The GST gap, which is the difference between the amount of GST that should be paid and the actual amount paid, helps us identify common GST mistakes and areas that attract the ATO’s attention. This article discusses key risk areas identified by the ATO and what you need to be aware of.
The GST gap is the difference between the amount of GST that should be payable under tax law and the actual amount collected during a financial year. While the GST gap in Australia compares favourably with other, similar international tax jurisdictions (e.g. European Union member countries and the United Kingdom), considering the main contributors to the gap can help identify common GST mistakes. Also, the ATO manages compliance on a risk-based approach, so any risks identified are good indicators of key focus areas.
In March 2019, the ATO presented its 2017-18 GST administration annual performance report. Changes to GST, including treatment of digital products and low value imported goods, have changed the risk landscape and how the ATO manages the administration of GST. Ideally, the ATO would prefer to focus on prevention rather than correction. To support this process, the ATO has identified key risk areas and events for GST. We have expanded on these areas for you below.
This is the deliberate and significant systematic abuse of the GST system. The ATO targets complex and sophisticated arrangements that aim to exploit the GST system through its audit and review program. The ATO also uses the integrated compliance approach (ICA) to target GST evasion. The ICA works to both deter evasive behaviour while also enhancing detection of non-compliance. The ICA is also behaviourally focused, meaning it targets taxpayer networks that have been commonly found to be non-compliant.
The ATO aims to detect errors and suspicious behaviour by applying risk models, property intelligence and data matching. One of the key focus areas is the GST at settlement rule effective from 1 July 2018. We discuss this in more detail in our GST Article – GST at settlement: Common errors.
In addition, the ATO has identified the following as major elements that underly GST property risk:
- development lease arrangements
- head contractors (building and construction)
- margin scheme
- disengaged property developers i.e. where developers expressly ignore their GST obligations. (Note: The GST at settlement rule was introduced to address issues where property developers would avoid remitting GST by dissolving their business after the sale of a property but before lodging a BAS that included the sale.)
BAS correct reporting
The ATO has identified two sub-risks within BAS reporting: GST refund integrity and integrity of business systems (IBS).
GST refund integrity aims to manage the risks of GST refund claims, in particular focusing on recognising higher-risk refunds and improving detection strategies to identify unusual or suspicious reporting.
Integrity of business system risks can occur within any organisation, industry or market. The ATO specifically identified the following risks within integrity business systems:
- system and reporting issues – which may be accidental or deliberate misrepresentation of BAS reporting
- technical issues – may also impact the integrity of BAS reporting, such as:
- GST classification of supplies
- apportionment methodologies
- agency arrangements
- the treatment of unredeemed vouchers and gift cards.’
Late last year, the ATO identified the five most common GST reporting errors which we discussed in our GST Article – Are you making these common reporting errors?
The GST risk profile for international and cross-border transactions has changed alongside legislative amendments over the past few years. Specifically, GST administration has been affected by GST on digital products and low-value imported goods. The ATO has identified some common GST issues in international and cross-border transactions:
- ‘GST implications of selling goods through a permanent establishment in Australia
- inbound tour operators
- online travel companies – GST on offshore online accommodation booking websites (draft new measure from 1 July 2019).’
As different industries, markets and the overall economy continue to shift and develop, the ATO is faced with an array of issues emerging in GST compliance. Increased adoption of certain technology (such as automation, artificial intelligence and robotics) can lead to broad GST risk. The ATO has stated that they will specifically focus on the following risk areas:
The sharing economy
The ATO is concerned with rapid growth displayed in the ‘sharing economy’, stating that ‘the current forecast for the sharing economy market will increase in value some 20 fold over the next 10 years.’ Specifically, the ATO has identified the risks associated with disruptive technology and new business models in the following areas:
- food delivery
- tasking services
- asset sharing including accommodation.’
Blockchain/distributed ledger technology
According to the Australian Securities & Investments Commission (ASIC), blockchain or distributed ledger technology (DLT) are terms that are often used interchangeably and defined as ‘a specific configuration of technology components that records and tracks information in a “distributed” (as opposed to “centralised”) manner.’
The ATO has identified the following areas that are matters of concern involving blockchain or distributed ledger technology:
- smart contracts
- digital assets platforms
- secure land registries
- settlement platforms for securities and commodity trades.’
Are you at risk?
For a more extensive overview on the risks identified as contributors to the GST gap, refer to the full GST administration annual performance report 2017–18 (QC 58283). If you undertake activities in the risk areas identified and are concerned about your GST compliance, we are here to help! For general advice and guidance, you can submit a question through the Member Portal. TaxEd is also a registered tax agent, so we can also provide you with tailored advice on request.