Australia Consults On GST Break For Small Firms

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

07 June 2011

Australia’s Treasury has announced a consultation on the government’s 2011-12 Budget proposal to extend the current goods and services tax (GST) instalment system to allow access for small businesses that are in a net refund position.

The present GST instalment system was introduced to make it easier for small businesses to meet their tax reporting requirements. In general, the law allows an eligible entity, with an annual GST turnover of less than AUD2m (USD2.14m), to choose to pay GST by quarterly instalments worked out by the Australian Taxation Office or an alternative amount nominated by the taxpayer.

The taxpayer then lodges an annual GST return in which they account for any difference between the actual GST liability and the total GST instalments made for the year. The instalment amounts are generally based on the previous year’s GST, but this may be varied by the taxpayer.

Currently, the GST legislation excludes a business from the GST instalments system if that business is in a net refund position. That is, the business is entitled to receive more input tax credits on its purchases than it is required to pay GST on its sales.

The government decided that it should amend the GST law to allow small businesses in a net refund position to choose to access the GST instalment system if they wish. By that means, taxpayers will be assisted that temporarily move into a net refund position (for example, because of a one-off acquisition), and those taxpayers normally in a net refund position will be able to consider whether the compliance cost advantages of submitting their return annually outweigh the cash flow cost of delayed refunds.

The Treasury now seeks feedback on how the announced measure might operate, and on its design and implementation. The closing date for submissions is July 6, 2011.

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