ATO To Probe Suspect GST Credit Claims

by Mary Swire, Tax-News.com, Hong Kong

12 January 2004

Australian traders have been warned by the ATO in its latest ‘Taxpayer Alert’ that they face investigation if buyers and sellers are suspected of colluding to claim large GST credits.

Tax Commissioner Michael Carmody revealed that the Tax Office is to be especially vigilant over transactions that produce no economic benefit or have no underlying business purpose. "The Tax Office believes these arrangements may breach the anti-avoidance provisions of the GST Act," Mr Carmody observed.

According to the ATO, some companies are manipulating the timing of transactions so that the buyer gets a tax refund years before any GST is paid to the Tax Office. This can occur when for instance Group A sells goods worth $10,000 to Group B for an inflated figure of $550,000. Group B, which accounts on an accruals basis, immediately claims one-eleventh of the cost of this transaction or $50,000 as a GST credit.

Goods are then paid for over several years says the ATO, and GST remitted to the Tax Office only when the seller, which accounts on a cash basis, receives money from the buyer.

"This means the buyer claims the $50,000 GST credit years earlier than the Tax Office receives the GST from the seller," noted Carmody.

The Tax Office said that it intends to look into the true valuation of suspected transactions and apply the GST anti-avoidance provisions accordingly.

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