GST issues coming to the surface

While businesses are rapidly coming to grips with the proposed introduction of a GST, the fineries of the legislation are still being debated in the Senate.

Already, 128 amendments by the Federal Government have been put up for consideration. Although the basic principles are likely to remain unchanged, the final treatment of food remains unknown.

With all this uncertainty, it is understandable why many businesses are reluctant to spend a lot of time and effort considering the impact of a GST.

In most cases, businesses have not gone beyond looking at the immediate tax impact. While this is an important, and obvious, aspect it is not the end of it.

So what does the proposed introduction of a GST really mean for business?

As already mentioned, a GST is not just a tax issue. It is a whole of business issue that will impact on critical areas such as cash flow, product pricing strategies and competitive position in the marketplace, just to mention a few.

To understand the likely impact that the GST will have, consideration should be given to each of the following areas:

• Tax • Systems

• Process • Finance

• People.

As a starting point, it is necessary to examine all revenue and expenditure items to classify the transactions as taxable, GST-free or input taxed. While most items will be easy to classify, there are those that require further consideration.

Things start to get a bit more complicated if your business has bad debts or you receive or provide discounts or rebates.

In each of these cases, an adjustment may be required to the amount of GST previously paid by you or refunded to you.

To illustrate what this really could mean, let’s look at an example of a bad debt.

A retailer sells a hi-fi system for $1,100 with no deposit and no repayments for 3 months. As the price is inclusive of GST the retailer is liable for $100 GST.

But the full amount remains unpaid twelve months later, despite all reasonable efforts to obtain payment.

The retailer then decides to write the amount off as a bad debt. Because the $1,100 was never received, the retailer is entitled to a decreasing adjustment for the $100 GST previously paid.

This adjustment is made in the GST return for the period the debt was written off.

However, where an adjustment is made for a bad debt, the retailer is required to notify the customer that the debt has been written off.

From a commercial point of view, what impact does this have on your ability to recover the amount at some future point of time, particularly as you have told the customer the debt has been written off?

In addition, consideration should also be given to a number of transitional issues, such as long-term contracts or leases spanning the proposed implementation date of July 1, 2000.

If your business uses a computer system for accounting, inventory and invoicing, you will need to consider whether it can cope with a GST.

For example, will your systems be able to distinguish between taxable, GST-free and input taxed supplies? Will it be able to make adjustments to the net amount payable where there has been a change in the GST payable such as writing off a bad debt?

Further complications can arise if your computer systems are not integrated – maybe your debtors’ system is different to your main accounting system.

How do you ensure adjustments flow through from your debtors’ system to your main accounting system when a debt is written off?

Compliance with the proposed GST is very much driven by documentation. In particular, you will need to consider whether processes can produce GST compliant invoices, credit notes and debit notes.

You will also need to ensure tax invoices are obtained for all purchases over $50, otherwise you will not be entitled to the input tax credit that is likely to be associated with them.

Some of the key areas to consider include your business financing and your pricing structure. What is the impact on your business of the removal of the wholesale sales tax? Will your base prices, indepen-dent of GST, go up or down?

You might consider delaying some purchases dependent on the expected price movement relating to them.

Finally, there is the need to educate and train your staff to ensure that they understand how the GST will impact on your business. You don’t want one of your sales staff making sales in May 2000, for delivery in October 2000, which do not account for GST.

These are only some of the issues which need to be considered. As you can see, the impact of a GST goes well beyond the obvious.

A thorough and systematic analysis of your business operations is the only way to identify and address all the issues and thereby ensure a smooth transition.

All the above, is of course, subject to the GST legislation getting through.

• John Oesterheld is Deloitte Touche Tohmatsu’s Indirect Tax Principal. He is heavily involved in helping businesses through the type of issues highlighted below.

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