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Omitted clause could cost $6m

THE omission of a safety net clause for contracts spanning 1 July 2000 in the GST legislation could cost WA small businesses nearly $6 million says the Institute of Chartered Accountants Small Business Committee’s Ian Costley.

According to a Federal Department of Treasury spokesman, all fixed price contracts entered into before the Governor General rubber stamps the GST legislation will be GST free until their first review date, 1 July 2005 or the end of the contract – whichever comes first.

Reviewable contracts are GST free until their first review date.

Mr Costley said the cost of finding which contracts drew GST liability was a concern.

“There are nearly 100,000 small businesses in WA and more than 58,000 of them are in the non-retail sector which means they could have longer term contracts,” he said.

“Even if each one of these businesses has only one contract that needs to be reviewed and it only takes a couple of hours at $50 an hour, that’s a cost to the economy of nearly $6 million.

“Bearing in mind this is a conservative estimate, I’m amazed there hasn’t been an uproar from small businesses about the complete waste of time and money being forced upon them simply because there is a paragraph missing from the GST legislation.”

Mr Costley said most existing business contracts, leases and agreements spanning 1 July 2000 would incur a GST liability and needed to be reviewed now.

“Unless the supplier can recover the GST from the recipient under the contract, the supplier will bear the GST liability,” he said.

“That liability can be incurred in relation to contracts entered into today, yesterday, tomorrow or five years ago.

“Transitional provisions are limited in nature and do not provide general relief.

“The operation of the transitional rules depends on a detailed consideration of the suppliers’ position, the terms of the contract and often the position of the recipient.”

Mr Costley said businesses that did not pay attention to these issues could well end up paying unexpected GST.

“If there is a GST liability in respect of pre-1 July 2000 contracts, businesses that haven’t included GST clauses in their contracts will have no recourse to recover the GST from their customers and will simply have to pay GST,” he said.

“The New Zealand GST legislation protects businesses that did not deal with GST in their contracts by allowing them to gross up the contract for GST.

“There is nothing in the Australian GST legislation to protect businesses in a similar manner.

“Imagine how much time, money and effort could be saved if the Australian GST legislation had a safety net clause,” he said.

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