WA’S resources industry needs to confront how it will handle the introduction of a GST on 1 July next year.
WA’S resources industry needs to confront how it will handle the introduction of a GST on 1 July next year.
While all businesses need to start preparing for life under the new tax regime, there are particular issues which need to be resolved for the mining industry.
The resources sector is already beginning to feel the pinch of economic downturn, so there is an added impetus for those in the industry to get their house in order before the GST hits.
Issues which resources companies need to keep in mind include:
• Contracts and Tenders: A critical issue for all business, but more so for mining, is the issue of long-term contracts. Any contract spanning 1 July 2000 will have GST consequences. While those consequences will probably not be severe, it is crucial that mining companies review the contracts, both with their suppliers and their customers, to ensure that the GST consequences have been taken into account.
• Purchase of Capital Equipment: By bringing forward or delaying purchases of capital equipment, mining companies may gain some advantage. If the equipment would have been sales exempt, then they are probably better off bringing forward the purchase so that it is under the wholesale sales tax regime. If no sales tax exemption would have been available, mining companies should consider delaying the purchase until after 1 July 2000 when it is likely that they will be able to claim a full input tax credit on any GST paid on the purchase.
• Contractors vs Employees: Given that mining companies will be entitled to full input tax credits on any GST they pay for the purchase of services, the use of sub-contractors should not adversely affect mining companies. In fact, sub-contractors may provide a marginal advantage if any GST savings are passed on by the contractor.
• Joint Ventures: Special provisions within the GST legislation allow for partners within a joint venture to be GST free in transactions between them in certain circumstances. Consideration should be taken as to whether or not the joint venture arrangements provide an overall benefit to the operation. If they do, then you will need to apply to the Commissioner for registration as joint venture partners.
• Diesel Fuel Rebate Scheme: This scheme will be expanded from its current form. It should provide for cheaper transportation of goods and services to the mining company as well as cheaper transport costs for the mined product.
• Exports: Sales of goods overseas will be GST free (that is, no GST will be charged on exports). Because the mining companies will get a full GST input credit on all goods or services used in carrying out their business, this effectively means that no hidden taxes will flow through into the cost of the goods as they currently do. This should make exports cheaper.
• Cashflow: Mining companies will pay GST on all goods or services used in carrying out their business. The GST paid will be available as a GST credit in the next return period. That is, the amount paid out can be claimed as a credit. Depending on the period of the returns and arrangements with their suppliers, cashflow may be adversely affected.
While all businesses need to start preparing for life under the new tax regime, there are particular issues which need to be resolved for the mining industry.
The resources sector is already beginning to feel the pinch of economic downturn, so there is an added impetus for those in the industry to get their house in order before the GST hits.
Issues which resources companies need to keep in mind include:
• Contracts and Tenders: A critical issue for all business, but more so for mining, is the issue of long-term contracts. Any contract spanning 1 July 2000 will have GST consequences. While those consequences will probably not be severe, it is crucial that mining companies review the contracts, both with their suppliers and their customers, to ensure that the GST consequences have been taken into account.
• Purchase of Capital Equipment: By bringing forward or delaying purchases of capital equipment, mining companies may gain some advantage. If the equipment would have been sales exempt, then they are probably better off bringing forward the purchase so that it is under the wholesale sales tax regime. If no sales tax exemption would have been available, mining companies should consider delaying the purchase until after 1 July 2000 when it is likely that they will be able to claim a full input tax credit on any GST paid on the purchase.
• Contractors vs Employees: Given that mining companies will be entitled to full input tax credits on any GST they pay for the purchase of services, the use of sub-contractors should not adversely affect mining companies. In fact, sub-contractors may provide a marginal advantage if any GST savings are passed on by the contractor.
• Joint Ventures: Special provisions within the GST legislation allow for partners within a joint venture to be GST free in transactions between them in certain circumstances. Consideration should be taken as to whether or not the joint venture arrangements provide an overall benefit to the operation. If they do, then you will need to apply to the Commissioner for registration as joint venture partners.
• Diesel Fuel Rebate Scheme: This scheme will be expanded from its current form. It should provide for cheaper transportation of goods and services to the mining company as well as cheaper transport costs for the mined product.
• Exports: Sales of goods overseas will be GST free (that is, no GST will be charged on exports). Because the mining companies will get a full GST input credit on all goods or services used in carrying out their business, this effectively means that no hidden taxes will flow through into the cost of the goods as they currently do. This should make exports cheaper.
• Cashflow: Mining companies will pay GST on all goods or services used in carrying out their business. The GST paid will be available as a GST credit in the next return period. That is, the amount paid out can be claimed as a credit. Depending on the period of the returns and arrangements with their suppliers, cashflow may be adversely affected.
