Tax Update. Patrick Lavery Partner EY IAG Conference Gold Coast

Transcription

1 Tax Update Patrick Lavery Partner EY IAG Conference Gold Coast

2 What will be covered 1. Holistic View Proposition: We are beginning a period that will see the most significant change to tax management and administration in our lifetimes Evidence to test this proposition: The current and future state of tax management/administration: Tax Authorities Internal tax functions 2. Granular View Some recent legislative changes Taxable Payments Annual Reporting (TPAR) GST withholding/notification on property transfers GST intangible supplies from offshore Page 2

3 Tax Authorities current focus and where they are heading Page 3

4 Tax Authorities current focus and where are they heading Increased holistic assessment of tax compliance through electronic data collection, analysis and matching UK HMRC Making Tax Digital Proposed changes for VAT compliance from April 19 for certain taxpayers Records required to be kept in functionally compatible software Need to establish digital links ( bridging software ) between taxpayer records and HMRC to allow for transfer of data HMRC will assess data and have access to all VAT data Current self assessment regime on life support US Client ATO search of dealings with Australian customers through AUSTRAC Page 4

5 Tax Authorities ATO s increased gathering of raw data for analysis (examples): Single Touch Payroll (STP) Taxable Payments Annual Reporting (TPAR) Black economy focus ABN/GST registration testing GST withholding Page 5

6 Increased Data Reporting Obligations TPAR STP - GST Government Data Inputs AP data file TPAR Spec v2.0.0 Tableau dashboards Data Obligations Payments to Contractors for services Grants Super for STP Risks and opportunities identified STP GST TPAR ATO Tax Agent portal Payroll ATO Contractors Grants Procurement Page 6

7 Tax Authorities ATO focus on digital economy (examples): Taxation of supplies through intermediation services eg electronic distribution platforms - GST Treasury Discussion Paper on Digital Services Tax Any interim DST likely to adopt similar taxing mechanisms to that applied for GST ie electronic distribution platforms While Government departments/agencies clearly not the target of any DST, I note the Treasury Discussion Paper states: In view of Australia s WTO and FTA obligations, an interim measure would have to apply to both domestic and foreign businesses Page 7

8 Example DST on intangible supplies from offshore USA US Inc Licence fee AUS $$ Access to information Adrian subscribes to join a dating service, provides information via website and pays monthly fee (Adrian is an Australian resident) If US Inc has no presence in Aust then it would likely only pay GST not other tax DST could apply to licence fee, also if Adrian did not pay any fee but US Inc earned revenue through Australian businesses advertising to Adrian through the website, DST could apply to marketing revenue Page 8

9 Tax Authorities While also not currently focussed on government taxpayers Justified Trust program provides an insight into what the ATO will be looking for from departments/agencies ATO also gathering a lot of data in doing this! Four pillars : understanding tax governance framework identifying tax risks flagged to the public understanding significant and new transactions understanding why tax and accounting varies Fourth Pillar causing a deal of grief on GST compliance ie for taxpayers to be able to do a full rec from financial statements to BAS not as easy as it sounds Page 9

10 BAS Rec Process Lodged BAS Manual Adjustments Source Data eg, AP & AR Transactions RFUMSVOO Report Trial Balance Accounting Adjustments Financial Statements Page 10

11 BAS Rec Process Issues Include entities included in GST group may be different to entities in accounting figures, eg consolidated accounts costs may end up as capitalised in the balance sheet, eg capitalised labour Label G1 total sales may include disclosure for taxable importations which would not be in the accounts as revenue foreign exchange rates - potential difference between book and tax Comments Consider if entities be excluded through reconciliation analysis need analysis and rec of all capitalised costs and accounts that may have different GST implications eg contractors included in wages G1 rec is usually the easier side to rec but can still contains complexities forex transactions need close analysis to pick up any book/tax differences Page 11

12 Internal Tax Functions current focus and where are they heading Page 12

13 Internal Tax Functions current focus and where are they heading Increased focus on what value the Tax Functions provide merely meeting compliance deadlines no longer seen to be sufficient Most tax functions feel they spend too much time on compliance obligations anyway and not enough on the value add Cost/FTE constraints are common: FTEs for tax compliance/management are generally limited - frequently not dedicated resources ie finance/tax Evidence globally that many large organisations are completely outsourcing their tax functions ie leveraging skills only when needed Tax technical answers are increasingly freely available the challenge is understanding what the answer means in a particular context Page 13

14 Internal Tax Functions 96% of government clients surveyed see increasing reputational risk from tax, due to being required to divulge sensitive information about employees, contractors and other payments to the ATO Increased Transparency + Increased Data Flows = Potential Increased Reputation Risk How to best manage this: know upfront what is being sent to ATO rather than have queries raised after the event (ie reputation management) Page 14

15 Internal Tax Functions We live in an increasingly data centric world question is how do we leverage the greatest knowledge from this data to assist in reducing risk and managing tax compliance/administration? Page 15

16 Internal Tax Functions Tax Functions increasingly looking to RPA and analytics to assist with gaining deeper understanding of data and to reduce risks/manage tax Seeing many tools developed (off the shelf and bespoke) to assist such as (most incorporating some level of RPA): ABN/GST registration look up TPAR dashboard analysis Regular GST analytics and dash boarding AI - fixed asset recording and reporting SAP Tax Compliance (only SAP Hana) Page 16

17 ATO is looking for same data insights so tax functions need to be on top of data flows Client paid $12M in FY18 to 200 Vendors who were Individuals or Sole Traders Super risks PAYG risks Payroll Tax risks Client paid $1.9M to Vendors with cancelled ABNs in FY18 Poor procurement processes Fraud risk Tax consequences Page 17

18 ABN Look Up/GST Registration Validation Tool How does it work? A typical process is show in the flow chart below: 1. Upload data 3. Receive reports and dashboards Client Data - Vendor Master file - Transaction file ABN exception report Reports from Tool are provided back to the client along with dashboard 4. Discuss results and actions Secure data platform: EY KeySpace Tool Tool sorts and cleanses data 2. Performs analysis against ABR database Client ABN data Tool performs analysis of ABN data against the ABR ABR Following the review of the output from the Tool any recommended actions or process improvements that have been identified can be implemented. Page 18

19 ABN Look Up/GST Registration Validation Tool Screenshots from the tool in action are provided below: Through customised dashboards, allows insights into the accounts payable interactions for vendors inside and outside of Australia. Allows for the drilldown into risk areas (eg, missing ABNs) to allow for quick identification of source information such as contracts and tax invoices. Reports generated quickly provide users with a sense of the scale of any risk or opportunities (eg, nonregistered ABNs). Secure data platform: EY KeySpace Page 19

20 FTC GPS used to identify on road vs off road data Page 20

21 Using digital capability Asset profiles can be better leveraged Data Insight opportunities Asset profiles Maintenance Cost Maintenance schedule Tax/Accounting profiles Page 21

22 Example - Using Artificial Intelligence to Manage Assets Page 22

23 Proposition Valid? We are beginning a period that will see the most significant change to tax management and administration in our lifetimes I think so! Page 23

24 Some Recent Legislative Changes Page 24

25 TPAR - Overview Applicable (for GREs) from 1 July 2017 first full year to 30 June 2018 Types of issues encountered: Who is in/ who is out (ie who is a GRE) Separating out GST; picking up invoices with only materials etc Isolation of excluded payment types (what is meant to be included and what is not) Payments made as agent for other departments/agencies ( which are my payments? ) Assessment: Question: Reporting for 2017/18 seems to have gone relatively smoothly but general expectation is that GREs will need to refine data sets going forward to more accurately capture and report required data fields this has been reflected in construction industry TPAR developments What are the broader implications of inaccurate reporting when ATO starts questioning recipients about payments that have been disclosed, who will they complain to? part of the reputational risk referred to earlier Page 25

26 TPAR what is it Certain government related entities (GREs) required to report payments made for the supply of services Need to report for payee: ABN; name; address; total amounts (for the financial year) of gross amount paid (including GST paid); total GST; any ABN withholding Also covers grants provided by GREs (excluding local government) to recipients with an ABN (including non-profits) A number of specific entity type exemptions, such as providers of education courses and providers of medical services No TPAR reporting required for: payments for materials only; services that are merely incidental to a supply of goods/materials; unpaid invoices at 30 June; PAYG withholding amounts; payments to other Government entities; telephone and internet services (amongst others) Separate reporting even if number of entities are part of a single GST group Page 26

27 GST - withholding & notification Applicable from 1 July 2018 Primarily directed at Phoenixing arrangements but no exemptions or carve outs so very broad Take Away: if you have any dealing with land/real property consider whether these rules could have application (obligations exists for both purchasers and vendors) Certain recipient to withhold GST and remit to the ATO Take Away: Supplier is still liable for the full GST liability Also suppliers must notify recipients of certain information, including whether a withholding is required Take Away: there are two obligations 1) for withholding by recipients/purchasers and 2) notification by suppliers Page 27

28 GST - withholding & notification If above not complied with then penalties can be apply Failure to withhold 20 penalty units (@$210 = $4,200) Failure to notify 200 penalty units (@ $210 = $21,000) Withholding applies to supply/ long term lease (50 years) of new residential premises and potential residential land For withholding purposes new residential premises does not include those created through substantial renovations nor commercial residential premises (so a bit different to the standard GST definition see GSTR 2003/3 and also GSTR 2012/6 for guidance on these terms) Page 28

29 GST - withholding & notification Potential residential land is land permissible to use for residential purpose but where it does not contain buildings that are residential premises Potential residential land must be included in a property subdivision plan and not with a commercial building on it property subdivision plan is a plan for subdivision of the real property that is registered under an Australian law primarily directed at home and land packages but picks up vacant land that has been subject to a registered subdivision plan (no time limit on this) Take Away: if you are selling any vacant land check the zoning and subdivision history to establish if these rules may apply to you Page 29

30 GST - withholding & notification Withheld amount is a proportion of the contract price Contract price ignores any potential settlement adjustments (rates, taxes, water) but includes contractual adjustments for the price, variations or discounts. Fully taxable amount withheld = 1/11 Using margin scheme = 7% Withholding needs to be done as part of settlement process and remitted before settlement Withholding does not apply for potential residential land where recipient is GST registered and acquired for a creditable purpose Take Away: If you are GST registered and acquire new residential premises then you may still need to withhold ie even though you are GST registered Page 30

31 GST - withholding & notification Notification requirement is broader applies to residential premises and potential residential land so can apply even if withholding does not apply What you need to take account of: Take Away: You may have a notification obligation even if no withholding will occur Need to be very clear on the classification of the property being transferred Need to understand the GST status of the parties involved Need to establish if there is withholding and if not are there still notification obligations If property is covered by withholding need to establish what is the amount If you are the supplier need to be clear on who is named as the supplier but also the representative member of any GST group the supplier is in Allocation of GST credit may take some time (ATO getting better but matching is not as quick as desired) cash flow needs to be considered Page 31

32 GST - intangible supplies from outside Australia Series of GST law changes October 2016 and 1 July 2017 Now all supplies of things other than goods or real property (eg. services) to Australian consumers deemed connected with Australia GST now potentially applies to all digital and other intangibles supplied to Australian consumers by non-residents (subject to GST registration threshold) Australian consumer : Australian resident; and Not registered for GST, or registered for GST but acquisition not made in course of an enterprise Take Away: Intangibles acquired from overseas by registered GST business should not create GST liability for supplier but reverse charge rules could apply Page 32

33 GST - intangible supplies from outside Australia: reverse charge B2B Where an offshore digital or intangible supply is acquired by an Australia-based business recipient then need to consider GST reverse charge Take Away: Due to law changes many more non-residents are not GST registered meaning that the reverse charge rules have more frequent application GST liability is effectively shifted to the business recipient of the supply Business recipient of the offshore supply is required to account for GST on the supply where it is acquired for a purpose that is not fully creditable (eg input taxed financial supply or residential rent) Logic - same economic result as if acquired from domestic supplier Take Away: If you acquire an intangible from offshore (eg a service or a licence) then you need to determine how you apply that acquisition. If it would not be fully creditable had it included GST in the price then likely to be a reverse charge obligation, ie the full GST and then claim whatever GST credit you are entitled to Page 33

34 Example - Reverse charge B2B UK UK Software Licence $$ Licence AUS Govt Dept UK Software provider supplies licence of software to Govt Dept UK supplier has no presence in Australia Govt Dept is registered for GST If Govt Dept uses the software in part to make input taxed supplies then needs to reverse charge full GST liability and recover what it can as an input tax credit Page 34

35 Thank You! Page 35

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