when made by a charitable institution registered for GST
considered to be a taxable supply?
under insurance policies are not subject to GST as long as the insured
entity has informed the insurer of the extent of input tax credit it is
entitled to on the premium. If the insured entity, such as a charitable
institution, does not inform its insurer of its extent of input tax
credit, or understates the extent, it will have a GST liability on a
settlement to the extent of the understatement.
- How is interest
treated on deposits made by financial institutions under GST?
A supply is a taxable
supply if it is made for consideration, it is made in the course of or
furtherance of an enterprise that the supplier carries on, it is
connected with Australia and the supplier is registered (or required to
be registered). However, a supply is not a taxable supply to the extent
that it is GST-free or input taxed.
A supply of money is not
a supply for GST purposes unless that money is provided as
consideration for a supply that is a supply of money.
The payment of interest
by a financial institution is not a supply by the institution because
it is a supply of money. However, the interest is consideration for a
financial supply made by the depositor, being an interest in a debt.
Therefore, it is
possible that a depositor who is registered for GST who makes a deposit
of money into a financial institution and receives interest in return
is making a supply for which consideration is payable. That supply
would be then considered to be a taxable supply but for the fact that
financial supplies are deemed to be input taxed. The supply is a
financial supply and no GST is payable on the transaction. Equally, a
depositor who is not registered for GST cannot make a financial supply
and therefore the transaction is excluded from the GST system.
In the case of a
registered depositor, the issue of entitlement to input tax credits may
arise given that the enterprise has made a financial supply. Normally,
an entity that makes input taxed supplies cannot claim input tax
credits for its acquisitions or importations to the extent that it
relates to making input taxed supplies. However, where the annual
turnover of the financial supplies made does not exceed the lesser of
$50 000 or 10% of the entity's annual turnover (including the financial
supplies), the entity will still be entitled to full input tax credits.
Annual turnover does not include the value of supplies that are input
- Will purchasers be
able to find out which foods on a supermarket tape have a GST component
in their price? This would be required for claiming input tax credits
on function refreshment expenses.
If the value of a sale
is more than $50, a supplier must prepare and issue a tax invoice
within 28 days of being requested to do so. The invoice will show the
items subject to GST, and the total amount of GST payable.
If the value of a sale
is less than $50 a supplier does not have to issue a tax invoice and
the customer does not need one to claim the input tax credit. However,
documentary evidence (for example, cash register receipts) must be
retained. To claim credits in this situation, the customer should
ascertain from the shopkeeper whether a) the business is registered for
GST and b) which item(s) and amount(s) were subject to GST.
Most supermarkets will provide this information on their receipts.
- How do we deal
with non-registered clients over small consultant payments (only a few
Under the Pay As You Go
legislation, where one business acquires goods or services from another
business, it is required to deduct 48.5% of the payment if
- the supplier does not
quote an ABN; and
- The amount of the
payment is greater than $50; and
- The amount received
by the supplier is not exempt income.
Any consultants who
intend to provide their services to other businesses should therefore
obtain an ABN so that their business customers are not required to
- When can input tax
credits be claimed?
An entity operating on
the cash basis may claim an input tax credit to the extent that
consideration is paid to its suppliers in the tax period. However, it
must hold a tax invoice at the time the credit is claimed.
An entity operating on
the non-cash (accruals) basis may claim an input tax credit in the tax
period corresponding to the earlier of;
- Receiving an
from a supplier; or
- Paying any part of
the consideration to the supplier.
However, it must hold
tax invoice at the time the credit is claimed.
- What means are
available to alleviate the lack of capacity of smaller community groups
to deal with the GST (eg: regarding start-up & ongoing compliance).
In addition to the
above measures, the ATO has field officers available to visit charities
and other non-profit entities. Each ATO office has field officers that
have received specialised training in the issues confronting charities
Assistance is also
available from the ATO Hotline (telephone 13 24 78). If rulings
are required in respect of specific issues, requests may be emailed to email@example.com.
The ATO is also
producing a computerised cashbook (called E-record). The final version
will soon be available free of charge. Orders may be placed by phoning 13
- Embedded cost
savings - how will the ATO require that they be calculated?
It is not
an ATO requirement that embedded cost savings be taken into account in
setting prices. The ACCC (Australian Competition and Consumer
Commission) and some funding bodies may require you to identify these