6595GST Guide For Catholic Church - Catholic … Guide for... · GST Guide for the Catholic Church - Australia ii Catholic Bishop Australian Conference Australian Conference of ...

GST Guide for theCatholic ChurchGST Guide for theCatholic Church

Australia

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GST Guide for theCatholic ChurchGST Guide for theCatholic Church

Australia

The costs associated with the development of the materials set out in thisresource kit have been funded by the Commonwealth Government's GST Start-up

Assistance Program. The costs of mounting seminars based on the information contained in the resource kit have also

been funded by the same program.

Designed and Printed byColourprint Australia Pty Ltd

203 Arden Street, North Melbourne 3051

Acknowledgment

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Catholic Bishop Australian Conference

Australian Conference ofLeaders of Religious Institutes

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Important information concerning this material - please read

These limitations and warnings also apply to information based on this material presented at anyseminars or workshops provided as part of the GST Start-up Assistance Program.

This material is provided under theCommonwealth's GST Start-up AssistanceProgram, and is designed to provide generalinformation on the GST and on business skills,practices and processes necessary to operatewith the GST, focussed on small and mediumenterprises and the community and educationsectors. Because business circumstances canvary greatly, the material is not designed toprovide specific GST or business advice forparticular circumstances. Also, because aspectsof the GST are complex and detailed, thematerial is not designed to comprehensivelycover all aspects of the GST as it applies tosmall and medium enterprises and thecommunity and education sectors. Further, thelaws implementing GST, and rulings anddecisions under those laws, may change.

Before you use this material for any importantmatter for your business, you should:

▲ make your own enquiries aboutwhether the material is relevant andstill current, and whether it dealsaccurately and completely with thatparticular matter; and

▲ as appropriate, seek your ownprofessional advice relevant to thatparticular matter.

This material is provided on the understandingthat neither the Commonwealth or itspersonnel, nor any other organisation orperson involved in developing or delivering theGST Start-up Assistance Program, is therebyengaged in providing professional advice for aparticular purpose.

DISCLAIMER

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General IssuesFor a considerable period, the Catholic Church and Religious Orders in Australia have been largelyexempted from taxes in lieu of the not-for-profit service they have provided to society. Whilst thisprinciple of exemption from taxation has been maintained in The New Tax System to operate from 1July 2000, the Catholic Church, Religious Orders and their various operating entities will be drawninto the taxation system for the first time through a process of registration and endorsement of theirindividual taxation status.

The centerpiece of The New Tax System is a goods and services tax (GST) that will apply to a widerange of goods and services. Not all goods and services will be subject to GST. However, there are noexemptions available to individuals or other entities (religious, charitable, not-for-profit orcommercial). Given these features of The New Tax System, all aspects of the operations of entitiesof the Catholic Church and Religious Orders may be subject to the provisions of the GST.

Depending on decisions made by individual entities of the Catholic Church and Religious Ordersregarding registration connected with The New Tax System, many entities will take on particularperiodic reporting responsibilities to the Australian Taxation Office (ATO) for the first time.

This consequence of The New Tax System means that entities within the Catholic Church andReligious Orders will face a number of challenges. These include the following:

(1) The assimilation of new concepts associated with the manner in which the detail of theiroperations are described.

(2) The cash flows of individual entities will be impacted by the GST and the removal ofWholesale Sales Tax.

(3) Individual entities will need to arrange their affairs to accurately record the collection andpayment of the GST to facilitate the completion of periodic reporting to the ATO.

(4) Individual entities will need to become aware of the specific requirement of the legislation asregards GST invoices and other matters such as withholding of tax which will have animportant bearing on periodic reporting to the ATO. In this context, entities will need to payparticular attention to the training of staff and the upgrading of record keeping systems.

(5) Individual entities may need to upgrade the responsiveness of their reporting systems so thatperiodic reporting to the ATO is timely, accurate and capable of passing audit by the ATO. Inthe past, financial reporting in a commercially orientated time-frame was often a matter ofrelatively low priority.

Against the background of these challenges, this reference resource has been prepared. The resourceconcentrates on those issues connected with The New Tax System that are of particular concern toentities connected with the Catholic Church and Religious Orders.

It is important to note that by virtue of the structure of the Church in Australia, and the fact that the existing structure has developed over a long period without contact with the taxation system, it will be impossible for every situation connected with The New Tax System and the Churchto be canvassed.

Individual entities are encouraged to develop appropriate working relationships with Diocesan orReligious Order co-ordinators in developing management techniques to adapt to the new operatingenvironment precipitated by the legislative requirement of The New Tax System.

I n t r o d u c t i o n

INTRODUCTION

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Contents

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1 1. Objective of the Material 1

2 2. The New Tax System 32.1 The Introduction of Goods & Services Tax 32.2 Personal Income Tax Cuts 32.3 Pay As You Go (PAYG) 32.4 Fringe Benefits Tax Changes (FBT) 3

3 3. Assistance Available for Change to GST 5-73.1 Government Assistance 5

3.1.1 GST Start-Up Assistance Office 53.1.2 Australian Taxation Office 53.1.3 New Taxation System Advisory Board 5

3.2 Australian Catholic Church Tax Working Group 5-63.3 Other Government Organisations 6

3.3.1 Australian Competition & Consumer Commission (ACCC) 6

3.4 Commonwealth Ombudsman 7

4 4. Introduction and Overview 9-10

5 5. GST Terms and Specific Meanings 11-155.1 Enterprise 115.2 Entity 115.3 Acquisition 115.4 Adjustments 11-125.5 Attribution Rules 12

5.5.1 Cash Basis 125.5.2 Accrual Basis 12

5.6 Australian Business Number (ABN) 12-135.7 Business Activity Statement (BAS) 135.8 Consideration 135.9 Creditable Acquisitions 135.10 Goods & Services 13-145.11 Input Tax Credit 145.12 Sub-Entity 145.13 Supply 145.14 Tax Fraction 155.15 Tax Invoice 155.16 Tax Period 15

C o n t e n t s

5.17 Value 15

6 6. How the GST Operates 17

7 7. Impact on the Church 19-217.1 Diocesan Parish Priests 197.2 Diocesan Assistant Priests, Specialist Priests, Deacons 207.3 Diocesan Priest - Chaplains 207.4 Religious Orders 207.5 Parishes/Religious Congregations - Income 207.6 Parishes/Religious Congregations - Expenditure 20-217.7 Associated Church Entities 21

8 8. Supply Transactions 23-258.1 Taxable Supplies 23-248.2 GST-free Supplies 24-258.3 Input Taxed Supplies 258.4 Other Supplies 25

9 9. Church Transactions 27-289.1 Religious Services 279.2 Charities 27-28

9.2.1 Non-Commercial Activities 279.2.2 Fundraising 27-289.2.3 Donations & Gifts 289.2.4 Grants 289.2.5 Sponsorships 28

10 10. Acquisitions (Purchases) 29

11 11. Specific Requirements for the Church 30-3611.1 Working out the GST 30-3111.2 Identification of the GST Implications of all Transactions 3111.3 Record Keeping 31-3211.4 System Checks 3211.5 Transaction Analysis 33-36

12 12. Registration and Endorsement 37-3812.1 Registration for an Australian Business Number (ABN) 3712.2 Registration for GST 37

C o n t e n t s

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12.3 Endorsement as a Income Tax Exempt Charity (ITEC) 3812.4 Endorsement as a Deductible Gift Recipient (DGR) 38

13 13. Australian Business Number (ABN) Registration 39-40

14 14. GST Registration 41-4314.1 Turnover 4114.2 Why Register for GST 4114.3 Registration Implications 42

14.3.1 Charge GST 4214.3.2 Claim Input Tax Credits 4214.3.3 Reporting to the ATO 4214.3.4 Cash Flow Implications 42 14.3.5 Other Implications 42

14.4 Non-Registration Implications 42-4314.4.1 Cannot Claim Input Tax Credits 4214.4.2 Cannot Claim a WST Credit 4214.4.3 Reporting to the ATO 42-4314.4.4 Constant Monitoring of Turnover 43

14.5 Registering for GST 4314.6 Cancelling your GST Registration 43

15 15. Form of Registration 45-4615.1 Individual 4515.2 Grouping 4515.3 Branches 4515.4 Non-Profit Sub-Entities 45-46

16 16. Income Tax Exempt Charity (ITEC) Endorsement 47-48

17 17. Deductible Gift Recipient (DGR) Endorsement 49-50

18 18. Registration Sequence 5118.1 Registering Legal Entities 5118.2 Registering a Non-Profit Sub-Entity 5118.3 Applying for ITEC & DGR Endorsement 5118.4 Registering a Branch 5118.5 Registering a Group 51

19 19. Accounting for GST 53

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19.1 Cash v Accrual Accounting 5319.2 Cash Basis 5419.3 Accrual Basis 54

20 20. Reporting to the Australian Taxation Office (ATO) 55-5920.1 Tax Periods 5520.2 Quarterly Reporting 5520.3 Monthly Reporting 5620.4 Business Activity Statement (BAS) 57-59

21 21. Systems 61-6321.1 What is a System? 6121.2 Why are Systems Important? 6221.3 Why Do Systems Change? 6221.4 The Operation Cycle 62-63

22 22. Systems & Staff 65-66

23 23. GST Systems 67-7523.1 Supplies & Acquisitions 6723.2 GST Status of Transactions 67-6823.3 Source Documents 68-73

23.3.1 Tax Invoices 70-7123.3.2 Bank Statements 71-73

23.4 Adjustments 73-75

24 24. GST Systems - Recording 77-7924.1 Computer or Manual 78-7924.2 Income & Expenditure 7924.3 Irregular Transactions 79

25 25. GST Systems - Reporting 81-82

26 26. Risk Management 8526.1 Misclassifying Supplies 8526.2 Incorrect Recording & Reporting of GST 8526.3 Tax Invoices 8526.4 Cashflow 8626.5 Contracts 86

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26.6 Insurance 8626.7 Pricing 86

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The introduction of The New Tax Systemincluding the GST has required the CatholicChurch in Australia to address the issue oftaxation. Previously, the Catholic Churchonly had to deal with some of these issueslisted below:

▲ Tax deductibility status;▲ Sales tax exempt status;▲ Fringe benefits tax for employees; and▲ Income tax for employees.From 1 July, all Catholic Church entitieswill be required to pay a business taxrelated to that entity's economic activityand to produce additional financialstatements on a regular basis.

This information therefore, aims to providea comprehensive and straightforwardapproach for parish/congregationalpersonnel to deal with the key issues of taxreform and its implementation withinparish/congregational financial structureswith minimal input from specialistadvisers.

1 . O b j e c t i v e o f t h e M a t e r i a l

1. Objective of the Material

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N o t e s

Notes


2.1 The Introduction of Goodsand Services Tax

All Australians will be involved with a newtax system from 1 July 2000. An importantpart of The New Tax System will be a goodsand services tax (GST).

GST is a broad-based tax of 10% on thesupply of most goods and servicesconsumed in Australia. It may affect sometransactions entered prior to that datewhere performance occurs on or after 1July 2000, for example insurancepremiums.

The GST will be a visible tax. When goodsand services which are subject to the 10%GST are purchased, it will be mandatoryfor the supplier to indicate that the pricebeing paid is GST inclusive. This is unlikemany of the existing taxes, such aswholesale sales tax, where tax may beincluded in the price of the goods, butwhich is not clearly visible to thepurchaser.

Many existing, hidden, indirect taxes willbe phased out and replaced by the GST.

2.2 Personal Income Tax CutsParishes and congregations employingstaff will need to be aware of the changesto personal income tax rates.

2.3 Pay As You Go (PAYG)The New Tax System will consolidate anumber of tax collection systems, suchas Pay As You Earn (PAYE), PrescribedPayments System (PPS), ReportablePayments System (RPS) and the ProvisionalTax system, with the PAYG system.

2.4 Fringe Benefits TaxChanges (FBT)

At the time this document was preparedchanges to FBT were still being finalised.Consult with your Diocesan or ReligiousOrder administration to keep yourselfinformed of any updates.

2 . T h e N e w Ta x S y s t e m

2. The New Tax System


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TODAY’S TAX RATES NEW TAX RATES

Current Scale Tax Rate New Scale Tax RateTaxable Income % Taxable Income %

$0 - $5,400

$5,401 - $20,700

$20,701 - $38,000

$38,001 - $50,000

$50,001 +

$0 - 6,000

$6,001 - $20,000

$20,001 - $50,000

$50,000 - $60,000

$60,001 +

0.00

17.00

30.00

42.00

47.00

0.00

20.00

34.00

43.00

47.00

The following table shows the new personal income tax thresholds andrevised income tax rates from 1 July 2000.

N o t e s

Notes


3.1 Government Assistance

3.1.1 GST Start-Up Assistance OfficeThe Government has set aside $500million to assist small and mediumenterprises, the community sector andeducational bodies (SMECEs) to adjust tothe GST environment.

The GST Start-Up Assistance Office wasestablished to administer these funds inconsultation with The New Tax SystemAdvisory Board and two advisory panels;one covering small and mediumbusinesses and the other the communitysector and educational bodies.

What kind of assistance is available?The GST Start-Up Assistance Office hasdeveloped four programmes to helpSMECEs adjust their business practices,namely:

Organisation-Delivered AssistanceSelected industry and professionalorganisations will provide a broad range ofeducation and information services to theirmembers and non-members.

Business Skills EducationThe GST and Business Skills - an ActionGuide is available now to help you becomeGST-ready. The GST Business AssistHelpline (13 30 88) is open from 9am -9pm nationally to provide help on thenecessary skills, practises and processes toprepare you for the GST.

Adviser EducationAn education programme for informaladvisers who assist small business,community groups and educational bodies.

Direct AssistanceDirect assistance will also be available tosmall and medium businesses andcommunity organisations that register forGST. Redeemable certificates that can beexchanged for products or servicesacquired to assist in the implementation ofthe GST will be available.

These four programmes have the commongoal of ensuring that SMECEs have the

opportunity to access information andassistance to adjust their enterprises to theGST environment.

3.1.2. Australian Taxation Office(ATO)

The ATO has the role of providing guidanceand assistance with technical changes thatwill arise from the introduction of The NewTax System.

The assistance provided by the ATOincludes a range of publications fromgeneral purpose guides, to industry sectorpublications directed at the specific issuesto be addressed by various industries andcommunity groups.

The ATO is also providing a wide range ofseminars to assist with the introductionand implementation of the changes.

3.1.3 New Tax SystemAdvisory Board

To ensure the successful introduction ofThe New Tax System the Government hasput in place a large number of programmesto assist businesses, community groups,the educational sector, and the Australianpublic prepare for the changes arising fromThe New Tax System.

To oversee the changes the Governmenthas established The New Tax SystemAdvisory Board. This “Board” has as oneof its most important roles, the oversight ofa major education programme about TheNew Tax System for all sectors of Australiansociety to assist them with preparations forthe changes that will be necessary.

3.2 Australian Catholic ChurchTax Working Group

The Australian Catholic Church TaxWorking Group (ACCTWG) was formed tofacilitate a national coordinated approachto deal with tax reform issues as a result ofThe New Tax System. There had been anumber of local meetings at diocesan levelbetween heads of department and taxexperts, followed later by nationalmeetings. The first national meeting was

3 . A s s i s t a n c e Av a i l a b l e f o r C h a n g e t o G S T

3. Assistance Available for Change to GST


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held on 11 January 1999. Soon after, asubmission was made to the AustralianCatholic Bishop Conference (ACBC) &Australian Conference of Leaders ofReligious Institutes (ACLRI) for theformation of a national tax working group.The ACCTWG was formed in March 1999.The main aim of the group is to:

▲ Provide a point of reference and liaisonwith Tax and Treasury officials;

▲ Assist Dioceses, Religious Orders andAgencies to define and describe commonissues in dealing with tax reform, inparticular with GST;

▲ To assist in the development of strategyand policy in response to tax reform;and

▲ Address issues concerning GST start upand implementation around Australia.

The ACCTWG has also been activelyinvolved in meeting with and lobbying,both government and ATO officials inmatters concerning interpretation andrefinement of tax legislation.

3.3 Other GovernmentOrganisations

3.1.3 Australian Competition &Consumer Commission (ACCC)

The ACCC has specific legal powers toensure that there is no price exploitation inrelation to price changes brought about byThe New Tax System changes.

Tax Changes Covered by the PriceExploitation GuidelinesThe ACCC will ensure that there is no priceexploitation in respect of the followingtaxation changes:

▲ A reduction in the Wholesale Sales Tax(WST) rate of 32 percent to 22 percent(29 July 1999);

▲ Introduction of the GST (1 July 2000);▲ Abolition of WST (1 July 2000);▲ Changes to excise on petrol and diesel

and to the Diesel Fuel Rebate Scheme(1 July 2000);

▲ Changes to excise on alcoholic beverages(1 July 2000);

▲ Changes to excise on cigarettes (from1 November 1999);

▲ Introduction of a ‘Luxury Car Tax’(1 July 2000);

▲ Abolition of bed taxes (1 July 2000); and▲ Abolition of State taxes on bank

transactions (Financial Institutions Duty1 July 2001 Debits Tax by 1 July 2002)and stamp duties on marketablesecurities (1 July 2001) and remainingbusiness stamp duties (date to bedetermined).

The ACCC’s Focus in Evaluating PricesIt is the Government’s intention thatconsumers should benefit fully fromreductions in indirect tax and should notbe exposed to greater than necessary taxrelated price rises. There should be no priceexploitation of consumers.

In line with the Government’s intention,the ACCC will examine how prices move inrelation to The New Tax System changes.The ACCC’s focus is on prices set byindividual entities and is primarily onchanges in prices resulting from the taxchanges, not on the level of prices.

Price Exploitation Hotline on1300 302 502.

ExamplePrior to 30 June 2000, Vinnie’s Boutiquepurchased a microwave oven for $100(including WST). They typically added a50% markup, and sold such items for $150.

With the introduction of GST and theabolition of WST, a like item would bepurchased for say $88. Eg. The item wouldcost $80 and there would be $8 GST.

In a GST environment, the pricingpattern would become:Full purchase price 88.00Less: GST 8.00Net cost 80.00Normal dollar margin 50.00New selling value 130.00Add: GST 13.00New selling price 143.00



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3.4 CommonwealthOmbudsman

The Commonwealth Ombudsmaninvestigates complaints aboutCommonwealth Government Departmentsand Agencies. S/he may also recommendthat Departments and agencies provide asolution or remedy to complaints.

Individuals, businesses, clubs, groups,community organisations, Commonwealthgrant recipients, charities and others mayhave a complaint about the actions ordecisions of government agencies as TheNew Tax System is implemented. Wherecomplaints cannot be resolved directlywith the agency the matter can be raisedwith the Special Tax Adviser of theCommonwealth Ombudsman.

The Ombudsman’s Office has wide powersto conduct an independent investigationof complaints. Call the NationalComplaints Line on 1 300 362 072.



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N o t e s

Notes


Introduction DateGST starts on 1 July 2000; however, it mayaffect some transactions entered prior tothat date where performance occurs on orafter 1 July 2000.

Tax RateGST is a broad-based tax of 10% on thesupply of most goods and servicesconsumed in Australia.

Replacement TaxGST is a visible tax. When goods andservices which are subject to the 10% GSTare purchased, it will be mandatory for thesupplier to indicate that the price beingpaid is GST inclusive. Many existing,hidden, indirect taxes will be phased outand GST will replace them. (See Chapter3.3.1 on the role of the ACCC for a listing ofwhich taxes are being abolished.)

Although GST will replace some existingtaxes, the GST charged to an enterprise byits suppliers, in many situations, will berecoverable from the ATO.

A Tax on Transactions - A Consumption TaxWhat is a GST? The main principles arethat it is a tax:▲ Applied to the domestic Australian

consumption of goods and services, ieon transactions; and

▲ It is paid by the final consumer.The first key concept here is domesticAustralian consumption. That meansthe GST does apply to imports, but doesnot apply to exports

As well, it is about the consumption ofgoods and services. So GST is a tax ongoods and services and not on income.Therefore, an intention to make a profit isirrelevant in deciding whether anorganisation must pay GST.

No Entities are Exempt from GSTIt follows that many organisations that arenot currently considered to be carrying ona ‘business’ for income tax purposes willnevertheless be included in the GST net.Such organisations (which the legislationcalls entities) include church bodies,charities, trusts, co-operatives, sportingand other clubs, statutory bodies and localauthorities.

Not all Goods/Services are Subject to GSTGST is not charged, or payable to the ATO,on GST-free supplies. The major categoriesof GST-free supplies are:

▲ Basic food▲ Medical services▲ Other health services▲ Hospital treatment▲ Residential care▲ Community care▲ Private health insurance▲ Education services▲ Child care ▲ Exports▲ Religious services▲ Farm land▲ Supplies through inward duty free shops▲ Supplies of precious metals▲ Sales of going concerns

(sale of ‘businesses’)But not all supplies falling into thesecategories will be GST-free.

While these general categories of supplymay be GST-free, each has a very specificmeaning. Your supplies need to fall intothose very specific definitions to be GST-free. Remember - if you make a mistakeand don’t charge GST because you thoughtthe supply was GST-free, but it later turnsout to be taxable, the GST liability restswith you not the consumer.

4 . I n t r o d u c t i o n & O v e r v i e w

4. Introduction and Overview


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Be sure you carefully check the details ifyou make supplies that fall into thesecategories. You may want to seek adviceon the impact of the GST-free rules for yourparticular entity from your Diocesan orCongregational contact, a professionaladviser or the ATO.

If a an entity makes GST-free supplieshowever, it is still able to claim back GSTinput tax credits on the purchase of anygoods and services acquired to allow it tomake those GST-free supplies.

Example

A priest conducts a funeral service andreceives a stipend. In this situation, thepriest makes a GST-free supply. Thoughthe priest is making a GST-free supply,he is still able to claim back the GST paidon the expenses of running the churchsuch as telephone, electricity, insurance,candles, incense, and charcoal.

The GST is RecoverableIf an entity is registered for GST, the GSTpaid on acquisitions is recoverable fromthe ATO. For unregistered entities the GSTis a cost because it cannot be recovered.

Church entities will need to balance thelikely level of compliance costs against thecost of absorbing the GST paid onacquisitions when deciding whether or notto register for GST. This only applies forentities connected with the Church andReligious Orders with annual turnover lessthan $100,000.

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5 . G S T Te r m s a n d S p e c i f i c M e a n i n g s

5. GST Terms and Specific Meanings


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To register for GST you must be an entityconducting an enterprise. So both of theseterms - enterprise and entity - are central tothe operation of the GST, and are critical indetermining if you are required to registerfor GST. We look at these terms in turn.

5.1 EnterpriseEnterprise is about making things happenand getting things done.

Enterprise manifests itself in many ways.It may be parishioners grouping togetherto raise funds for the parish or it may bethe parish providing a range of services forthose in the community who are in need ofspecial support and assistance. In abusiness context it may be a designer whohas the courage to start her own business.

Enterprise involves planning, organising,and managing. Enterprise involves bothformal and informal structures. Enterpriseinvolves people doing things, makingthings happen, and providing things.Enterprise involves everything from theactivities undertaken by Australia’s largestcompanies, to the facilities provided tomembers by the local parish. Enterprise,enterprising people, and enterprises deliverthe things that society needs and wants.

In the GST legislation, the term enterpriseis used to describe an activity, or a series ofactivities, undertaken by a person or anorganisation. Enterprise is a veryimportant term in the context of GSTbecause enterprises that meet certaincriteria are required to register for GST.

It is important to realise that enterprisesthat are required to register for GST maynot be ‘businesses’ or ‘organisations’ in theway those terms are normally perceived.

Enterprise includes:▲ A business, trade or profession;▲ A lease, licence or other grant of interest

in property;▲ Activities of charities or gift deductible

entities;▲ Activities of religious organisations; and

▲ Certain activities of government andgovernment corporations.

Some activities are excluded from being anenterprise. These are:

▲ Hobbies or recreational activities;▲ Activities by individuals or partnerships

where there is no reasonable expectationof profit or gain. Input tax credits cannotbe claimed for these activities; and

▲ Employees salaries and wages.

5.2 EntityIn the context of the GST an entity caninclude:

▲ An individual (eg a priest/deacon);▲ A company or Body Corporate (eg a

Religious Order/Congregation);▲ A Corporation Sole;▲ A Partnership;▲ Any other Unincorporated Association

or Body of Persons (e.g. kindergartenrun by a parish); and

▲ A Trust or a Superannuation Fund.

5.3 AcquisitionAcquisitions include everything you buyfor your enterprise including buying goodsor services, getting advice or information,taking out a lease of premises, hiringbusiness equipment, and anything else.

5.4 AdjustmentsAdjustments are changes you may need tomake on your BAS to change your net GSTamount payable or refundable as the resultof an adjustment event.

An adjustment event is any event that hasthe effect of:▲ Cancelling a supply or acquisition;▲ Changing the consideration for a supply

or acquisition, or▲ Causing a supply or acquisition to

become, or stop being a taxable supplyor creditable acquisition.



5This may occur if:▲ All or part of a supply or acquisition is

cancelled;▲ You receive or give a discount on a

supply;▲ You change the purpose of an

acquisition; or▲ One of your debtors fails to pay.

5.5 Attribution RulesWhen, for any tax period, an entitycompletes the GST section of the BAS it isrequired to include:

▲ The total amount of taxable suppliesmade by the entity during the period; and

▲ The total amount of the taxable suppliesit acquired during the period that relatesto its taxable activity.

It follows that the entity must determine inwhich tax period a particular transactionmust be accounted for. This need is coveredby the attribution rules. They determine towhich period a GST supply should beattributed.

The attribution rules differ dependingwhether the enterprise is GST registered ona ‘cash basis’ or an ‘accrual basis’.

5.5.1 Cash Basis Attribution Taxable supplies made by the entityGST is attributed to the GST period inwhich the entity receives a payment inrespect of the taxable supply.

Taxable supplies acquired by the entityGST is attributed to the GST period inwhich the entity makes a payment inrespect of the taxable supply.

5.5.2 Accrual Basis Attribution RulesTaxable supplies made by the entityGST is attributed to the first GST period inwhich the entity either, receives a paymentin respect of the taxable supply, or issuesan invoice in respect to that supply.

Taxable supplies acquired by the entityGST is attributed to the GST period inwhich the entity receives a tax invoice inrespect of the supply.

In effect, the attribution rules are the

equivalent of GST time of supply rules.They determine the period in which thesupply is to be regarded as occurring andin relation to which the applicable GST isto be accounted for.

Example:

A congregation is registered for GST on acash basis. On 24 June it purchased soilfrom Jax Garden Yard Ltd for $3,300(including $300 GST) for landscapingworks at the convent.

Jax Garden Yard Ltd issued thecongregation with a tax invoice for$3,300 on 25 June which it paid on 4July. The congregation’s GST tax periodends on 30 June.

It attributes the supply to the GST periodcommencing on 1 July, as it did notmake the payment in the GST periodended 30 June.

Jax Garden Yard Ltd is registered for GSTon an accrual basis. As it issued aninvoice in the GST period ended 30 June,it must attribute the supply and the GSTpayment to the 30 June GST period.

5.6 Australian BusinessNumber (ABN)

The ABN is critical to the operation of theGST system, as every entity that isregistered for GST will have an ABN andthis is the number that must be quoted onall your tax invoices.

As a general rule entities should registerfor an ABN even if they do not register forGST. If the entity does not have an ABN, ordoes not provide that number to people towhom it supplies goods and services, theirclients ordinarily will be required to deductwithholding tax from payments to thatbusiness. There are very limited exceptionsto the rule. This withholding tax will be atthe rate of 48.5 cents in the dollar.

The ABN registration form includes theoption to register for GST.

The New Tax System will change the waytax is collected in Australia from 1 July. Aspart of the changes The New Tax System



5also puts in place an ABN that will enableentities in Australia to deal with the ATOand a range of government departments oragencies using the one number.

If an entity does not obtain an ABN, anddoes not register for GST, it will be unableto claim back the GST that it pays to itssuppliers.

An entity will also need to show its ABN onthe tax invoices it issues. If it doesn’t, thedocument will not constitute a tax invoice(even if so described) and its clients wouldnot be able to claim input tax credits.

The ABN will not replace a tax file number,so tax file information will still be protectedby the existing privacy guidelines.

When an entity has been allocated an ABNits relevant details will be placed on theAustralian Business Register which theCommissioner of Taxation will administer.

5.7 Business ActivityStatement (BAS)

Every entity that registers for GST will berequired to submit a BAS that will shownot just GST paid or due, but a range ofother taxes as well. The BAS is your GSTreturn - but it includes a lot more than justGST.

With the BAS, most parishes/congregationswill make one payment and one statementto the ATO per quarter. That is, mostentities will only be required to lodge fourreturns and make four payments per year.For parishes and congregations this willinclude:

▲ GST;▲ Income tax withholding (PAYE/PAYG

withholding); and▲ FBT instalments.For each tax period the entity will receivefrom the ATO a single tax form: the BAS.

As from July 1 the BAS will be used toadvise the ATO of the GST liability of theentity as well as being used to advise itsother tax liabilities. For most entities thismeans that there will only be one form tothe ATO and only one payment each quarter.

The exception will be for entities thatchoose to remit GST on a monthly basis.

A BAS will have to be filed when it isdue, even if no tax liability exists forthat tax period.

The BAS can be sent to the entity, by the ATOeither through the mail as a paper form, orover the Internet as an electronic form. Theentity will be required to lodge its BAS withthe ATO twenty-one days after the end of theGST tax period. The GST tax period willeither be one month or three months. (Thiswill be discussed in Chapter 20)

The entity will be required to keepadequate records so it can accuratelycomplete the GST section of the BAS todetermine the amount of GST it will haveto pay to the ATO or the amount that maybe refunded, depending on itscircumstances.

Any refunds of GST may be used to reduceother amounts of tax that may need to bepaid (such as group tax) on the BAS forthat period. The ATO will pay interest onall refunds not remitted by them within 14days.

5.8 ConsiderationFor most entities, the consideration thatthey receive for their goods and serviceswill be the money paid. However, the GSTis intended to be very broad in its coverage,so consideration extends well beyondmoney to include non-cash transactions,such as barter transactions.

5.9 Creditable AcquisitionsCreditable acquisitions are acquisitionsacquired for a creditable purpose. Youacquire a thing for a creditable purpose ifyou acquire it for use in your business,unless it is for use in making input taxedsupplies. Things acquired for private useare not creditable acquisitions.

5.10 Goods and ServicesThe GST is intentionally very broad in itscoverage. It is intended to capture all

forms of domestic consumption, so mayinclude a range of things that you may nothave thought of. It is important that youcharge GST on all taxable supplies, so youneed to have a good understanding ofwhat we mean by goods and services.

If you don’t charge GST when you shouldhave, you as the supplier will still berequired to pay 1/11th of the price chargedto the ATO - so making a mistake can bevery expensive!

Enterprises produce a huge range of goodsand services that are available toconsumers. Goods can be grown, made, orimported, and can be bought and soldrepeatedly.

Services also come in many differentforms. Services can involve a plumberfixing a blocked drain, or the localswimming club teaching the kids to swim.The local Council, Federal Government,and the local Citizens Advice Bureau allprovide services. Some services we use arecostly, some cost nothing, and someorganisations provide them in return forsubscriptions and members donations.

Some service organisations are huge,highly structured, and are ‘big businesses’to run. Other service organisations are lessformal, less organised, and small. Onething is common to all enterprises thatprovide goods and services, they involvepeople in planning, organising, andmanaging the supply of a huge range ofgoods and services that people consumeevery day.

It is very important to appreciate thatfor GST to be payable, there must be ataxable supply of goods and services.

In some cases the goods or services beingsupplied may be GST-free, or input taxed.These are not taxable supplies of goodsand services and accordingly GST is notincluded in the price paid (we explain theseterms later).

This material also looks at the supplyof goods and services. It considers what isbeing supplied, when is it being supplied,

what is the value of the supply. Thismaterial considers the relationshipsbetween enterprises, their clients, and thegoods and services provided.

5.11 Input Tax CreditRegistered entities can claim back from theATO the GST that is included in the price ofgoods and services they acquire for thepurpose of making taxable supplies andGST-free supplies. These are called inputtax credits.

It is critical that every registered entity isable to keep track of these credits. Anunclaimed input tax credit is a cost to anorganisation.

To be able to claim GST input tax credits,an entity must hold a valid tax invoice atthe time the input tax credits are claimedin the BAS.

5.12 Sub-EntityCharities and gift deductible entities withsmall independent branches (sub-entities)have the option of treating these units as ifthey are separate entities for GST purposes.

A sub-entity is considered to beindependent if it keeps its own accountingrecords and can be separately identified bythe nature of its activities or by itslocation.

Where a sub-entity's turnover is less than$100,000, it can choose whether to registerfor GST. If the sub-entity's turnover is$100,000 or more, it will have to registerseparately for GST.

The election to branch units of anorganisation as sub-entities for GSTpurposes cannot be revoked for 12 months.

5.13 SupplySupply is a broad term and includes sellinggoods and services, providing advice orinformation, and other transactions.



5



55.14 Tax Fraction

Rule of Thumb: The GST is 1/11th ofthe price charged or paid.

The tax fraction can be important:▲ In isolating the GST content of a

transaction; and▲ Identifying the true ‘income’ and

‘expenditure’ of the entity.

Total price includes GSTWhen a parish/congregation enters into atransaction that is taxable, GST must beadded to the value of the transaction.

Example

The parish bookshop is registered forGST and sells 10 statues to the parishschool which is also registered for GST.The value of the supply is $250.00 andthe bookshop adds 10% GST ($25) andcharges the school a price of $275.00.

When the bookshop completes the GSTportion of the BAS it will disclose thetotal of its taxable supplies for the taxperiod. It will calculate 1/11th (the taxfraction) of the total price charged to theschool ($25). This will be included in thetotal GST reported to the ATO.

The remaining 10/11ths of the price($250.00) is the gross income thatbookshop receives from the transaction.

When the school completes the GSTportion of the BAS it will disclose thetotal amount of its acquisitions. It willcalculate 1/11th (the tax fraction) of thetotal price paid ($25). This will beincluded in the total GST claimed backfrom the ATO. The remaining 10/11ths($250.00) is the actual acquisition costof the item to the school.

5.15 Tax InvoiceA tax invoice is a document usually issuedby the supplier. A tax invoice includes theinformation normally shown on an invoiceplus additional information required byGST law, including:

▲ The ABN of the supplier;▲ The value of the supply;▲ The amount of GST; and▲ The total price, including GST.

5.16 Tax PeriodTax periods are the reporting period forGST on your BAS. Tax periods are monthlyor quarterly. A BAS must be lodged foreach tax period.

5.17 ValueIn a GST context, references to the value ofsomething means the price of an itembefore GST is added. Thus, GSTpublications often make reference toadding GST to the value of the item toarrive at the ‘GST inclusive price’. In thecontext of most GST taxable supplies, theuse of the term value, means 10/11ths ofthe price. The final 1/11th is the GSTcomponent of the price.

Example

In the above example, the value of thestatues sold by the parish bookshop tothe school is $250. Likewise the valueof the statues to the school is $250.

N o t e s

Notes


Broadly speaking in the case of GSTregistered entities:

▲ GST is a tax of 10% on consumption, i.e.most transactions; and

▲ Most entities will charge and collect theGST.

▲ Entities pay the GST on the acquisitionsto their operations; and

▲ Claim a credit from the ATO for the GSTpaid on the items purchased or acquiredto use in that entity.

▲ GST is levied on each taxable supply byregistered entities; and

▲ The registered entity will report to theATO the GST movements on a BAS.

Unlike sales tax there is no provision forexempt bodies such as Public BenevolentInstitutions to provide exemptioncertificates to the vendor.

There are a number of detailed rules,which modify this basic position.

6 . H o w t h e G S T O p e r a t e s

6. How the GST Operates

G S T G u i d e f o r t h e C a t h o l i c C h u r c h - A u s t r a l i a

6

17

N o t e s

Notes


The key elements of the introduction ofGST, as a component of the New Tax System,for a parish/congregational entity are:

1)GST is a tax on goods and services andnot a tax on income. Therefore, itfollows that parishes/congregations thatare not currently considered to becarrying on a business for income taxpurposes will nevertheless be includedin the GST net.

2)No entity will be exempt from GST.3)A parish/congregation may be required

to register for GST.3)A registered entity must include 10%

GST in the price of ‘taxable supplies’.4)A parish/congregation will find that GST

is included in the prices charged to it byits suppliers for many of the goods andservices it purchases.

5)Parishes/congregations need to startpreparing now to become accustomed tothe system by:

▲ Providing education and trainingfor all personnel involved in theimplementation of GST;

▲ Recognising the importance of systemsand record keeping required to accountfor the GST (addressed in Chapter 21);

▲ Recognising the impact GST will haveon staff, particularly the additionalresponsibilities;

▲ Identifying the GST implications of alltransactions;

▲ Identifying transitional issues;▲ Review all contracts (obtain advice from

the Diocesan or Congregational contact);▲ Identifying risks that may arise as a

consequence of GST;▲ Recognising the importance of an

appropriate Chart of Account; and▲ Ensuring that the appropriate

documentation is printed and availablefor use by staff from 1 July 2000.

7.1 Diocesan Parish PriestsGST does not apply to:▲ First (or Second) Collection at Masses –

as these are donations. Further, thesupply of religious services are GST-freeprovided they are considered essential tothe practice of the religion;

▲ Christmas & Easter dues; and▲ Stole fees or stipends for masses,

weddings, baptisms, funerals.Diocesan Priests are able to and may haveto register for an ABN because theyconduct an enterprise:

▲ Being their vocation;▲ Having an expectation of profit or gain;

and▲ Are not employees for PAYE (PAYG).If registered for an ABN, diocesan priestsmay in some cases subsequently register forGST. This would allow them to claim inputcredits on creditable acquisitions such as:

▲ Theological library books;▲ Clerical robes; and▲ Car expenses (excluding private running).It will be important for priests to maintainrecords and lodge BAS returns with the ATO.

However, diocesan priests cannot claiminput credits on such things as:

▲ Holidays;▲ Private car expenses;▲ Newspapers and subscriptions for

periodicals that are “non-theological”;and

▲ Personal clothing.Subsequent registration for GST involvesmeeting all the legislative requirements eg.income level thresholds, etc. If, under thelegislation, there is no requirement toregister for GST, and if the claim on inputcredits are only minimal, it may be morebeneficial not to register for GST.

It is important that diocesan priests consultthe Diocesan Business Manager for adviceand information on clergy registration issues.

7 . I m p a c t o n t h e C h u r c h

7. Impact on the Church


7

7.2 Diocesan Assistant Priests,Specialist Priests, Deacons

May have to register for an ABN.Subsequently may register for GST to claiminput credits but it may not be worthwhileto register for GST – see implications forParish Priests.

▲ Stipend is not subject to GST; and▲ GST free income – weddings, baptisms

and funerals.

7.3 Diocesan Priest-ChaplainsSame as for specialist priests but ifregistered for GST:

▲ Grants received from governments aretaxable for GST; and

▲ Can claim input credits for creditableacquisitions.

7.4 Religious Orders ▲ Offerings for religious services &

donations are GST-free to the Order.This does not include stipends, whichare payments made to the ReligiousOrder/Congregation for a service;

▲ The Religious Order may claim inputcredits except for entertainment andpurchases made from the personalallowance provided by the Order.

7.5 Parishes/Religious OrderEnterprises – Income

GST applies to:▲ Piety stall sales (refer to Chapter 15.4

Non-Profit Sub-Entities);▲ Cake stalls (refer to Chapter 15.4 Non-

Profit Sub-Entities);▲ Sponsorships where a local entity makes

a donation to the parish/congregation inreturn for a service such as advertising;and

▲ Rental of parish/congregationalpremises (eg parish hall, parish tenniscourts, etc).



7



7

7.7 Associated Church EntitiesIf registered for GST:

GST applies to:▲ Government grants;▲ Membership fees; and▲ Sale of publications.

GST does not apply to:▲ Donations; and▲ Grants with no ultimate benefit to the

grantor.

Input tax credits claimable on creditableacquisitions, for example:▲ Insurance;▲ Office costs;▲ Office equipment; and▲ Purchase of stocks for resale.

A practical illustration of the GST effect on a congregation’s incomeand expenditure is outlined below:

A practical illustration of the GST effect on a parish’s income andexpenditure is outlined below:

NNoottee:: IIff yyoouu aarree nnoott rreeggiisstteerreedd ffoorr GGSSTT yyoouu ccaannnnoott aadddd GGSSTT ttoo tthhee pprriiccee ooff ggooooddss aanndd sseerrvviicceess yyoouu ssuuppppllyy aannddyyoouu aarree nnoott eennttiittlleedd ttoo ccllaaiimm iinnppuutt ttaaxx ccrreeddiittss ffoorr GGSSTT iinncclluuddeedd iinn tthhee pprriiccee ooff yyoouurr ppuurrcchhaasseess..

INCOME GST STATUS GST PAYABLE TO ATO

Second Collection Offering

Other Donations

Sale of Books, Religious Items

No

No

Yes

Gift

Gift

Taxable

INCOME GST STATUS GST PAYABLE TO ATO

Stipends

Donations

Interest

Yes

No

No

Taxable

Gift

Input Taxed

EXPENDITURE GST STATUS GST INPUT CREDIT CLAIMED

Insurance

Repairs and Maintenance

Motor Vehicle Expenses

Yes

Yes

Yes

Taxable

Taxable

Taxable

EXPENDITURE GST STATUS GST INPUT CREDIT CLAIMED

Salaries

Purchase of Books, Religious Items

Insurances

Repairs & Maintenance – Church

Interest on Borrowings

Planned Giving Expenses

Electricity

Printing of Church Bulletin

No

Yes

Yes

Yes

No

Yes

Yes

Yes

GST-free

Taxable

Taxable

Taxable

Input Taxed (no GST)

Taxable

Taxable

Taxable

N o t e s

Notes


GST is a tax on transactions. For GSTpurposes sales transactions are calledsupplies.

As part of preparations for dealing with theGST a parish/congregation should identifythe supplies it makes and the GST status ofthose supplies.

There are four kinds of supply which aredescribed in the following pages. Insummary they are:

Taxable SuppliesThe supplier charges GST on sales theymake and can claim full input tax creditsfor GST paid on purchases.

Taxable supplies made by an entitycould include:▲ Resale of purchased furniture, clothes etc▲ Sale of a commercial building; and▲ Ministry of an individual religious for

which a stipend is paid.

Taxable supplies acquired by an entitycould include:▲ Purchase of computer equipment;▲ Repairs to a motor vehicle used in

ministry; and▲ Services such as telephones, electricity

and gas.

GST-free SuppliesThe supplier does not charge GST on salesthey make and can claim full input taxcredits for GST paid on purchases.

GST-free supplies made by an entity couldinclude:

▲ Sale of donated goods that retain theiroriginal character; and

▲ Providing a religious ceremony.

Input Taxed SuppliesThe supplier does not charge GST on salesthey make and cannot claim input taxcredits for GST paid on purchases made tomake those sales.

Input taxed supplies made by abusiness could include:▲ Renting a house as a residence at full

market rate.

To avoid any confusion later on, makea mental note now that input taxedsupplies are not the same as input taxcredits. Input taxed supplies have justbeen described. Input tax credits arethe credits allowed for GST paid onexpenses incurred to make taxable orGST-free supplies.

Other Supplies(Supplies by Non-Registered Persons)The supplier does not charge GST on salesthey make and cannot claim input taxcredits for GST paid on purchases.

8.1 Taxable SuppliesEntities that are registered for GST mustcharge GST on their taxable supplies, andwill be entitled to input tax credits on theGST they have paid on purchases to makethose supplies.

It is critical that every registered entityunderstands this. Failure to charge GSTwhen it should have will result in aliability for GST of 1/11th of the pricecharged. Failure to track creditableacquisitions will result in an underclaiming of input tax credits. That is realmoney down the drain!

Supplies of goods and services are made byentities to their clients. In broad termssupplies include all forms of supply ofgoods and services.

A taxable supply specifically excludessupplies that are GST-free, and suppliesthat are input taxed. Consequently GST isnot charged on either GST-free supplies orinput taxed supplies. (These terms will beconsidered shortly).

For the supply of goods or services to be ataxable supply, it must be connected withAustralia. This means that, generally,anything done or made in Australia will besubject to GST. If you have transactionsthat relate to exports then the rules aremore complex. You may need to seek advicefrom the ATO or a professional adviser.

To be a taxable supply the supply must involve consideration. In this

8 . S u p p l y Tr a n s a c t i o n s

8. Supply Transactions


8

context it is important to appreciate that abarter transaction, or an exchange ofgoods or services is a taxable supply, if oneor both of the parties to the transaction isGST registered.

Finally it is important to appreciate thesupply of goods or services is only ataxable supply if all of the aboveconditions apply, and the enterprise is, orshould be, registered for GST.

GST at the rate of 10% is added to the valueof taxable supplies (making it 1/11th of thetotal price).

Entities purchasing goods for resale mustmake allowance for GST charged on theacquisitions when establishing the sale price.

ConsiderationFor most entities, the consideration thatthey receive for their goods and serviceswill be the money paid. However, the GSTis intended to be very broad in its coverage,so consideration extends well beyondmoney to include barter transactions.

It is important to remember that where asupply is made for consideration, even ifthat is not for money, the GST must beaccounted for in the usual way.

In broad terms consideration is somethinggiven or received in return for the goodsand services that are purchased or sold byan entity. Barter transactions, for example,do not include money. In the case of bartertransactions, goods may be supplied inreturn for other goods, or for services. Inothers words, in a barter transaction, valueis both given and received. However it isimportant for entities to realize that a GSTliability arising from barter transactions,may be payable in cash to the ATO if notoffset by input tax credits.

Example

A local painter agreed to paint the parishhall in exchange for $550 worth ofadvertising in the parish newsletter. Nocash is exchanged in this transaction.Despite this both the parish and thepainter must issue a tax invoice.

The parish can claim a $50 input taxcredit using the tax invoice issued by thepainter. The painter has a GST liabilityof $50 to the ATO.

The painter can claim a $50 input taxcredit using the tax invoice issued by theparish. The parish has a GST liability of$50 to the ATO.

8.2 GST-free SuppliesGST is not charged, or payable to the ATO,on GST-free supplies. The major categoriesof GST-free supplies are:

▲ Basic food▲ Medical services▲ Other health services▲ Hospital treatment▲ Residential care▲ Community care▲ Private health insurance▲ Education services▲ Child care ▲ Exports▲ Religious services▲ Farm land▲ Supplies through inward duty free shops▲ Supplies of precious metals▲ Sales of going concerns (sale of

businesses)But not all supplies falling into thesecategories will be GST free.

While these general categories of supplymay be GST-free, each has a very specificmeaning. Supplies need to fall into thosevery specific definitions to be GST-free.Remember - if a mistake is made and GSTis not charged on a taxable supply, the GSTliability rests with the entity not the client.



8



8Be sure you carefully check if you makesupplies that fall into these categories. Youmay want to seek advice on the impact ofthe GST-free rules for your particular entityfrom your Diocesan or Congregationalcontact, professional adviser or the ATO.

If an entity makes GST-free supplieshowever, it is still able to claim back GSTinput tax credits on the purchase of anygoods and services acquired to allow it tomake those GST-free supplies.

8.3 Input Taxed SuppliesThe major categories of input taxedsupplies are:

▲ Residential rents where the rent chargedis at market rates. Where the rentcharged is less than the threshold (at thetime of printing, the threshold is 75% ofthe market rent or the cost of theaccommodation), the supply will be aGST-free supply.NOTE that if a supply is GST-free,this overrides the fact that it wouldhave been an input taxed supply;and

▲ Financial services.Most organizations won't make inputtaxed supplies, although some will beproviding residential accommodation.

An entity cannot charge GST on any inputtaxed supplies it makes, and cannot claimback any GST on acquisitions made inrelation to those supplies.

If an entity supplies input taxed supplies inaddition to taxable supplies and/or GST-free supplies, input tax credits must beapportioned. This apportionment isrequired as no input tax credit is availablefor the GST paid on acquisitions used inmaking input taxed supplies. If your entitymakes input taxed supplies and input taxcredits need to be apportioned, seek advisefrom your Diocesan or Congregationalcontact, a professional advisor or the ATO.

ExampleA large religious organisation ownsseveral residential properties which itrents out at market rentals to raisefunds. As the landlord, it is makinginput taxed supplies. Because the landlord is providing aninput taxed supply, it is unable to claimback any GST that may be included inthe costs incurred in relation to thoseproperties. This would include the priceof repairs to the property, rates, orinsurance. This is illustrated below.

Residential rentreceived by organisation $10,000Plus: GST n/aTotal rent received $10,000Less: Landlord’s costs

Repairs (including GST) $1,100Insurance (including GST) $550

Total costs $1,650Surplus $8,350

The $1650 costs include $150 GST(being 1/11th of $1650). The landlordcannot recover the $150 GST as an inputtax credit. This is because the residentialrent is treated as input taxed. The $150is therefore an added cost to theorganisation.Note – the renting of commercialproperty is a taxable supply. Therefore,if the religious organisation owned andrented commercial property they wouldcharge GST on the rent and could claimany GST included in the costs incurredin relation to those properties.

8.4 Other SuppliesSupplies by Non-Registered Persons:▲ No GST on supplies they make; and▲ May not claim input taxed credits.Wages and salaries paid to employees andsuperannuation contributions paid onbehalf of employees are not subject to GST.It is important to determine the status ofsuppliers. The legislation requires thatregistered entities (either ABN only or GST)withhold 48.5% of any amounts greaterthan $50 paid to a supplier who does nothave an ABN.

N o t e s

Notes


9.1 Religious ServicesThe supply of religious services by areligious institution or entity will be GST-free if the services are:Integral to the Practice of the ReligionThis includes:▲ Religious celebrations such as mass,

funerals, marriages and baptisms;▲ Chaplaincy services, religious

conferences and seminars; and▲ Theological training, adult faith

education, after school catechism.

"Religious Service" is not confined to aservice inside a church.

The ATO has also ruled that the followingservices would, generally, be religiousservices and thus GST-free:▲ Home church group activities;▲ Bible study groups;▲ Sunday school;▲ Chaplaincy services;▲ Religious conferences & seminars;▲ Theological training; and▲ Leadership training activities (subject to

them being considered essential to thepractice of the Catholic religion).

Not Considered to be Integral to thePractice of Religion:▲ Car hire and purchase of flowers for a

church wedding;▲ Religious items

– a bible for private devotion;▲ Youth camp

– if mainly social/ recreational; and▲ Friendship clubs.

9.2 CharitiesA charity is an organisation thatundertakes charitable activities. Activitiesare charitable if they benefit the communityor section of the community through:▲ The relief of poverty or sickness or the

needs of the aged;▲ The advancement of education;▲ The advancement of religion; or▲ Other purposes beneficial to the

community.

Religious charities include:▲ Churches;▲ Seminaries;▲ Religious orders;▲ Organisations for maintaining clergy/

religious; and▲ Organisations for spreading religious

doctrine and practice.While most supplies made by charities willbe taxable, certain non-commercialsupplies will be GST-free.

9.2.1 Non-Commercial ActivitiesNon Commercial Activities are GST-free ifthe following conditions are met:▲ All activities provided at no cost;▲ Supplies sold for less than 50% of the

GST inclusive market value of the item orless than 75% of the cost of the supply;

▲ Supplies of accommodation provided forless than 75% of the GST inclusivemarket value of the supply or less than75% of the cost of providing theaccommodation; and

▲ Sales of donated second hand goodsthat retain their original character.

The Treasurer has recently requested the ATOissue a ruling to clarify that newsletters,magazines and journals sold by charities,which are not commercial sales are GST-free.Supplies that do not meet the aboveconditions are generally taxable supplies.

9.2.2 FundraisingGST is generally payable on fundraisingactivities. The GST treatment variesdepending on the nature of the activity andthe registration option chosen by yourorganisation. Registration options, includingsub-entities, will be discussed in Chapter 15.If fundraising activities are undertaken bya sub-entity that is not registered for GSTno GST will be accounted for on sales.However, GST paid on acquisitions willbecome an expense.If the fundraising activities are undertaken by aGST registered entity the general rules willapply. Activities such as fetes, cake stalls andfundraising dinners will entail taxable supplies.If an entity is registered any purchase, suchas items for a raffle, or chocolate for a

9 . C h u r c h Tr a n s a c t i o n s

9. Church Transactions


9

chocolate drive, are creditable acquisitions.Raffles, bingo and other games of chanceconducted by Church entities will be GST-free.

9.2.3 Donations and GiftsGST will not be payable provided that the donation is both voluntary andunconditional. There must be no services,benefits or rights afforded to the donor asany of these might be construed as a‘consideration’ (see Chapter 8.2) and turnthe transaction into a taxable supply.A gift must be given by a donor out ofgenerosity or benefaction. A gift is madevoluntarily with no material benefitprovided to the donor as a result of the gift.Donations given for a specific purpose willnot give rise to a GST liability providedthey are in the nature of a gift.

9.2.4 GrantsIs GST payable on a grant?The answer to this question depends on thenature of the grant. If it is for a specificpurpose then it will be subject to GST. TheATO has issued a specific ruling on this area.The Commonwealth Government hasindicated that it may “gross up” the grants sothat organisations should receive the sameamount after GST effects are eliminated.The grants received from the governmentare treated as being a payment for servicesprovided by your organisation. You are, ineffect, invoicing the government for theseservices and the service is subject to GST.This is so even though you then supply theservices as GST-free supplies to your clients.Conditional grants made to a registeredgrantee will usually be subject to GST. Agrant will be subject to GST if the followingfour tests are satisfied:1) Is the grant consideration for a supply

by the recipient to the grantor?2) Is the supply to which the grant relates

made as part of the recipient’s enterprise?3) Is the supply for which the grant is paid

connected with Australia? and4) Is the recipient of the grant registered, or

required to be registered, for GST?1. Grant as consideration for supply?

The first test can be answered byconsidering whether the grant is

conditional or unconditional. If therecipient undertakes or is required to dosomething in exchange for the funds thegrant is a taxable supply.While a gift to a non-profit body is notconsideration and so not subject to GST,most grants are not gifts. However, insome instances grants can be non-conditional and will be GST-free.

2. EnterpriseThe second test asks whether the supplyby the recipient is made in the course ofthe recipient’s enterprise. All activities ofa religious institution or a charitableinstitution or fund, fall within this test.

3. Connected with AustraliaThe third test requires that the supply isconnected with Australia. Most suppliesfor which grants are consideration aresupplies other than of goods or realproperty, that is, services. The supply ofservices is connected with Australia ifthe service is done in Australia or ismade through an enterprise carried onin Australia. The ATO will issue a rulingon the meaning of “connected withAustralia” in the near future.

4. Is the grantee registered?The last test requires the supplier to beregistered, or required to be registered,for GST.

9.2.5 SponsorshipAmounts paid as sponsorship fees are usuallypayment for services (such as advertising)and will be subject to GST if the sponsoredentity is registered for GST. If the organisationsupplying the service (such as advertising) isregistered or required to be registered for GST,the organisation paying the sponsorship feewill be entitled to an input tax credit of 1/11thof the payment if it is registered. If the entitysupplying the services is registered it will beliable to pay GST on the supply.

Non-monetary SponsorshipIf a sponsor provides goods and services inreturn for other goods and services, suchas advertising or promotion, there is asupply by both parties to each other. This iscalled 'contra sponsorship'. If both partiesare registered for GST, each will be liable topay GST on the supply to each other.

9 . C h u r c h Tr a n s a c t i o n s


9


Parishes/congregations can claim backfrom the ATO the GST that is included inthe price of goods and services they acquirefor the purpose of making taxable suppliesand GST-free supplies. To be able to claimGST input tax credits the organisationmust hold a valid tax invoice in respect ofthe goods or services at the time the inputtax credits are claimed in the BAS.

An organisation, however, cannot claimback GST that is included in the price ofsupplies that it acquires for private ordomestic use.

Purchases Of Goods and ServicesInput Tax Credits claimedInput tax credits are available to entitiesregistered for GST purposes.

The input tax credit is the GST paid on thepurchases of goods and services used bythe entity. For example, a parish wouldclaim input tax credits for the following‘purchases’ it may have made:

▲▲ Parish and Presbytery Outgoings– Cleaning, Repairs and Maintenance,Electricity, Insurance, Gas and rentpaid for premises.

▲▲ Stipend Payments – Stipends paidto Religious Congregations andOrders.

▲▲ Operating Expenses – Telephone,Printing and Stationary, Parishgoods and supplies, Book purchases,Motor Vehicle Expenses, Subscriptionsand Accounting Fees.

▲▲ Capital Expenditure – Equipmentand furniture, Building renovations.

Input Tax credits are available whereGST is charged and a tax invoice issupplied.In order for an entity to claim back theinput tax credit it must ensure that thesupplier (who is registered for GSTpurposes) of the goods or services providesa Tax Invoice.

▲▲ The Tax Invoice must be in the form that complies with the GSTLegislation;

▲▲ The Tax Invoice is the proof as to the GST paid on the goods andservices supplied;

▲▲ The Tax Invoice must be supplied tothe entity within 28 days;

▲▲ The Tax Invoice is used to makepayment to the supplier for thegoods and services provided.

Tax Credits not claimedAn entity cannot claim input tax credits forgoods and services where:

▲▲ No tax invoice is provided.▲▲ Supplies are from a non-registered

GST organisation.▲▲ Goods are consumed for private or

domestic purposes.▲▲ Goods are used in making input

taxed supplies.▲▲ The input tax credits are precluded

by legislation.

1 0 . A c q u i s i t i o n s ( P u r c h a s e s )

10. Acquisitions (Purchases)10

1 1 . S p e c i f i c R e q u i r e m e n t s f o r t h e C h u r c h

11. Specific Requirements for the Church


11

The following example has been tailoredspecifically for a parish. However, theprinciples demonstrated in the examplecan be applied in an analysis for any typeof activity within the Catholic Church.

11.1 Working out the GSTParishes will be required to allocate extrastaff to properly account for the GST andmaintain proper accounting records.

In order to work out the GST the parishmust identify all transactions and howGST is applied.

IncomeParish income must be classified into fourtypes of supplies, namely:

▲ Income that is a taxable supply where1/11th of receipts is paid to the ATO.

▲ Income that is GST-free that relate to thesupply of religious services.

▲ Income that is an input tax supplywhere no GST is charged.

▲ Income that is not a supply forconsideration which is mainlydonations.

ExpenditureParish expenditure must be classified intothe following categories to complete theinformation required in the BAS.

▲ Capital expenditure needs to be recordedseparately in the parish accountingrecords (cash book or computeraccounting system) to be reported on theBAS;

▲ The purchase of goods and services whereGST is included in the purchase price;

▲ Expenditure (acquisitions) with no GSTin the purchase price paid;

▲ Expenditure relating to input taxsupplies;

▲ Expenditure that relates to salary &wages is shown separately;

▲ Expenditure that is used for private useor is a not allowable as a tax deduction.

Summary Table of Income (Detailed Transaction Analysis in Chapter 11.5)NATURE OF DETAILS BASINCOME

Donations

Supply of ReligiousServices

Raffles & Bingos

Non CommercialSales

Taxable Supplies

Input Tax Supplies

Planned Giving Envelopes,Loose Collection,Shrines/Candles, Bequests,Diocesan Subsidies, Surplus fromNon-Profit Sub Entities

Income Received for ReligiousCeremonies (Wedding, FuneralBaptisms etc)

If does not contravene StateGambling Laws

Donated Second Hand GoodsGoods sold less that 75% of costor 50% of market value.Sale of internal newsletters andmagazines

Rent received fromSchool/Business.Commission Received.Book & goods sold.Advertising in newsletter.Sponsorship, Government Grants,Sale of Assets

Rent Received from Individuals,Interest from Bank Accounts

Not a supply for consideration notincluded in BAS

GST-free

GST-free

GST-free

Taxable supply where 1/11th ofreceipts is paid to the ATO.

Input taxed

NNoottee:: TThhaatt iitt iiss aassssuummeedd iinn tthhee aabboovvee IInnccoommee AAnnaallyyssiiss tthhaatt aallll ffuunndd rraaiissiinngg aaccttiivviittiieess ooff tthhee ppaarriisshh aarreeccoonndduucctteedd bbyy tthhee eessttaabblliisshhmmeenntt ooff NNoonn--PPrrooffiitt SSuubb EEnnttiittiieess wwhheerree tthhee iinnccoommee rraaiisseedd iiss nnoott ssuubbjjeecctt ttoo tthheeGGSSTT aanndd tthhee nneett ssuurrpplluuss aafftteerr eexxppeennsseess iiss ddoonnaatteedd ttoo tthhee ppaarriisshh..



11

11.2 Identification of the GSTImplications of AllTransactions

All parish transactions must be identifiedfor GST purposes to be recorded properly inthe accounting records. This is necessaryto ensure the GST payable and receivablefrom the ATO is correct under the GSTLegislation and for the informationrequired in the BAS.

The transaction analysis in Chapter 11.5outlines income and expenditure that isincurred by a parish for GST purposes.

11.3 Record KeepingParishes should keep accurate records forthe following:

Income - Taxable Supply (a) Where there is a liability for GST ensurethat sale receipts are marked with GSTcomponent of the total sales amount andentered into the accounting records on adaily basis;

(b) Where there is a requirement to issue atax invoice for a taxable supply to aregistered entity for GST purposes ensurethat the invoice complies with the GSTLegislation;

(c) The accounting system (computer basedor manual cashbooks) should separatelyrecord each transaction where GST ispayable to the ATO.

Expenditure – Input Tax Credits(a) Where GST is paid on the purchase ofgoods and services ensure that a propertax invoice is received from the supplierbefore payment is made. Check that theGST component is correct on the taxinvoice where possible;

NATURE OF DETAILS BAS STATEMENTEXPENDITURE

CapitalExpenditure

Taxable Supplies

Input Tax Supplies

Private Use /NonTax Deductible

Non TaxableSupplies

Donations

Salary & Wages

Equipment Purchases >$300,Renovations to Building

All Operating Expenses (Property& Operating costs) where GST isincluded in the purchase price

Bank Charges, Interest paid andexpenditure relating to Residential Housingwhere the rent is charged at market rates

Entertainment Expenses, Food

Rates & Taxes, Payments topersons not registered for GST

Payments to Building Funds,Contribution to Bishop’s Fund

Paid to Lay Staff

Capital Acquisition

Creditable Acquisition

Acquisitions for Input Tax Sales

Private Use of Acquisitions

Acquisitions with no GST in price

Not a Supply for considerationNot included in BAS

Salary & Payments

Summary Table of Expenditure (Detailed Transaction Analysis in Chapter 11.5)



11(b) Before an order is made for goods andservices check with the supplier on hisstatus for GST purposes;

(c) The accounting system (computer basedor manual cashbooks) should separatelyrecord each transaction where GST isrefundable from the ATO.

Record all InflowsAs parishes operate on a cash basis for therecording of all receipts ensure thatbankings are made promptly andreconciled to the bank statement andsupporting records, (eg sale receipts).

File Tax Invoices receivedParishes should be aware that theiraccounting records and supportingdocumentation will be subject to ATOaudits for compliance with GSTLegislation. Tax invoices in particularrequire proper filing for inspection as theyare the proof for the GST paid andsubsequently claimed as input tax creditsin the BAS. Filing is normally done in acash payments system in cheque numberorder.

Keep all Bank StatementsParishes should keep all bank statementsand agree banking details (receipts andcheques presented) to supporting records.

Record Debtors and Creditors.Where parishes use an accrual basis ofaccounting, tax invoices for debtors shouldbe issued in the correct accounting taxperiod.

Similarly for creditors, the recording ofliability for payment should occur when atax invoice is received from the supplier.This is the tax period when the GST can beclaimed.

Keep Records Up-to DateIt is important that the accounting systemfor parishes is kept up-to date on a regularbasis:

(a) For receipts, the money is banked dailyand recorded in the accounting system ona daily basis;

(b) For payments, cheques are drawn whenpayments are due to the supplier andrecorded in the accounting system on adaily basis; and

(c) Bank reconciliation of the cash bookbalance with external bank statement isperformed on a regular basis. As aminimum it should be performed on amonthly basis.

Ensure GST information and recordsare accurate and readily availablewhen required

Parishes are required to keep the followingaccounting records for five years:

(a) Receipts, including records of supplies,tax invoices issued, cash register (till) Z-totals, deposit books and bank statements;

(b) Payments, including purchases andexpenses documentation, tax invoicesfrom suppliers, cash payments records,petty cash records, cheque butts and a logbook for car expenses;

(c) Tax Adjustment Notes where used;

(d) Payroll records including employmentdeclarations, PAYE employer’s paymentbooks and superannuation records;

(e) Cash Payments & Receipts Books eithermanual or computer based; and

(f) BAS and supporting audit records tosupport GST calculations.

11.4 System Checks.(a) The accounting system (computerbased or manual cash books) shouldrecord the GST payable to the ATOseparately so that this amount at the endof the quarter or month agrees with theBAS.

(b) The accounting system (computerbased or manual cashbooks) should recordthe GST receivable to the ATO separately sothat this amount at the end of the quarteror month agrees with the BAS.



11

Types of Activity-GST Impact

BAS Expenditure TaxableInput Taxed

Not GST Related

Documentation and Status of Transaction Notes

DONATIONS No Donations by Parish General Donations Donation No Invoice Not shown on BAS School Building Fund Donation No Invoice Not shown on BAS

OTHER OPERATING COSTS

Yes Communications Telephone /Fax Yes Tax Invoice from Supplier Record in cash book "GST Receivable"

Post Yes Post office will absorb GST 1/11th of cost of supply and serviceFreight/Courier Yes Tax Invoice from SupplierInternet/E-Mail Yes Tax Invoice from Supplier

Yes Printing & Stationary Stationary Supplies Yes Tax Invoice from Supplier Record in cash book "GST Receivable"

Printing Costs Yes Tax Invoice from Supplier 1/11th of cost of supply and serviceBooks & Articles (for sale & use) Yes Tax Invoice from Supplier

Yes Religious Workshop & Supplies Yes Tax Invoice from Supplier Record in cash book "GST Receivable"

Inc Leadership Books 1/11th of cost of supply and service

No Diocesan Contribution Tax for Diocesan Services Yes No Consideration Contributions are made for generalCo- Responsibility Yes No Consideration purposes for use by the Diocese or

Contribution to Priest Fund Yes No Consideration Priest Fund - Not shown on BASSpecific Contribution to Priest Fund Yes Tax Invoice from Supplier Record in cash book "GST Receivable"

Yes Planned Giving Expenses 1/11th of cost of supply and serviceProgram & Stationary Costs Yes Tax Invoice from Supplier Record in cash book "GST Receivable"

1/11th of cost of supply and serviceInsurance Premium

Yes Motor Vehicle Insurance Yes Tax Invoice required, must inform CCI Record in cash book "GST Receivable"Yes Contents - Insurance Yes the extent to which input tax credits are 1/11th of cost of supply and service

claimed for GST when policy is renewed.Yes MV Third Party Property Insurance (State) Yes Cannot claim until 01/01/2003 Cost to parish



Not GST Related


SALARIES COSTSYes Salaries Yes No Invoice Shown separately on BASYes Salaries on costs (LSL, AL) Yes No Invoice Shown separately on BASYes Workers Compensation Yes Tax Invoice from CCI Record in cash book "GST Receivable"Yes Stipend Payments (Religious/Order). Yes Tax Invoice from Religious Congregation 1/11th of cost of supply

PREMISES AND EQUIPMENT COSTS

Property Outgoings - Parish & PresbyteryYes Repairs & Maintenance Yes Tax Invoice from Supplier Record in cash book "GST Receivable"Yes Cleaning Yes Tax Invoice from Supplier 1/11th of cost of supply and serviceYes Electricity Yes Tax Invoice from SupplierYes Rates & Taxes & Levy Yes Shown as Acquisitions with no GST in price

on the BASProperty Outgoings - Commercial Premises

Yes Repairs & Maintenance Yes Tax Invoice from Supplier Record in cash book "GST Receivable"1/11th of cost of supply and service

Property Outgoings - Residential Premises(the rent charged is at market rates)

Yes Repairs & Maintenance Yes GST is not claimed back from ATO Shown as Acquistions for making GSTYes Electricity Yes Record as cost to Parish Input tax supplies on the BAS

Insurance premium Yes

Property Outgoings - Residential Premises(the rent charged is at less than 75% of themarket rent or less than 75% of the cost ofproviding the accommodation)

Yes Repairs & Maintenance Yes Tax Invoice from Supplies Record in cash book "GST Receivable"Yes Electricity Yes Tax Invoice from Supplies 1/11th of cost of supply and service

Insurance Yes Tax Invoice from CCI

Yes Property Outgoings - Presbytery House Yes Tax Invoice from Supplier Record in cash book "GST Receivable"1/11th of cost of supply and service

Yes Rent paid for premises (non residential) Yes Tax Invoice from Supplier Record in cash book "GST Receivable"1/11th of cost of supply used by Parish

Equipment Purchases - by Parish > $300Yes Furniture & Fittings Yes Tax Invoice from Supplier Record in cash book "GST Receivable"Yes Office & Computer Equipment Yes 1/11th of cost of supply used by Parish

Yes Equipment Purchases - by Parish<$300 Yes Tax Invoice from Supplier Record in cash book "GST Receivable"1/11th of cost of supply used by Parish

Insurance PremiumYes Premises - Parish, Presbytery, Yes Tax Invoice from CCI Record in cash book "GST Receivable"

Commercial Record as cost to Parish

11.5 Transaction Analysis

Parish Expenditure

Parish Expenditure



11


BAS Capital Expenditure TaxableInput Taxed GST Free


Yes Motor Vehicle Purchased Yes Tax Invoice from Supplier GST not claimed until 2001 50%,2002 100% of GST

Yes Major Renovations to Building Yes Tax Invoice from Supplier Record in cash book "GST Receivable"1/11th of cost of supply and service

No Loan Repayments - Principal Yes Not Subject to GST

Yes Property Purchases Yes Tax Invoice from Supplier Record in cash book "GST Receivable"(other than not new residential)) 1/11th of cost of supply and service

Please note that in the BAS Capital purchases of assets are shown as Captial acquisitions



Not GST Related


OTHER OPERATING COSTSYes Functions/Fund Raising by Parish

Hire of hall Yes Tax Invoice from Supplier Record in cash book "GST Receivable" Food Supplies (Not Fresh Food) Yes Tax Invoice from Supplier 1/11th of cost of supply and service

Yes Advertising paid in Catholic Newspapers Yes Tax Invoice from Supplier Record in cash book "GST Receivable" 1/11th of cost of supply and service

Yes Bank Charges Yes None Shown as Acquisitions with no GST in priceon the BAS

Yes Interest Expenses on Loans & Cheque A/cs Yes None Shown as Acquisitions with no GST in price on the BAS

Yes Travelling Expenses Petrol, Registration of MV Yes Tax Invoice from Supplier Record in cash book "GST Receivable"

Air Travel & Accommodation Yes Tax Invoice from Supplier 1/11th of cost of supply and service

Yes Equipment Maintenance Photocopy Charges Yes Tax Invoice from Supplier Record in cash book "GST Receivable" Motor Vehicle Repairs Yes Tax Invoice from Supplier 1/11th of cost of supply and service

Yes Subscriptions Yes Tax Invoice from Supplier Record in cash book "GST Receivable"

1/11th of cost of supply and service

Yes Lease Payments for Equipment Yes Tax Invoice from Supplier Record in cash book "GST Receivable" 1/11th of cost of supply and service

Yes Parish Sundry Goods Yes Tax Invoice from Supplier Record in cash book "GST Receivable"

1/11th of cost of supply and service

Yes Accounting Fees Yes Tax Invoice from Supplier Record in cash book "GST Receivable" 1/11th of cost of supply and service

Yes Entertainment Expenses Yes Entertainment Expenses that are not a Non - income tax deductible acquisitionsdeduction for Income Tax Purposes Cannot clain input tax back from ATO

Private Expenditure Cost to Parish

Parish Expenditure

Parish Expenditure




11 BAS CLASSIFICATION

BAS Income - GST-free Supplies TaxableInput Taxed GST-free


No SECOND COLLECTIONPlanned Giving DONATIONS - not a supply for Not shown in BASEnvelopes - Parish consideration

No SECOND COLLECTION DONATIONS - not a supply for Not shown in BAS

School Building Fund considerationCatholic Charities Fund Receipt includes - Name of Building Fund (DGR)

- DGR NumberNo LOOSE COLLECTION DONATIONS - not a supply for Not shown in BAS

considerationNo SHRINES/CANDLES CHURCH DONATIONS - not a supply for Not shown in BAS

considerationNo DONATIONS - GENERAL/SPECIFIC PURPOSES DONATIONS - not a supply for Not shown in BAS

consideration if in the nature of a giftNo DONATIONS - FROM NON PROFIT SUB ENITIES DONATIONS - not a supply for Not shown in BAS

consideration (See Parish Unit Section).No DIOCESAN COLLECTIONS DONATIONS - not a supply for Not shown in BAS

considerationNo BEQUESTS/LEGACIES DONATIONS - not a supply for Not shown in BAS

considerationYes RELIGIOUS CEREMONIES

Wedding Fee for Church and Priest Yes None The fee charged is for the conductFuneral Fee for Service by Priest Yes Tax Invoice issued to Funeral Co. of the religious service by the priest and doesBaptisms, Communion, Confirmations Yes None not include the supply of goods.

No DIOCESAN SUBSIDY DONATIONS - not a supply for The purpose of the subsidy is for consideration general purposes and is unconditional

Yes RENTAL INCOME - RESIDENTIALRent received from Individuals Yes None No GST is charged on the rent received(the rent is charged at less than 75% of the marketrent or less than 75% of the cost of providing theaccommodation)

Yes RAFFLES AND BINGOS Yes Licence Held to conduct raffle GST-free if is does not contravene State GamingYes PIETY STALL Laws. Otherwise taxable.

Goods donated second hand Yes Where goods retain their original character.Goods Purchased and sold Yes GST-free where sold less than 75% of cost or 50% of market price. Otherwise taxable.

Yes Sale of Newsletters , magazines and journals Yes Not Commerical sales

BAS CLASSIFICATION

BAS Income - Taxable Supplies TaxableInput Taxed GST Free


Yes RENTAL INCOME - COMMERCIALRent Received from Business Yes Tax Invoice must be issued Record in cash books "GST Payable"Rent Received from School Yes Tax Invoice must be issued 1/11th of receipts

Yes COMMISSIONS & FEESCatholic Church Insurance Yes Tax Invoice must be supplied Record in cash books "GST Payable"Other Organisation Yes Tax Invoice must be supplied 1/11th of receipts

Yes * SALE OF BOOKS & ARTICLES Yes 1/11th of receipts GST payable Record in cash books "GST Payable"1/11th of receipts

Yes ADVERTISING IN PARISH BULLETIN Yes Tax Invoice Issued Record in cash books "GST Payable" 1/11th of receipts

Yes FUNDRAISING CONDUCTED BY THE PARISH* Dinner/dance in Parish Hall Yes 1/11th of receipts GST payable NOTE - Raffles and other froms of gambling* Raffles conducted by the parish Yes 1/11th of receipts GST payable will be taxable if it contravenes state law.

Sponsorships Yes 1/11th of receipts GST payable GST = 1/11th of (total collected less cash prizes)* Piety Stall/Auctions (New goods sold) Yes 1/11th of receipts GST payable

Yes GOODS SUPPLIED BY PARISH 1/11th of receipts GST payable Record in cash books "GST Payable"Flowers supplied and charged to service Yes Tax Invoice Issued 1/11th of receiptsCemetry plots sold to parishioners Yes Tax Invoice Issued

Yes CAPITAL RECEIPTS Tax Invoice must be issuedCapital grants Yes 1/11th of receipts GST payable Record in cash books "GST Payable"Sale of Assets (Motor Vehicles) Yes 1/11th of receipts GST payable 1/11th of receiptsSale of Property (Land & Building) - excludes Yes 1/11th of receipts GST payablethe sale of residential property owned by parish Tax Invoice must be issued

* If these activities are carried out by a Non- Profit Sub Entity, then the Income raised is not subject to GST and is donated to the Parish

BAS CLASSIFICATION

BAS Income - Input Taxed Supplies TaxableInput Taxed GST Free


Yes RENTAL INCOME - RESIDENTIALRent Received from Individuals Yes None No GST is charged on rent received (the rent charged is at market rates)

Yes INTERESTFrom Catholic Development Fund Yes None Inculded in BASFrom External Banks Yes None

Yes CANTEEN/TUCKSHOPS Yes None No GST Payable to ATO

Parish Income

Parish Income

Parish Income

Typ

es o

f Act

ivit

y-G

ST I

mpa

ct

Inco

me

NO

N -

PR

OF

IT S

UB

- E

NT

ITIE

ST

axab

leIn

put

Tax

edG

ST F

ree

Doc

umen

tati

on a

nd S

tatu

s of

T

rans

acti

onN

otes

NO

TE:

Whe

re c

erta

in a

ctiv

ities

of a

par

ish

are

inde

pend

ent t

hen

they

can

cho

ose

not t

o fa

ll un

der t

he R

egis

tratio

n of

the

Paris

hfo

r GST

Pur

pose

s and

will

be

rega

rded

as "

NPS

E"(1

) Th

e un

it tu

rnov

er is

less

than

$10

0,00

0.(2

) Th

e un

it op

erat

es u

nder

a se

para

te c

omm

ittee

from

the

paris

h an

d is

refe

rred

to a

s a se

para

te e

ntity

(3)

The

uni

t mai

ntai

ns in

depe

nden

t acc

ount

ing

reco

rds t

o id

entif

y th

e N

PSE

trans

actio

ns.

ASS

UM

E T

HA

T N

ON

-PR

OF

IT S

UB

-EN

TIT

IES

AR

E N

OT

RE

GIS

TE

RE

D F

OR

GST

PU

RP

OSE

S

PIET

Y S

TALL

Goo

ds S

old

at T

radi

ng T

able

sX

Surp

lus f

rom

Tra

ding

can

be

dona

ted

to th

e pa

rish

GST

-free

FUN

DR

AIS

ING

/DIN

NER

SD

inne

r /da

nce

func

tions

XN

o G

ST c

an b

e cl

aim

ed b

ack

Surp

lus f

rom

Tra

ding

can

be

on g

oods

& se

rvic

es su

pplie

d at

dona

ted

to th

e pa

rish

GST

-free

Soci

al F

unct

ions

th

ese

func

tions

GO

OD

S SO

LD B

Y T

HE

PAR

ISH

(Now

a N

PSE)

.R

elig

ious

Goo

ds so

ld (N

ew)

XN

o G

ST c

an b

e cl

aim

ed b

ack

onSu

rplu

s fro

m sa

les d

onat

ed to

good

s pur

chas

edPa

rish

REG

ISTR

ATI

ON

REQ

UIR

EMEN

TS:

The

paris

h (th

e el

igib

le e

ntity

) sho

uld

form

alis

e th

ecre

atio

n of

NPS

E by

form

al le

tter o

utlin

ing

the

activ

ities

that

will

cons

titut

e th

e N

PSE.

Whe

re th

e N

PSE

has a

turn

over

less

than

$10

0,00

0 it

will

not

be

requ

ired

to re

gist

er fo

r GST

pur

pose

s thu

s,th

e re

venu

e ra

ised

will

not

be

a ta

xabl

e su

pply

for G

ST p

urpo

ses a

nd G

ST o

n in

puts

will

not

be

allo

wed

.

The

NPS

E sh

ould

kee

p in

depe

nden

t acc

ount

ing

reco

rds f

rom

the

Paris

h (th

e co

re e

ntity

).



11N

on-P

rofi

t Su

b-En

titi

es


A key part of the New Tax System is abroad-based Goods and Services Tax (GST)applying to most goods and services. Aspart of the broad base of the tax, religiousorganisations will become part of the taxsystem (some for the first time), but manyactivities will be GST-free.

The current entity-based exemption systemfrom wholesale sales tax for charitable and religious organisations cannot betransferred to the activity-based GST. (For wholesale sales tax, many religiousentities were exempt. Under the GSTsystem, there are no exempt entities.Transactions of entities may or may not beGST-free according to their nature.)According to the Tax Office, the availabilityof input tax credits for GST paid on goodsand services purchased by religiousorganisations will maintain an effectivetax-free status for the sector.

To participate in The New Tax System entitiesneed to register by the 31st May 2000.

12.1 Registration for an ABNMost entities within the Church will benefitfrom registering for an ABN. The reasonsfor obtaining an ABN are discussed inChapter 13 of this manual.

You can register for the New Tax System by filling out an application form andsending it to the ATO. Some Church groupswill have received a pre-printedregistration form from the ATO. If not, or ifyou require more forms, you can obtain aregistration package by phoning thebusiness Tax Reform Infoline on 13 24 78or by collecting one at a Post Office, ornewsagent, or bank.

As an alternative, the ATO has madeavailable an Excel spreadsheet for Catholicbodies such as religious congregations andparishes/dioceses who may wish to registermultiple entities. This will assist lodgmentfor Church bodies seeking registration forthemselves and for a number of their otherunits.

Other ways to register are:

▲ Electronically through the BusinessEntry Point at www.business.gov.au; or

▲ Your tax agent can also lodge yourapplication through the ElectronicLodgment System.

Further details are provided in Chapter 13.

12.2 Registration for GSTNon-profit organisations includingreligious organisations must register forGST if they have an annual turnover of$100,000 or more. Donations and interestare not included in the calculation ofturnover for registration purposes.Organisations with a turnover of less than$100,000 may choose whether or not toregister for GST.

The operation of the GST is explained inChapters 4 and 6 of this manual. For thoseentities which may choose whether or notto register for GST (that is, entities with aturnover of less than $100,000), furtherinformation is provided in Chapter 14.

Some options about the form ofregistration are discussed in Chapter 15.

1 2 . R e g i s t r a t i o n & E n d o r s e m e n t

12. Registration & Endorsement


12

12.3 Endorsement as an IncomeTax Exempt Charity (ITEC)

An Income Tax Exempt Charity is a charitythat has been endorsed by the ATO asexempt from income tax. Most churchentities are charities (see Chapter 9.2).

Charities are not automatically exemptfrom income tax. From 1 July 2000 thereis a new system of endorsement whichmeans charities must apply to the ATO forexemption. If the ATO gives you noticethat you are endorsed as exempt fromincome tax, you do not need to lodgeincome tax returns unless specificallyrequested to do so.

To be endorsed as an Income Tax ExemptCharity (ITEC) you must:

▲ Have an Australian Business Number(ABN);

▲ Be entitled to endorsement;▲ Apply to the ATO for endorsement.

The requirements for endorsement aredifferent for charitable institutions andcharitable funds. Some charitable fundsthat were not established in Australiacannot be endorsed. They are:

▲ Charitable funds established by a willfrom 1 July 1997; and

▲ Charitable funds established by aninstrument of trust.

All other charities must be endorsed to beexempt from income tax. They are:

▲ Charitable institutions;▲ Charitable funds established by a will

before 1 July 1997;▲ Charitable funds established in Australia

by a will on or after 1 July 1997; and▲ Charitable funds established in Australia

by an instrument of trust.The requirement for endorsement applieseven if the institution or fund also falls insome other category of income tax exemptentity. Other categories include religiousinstitutions, scientific institutions andpublic educational institutions.

To be endorsed, entities must first registerfor The New Tax System and receive anABN. On the ABN registration form answer‘Yes’ to questions 9, 10 and 12. The ATOwill then send to you the relevantapplication form.

The ATO is also to make available an Excelspreadsheet to facilitate bulk endorsementof multiple ITEC entities. Parishes shouldconsult their Diocesan, or CongregationalBusiness Managers for details. Congregationsmay wish to consult with ACLRI.

Refer to Chapter 16 for further detailsregarding ITEC endorsement.

12.4 Endorsement as a DeductibleGift Recipient (DGR)

A Deductible Gift Recipient (DGR) is anentity that is entitled to receive income taxdeductible gifts. All DGRs have to obtainendorsement, unless they are namedspecifically in the income tax law.

To be endorsed, entities must first registerfor The New Tax System and receive anABN. On the ABN registration form answer‘Yes’ to questions 9 to 12. The ATO willthen send to you the relevant applicationform. Separate applications will berequired for each status (DGR and ITEC).

Chapter 17 provides more explanationabout what is entailed in obtainingendorsement for Gift Deductibility.

Registration Deadline You must register by 31 May 2000 to bepart of The New Tax System when itcommences on 1 July 2000.

1 2 . R e g i s t r a t i o n & E n d o r s e m e n t


12

Single identifier for all entitiesWhen you register you will receive anAustralian Business Number (ABN). Thisis a new identifier which you will use foryour dealings with the ATO and for future dealings with other governmentdepartments and agencies at all levels.

Why Should we Register for TheNew Tax System?If you register for The New Tax System andreceive an ABN:

▲ You will be able to apply to the ATO forendorsement as a Deductible GiftRecipient and/or as an Income TaxExempt Charity;

▲ You will be able to register for GST andtherefore able to claim input tax creditsfor GST paid on goods and serviceswhich you acquire;

▲ You will be able to register as a groupemployer (if you have employees); and

▲ You will receive full payment from otherregistered entities. (Organisations andindividuals who have registered for GSTwill be required to withhold 48.5 centsin every dollar from payments whichthey make to you for goods and servicesyou supply to them, if you are notregistered.)

Who is Entitled to Register for anABN?To be entitled to an ABN you must be:

▲ A company registered under theCorporations Law;

▲ A government department or agency;▲ An entity carrying on an enterprise in

Australia; or▲ A non-profit sub-entity.An entity for ABN purposes means anindividual, a body corporate, a corporationsole, a body politic, a partnership, anunincorporated association or body ofpersons, a trust or a superannuation fund.

Branches of charities and other not-for-profit organisations may choose to registeras a non-profit sub-entity, as explained inChapter 15. This flexibility may beparticularly useful to many Churchentities.

You can register for an ABN, GST, FBT,PAYG and other elements of The New TaxSystem at the same time.

Your Church entity should register for atleast one ABN regardless of the number ofenterprises that you undertake. However,if your enterprises are carried on by anumber of different entity types, eachentity must register in its own right.

If your organisation is a subsidiary of agoverning body, it is advisable that youdiscuss ABN registration with yourgoverning body.

How to RegisterBy filling out an application form.There are two versions of the applicationform. The generic version (available fromthe ATO, post offices and newsagents) has49 questions and has no pre-determinedanswers. The pre-printed version isprovided by the ATO to organisations withwhich it has had previous dealings or onrequest from an organisation. It has 41questions with answers to some of thesepre-completed for verification by the user.Both versions include a compulsoryAttachment A.

To assist Church entities to correctly andconsistently complete the application form,the guide “Sample Answers to the ABNRegistration Form” has been compiled andcan be obtained from your Congregationalor Diocesan Business Manager or ACLRI.

Using the Excel spreadsheet.Contact your Diocesan or CongregationalBusiness Manager or ACLRI.

1 3 . A u s t r a l i a n B u s i n e s s N u m b e r ( A B N ) R e g i s t r a t i o n

13. Australian Business Number (ABN) Registration


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1 3 . A u s t r a l i a n B u s i n e s s N u m b e r ( A B N ) R e g i s t r a t i o n


13Electronically at www.business.gov.auRegistrations can be lodged electronicallyby going to the above web-site and fillingin the electronic form. The “SampleAnswers” guide can still be used to register in this format, however some ofthe concessions available to Catholicorganisations will not be accepted by theelectronic form, especially at question 18(contact person) and in Attachment A.

Lodgment by Tax AgentIf you have a tax agent then your agentcan lodge your registration form throughthe Electronic Lodgment System. Howeversome of the concessions available toCatholic organisations may again not be accepted.

14.1 Based on TurnoverThe registration turnover threshold is$100,000 (for church and charitableorganisations).

This means that if your turnover(excluding donations and interest) isgreater than $100,000 per annum youmust register for GST.

If your turnover is less than $100,000 youcan choose to register. You might do this if:

▲ You believe that your turnover mayreach $100,000 within the next twelvemonths; or

▲ You wish to claim input tax credits (arefund) for GST which you have paid ongoods and services which you haveacquired; and

▲ The cost of complying with GSTreporting requirements does not exceedthe amount of input tax credits whichyou expect you will be able to claim.

What is turnover?Whether or not you prepare annualaccounts, you could regard your turnoveras being the total amount of incomereceived during the year. However someamounts are specifically excluded fromturnover.

Turnover includes:▲ All taxable supplies▲ All GST-free supplies

Turnover excludes:▲ General donations (no supply)▲ Pensions▲ Patrimony▲ Sale or transfer of capital assets▲ Input taxed supplies – investment

receipts, repayment of borrowings.

Registration Turnover ThresholdTo determine whether the RegistrationTurnover Threshold has been met, regardmust be had to both the current annualturnover and the projected annualturnover:

▲ Current annual turnover = Currentmonth + previous 11 months

▲ Projected annual turnovers = currentmonth and next 11 months

If the Registration Turnover Thresholdis reached, the entity must register within21 days.

Entities with an ABN but not registered forGST should have regard to their GST status whenever contemplating a largetransaction (for example, a governmentgrant). Such a transaction when it occurscan cause the entity to exceed theregistration turnover threshold.

14.2 Why Register for GST?The main advantage of registering for GSTis that you will be able to claim a refund(input tax credits) of GST paid on goodsand services which you buy. The maindisadvantage is the risks in not complyingwith the new laws and therefore the cost ofcompliance.

Each Church body which is under theregistration turnover threshold ($100,000)may wish to consider the types andvolumes of acquisitions (purchases) ofgoods and services which it makes and tryto estimate the financial impact of notbeing able to claim back amounts of GSTpaid out. Entities may be able to utilise theflexible registration provisions discussedin Chapter 15 to register some of theirenterprises but not others.

If doubt exists as to whether or not toregister for GST it is advisable to obtainprofessional advice.

1 4 . G S T R e g i s t r a t i o n

14. GST Registration


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14.3 Registration Implications

14.3.1 Charge GSTEntities including church entities that areregistered for GST will generally charge10% GST when they supply any goods,services or anything else as part of theirenterprise, unless the supply qualifies as aGST-free or input taxed supply. Thedefinition of a supply is wide ranging (seeChapter 5). A supply of services includesfor example the ministry of an individualreligious in consideration of which astipend is paid.

Entities, which charge GST, are required toremit the GST collected to the ATO (butoffset by input tax credits as describedbelow).

14.3.2 Claim input tax credits You will also pay GST on the things youacquire for your enterprise. Registeredentities can claim a refund of the GST theyhave paid. This is called an input taxcredit. Input tax credits can only beclaimed where the acquisition (purchase)was of a taxable supply for a creditablepurpose. The amount of GST included in aprice paid can be determined by dividingthe price by eleven.

14.3.3 Reporting to the ATOThe difference between the GST you havecollected and the GST you have beencharged is the amount you owe to or areowed by the ATO. You pay this amount orclaim a refund when you submit a BAS(see Chapter 20).

If you are registered for GST you mustsubmit a BAS within 21 days of the end ofeach tax period (see Chapter 20). You mustkeep records supporting your BAS for fiveyears.

There are penalties for not complying withthe provisions of the GST legislation so registered entities will be wise to adopt a compliance and risk managementprogram.

14.3.4 Cash Flow ImplicationsWhether registering for the GST will createa positive or negative cash flow effect will

depend on whether the entity is a netremitter of GST to the ATO or a netclaimant of input tax credits.

Whatever the case, the introduction of theGST is likely to distort your current patternof cash flows. Church entities may wish toexamine the cash flow effect of the GSTand plan accordingly.

14.3.5 Other ImplicationsEntities who register for GST will have toprepare for the GST. The specificpreparation requirements are detailed inChapter 11.

14.4 Non-RegistrationImplications

14.4.1 Cannot claim input tax creditsChurch entities which are not required tobe registered (that is, have a turnover ofless than $100,000) and which thenchoose not to register will be unable toclaim input tax credits for GST which theypay on their acquisitions of goods andservices.

As GST will apply to most purchases thatan entity makes including for example,motor vehicles, building maintenance andgeneral insurance, the amounts of GSTpaid by an entity can quickly become large.

Entities considering not registering for GSTshould carefully consider the potentialeconomic impact of the decision.

14.4.2 Cannot claim a credit forWholesale Sales Tax

The Wholesale Sales Tax system ends on30 June 2000. Entities, which on that datehold trading stock upon which they havepaid wholesale sales tax, are entitled toclaim a refund of the wholesale sales taxpreviously paid. This provision may be ofinterest to church entities that conductretail activities such as bookshops or gift shops.

14.4.3 Reporting to the ATOEntities that do not register for GST mayhave other tax obligations andentitlements such as FBT and PAYGwithholding for group tax deducted from



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employees wages or withholdings fromamounts paid to unregistered suppliers.These amounts are reported to the ATOeach reporting period on an InstalmentActivity Statement (IAS).

The reporting period depends on theamount of PAYG tax instalments payable:

▲ Quarterly for annual amounts to$25,000;

▲ Monthly for annual amounts between$25,001 and $l million; and

▲ Weekly for annual amounts greater than$1 million.

The IAS is required to be lodged with theATO on the 21st day of the monthfollowing the end of the reporting period.

The main advantage of not registering forthe GST is the reduction or elimination ofthe costs of compliance. This advantagewill frequently be outweighed by theeconomic disadvantage discussed in14.4.1 and 14.4.2.

14.4.4 Constant Monitoringof Turnover

If an entity is required to be registered(turnover exceeds the $100,000 threshold)but is not registered it can suffer materialloss (see Chapter 14). Entities notregistered for GST must monitor theircurrent and projected turnovers andregister within 21 days of becomingrequired to be registered.

14.5 Registering for GST?You register or not register for GST whenyou complete your application form for anABN.

On the “Application to Register for the NewTax System – Companies and OtherOrganisations” form GST registration isdealt with at questions 37 and 38 if youare using the generic form or questions 30and 31 if you are using the pre-printedform (refer to Chapter 13).

Failure to Register for GST whenRequiredIf an entity which is required to register forGST (because its turnover exceeds$100,000 per annum) fails to register then:

▲ It may be subject to penalties;▲ It will be ineligible to claim input tax

credits on its creditable acquisitions;▲ It will be liable to the ATO for one

eleventh of its receipts in respect oftaxable supplies it has made; and

▲ It may have problems recovering thisGST liability from its clients.

Therefore, it is important that an entitymonitors its turnover on a monthly basisto ensure GST registration is obtainedwithin 21 days of turnover exceeding thethreshold.

14.6 Cancelling your GSTRegistration

You must apply to cancel your GSTregistration with the ATO within 21 days ofceasing to carry on an enterprise. If youhave more than one enterprise, you onlyhave to cancel your registration if youcease to carry on all your enterprises. Youcan also apply to cancel your GSTregistration if your annual turnover dropsbelow $100,000 (for non-profitorganisations).

If your GST registration is cancelled, theATO will notify you in writing of the dateof effect of your cancellation.

If you don't apply to cancel yourregistration when required, the ATO cancancel your registration and backdate thecancellation. Any supplies andacquisitions you made between the date ofeffect of the cancellation and the date ofthe decision are outside the GST system.This means GST is not payable on suppliesand you cannot claim input tax credits.You may be penalised for failing to apply tocancel your GST registration if you are nolonger carrying on an enterprise.



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Notes


15.1 IndividualEach entity should register to obtain an ABN.

‘Entity’ is defined by the ATO as meaningany of the following:

▲ An individual; ▲ A body-corporate;▲ A corporation sole;▲ A body politic;▲ A partnership;▲ Any other unincorporated association or

body of persons;▲ A trust;▲ A superannuation fund.

15.2 Grouping Grouping is when a number of bodiesdecide that accounting for GST will beundertaken by one of the group rather thaneach accounting separately. To do so eachmember of the group must:

▲ Have an ABN;▲ Be registered for GST;▲ Be members of the same non-profit

association;▲ Have the same accounting period (see

Chapter 20); ▲ Have the same method of accounting

(see Chapter 19); and▲ Not be a member of any other GST group.

Grouping means:▲ One member is responsible for keeping

records and attending to GSTtransactions.

▲ GST does not apply on inter-entitytransactions.

To apply for approval as a GST group eachentity must first obtain an ABN andregister for GST. The entity that willrepresent the group for GST accountingpurposes will then contact the ATO toobtain an application form. Theapplication form is then completed andsubmitted to the ATO who will thenapprove the group of entities as a GSTGroup.

15.3 BranchesBranching is when sections of the entitybecome separate divisions for GSTpurposes. It is permitted where thebranches:

▲ Already, or intend to, carry on anenterprise from the branch;

▲ Maintain an independent system ofaccounting;

▲ Can be separately identified by either▲▲ the nature of the activities; or▲▲ the location; and

▲ The entity (main body) is not a memberof a GST group.

You do not have to register all of yourbranches separately as GST branches. Youcan choose to register one branch, some ornone.

To work out if an entity should register itsbranches, the registration turnoverthreshold applies to the entity as a whole,not to each branch separately.

15.4 Non-profit Sub-Entities(NPSE)

Charities and most not-for-profitorganisations that are income tax exempthave flexible GST registration options.Church entities will need to consider theseoptions prior to registering.

In most cases, it will be wise to obtainprofessional advice in this regard byconsulting with your local accounting orlegal advisors about your registrationoptions.

Charitable institutions (that are registeredfor GST) can separately identify activitiesor units from the core entity for GSTpurposes so that income generated fromthese activities are not subject to GST.These units are known as non-profit sub-entities, (NPSE).

1 5 . Fo r m o f R e g i s t r a t i o n

15. Form of Registration


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The registered entity can elect to treatidentifiable activities as a separate unit forGST purposes known as NPSE. To qualifyfor NPSE the following criteria must be met:

(1) The registered entity is a charitableinstitution (Schools, Parishes andCongregations);

(2) The turnover of the NPSE is below$100,000;

(3) The NPSE maintains an independentsystem of accounting, which allows allof its transactions to be identified; and

(4) The NPSE can be separately identifiableeither through its activities or itslocation, and can be referred to in the“core” entity’s records as a separate unit.

From a practicable point of view thefollowing should be considered:

(1) The NPSE does not obtain an ABNunless its turnover exceeds $100,000for GST purposes. Where this happensyou should consider to break down theNPSE further if you can meet the abovecriteria or bring back the accounting forthe transactions into the “core entity”.

(2) Whilst the legislation does not detailhow to create a NPSE it is recommendedthat the “core entity” being a school orparish for example formalise thecreation of the NPSE by formal letteroutlining the activities that willconstitute the NPSE that is controlled bya separate committee. (Example:fundraising committee, fete committee).Copies of this letter are to be kept by the“core entity” and sub-entity;

(3) There is no limit to the number of NPSEused by a charitable institution;

(4) The transactions relating to the NPSEare not subject to GST. Revenue raisedis free from GST, therefore no input taxcredit can be claimed for the GST paidon the purchase of goods and servicesused in the activities conducted by the NPSE;

(5) The transactions relating to the NPSEmust be identified separately foraccounting purposes with eitherseparate general ledger accounts in acomputer system or columns in acashbook. Separate bank accountsare recommended and should beused. However, if a separate bankaccount is not possible or practical,please ensure that your accountingrecords reflect a clear and visibledistinction between the “core entity”and the sub-entity i.e. they areseparate. The ATO, through theCharities Consultative Committee willbe issuing a ruling on ‘separateaccounting’ in the near future;

(6) If for some reason, it is decided that thesub-entity ceases to exist, it is againrecommended that the “core entity”being a school or parish for exampleformalise this abandonment of theNPSE by formal letter. Copies of thisletter are to be kept on file as a record.

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An Income Tax Exempt Charity (ITEC) is acharity that has been endorsed by the ATOas exempt from income tax.

Charities are not automatically exemptfrom income tax. From 1 July 2000 there isa new system of endorsement which meanscharities must apply to the ATO forexemption. If the ATO gives you notice thatyou are endorsed as exempt from incometax, you do not need to lodge income taxreturns, unless specifically requested to do so.

Why introduce endorsement?The approval process will limit concessionsso that they are only available to endorsedcharities. Only endorsed charities willmaintain funding levels from trustdistributions or be able to be income taxexempt.

Charities will also benefit from increasedcommunity confidence in the charitablesector.

Who can be endorsed?Australian organisations are entitled toendorsement if they are regarded ascharities and satisfy certain specificconditions.

Is endorsement compulsory?From 1 July 2000, endorsement iscompulsory for a charity to become orcontinue to be income tax exempt.

Do currently exempt charities needendorsement?Charities that currently have income tax exempt status need to be endorsedfrom 1 July 2000. Endorsement replaces current self-assessment and confirmationarrangements for income tax exemption.These arrangements cease to operate from1 July 2000.

Do you need an Australian BusinessNumber (ABN)?A charity seeking endorsement must firstobtain an ABN.

You should lodge an application for anABN as soon as possible.

1 6 . I n c o m e Ta x E x e m p t C h a r i t y ( I T E C ) E n d o r s e m e n t

16. Income Tax Exempt Charity (ITEC) Endorsement


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Do you need to register for GST?You do not need to register for GST to applyfor (or obtain) ITEC endorsement

Does endorsement entitle you toreceive tax deductible gifts?ITEC endorsement does not entitle you toreceive tax deductible gifts. There is aseparate endorsement to Deductible GiftRecipients (DGR). For further informationrefer to Chapter 17

How do you apply for endorsement?To apply for endorsement as an ITEC youmust lodge the form “Application forEndorsement as an Income Tax ExemptCharity” with the ATO.

This application is made after you receiveyou ABN. When registering for an ABN,answer Yes to question 10. The ATO willforward the ITEC application form to youwhen they send your ABN.

The Australian Catholic Church TaxWorking Group will provide assistance inthe completion of ITEC endorsementapplications. An Excel Spreadsheet is to bemade available by the ATO for bulklodgement in some circumstances. Contactyour Diocesan or Congregational BusinessManager or ACLRI.

NotificationOnce the ATO has processed yourapplication, it will send you writtenconfirmation that:

▲ You are endorsed as exempt from incometax; or

▲ Endorsement has been refused.If you are endorsed you are exempt fromincome tax from the date the endorsementstarts.

Entitlements & ObligationsBeing endorsed as an income tax exemptcharity (ITEC) gives you important incometax entitlements. An ITEC:

▲ Does not pay income tax; and▲ Does not have to lodge income tax

returns unless specifically requested to doso.

However, there is an important obligation. If an ITEC ceases to be entitled toendorsement, it must tell the ATO in writing.

ATO reviewAs part of its general administration oftaxation laws, the ATO will carry outreviews of ITECs. The reviews will helpestablish if ITECs are in fact entitled toendorsement.

The ATO may request that you provideinformation and documents that arerelevant to your entitlement toendorsement. While you must comply withthis request, you will be given at least 28days to provide the required informationand documents. Failure to comply can leadto endorsement being revoked, and toprosecution.

The ATO “Charity Pack” contains fulldetails about ITEC Endorsement.

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Deductible Gift Recipients (DGRs) areentities to which donors can make incometax deductible gifts.

Under the existing tax system charitieshave been able to self-assess their giftdeductibility or obtain confirmation fromthe ATO. This system will cease on 30 June2000 and a new system of endorsement ofan organisation as a deductible giftrecipient will commence.

From 1 July 2000 DGRs will:

▲ Be listed by name in the income taxlegislation; or

▲ Have received a notice from the ATOstating they have been endorsed asDGRs.

From this date a charity which is notendorsed will lose any current giftdeductibility.

What is endorsement about?Endorsement is the new approval processfor organisations applying to the ATO forDGR status

Why introduce endorsement?The Government wants to ensure that onlythose organisations that the law intendedto have DGR status receive that status.

Who is entitled to endorsement?Organisations are entitled to endorsementif they qualify under one or more of thecategories set out in the gift provisions ofthe income tax law.

Is endorsement compulsory?From 1 July 2000, endorsement will becompulsory for an organisation thatwishes to obtain (or continue to hold) DGRstatus.

Do current DGRs need endorsement?Generally, organisations that have currentDGR status need to be endorsed from 1 July 2000. Endorsement replaces currentDGR confirmation arrangements. Thesearrangements cease to operate from 1 July2000.

Do all DGRs have to apply?No. Organisations specifically mentionedby name in the income tax law do not haveto apply for endorsement.

Do you need an Australian BusinessNumber (ABN)?An organisation seeking endorsement mustfirst obtain an ABN. You should lodge yourapplication for an ABN as soon as possible.

Do you need to register for GST?You do not need to register for GST to applyfor (or to obtain) DGR status.

Does DGR endorsement cover incometax exempt charity status?No. Endorsement as an income taxexempt charity is a separate process.Organisations that consider themselves tobe a charity as well as a DGR shouldindicate this on their ABN application.

What are the pre-requisites forendorsement?▲ The applicant must have an Australian

Business Number (ABN);▲ The applicant must maintain a gift fund;▲ The organisation (or relevant part of the

organisation) must:▲▲ generally be in Australia▲▲ come within a gift category set out

in the income tax law, and ▲▲ satisfy any special conditions in the

tax law.

1 7 . D e d u c t i b l e G i f t R e c i p i e n t ( D G R ) E n d o r s e m e n t

17. Deductible Gift Recipient (DGR) Endorsement


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What is a gift fund?A gift fund is a special fund that theapplicant must maintain to receive all giftsmade for the principle purpose of theapplicant organisation (or for the principalpurpose of the relevant part of theorganisation).

The gifts can only be used for the principal purpose of the applicant (or forthe relevant part of the applicantorganisation).

For further information see the fact sheet“Gift fund requirements for deductible giftrecipients (DGRs)” available from the ATO.

What does in Australia mean?To be in Australia, the applicant (or relevantpart of the applicant’s organisation) must:

▲ Be established in and operating inAustralia; and

▲ Have its beneficiaries and purposes inAustralia.

Overseas aid funds and public funds on theregister of environmental organisationsneed not meet this criteria.

Can sub-entities be endorsed?Certain not-for-profit organisations canchoose to treat separately identifiablesections of their organisations (non-profitsub-entities) as though they are entities forGST purposes. Sub-entities can have theirown ABN.

However, a non-profit sub-entity cannot be endorsed as a DGR in its own right. The parent organisation must apply forendorsement on behalf of the non-profitsub-entity.

Which ABN should be used on theapplication?The organisation making the applicationmust quote its ABN. This applies evenwhere an applicant is seeking endorsementfor a particular fund, authority orinstitution that it operates, and this part ofthe organisation has an ABN that is issuedto it on the basis that it is a non-profit sub-entity.

For example, if a church applies forendorsement of a sub-entity welfareinstitution that it operates, it must use itsown ABN, even if the institution has aseparate ABN for GST purposes.

How do you apply for endorsement?To apply for endorsement as a DGR you must lodge the form “Application for Endorsement as a Deductible GiftRecipient” with the ATO.

This application is made after you receiveyour ABN. When registering for an ABNanswer Yes to question 11. The ATO willforward the DGR application form to youwhen they send your ABN.

Can endorsement be streamlined?Where current DGR status has beenconfirmed by the ATO, the endorsementprocess is streamlined by an organisationquoting its current 900/DGR number on its application. If an organisation doesnot know its 900/DGR number, theorganisation should make a writtenrequest now to the ATO for the number.

In January 2000 ACBC and ACLRIrequested from members details of DGRentities. Those were compiled andsubmitted to the ATO. They are now beingprocessed and 900/DGR numbers shouldbe available to entities shortly.

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18.1 Registering Legal EntitiesRegister as soon as possible to receive anABN and for GST electronically or bycompleting an application form.

18.2 Registering a Non-ProfitSub-Entity

Register as soon as possible after you haveidentified the sub-entities which you wishto register. Register each sub-entity for theGST or not, according to the particularcircumstances of each sub-entity.

If you have numerous entities to register,you may wish to register the principalentity and the sub-entities at the same timeusing the Excel spreadsheet.

Note that it may not be necessary toregister some non-profit sub-entities for anABN (See Chapter 15)

18.3 Applying for ITEC & DGREndorsement

When the ATO sends you the ABN for yourentity they will also provide the requiredapplication forms. Complete and submitthese as soon as possible. Note that thismay be done on an Excel spreadsheet.Contact you Diocesan or CongregationalBusiness Manager.

18.4 Registering a BranchAfter you have received the ABN for the principal entity, contact the ATO torequest the application form for branchregistration.

18.5 Registering a GroupWhen each member of the group hasreceived its ABN, the representativemember contacts the ATO to request theapplication form.

1 8 . R e g i s t r a t i o n S e q u e n c e

18. Registration Sequence


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N o t e s

Notes


19.1 Cash v Accrual AccountingAn entity which has registered for GST will report its tax entitlements and obligations on a new single form called a Business Activity Statement (BAS) (seeChapter 20)

You will claim input tax credits andaccount for GST payable on your BusinessActivity Statement at the end of each taxperiod (see Chapter 20).

There are some rules about how to workout which tax period your GST amountsbelong to, that is, which tax periods theyare attributed to. The rules for attributingGST payable and input tax credits to taxperiods are different, depending onwhether you account for GST on a cashbasis or accrual basis.

To determine what method of accountingyou currently use, look at your invoicingprocedures and when you record paymentsand sales. If you issue or receive an invoicebut do not account for the sale or purchaseuntil the cash is received or paid, you areusing a cash basis. If you account for thesale or purchase at the time you issue orreceive an invoice, you are using anaccrual basis.

Cash Accounting Turnover ThresholdThe cash accounting turnover threshold is$1million. Organisations with an annualturnover exceeding $1million mustaccount for GST on an accrual (non-cash)basis. Organisations with an annualturnover less than $1million may choosewhether to account for GST on a cash or onan accrual basis.

There are some exceptions to this rule,including for charities.

Charities may choose regardless of turnoverAny charitable institution, any trustee of acharitable fund or any gift-deductibleentity may choose to account for GST on acash basis, whether or not its annualturnover exceeds the cash accountingturnover threshold. Most church entitieswill be charitable institutions (seeChapter 9).

Many of these entities currently will beusing cash accounting. They may wish toconsider whether the time of introductionof new concepts and arrangements fortaxation is the best time to learn about theintricacies of accrual accounting. They maywish to account for GST on a cash basisunless:

▲ They are currently using accrualaccounting; and/or

▲ There is a significant cash flow advantagefor the entity in accounting for GST on anon-cash basis and the entity has theadministrative capacity to account inthis way.

Cash flow implicationsIf you are a net remitter of GST to the ATOyou may obtain a cash flow benefit byaccounting on an cash basis.

If you are a net claimant for input taxcredits you may obtain a cash flow benefitby accounting on a accrual basis.

Professional adviceIn most cases the simplest method will beto account for GST on a cash basis.However if you already prepare youraccounts by the accrual method you maywish to continue on this basis.

If contemplating a change of accountingmethod it is recommended that professionaladvice be obtained.

1 9 . A c c o u n t i n g f o r G S T

19. Accounting for GST


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19.2 Cash Basis

Am I currently accounting on a cash basis?Cash accounting recognises income andexpense as receipts and payments, that is,when money is received or paid out.

To determine what method of accountingyou currently use, look at your invoicingprocedures and when you record paymentsand sales. If you issue or receive aninvoice but do not account for the sale orpurchase until the cash is received or paid,you are using a cash basis.

Many church entities will currently beusing cash accounting.

If you use a cash basis of accounting youaccount for the GST payable when youreceive payment for a taxable supply, andclaim input tax credits (refunds of GST youhave paid) when you actually pay foracquisitions. In other words, you cannotclaim an input tax credit until you havepaid for the goods and services, and you donot have to pay the ATO the GST includedin the price of a supply until you receivepayment for that supply.

Liability to remit GSTLiability to remit to the ATO the GST youhave collected arises only when thepayment is received.

Right to claim an input tax creditThe right to claim an input tax credit fromthe ATO arises when a payment is madeand a tax invoice is held.

19.3 Accrual Basis

Am I currently accounting on anaccrual basis?Accrual accounting recognises income as itis earned and expenses as the goods orservices are used. Generally this does notcorrespond with the timing of receipts andpayments.

To determine what method of accountingyou currently use, look at your invoicingprocedures and when you record paymentsand sales. If you account for the sale orpurchase at the time you issue or receivean invoice rather than when you make orreceive payment, you are using an accrual(non cash) basis.

Generally larger entities use accrualaccounting, but this is not always so.

If you do not use a cash basis you willaccount for all GST payable and all inputtax credits in the earlier of:

▲ The tax period in which a tax invoice isissued relating to that supply; or

▲ The tax period in which any of theconsideration is received or made.

Liability to remit GSTLiability to remit to the ATO the GST youhave collected arises at the time of thetransaction (when the invoice is issued),not when the payment is received.

Right to claim an input tax creditThe right to claim an input tax credit fromthe ATO arises when you receive the goodsor services and a tax invoice is held.

1 9 . A c c o u n t i n g f o r G S T


19

20.1 Tax PeriodsAn entity which has registered for GST willreport its tax entitlements and obligationson a new single form called a BusinessActivity Statement (BAS) (see Chapter20.4).

You will claim input tax credits andaccount for GST payable on your BAS atthe end of each tax period. Tax periods aremonthly or quarterly. You will need todecide which tax period you wish to usebefore you register for The New Tax System.

Tax periods are the reporting periods for GSTand can be monthly or quarterly. Quarterlytax periods are periods of three monthsending on 30 September, 31 December, 31March and 30 June. Monthly tax periods endon the last day of each calendar month.

The tax period turnover thresholdMonthly tax periods are compulsory if yourannual turnover is $20 million or more.

If your annual turnover is less than $20million, you generally have quarterly taxperiods. However you may choose to havemonthly tax periods. Church entities maywish to consider this option if the cash flowimplications for the entity are significant.

If you are a net remitter of GST to the ATO(ie. if the GST received on sales andservices is greater than the GST paid onacquisitions) you may benefit by reportingon a quarterly tax period basis.

If you are a net claimant of input taxcredits (ie. If the GST paid on acquisitionsis greater than the GST received on salesand services), you may obtain a cash flowbenefit by reporting on a monthly taxperiod basis.

Professional AdviceIn most cases the simplest method will beto account for GST on a quarterly basis.However if you already prepare youraccounts on a monthly basis you may wishto complete a business activity statementfor each accounting cycle.

If contemplating a change of accountingmethod it is recommended that professionaladvice be obtained.

20.2 Quarterly ReportingGeneral RuleThe general rule is that you have quarterlytax periods unless:

▲ You exceed the tax period turnoverthreshold ($20million per annum); or

▲ You choose to have monthly tax periods.

Period end datesQuarterly tax periods are the three monthperiods in any year ending on thefollowing dates:

▲ 31 March;▲ 30 June;▲ 30 September;▲ 31 December.

Reporting datesThe due date for lodgment of your BAS isthe 21st day of the month following theend of the quarter. In respect of the taxperiods in the previous section, BAS mustbe lodged on or before:

▲ 21 April;▲ 21 July;▲ 21 October;▲ 21 January.

2 0 . R e p o r t i n g t o t h e A u s t r a l i a n Ta x a t i o n O f f i c e ( AT O )

20. Reporting to the Australian Taxation Office (ATO)


20

20.3 Monthly ReportingDetermination of One Month Tax PeriodsThe Taxation Commissioner must determinethat the tax periods that apply to you areeach individual month if:

▲ Your annual turnover exceeds the taxperiod threshold ($20 million perannum); or

▲ You will be carrying on an enterprise inAustralia for less than three months; or

▲ You have a history of failing to complywith tax law obligations; or

▲ Your income year is not the same as thefinancial year (that is, does not end on30 June).

Note: If you are a charity (as most Churchentities will be) and your income yeardoes not end on 30 June, you will not berequired to have monthly tax periods.

Election of One Month Tax PeriodsIf your turnover is less than $20 millionper annum you may still choose to haveone month tax periods.

Your tax periods will be each individualmonth if you so notify the TaxCommissioner on the approved form. Yourelection to have monthly tax periods takeseffect on the day that you specify in thenotice. However the day specified must be1 January, 1 April, 1 July or 1 October.

You can withdraw an election to havemonthly tax periods but not for at least 12 months.

Cash Flow EffectFor discussion of the cash flow effect ofmonthly reporting see Chapter 20.

Period End DatesMonthly tax periods are each calendarmonth ending on the following dates:

▲ 31 January;▲ 28 February;▲ 31 March; ▲ etc.

Reporting DatesThe due date for lodgment of yourBusiness Activity Statement is the 21st dayof the month following the end of themonthly tax period. In respect of the taxperiods in the previous section, BusinessActivity Statements must be lodged on orbefore:

▲ 21 February;▲ 21 March;▲ 21 April;▲ etc.



20

20.4 Business Activity StatementAn entity which has registered for GST willreport its tax entitlements and obligationson a new single form called a BusinessActivity Statement (BAS).You will claim input tax credits andaccount for GST payable on your BAS atthe end of each tax period.The difference between the GST which youcharge on your supplies to others and theGST included in the purchase price of youracquisitions is the amount that you owe toor are owed by the ATO. You pay amountsowing to the ATO when you lodge yourBAS. If your credits are greater than theamount of GST payable, you will beentitled to a refund.

Payments and Refunds of GSTThe amount you have to pay to the ATO isthe difference between:▲ The GST you include in the price of sales

you make; and▲ The input tax credits you are entitled to

for GST included in the price paid onthings used in your organisation;

▲ This amount has to be paid on or beforethe 21st day of the month following theend of your tax period. You pay theamount when you lodge your BAS.

If the amount of input tax credit owed toyou is greater than the GST on your sales,you will receive a refund. The ATO mustpay this amount within 14 days of youlodging your BAS. The ATO will pay you bydirect credit into your bank account.

Pay As You Go (PAYG) WithholdingWhen you lodge your BAS you alsoaccount for amounts of tax which youhave withheld from employees andunregistered persons whom you have paid.

LodgmentYou can lodge your BAS on the pre-printedform supplied by the ATO or you can lodgeit electronically using the internet.

Electronic Lodgment ThresholdIf your annual turnover is greater than $20 million per annum then you mustlodge electronically.

Professional AdviceIn most cases the simplest method willbe to account for GST on a quarterlybasis. However if you already prepareyour accounts on a monthly basis youmay wish to complete a BAS for eachaccounting cycle.

If contemplating a change of accountingmethod it is recommended thatprofessional advice be obtained.

A copy of a DRAFT BAS follows:



20



20



20

N o t e s

Notes


Appropriate systems are the key tomanaging the GST.

The systems that are in place in CatholicChurch organisations range fromsophisticated computer systems to basichand written records. Depending on thesize and nature of the organisation, somesystems will produce only basic accountingdata, whereas others will producecomprehensive management reports.

The introduction of GST provides anopportunity for all Catholic Churchorganisations to review their currentsystems. This review should not just focuson accounting for GST; it should alsoconsider how the information that isrequired for GST compliance purposes canbe captured and used to assist in theeffective management of the organisation.

A structured reporting system reducesroom for error and enables the users tohave a greater level of confidence in theaccuracy and usefulness of the information.

Accounting for GST will be a relativelysimple matter if time is taken before itsintroduction to develop and install theappropriate systems.

The purpose of this material is to providesome guidance in this area.

21.1 What is a System?A system is a series of processes whichprovide timely, relevant and accurateinformation that enable your organisationto make informed decisions.

For a system to be effective, the proceduresshould be documented and performedconsistently throughout an organisation.For example:

Systems for wages

▲ Employees are paid correctly for thehours they work;

▲ Pay rates are monitored to ensure thatthey are in line with market rates andlegislated levels;

▲ Tax deductions and FBT are paid on timeunder the new PAYG system; and

▲ Leave entitlements are correctly calculatedand recorded.

Regardless of what the system is used for,the following features should always beevident:

▲ The system needs to have a definedpurpose;

▲ The system must be managed in amethodical way;

▲ The processes need to be completed in atimely manner; and

▲ The system needs to have checks andbalances in place.

Although not all the systems that exist inorganisations are documented, those thatare vital to the continuing operationshould be. They should not only bedocumented but, equally as important, thedocumentation should be kept up to date.

Documenting systems enables theprocedures to be easily followed andallows your organisation to incorporatechanges and new procedures.

Checks and balances are required in everysystem to make sure that the informationgenerated is valid. Checks and balances areessential to preserve the integrity of theinformation. They are also needed toensure that the systems are appliedconsistently.

2 1 . S y s t e m s

21. Systems


21

21.2 Why are Systems Important?The importance of systems cannot beunderestimated when it comes to effectivelyrunning your organisation.

The systems in your organisation need tobe clearly understood by all those whocontribute to the administration of theorganisation. Documentation of systemssupports and reinforces this aim.

Systems are important to ensure that yourorganisations and any affiliated bodies,operate effectively.

A good management system should:

▲ Assist in making informeddecisions;

▲ Adapt to any changes;▲ Give procedural guidelines to staff ;▲ Protect staff health and safety by

providing a safe working environment;and

▲ Provide relevant, accurate and timelyinformation as required.

Good management systems are particularlyimportant in a GST environment given thereporting requirements and deadlinesimposed by the law and the penalties thatcan be imposed by the ATO for non-compliance.

21.3 Why do Systems Change?All organisations, including those of theCatholic Church, need to cope withconstant change. These changes come inmany different forms. Some of these arethe result of technology, for example, e-mail; other changes are the result ofchanges in personnel or legislation.

The environment in which Catholic Churchorganisations are operating today isconstantly changing. The changesassociated with the introduction of GST aretypical of the environmental changes yourorganisation is facing. Changes of this typerequire organisations to constantly updatetheir management systems.

Organisations with good systems and awillingness to adapt will have a greaterchance of avoiding problems and takingadvantage of the opportunities that thechanging environment may provide.

Where you cannot avoid change, makechange work to your advantage.

Often where there are poor systems inplace, it is left to one person to acceptresponsibility for ensuring that allactivities are undertaken in an efficientmanner and that appropriate records arekept. Introducing, operating andmaintaining effective systems provides atool to enable the “hands on manager” todelegate responsibilities, but still haveconfidence that the organisation willcontinue to operate efficiently andeffectively.

Maybe your organisation has nodocumented systems for the day to dayrunning and changes to procedures aregenerally made on a reactive basis. Thiscan result in changes being made on an adhoc basis and this is not always effective orefficient.

When changes are made to systems or newsystems are developed, it is essential toensure that the information the systemprovides is of greater benefit to theorganisation than the informationpreviously available.

If the systems are inadequate, people maystill operate the organisation reasonablywell. However if procedures are formalisedby setting up documented systems, thesituation can be improved substantiallythrough the provision of appropriateinformation to improve the effectiveness oftheir decisions.

21.4 The Operations CycleThe operations cycle diagrammaticallydemonstrates the way information flowsthrough a Catholic Church organisationand how that information can be used toproduce relevant reports on organisationalperformance.

2 1 . S y s t e m s


21

2 1 . S y s t e m s


21The operations cycle

Informationis gathered

Informationis classified

Transactionsare processed

Transactionsare checked

Transactionsare actioned

Transactionsare recorded

Reportsare produced

What do youacquire/supply?

Gather ALL relevantdocumentation

Tax invoices ALLreceived/issued

Identify GST categoriesfor each item

Record eachitem correctly

System gathersinformation for the BAS

GST return completedand submitted on time

The introduction of GST on 1 July 2000 will impact on Catholic Church organisations and theiroperations. The systems already in place need to be adapted to deal with GST at every stage ofthe operations cycle.

The cycle for GST

N o t e s

Notes


In looking at different activities, measuringthe performance of these activities andreporting, it is very important not tooverlook the people involved in theactivities. This is also very important whensystems to deal with GST are beingdeveloped. It is vital to recognise thatmany people within your organisation arelikely to be affected by GST, and they willhave a role to play. This will depend on theactivity they are involved in.

Staff will need to:Outflows (selling)▲ Understand that the prices of all goods for

sale are to be stated as ‘GST inclusive’;▲ Recognise transaction types and the GST

consequences, that is whether the sale isa taxable supply or is GST-free, at thepoint of sale;

▲ Know the rules for issuing a tax invoice;and

▲ Understand the correct procedures forrefunds, issuing credit notes andadjustments.

Inflows (buying)▲ Understand the classification of each

transaction for GST purposes; taxablesupplies, GST-free supplies or inputtaxed supplies;

▲ Know the GST status of suppliers(unregistered, ABN registration, or GSTregistration) before ordering;

▲ Know how to deal with cash purchasesincluding the GST component;

▲ Know how to record payments made bycheque or cash including GST;

▲ Know to obtain tax invoices for all goodsor services acquired, which cost inexcess of $50 + GST;

▲ Know to obtain cash receipts for allgoods and services acquired, which costless than $50 + GST; and

▲ Understand and follow the proceduresfor filing and recording tax invoices.

In addition, office staff will need to:

▲ Understand the GST status of eachtransaction processed, that is, taxablesupplies, GST-free supplies or inputtaxed supplies;

▲ Know how to issue appropriate taxinvoices for goods or services providedby the organisation, reconciling totaltaxable supplies, GST-free supplies orinput taxed supplies with the totalinvoices issued;

▲ If using a cash based system, ensurebank deposits are analysed into taxablesupplies, GST-free supplies, and inputtaxed supplies;

▲ Know how to account for credit cardtransactions;

▲ Understand how to process tax invoicesreceived from creditors;

▲ Know how to deal with adjustmentnotes, credit notes, and refunds;

▲ Understand and follow the rules forreconciling all the accounts; and

▲ Understand the attribution rules whichdetermine the tax period in which atransaction is accounted for, for GSTpurposes.

Educating StaffIn modifying or developing systems torecord and account for GST the proceduresthat are developed and put in place mustbe user friendly. These procedures must bein a form that enables staff to follow themwithout being technical experts in GST.

Adequate training of staff must beprovided to assist them in gaining anunderstanding of how the GST operates,and what effect the GST will have on theoperations of the organisation and theirroles within the organisation. They mustthen be trained in the systems in place inyour organisation to manage the GST.

A crucial risk management procedure is toensure that all staff are adequately trained.

2 2 . S y s t e m s a n d S t a f f

22. Systems and Staff


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In developing the procedures the followingfactors must be taken into account:

▲ The Chart of Accounts needs to besuitably modified to classify the varioustypes of supply made and acquired: GSTsupplies, GST-free supplies, and inputtaxed supplies, by activity whereappropriate;

▲ Setting up procedures to ensure thatsource documents, discussed in Chapter 23,will be coded correctly to indicate theGST status of all supplies made orreceived;

▲ Ensuring that documentation issued by the organisation complies with thetax invoice and adjustment noterequirements and facilitates accuraterecording;

▲ Reviewing current procedures to ensurethat the debtors and creditors recordscapture and classify GST information inan efficient and effective manner;

▲ Ensuring cash flow managementprocedures are adequate to cope withthe impact of GST;

▲ Ensuring that relevant totals can easilybe obtained from the system for entering on the BAS, either from acomputerised or a manual recordingsystem;

▲ Ensuring that staff understand and canapply the attribution rules; and

▲ Reviewing procedures to ensure thatrecords are kept up to date at all times toenable the completion of the BAS within21 days of the end of each tax period.

2 2 . S y s t e m s a n d S t a f f


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As with any change current systems needto be reviewed and new processes andprocedures put in place to adapt to theintroduction of GST and the entire PAYGsystem.

Steps should be taken to:

▲ Identify your organisation’s activities;▲ Classify these activities into GST

transaction types;▲ Identify your organisation’s information

and reporting systems;▲ Identify the ATO requirements for

reporting - the requirements of the BAS;and

▲ Adapt the system to fit these requirements- the Chart of Accounts and the recordsproduced.

Systems will need to be updated to copewith transaction types that have differentGST consequences. This could occur forboth income (receipts) and expenses(payments), including capital transactions.

23.1 Supplies & AcquisitionsThe first step for a Catholic Churchorganisation in preparing its systems forthe introduction of GST is to identify thesupplies it makes and the supplies itacquires.

The identification of the various goods andservices of a Catholic Church organisationis essential in deciding what changes arerequired to the current systems.

In undertaking an identification of thesupplies made by your organisation, it willbe necessary to consider all of the variousactivities undertaken by the organisation.A good starting point is the latest set offinancial statements.

Supplies made by a Catholic Churchorganisation include:

▲ The provision of religious ceremonies/services;

▲ Sales of goods, both donated second-hand goods and new goods;

▲ Sales of newsletters, magazines, booksand candles;

▲ Hire of facilities;▲ Rent of property;▲ Collections; and▲ Donations.

Acquisitions by a Catholic Churchorganisation include:▲ All goods and services such as stationery,

electricity and telephones; and▲ Capital acquisitions including buildings

and equipment.

23.2 GST Status of TransactionsDifferent activities have different GSTconsequences.

The need to identify the different activitiesfor GST purposes is essential to enable thetransactions connected with that activityand the GST consequences to be recordedappropriately.

The supplies of your organisation will fallinto the three main GST supply categories,being, taxable supplies, GST-free suppliesand input taxed supplies (Refer toChapter 8 for detail on supply categories;refer to Chapter 11 for a detailed analysisof church transactions.)

Taxable supplies made by a CatholicChurch organisation might include:

▲ The receipt of a capital grant;▲ Rent of commercial premises;▲ Sale of assets and commercial property;▲ Hire of facilities; and▲ Donations received for a specific

purpose.

Taxable supplies acquired by aCatholic Church organisation These might include:

▲ All goods and services such as stationery,electricity and telephones; and

▲ Capital acquisitions including buildingsand equipment.

2 3 . G S T S y s t e m s

23. GST Systems


23

Input taxed supplies acquired by aCatholic Church organisation These might include:▲ Interest earned on investments.

Input taxed supplies made by aCatholic Church organisationThese might include:

▲ Residential accommodation provided atfull market rate.

GST-free supplies made by a CatholicChurch organisationThese might include:▲ Collections;▲ Religious ceremonies;▲ General donations;▲ Piety stall sale of second hand donated

goods where the goods retain theiroriginal character; and

▲ Piety stall sale of new purchased goodswhere the goods are sold for less than75% of the purchase cost or 50% of theGST inclusive market value.

Each of the activities undertaken by aCatholic Church organisation will haveits own GST issues.Child careIn certain circumstances the supplies of thechildcare facility will be GST-free. Thismeans they are not required to charge GSTto the parents but can still claim the GSTon their expenses and purchases. Againseparate analysis of the income andexpenditure of this facility will assist whenthe time to complete the BAS arrives.

Retail operationsWhere a Catholic Church organisation sellsnew books, clothing or similar items, all ofthe sales will be subject to GST unless theyare sold for less than 75% of the purchasecost or 50% of the market value.

The sale of second-hand goods that havebeen donated to the organisation may besold without charging GST if they have notbeen altered in any way between the timeof acquisition and subsequent resale.

Donations and GrantsThis area is very important but is acomplex one for Catholic Churchorganisations. It would be advisable toseek advice as soon as possible from yourDiocesan or Congregational contact, theATO or a professional adviser.

Generally when your organisation receivesa donation or a grant for a specific purposethis supply may attract GST, and 1/11th ofthe supply must be remitted to the ATO. Onthe other hand, if a donation or grant isunconditional, no GST would be payable.

Example:

The parish receives a government capitalgrant to build a refuge for homelessmen:

Total Grant $550,000

GST (1/11th) $50,000

$500,000

23.3 Source DocumentsTo provide GST information for completionof the BAS, the system, whether manual orcomputerised, will utilise the followingsource documents:

▲ Tax invoices received from suppliers;▲ Tax invoices issued by your organisation;▲ Bank statements/ bank reconciliations/

cashbooks;▲ Ledgers, and other summarised

information;▲ GST calculation sheets;▲ Adjustments worksheets; and▲ Guides and industry specific booklets

dealing with GST and the PAYG system.Source documents are the documentedevidence that your organisationaccumulates when it processestransactions. This evidence needs to bekept in a form and manner that facilitateseasy retrieval. Therefore, you must ensurethat your existing filing system allows this,and if not, change that system.



23

For example, your organisation is unableto claim an input tax credit for GST paid onan acquisition unless a tax invoice is held.Therefore, it will be appropriate to file taxinvoices to coincide with the GST taxperiod in which the input tax credit wasclaimed.

Examples of source documents▲ Cheque butts▲ Deposit slips▲ Bank statements▲ Tax invoices (from suppliers and issued

by your organisation)▲ Pay slips▲ Receipts▲ Purchase Orders▲ Credit notes▲ Expense claim forms▲ Quotations▲ Petty cash vouchers

Why do we keep source documents?We keep source documents to provide theinformation needed to produce accuratereports for use by management. In additionto this function they provide the evidenceneeded to prove that the organisation isentitled to a refund of the GST it has paidor, conversely, how much GST it needs topay to the ATO.

Controls need to be in place to make surethe system achieves this purpose:

▲ Use standard source documentation thatsuits your organisation and complieswith legislation;

▲ File it in a logical and ordered way,consistent with the systems used; and

▲ Ensure everybody understands the needfor and use of the source documents.

Documentation generated by your organisationYour systems need to be designed toproduce documentation that complies withthe GST law, and that can be producedwhen required.

In particular, the GST law dictates whatinformation a tax invoice must contain,refer Chapter 23.3.2 for furtherinformation. Also, tax invoices must beproduced within 28 days of one beingrequested.

Review source documents at time of transactionTake time when the source document iscreated or received to ensure all relevantinformation is recorded correctly.

The more accurate and detailed the sourcedocuments are, the more useful theybecome, allowing more information to beheld in one place. Where possible sourcedocuments should be cross-referenced toprovide additional detail if required.

Retention of documentsUnder legislation source documents needto be retained for certain periods of time.The following records must be kept for fiveyears:

▲ End of financial year records such asstocktake sheets, creditors lists, debtorslists and depreciation schedules;

▲ Receipts for supplies including cashregister Z-tapes, receipts, deposit booksand bank statements;

▲ Acquisition and expense records includingpayment records, invoices and statements,receipts, cheque butts and log books; and

▲ Wages records including workerpayment records, employmentdeclarations, PAYE employer’s paymentbooks and superannuation records.



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23.3.1 Tax InvoicesThe Tax Invoice is the Cornerstone of GST.As noted earlier your organisation may notonly issue tax invoices, but will also receivetax invoices from suppliers. Your organisationwill be able to claim back the GST included inmost of these invoices if you hold a taxinvoice. Therefore, you will need to ensurethat you receive invoices from your suppliersthat meet the legal requirements for taxinvoices. In addition, the coding, recordingand processing of those invoices becomesvery important to ensure the GST is treatedcorrectly in your accounting records whichwill allow the production of accurateinformation for reporting to the ATO.

The tax invoice is the single most importantsource document in any GST system.Procedures to ensure tax invoices are correctlyissued, and recorded and filed appropriately,are crucial in a GST environment. Therequirements of a ‘tax invoice’ are anextension of information normally appearingon an invoice. You need to design a tax invoicefor your organisation that complies with the

legislation and confirm that your suppliers’tax invoices comply with the legislation.

Only suppliers registered for GST mustissue tax invoices. Unregistered suppliersdo not charge GST, are not required to issuetax invoices. If you make a purchase froman unregistered supplier you are notentitled to claim input tax credits for thoseacquisitions.

Tax Invoice ChecklistFor the preparation of the BAS there arecertain details that need to be shownon invoices issued by your organisationfor both credit and cash transactions.The information required on a taxinvoice varies in accordance with:

▲ The amount of the supply;▲ The GST status of the supplies made.

Specifically, there needs to be a splitbetween taxable supplies GST-freesupplies and input taxed supplies; and

▲ Who initiates the tax invoice - thesupplier, as in most cases, or therecipient of the supply.



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OVER $50 TO $1,000 - WITHOUT GST OVER $1,000 - WITHOUT GST

The supplier’s ABN number

GST inclusive price of the supply

Shown prominently the words “Tax Invoice”

Issue date of the tax invoice

Name of the Supplier

Brief description of each item supplied

If the GST is 1/11th of the total price either indicatethe total includes GST or, the amount of GST

The supplier’s ABN number

GST inclusive price of the supply

Shown prominently the words “Tax Invoice”

Issue date of the tax invoice

Name of the Supplier

Brief description and quantity of each item supplied

If the GST is 1/11th of either, indicate the totalincludes GST or the amount of the GST

The ABN number or address of the receiverThe name of the receiver

With tax invoices it is not necessary to showthe GST component as a separate itemunless the GST is less than 1/11th of thetotal. However you may wish to design yourtax invoices showing the GST separately tofacilitate record keeping both for yourselfand your client. If the GST component is lessthan 1/11th of the total price the GSTamount must be shown separately so thatyour client is able to identify the amount ofGST that has been included.

A tax invoice is not required for supplieswith a value of less than $50, without GST.However, your organisation is entitled toclaim an input tax credit for the GST paidon creditable acquisitions. Therefore, somedocumentary evidence of such purchasesmust be kept, such as purchase orders,receipts, and cheque butts.

Requirements for SuppliesIf a tax invoice is for a taxable supply anda GST-free or input taxed supply, the taxinvoice must also show:

▲ Each taxable supply and the amount ofGST payable; and

▲ The total amount payable for the supply.If your organisation issues invoices for mixedsupplies you may consider issuing separateinvoices for the different types of supply. Thismay facilitate information capture.

When designing the tax invoices for use byyour organisation, consider:

▲ Designing one tax invoice to be used forall supplies regardless of amount. Thedesign would need to include all theinformation required on a tax invoice foran amount greater than $1,000, andwould need to disclose separately theGST for each class of items supplied; and

▲ Obtaining advice from your Diocesan orCongregational contact.

Get the tax invoice issues right and you arewell on the way to dealing with GST (seefollowing pages).

Recipient Created Tax Invoices (RCII)Generally tax invoices are issued by the supplierof the goods or services. However, the GSTLegislation allows the recipient of a supply toissue the tax invoice in certain circumstances.RCIIs can be issued by recipients of taxablesupplies who are registered for GST when:

▲ The supply is a taxable supply ofagricultural products and the recipientdetermines the value of the supply;

▲ The recipient of the supply is aGovernment entity and certainrequirements are satisfied; and

▲ The recipient of the supply has anannual turnover, including input taxedsupplies, of at least $20 million, andcertain requirements are satisfied.

In most cases, Church entities will not berequired to issue RCIIs. However, seekassistance from your Diocesan orCongregational Business Manager, aprofessional advisor or the ATO if needed.

23.3.2 Bank StatementsThe bank statement provides the linkbetween the inwards and outwardstransactions of an organisation. It showsthe deposits made, interest earnt, chequesissued and automatic payments made.

The bank statement provides the firstopportunity to reconcile the payments andreceipts you thought you made, againstwhat has actually happened. This isparticularly important when there areautomatic payments and direct depositsinto the account.

Some organisations may find that eachmajor activity undertaken is more easilyaccounted for when each activity operatesits own bank account. This allows the sourcedocuments for each to be easily identified,collated, analysed and reported on.

Rules of thumb for bank statements:

▲ Keep them all for at least five years;▲ Keep the statements for each bank

account separate;▲ File in date order; and▲ Complete a bank reconciliation on each

bank account at monthly intervals,regardless of the GST tax period of yourorganisation.



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23

TAX INVOICE

St Joseph’s ParishABN: 123 456 789

Date: 1 August 2000

Description Amount Total

Hall hire for the month July $200

GST $20

Total including GST $220

Supplier name

Supplier ABN

Must state it isa tax invoice

Issue date

Descriptionof supply

Amountexcluding GST

GST amount

State that the totalincludes GST

Amount payableincluding GST

TAX INVOICE


Date: 1 August 2000

To: St Joseph’s Primary School123 Music StreetAnywhere

Description Total

Building rent for July 2000 $1,000Cleaning for July 2000 $200

GST $120

Total including GST $1,120

Supplier name

Supplier ABN


Issue date

Quantity orvolume


Amountexcluding GST

Recipient nameand address or

ABN

GST amount



For transactions with values over $1,000

Sample Tax Invoices

For transactions with values over $50 & under $1,000



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For mixed supply transactions with values over $1,000 – Taxable and GST-free

TAX INVOICE


Date: 1 August 2000

To: Mr & Mrs J Married45 Bliss RoadAnywhere

Qty Description Total

1 Marriage ceremony $500Hall hire $300

10 Flower arrangements $200Organist $150

GST $65

Total including GST $1,215

Supplier name

Supplier ABN


Issue date

Quantity orvolume


Amountexcluding GST

Recipient nameand address or

ABN

GST amount



23.4 AdjustmentsAdjustments are changes you may need tomake on your BAS to change your net GSTamount payable or refundable as the resultof an adjustment event.

An adjustment event is any event whichhas the effect of:

▲ Cancelling a supply or acquisition;▲ Changing the consideration for a supply

or acquisition;▲ Causing a supply or acquisition to

become, or stop being a taxable supplyor creditable acquisition.

Provision must be made in your system foradjustments to transactions which have aGST component. Your system must havecontrols which identify when an adjustmenthas arisen. Also your system must produceAdjustment notes when required thatcomply with the GST legislation.

There are many types of adjustment whichwill affect GST your organisation has alreadypaid to, or been refunded by, the ATO.

Adjustments will arise if:▲ All or part of a supply or purchase is

cancelled;▲ The price of a supply or purchase is

altered. For example, where you areentitled to a volume or early paymentdiscount;

▲ There is a change to the purpose of apurchase. For example, a microwavepurchased for the office is moved to theresidence for private use;

▲ You have a bad debt, or you fail to pay adebt; and

▲ A supply becomes taxable or stops beingtaxable.

Adjustments are reported on your BASin the GST tax period in which thechange happened and an adjustmentnote is held.

Credit notes and refundsCredit notes and refunds need to berecorded for both financial reportingpurposes and for GST reporting purposes.The effect on your organisation ofreceiving a credit note or refund is todecrease the input tax credit which can beclaimed on that purchase. The effect onyour organisation of issuing a credit noteor refund is to decrease the GST payable tothe ATO on that supply.

Bad debtsBad debts are an issue for organisationsregistered on an accrual basis.

If your organisation is registered for GSTon an accrual basis you are required to paythe GST on taxable supplies to the ATOregardless of whether payment has beenreceived. Where a debt is unable to becollected and is written off, or is over ayear old, your organisation will have paidthe applicable GST to the ATO but will nothave received the amount from the clients.Your organisation is entitled to make anadjustment for the GST overpaid to the ATO.

The system must have the capability todeal with bad debts to ensure that any baddebt adjustments are made. A system mustindicate when a debt reaches one year old.Also, care must be taken to record any debtwritten off, and the GST subsequentlyclaimed back, so that if it is ever receivedin the future, the GST claimed back isrepaid to the ATO.

Transactions without a tax invoiceSome transactions undertaken by yourorganisation will not be eligible for aninput tax credit claim because no taxinvoice is held, even though the originalacquisition was a taxable supply.

In these circumstances a claim cannot bemade for the GST paid and an adjustment tothe totals may be needed. A system needs tobe in place to identify situations where taxinvoices have not been received and toensure that the correct adjustment is madeto the claim in the relevant tax period. Thisalso highlights the importance of obtaininga tax invoice from all your suppliers at thetime of the relevant transaction.

One way of avoiding this type of problem,is to refuse to pay a supplier until a validtax invoice is received.

If the relevant tax invoice is received in asubsequent GST period, the input tax creditcan be claimed at that stage.

The purchase and sale of capital items maypose specific problems with tax invoices.This can apply to the purchase of land andbuildings because invoices are nottraditionally issued by the seller of abuilding. It may be wise to obtainprofessional advice in such cases.



23



23

NNoottee:: WWhheenn tthhee nneexxtt BBAASS iiss pprreeppaarreedd,, 11//1111tthh ooff tthhee aammoouunntt rreeffuunnddeedd,, $$55 iinn tthhiiss ccaassee,, wwiillll bbee uusseedd ttoo rreedduucceetthhee aammoouunntt ooff GGSSTT ppaayyaabbllee..

Sample Adjustment Note

ADJUSTMENT NOTE


Date: 7 August 2000

To: Mr & Mrs J Married45 Bliss StreetAnywhere

Short supply of flowers for marriageceremony

Tax invoice date: 1 August 2000

Original price, inc GST $220Adjusted price, inc GST $165

Amount refunded, inc GST $55

Supplier name

Supplier ABN

Must state it isan adjustment note

Issue date

Explanation forthe adjustment

Tax invoice date

Original price ofsupply including GST

Recipient name andaddress or ABN

Adjusted price ofsupply including GST

Amount refunded

N o t e s

Notes


You must record in your accountingsystems the information from all of thesource documents. Your method of recordinginformation can be either in manual orcomputerised form. The usual place whereall the information is collected is in theGeneral Ledger. The Chart of Accountsdetermines the way in which transactionsare recorded in the general ledger.

The first step is to design the Chart ofAccounts to allow the appropriaterecording of all the transactions of yourorganisation. Remember, your organisationwill provide and receive a mixture oftaxable supplies, GST-free supplies, inputtaxed supplies, and other supplies (if youare dealing with organisations orindividuals that are not registered forGST).

Each tax period your organisation isentitled to a refund for GST paid on most ofits acquisitions (refer to Chapter 11 for adetailed analysis), and is required tosubmit to the ATO any GST collected ontaxable supplies (refer Chapter 11 for adetailed analysis). Therefore, it is importantthat you are able to isolate the GST content(if any) of each transaction that you recordin your general ledger to make sure yourecord the maximum input tax claimavailable, as well as accurately calculatethe GST collected by you on behalf of theATO. This will involve the analysis of thesource documents for each transaction andthe recording of any GST amount to aseparate GST account in the general ledger.

The information provided by the systemsshould enable you or your managers tomake appropriate decisions about theorganisation. In addition the systemsshould provide all the information neededto complete your BAS.

Therefore, when designing your Chart ofAccounts you need to consider:

▲ What are the financial reporting needsof your organisation. Determine thereports required and the informationeach report needs to contain. Generally,the financial reports needed will includethe Income and Expenditure Statement(Profit and Loss Statement), theStatement of Assets and Liabilities(Balance Sheet), Cashflow Statements,and Budget Reports;

▲ What information needs to be reportedin the BAS (refer Chapter 20 for adetailed list); and

▲ Any restrictions arising from your choiceof accounting system.

The Income and Expenditure reports usedfor the financial business decisions of theorganisation will be GST exclusive ifregistered for GST. However, the figuresentered on the GST portion of the BAS willbe on a GST inclusive basis (this means thetotal price paid including GST). Therefore,the GST amount of a transaction shouldalways be coded to a specific GST code inthe general ledger (GST payable for GST onsales, and GST receivable for the GST oncreditable acquisitions). The Chart ofAccounts should be designed so these GSTaccounts are not Income and Expenditureaccounts. GST payable is a liability accountand GST receivable is an asset account.

The balance in the GST accounts in thegeneral ledger (GST payable being GSTreceived from clients, and GST receivablebeing GST paid to suppliers) should equalthe GST refund, or the total GST payable tothe ATO.

However, if an entity is not registered forGST any GST paid would be an expenseitem and the Chart of Accounts shouldreflect this situation.

Before designing your Chart ofAccounts contact your Diocesan orCongregational administration.

2 4 . G S T S y s t e m s - R e c o r d i n g

24. GST Systems - Recording


24



2424.1 Computer or Manual

If you are registered for GST it does notmatter whether you use a computerisedaccounting system or a manual cashbooksystem. Both must be changed to ensurethat all the information required forcompleting the BAS is available whenrequired.

There are a number of computerisedgeneral ledger packages available whichwill have the capability to handle theintroduction of GST.

When making the decision whether toadopt a computerised approach to recordkeeping, an organisation must ensure that:

▲ The benefits achieved will be greaterthan the costs incurred. Costs includethe once off purchase of computerequipment and software together withongoing operational costs;

▲ The software system purchased will suitthe organisation, both management andstaff, and its information needs;

▲ The software system will provide theinformation required to meet both theneeds of the organisation and the ATO.Any software purchased should haveATO approval;

▲ It is well structured with supportingdocumentation that is easily useable;and

▲ The system is adaptable to cope withchanges to future information needs.

If your organisation is currently operatinga computerised system you still need towork through this range of issues toensure that all activities and relevanttransactions are accounted for, and can bereported on correctly for GST purposes.

A sample cashbook using a spreadsheethas been developed for parishes of theArchdiocese of Adelaide. This spreadsheetcan easily be adapted to meet the specificneeds of your organization. It is availablefrom the Australian Catholic ChurchTax Working Group website atwww.tax.thechurch.com.au.

Before deciding on which accountingsystem to use or how to adapt yourexisting accounting system obtain advicefrom your Diocesan or Congregationalcontact.

24.2 Income & ExpenditureIf your organisation accounts for GST onan accrual basis it is important thataccurate debtors and creditors records arekept. These records are needed to accuratelycalculate the GST liability/refund at the endof each GST tax period.

The use of a creditors and a debtors systemsallows your organisation to capture GSTinformation in the system at the ‘data entry’point. Therefore, your systems must becorrectly designed to capture all the relevantinformation and to determine when thisinformation has not been entered.

IncomeDetails that need to be recorded in yourrecords in respect of each receipt of funds:

▲ Date invoice issued by you or date ofcash sale;

▲ Relevant details of receipt where noTax Invoice is available (input taxedsupplies);

▲ Total amount deposited; and▲ Split between each category for GST

purposes (where not already recordedin the debtors system).

ExpenditureYour organisation will make payments bycheque, directly from the bank account, bycredit card, or out of petty cash. Cashpayments, including petty cash, should bekept to a minimum. The reason is toensure that there is a permanent sourcedocument that can easily be referred to.Where cash payments must be made, asystem needs to be in place to ensure theyare correctly accounted for.

Details that need to be recorded in thesystem for each payment transaction:

▲ Date of invoice and ultimately, datepaid and cheque number;

▲ Supplier’s name and details;▲ Payment total;▲ Identification of the type of supply;

taxable, GST-free, or input taxed.Totals of each supply type to beaccumulated as well; and

▲ The GST content of taxable supplies.

24.3 Irregular TransactionsYour system needs to be able to deal withtransactions that do not occur on a regularbasis. These may include:

▲ The purchase of an asset by way of bankloans, or instalment credit terms;

▲ The trade-in of an asset on another; and▲ A barter transaction.In all these circumstances there is a GSTeffect.

▲ All GST registered entities can claim thefull input tax credit on a financed assetas payment has been made to thesupplier.

▲ When an old asset is traded in on a newasset, the GST legislation will require atwo-part transaction to accuratelyrecord GST liability. The organisationthat has traded the old asset can beregarded to have made a supply to thevendor of the new asset in return forconsideration, the trade-in allowance.The sale of the new asset is clearly asupply for consideration, the fullpurchase price. The effects of thistransaction are set out in the followingexample.

Example

A parish decided to upgrade a photocopier.After trading in the old photocopier thenew photocopier would cost $5,700. Thetrade in value was $700.

The transaction is reflected as follows:

Trade in $700 GST supply made

Cheque paid $5,700

Photocopier $6,400 GST supply received

Your accounting system will need torecord the supply of the old photocopieras a taxable supply, for a price if $700.Of this 1/11th is GST payable to the ATO.

Your accounting system will also need torecord that a new photocopier has beenacquired at a price of $6,400. Of this 1/11thwill be able to be claimed back from theATO as an input tax credit. A tax invoicemust be obtained from the dealer for$6,400, and the organisation must issue



24

N o t e s

Notes


A key feature of any financial system is itsability to produce relevant and timelyreports within the operational cycle. After1 July 2000 an additional aspect offinancial reporting will involve transactionsattracting GST.

Ideally the financial system used should beable to produce reports which facilitate thecompletion of the GST portion of the BASsimply and efficiently. Remember that theBAS must be lodged with the ATO by the 21stday of the month following the end of yourGST tax period (refer Chapter 20) or yourorganisation can be penalised by the ATO.

It is worth investing time now to ensurethat the system can accumulate and reportthe correct information from 1 July 2000 tofacilitate this.

In addition to the usual reports such asStatements of Assets and Liabilities,Income Statements, Budget Reports andCashflow Statements, you will need tomodify existing systems to accumulate theinformation required to complete the BASunder the following categories:

▲ Total supplies from all sources;▲ Total taxable supplies made;▲ Total GST-free supplies made;▲ Total input taxed supplies made;▲ Total acquisitions, separated into capital

and revenue items;▲ Total acquisitions for making input

taxed supplies ;▲ Total acquisitions with no GST in

the price;▲ Total acquisitions for private usage;▲ Total acquisitions that are not income

tax deductible purchases;▲ GST charged to, and collected from

clients which is payable to the ATO;▲ GST paid to suppliers of goods and

services for which an input tax credit isdue from the ATO;

▲ Tax withheld from payments made tosuppliers without an ABN;

▲ Total salaries and wages;▲ PAYE (PAYG) withheld from salaries &

wages;

▲ Fringe Benefits Tax (FBT) payable; and▲ Adjustments arising from alterations to

figures reported in previous returns.

Attribution RulesWhen designing and selecting yoursystems to produce accurate GST reports itis also important that you understandwhat is meant by the term “attributionrules”. These are rules that are used todetermine in which GST return period atransaction is recorded for the purposes ofaccounting for GST. These will be differentdepending on whether you use a cash oran accrual basis of accounting for GST.Basically the rules are as follows:

Cash BasisSupplies made by the organisation aredeemed to be made in the GST tax period inwhich a payment is received in respect ofthe supply. Where part payment is receivedthe supply is made in that GST period tothe extent of the payment actuallyreceived. The balance of the supply is madein subsequent periods, to the extent of thepayments received in subsequent periods.The date the invoice is issued in respect ofthe supply is immaterial.

Supplies acquired by the organisationare deemed to be acquired in the GST taxperiod in which a payment is made inrespect of the supply. Where part paymentis made the supply is acquired in that GSTperiod to the extent of the payment made.The balance of the supply is made insubsequent periods, again to the extent ofthe payments made. A valid tax invoicemust be held at the time an input tax creditis claimed regardless of the time of supply.

Accrual BasisSupplies made by the organisation aredeemed to be made in the earlier of the GSTtax period in which any payment isreceived in respect of the supply, or theperiod in which a tax invoice is issued.

Supplies acquired by the organisationare deemed to be acquired in the GST taxperiod in which a valid tax invoice isreceived in respect of the supply.

2 5 . G S T S y s t e m s - R e p o r t i n g

25. GST Systems - Reporting


25

2 5 . G S T S y s t e m s - R e p o r t i n g


25Typical flow chart of reports generated from systems

FinancialInformation

BAS

Processingdata

Storage ofdata

Recordkeeping

Creation ofsource

document

Activity

Transactions

Decision -making

Reportingof information

Cash FlowStatement

IncomeStatement

Statement ofassets andliabilities

Budget andvariances

AssetRegister

WithholdingTaxes

GSTFBT

PAYE

N o t e s

Notes


N o t e s

Notes


Risk Management is the implementation ofcontrols to minimise and manage the risksyour organisation faces with theintroduction of the GST. Such controlsminimise losses to your organisationwhich could arise.

Your organisation needs to design a riskmanagement program:

▲ Identify the risks;▲ Evaluate the risks by determining the

probability that such an event will occurand what will be the resulting loss. Thenprioritise the risks identified on the basisof the evaluation;

▲ Design risk management procedures tominimise the risks identified. Whendesigning the procedures you need toalso take into account the costs ofimplementing such procedures;

▲ Implement the procedures includingtraining of staff; and

▲ Continually review the procedures toensure they are operating as designed,that the staff are adhering to theprocedures, and that the procedures areadequate given any changes in theorganisation or to legislation.

26.1 Misclassifying SuppliesThe incorrect classification of supplies forGST purposes can result in losses to yourorganisation.

The misclassification of a taxable supplyas a GST-free supply means GST will not becollected from your customer. However,your organisation is liable to pay theapplicable GST to the ATO. Therefore,1/11th of the value of the supply will needto be remitted to the ATO, resulting in amonetary loss to your organisation.

This risk can be managed by committingtime to identify each type of supply yourorganisation makes. Seek advice from yourDiocesan or Congregational contact, aprofessional advisor or the ATO whenunusual or irregular supplies occur.

26.2 Incorrect Recording &Reporting of GST

Even if supplies are correctly identified,your organisation can face monetary loss ifthe recording and/or reporting systems areinadequate. Inadequate recording and/orreporting systems can result in an incorrectBAS.

If GST collected on taxable supplies is notidentified and recorded in the accountingsystem as a liability this amount will notbe reported on the BAS and remitted to theATO. This exposes your organisation topenalties which the ATO can impose.

If GST paid on creditable acquisitions isnot identified and recorded in theaccounting system as an asset this amountwill not be reported on the BAS andclaimed back from the ATO.

These risks can be managed byimplementing a Chart of Accounts that hasbeen correctly designed, by training staff inthe correct treatment and recording of GST,and by putting in place a check of the BASto supporting tax invoices.

26.3 Tax InvoicesRegardless of how your organisationaccounts for GST, either cash or accrual, avalid tax invoice must be held in order toclaim an input tax credit. Incorrectlyclaiming input tax credits exposes yourorganisation to the risk of penaltiesimposed by the ATO.

To manage this risk implement a procedurewhere a supplier is not paid until theyprovide a valid tax invoice. However, staffneed to also be aware that a tax invoice isnot required for supplies with a value ofless than $50 (without GST), or fromsuppliers who are not registered for GST.

2 6 . R i s k M a n a g e m e n t

26. Risk Management


26

26.4 CashflowThe GST can have a significant effect onthe cashflow of your organisation. The cost of supplies may increase. Yourorganisation may be entitled to a refundfor the GST paid on these supplies.However, this refund will not be receivedby your organisation until 14 days afteryou lodge your BAS. This can be up tothree months after you paid the GST, ifyour organisation is reporting quarterly.However, the GST can also have a positiveeffect on your cashflow if you arecollecting GST on taxable supplies.

Cashflow needs to be managed to ensurethat your organisation has enough fundsto operate effectively, and to have the cashto remit any GST payable to the ATO whenthe BAS is lodged. An effective tool formanaging cashflow is the preparation andmonitoring of cashflow budgets.

26.5 ContractsUnder the GST legislation the obligation toremit any GST to the ATO rests with thesupplier, not with the client. If yourorganisation does not collect the GST fromyour clients you must remit 1/11th of thevalue of taxable supplies to the ATO.

Manage this risk by obtaining advice fromyour Diocesan or Congregational contact ora legal advisor before entering into anycontracts. This will ensure that supplycontracts contain the relevant clauses toallow you to collect GST from the other party.

26.6 InsuranceInsurance will be a taxable supply for GST.Therefore, your organisation will pay GSTon insurance premiums to the extent thatthey provide cover after 1 July 2000. Ifyour organisation is registered an inputtax credit can be claimed for this GST paid.

However, you must notify your insurer ofthe extent to which you can claim inputtax credits on your premium. This needs tobe done so you do not have a GST liability

on an insurance settlement. You need tonotify your insurer when you take out, orrenew, an insurance policy. You mustnotify your insurer before 1 July 2000 ifyou have already taken out, or renewed, apolicy and the next renewal date is after 1July 2000.

26.7 PricingThe change in the tax regime means achange in the underlying costs to yourorganisation. The prices being charged forgoods or services ‘sold’ need to bereviewed in light of the GST. The ACCC hasthe responsibility of monitoring prices forthe introduction of the GST and has thepower to impose very large penalties (up to$10 million for corporations and $500,000for individuals) for price exploitation.

Manage the risk of exposure to ACCC actionby developing and documenting a pricingmodel, taking into account the ACCCguidelines, and the estimated costs of yourorganisation with the GST.

The ACCC guidelines in summary are:

▲ Prices should be reduced immediately topass on the full effect of tax reductions;

▲ Any increase in price based on the GSTshould include a full offset for otherindirect tax reductions;

▲ No markup should be applied to the GSTcomponent of price;

▲ Prices should reflect only actual, notanticipated, tax increases; and

▲ Prices should change to ensure that thenet dollar margin remains the same (thedollar difference between cost and price).

2 6 . R i s k M a n a g e m e n t


26

The general principal is that GST applies toall goods delivered and all servicesperformed after 1 July 2000. However,during the transition to GST, this couldlead to the situation where some willreceive an unfair economic advantage andothers will suffer an economic loss.

The Government has introduced transitionalrules to ensure there is a smooth transitionto GST.

Transactions that will be affected by thetransitional rules are those that span theimplementation date of 1 July 2000,including:

▲ Sales and purchases of goods andservices;

▲ Progressive supplies and prepaymentssuch as subscriptions;

▲ Purchases of motor vehicles; and▲ Contracts.

27.1 Time of SupplyThe time of supply, not the date of invoiceor payment, is the determining factor as towhether GST applies to a supply. Thereforeit is essential that you determine the timeof supply for each supply spanning thetransition period.

The time of supply depends on what thesupply is. The general rules in respect ofsupplies spanning the implementationdate are:

2 7 . Tr a n s i t i o n a l I s s u e s

27. Transitional Issues


27

Example

Your parish rents the hall to the localTai Chi Club. The Club pays $55 on 26 June 2000, being rent of the hall forJuly 2000.

The supply is made after 1 July 2000,therefore GST applies to the supply and$5 (1/11th of the $55) must be remittedto the ATO by your parish.

Special transitional rules apply to:▲ Supplies arising from contracts

spanning 1 July 2000;▲ Rights granted for life;▲ Periodic or progressive supplies;▲ Construction agreements;▲ Supply of rights; and▲ Funeral agreements entered into prior

to 1 December 1999.

TYPE OF SUPPLY WHEN THE SUPPLY OR ACQUISITION IS MADE

Goods

Progressive SuppliesSuch as MaintenanceContracts

Services

Real Property Suchas Land or Landand Buildings

Any Other thing,for Example, Rights

When the goods are removed; or if the goods are not removed - whenthe goods are made available to the recipient; or if the goods are removedbefore it is certain that a supply will be made - when it becomes certainthat a supply has been made.

The supply is deemed to occur on a continuous and uniform basisthroughout the period

When the services are performed. Special provisions exist for suchsupplies made on a periodic or progressive basis

When the property is made available to the recipient. Specialprovisions exist for major construction agreements.

When the thing is performed or done. Special provisions exist for suchsupplies made on a periodic or progressive basis

TThheessee aarree ggeenneerraall rruulleess oonnllyy..

27.2 Progressive SuppliesThese are supplies that are made for aperiod, or progressively over a period thatspans 1 July 2000. Such supplies aredeemed to be made continuously anduniformly throughout the period. Thevalue of the supply made after 1 July 2000will be subject to GST.

These rules apply regardless of how yourorganisation accounts for GST, cash oraccrual.

Example

Your organisation enters into aphotocopier service contract for the period1 March 2000 to 28 February 2001. DoesGST apply?

Yes! GST will apply on a pro rated basis.The supply is pro rated over the 12months, irrespective of when theservices are supplied.

1 March 2000 – 30 June 2000No GST applies

1 July 2000 – 28 February 2001Taxable supply

The supplier, if registered, will be liableto remit 1/11th of the supply value from1 July 2000 to the ATO. Yourorganisation, if registered, will beentitled to claim an input tax credit forthat amount.

Other examples of where this may apply:

▲ Subscriptions and memberships; and▲ Warranties on motor vehicles, but notwhere the payment for the warranty ispart of the purchase price of the vehicle.

27.3 Motor VehiclesGenerally input tax credits can be claimedfor the GST included in the price of bothoperating and capital items. However,there will be a phase in of input tax creditson new motor vehicle purchases.

If your organisation was entitled to anexemption from WST on the purchase ofnew motor vehicles prior to 1 July 2000,the phase in rules do not apply.

Also, there are no phase in rules for thepurchase of second-hand motor vehicles.



27

The percentage is based on the vehicle being acquired and used solely for ministry purposes.

You need to introduce controls to ensure that the correct input tax credit is claimed on any motorvehicle purchases.

DATE OF PURCHASE PERCENTAGE OF GST INPUT TAX CREDIT AVAILABLEPAYABLE THAT CAN BE TO ORGANISATIONSCLAIMED AS AN INPUT PREVIOUSLY ENTITLED TOTAX CREDIT WST EXEMPTION

From 1 July 2000 00 100up to and including30 June 2001

From 1 July 2001 50 100up to and including30 June 2002

From 1 July 2002 100 100onwards

27.4 ContractsSupplies made on or after 1 July 2000under contracts entered into on or after8 July 1999 will be subject to GST. Thegeneral rules of time of supply willapply.

Special transitional rules apply tocontracts entered into before 2 December1998 (when the GST bill was introduced toParliament) or before 8 July 1999 (whenthe GST legislation became law), that:

▲ Are in writing;▲ Identify a supply; and▲ Identify consideration or a way of

calculating the consideration.The impact of GST on such contractsvaries, depending on:

▲ Whether the contract is reviewable ornon-reviewable;

▲ The date on which the contract wasentered into;

▲ Whether full payment of the contractvalue was made prior to 2 December1998; and

▲ Whether the client is entitled to a fullinput tax credit for the supply.

27.4.1 Non- reviewable ContractsNon-reviewable contracts are ones wherethe price paid for the supply is fixed (orcalculated according to some specifiedformula) and cannot be varied or reviewedby either party to the agreement to takeaccount of the GST. It may containprovisions that mean that the contractedprice does not include GST.

Note the following would be non-reviewable contracts:

▲ Where there is a formula or setcalculation for the consideration andtherefore the consideration can vary.Unless the formula or calculation itselfcan be varied, the contract is non-reviewable; and

▲ Where there is an inflation adjustmentclause (CPI).



27

SCENARIO GST TREATMENT

Buyer entitled to a full input tax credit for thesupply. The contract was entered into prior to 8July 1999.

Buyer not entitled to a full input tax credit forthe supply. The contract was entered into prior to2 December 1998.

Buyer not entitled to a full input tax credit forthe supply. The contract was entered into after 2December 1998 and prior to 8 July 1999.

The contract was entered into and paid in fullprior to 2 December 1998.

Contract entered into after 8 July 1999.

GST-free for supplies made prior to 1 July 2005.

GST-free for supplies made prior to 1 July 2005.

Supplies made after 1 July 2000 will be subjectto GST.

GST-free regardless of whether the buyer isentitled to full input tax credits.

Supplies made after 1 July 2000 will be subjectto GST, regardless of whether the buyer isentitled to full input tax credits.

GST implications of non-reviewable contracts:

Organisations with contracts should seekadvice from their Diocesan orCongregational contact, a professionaladvisor or the ATO.

27.4.3 Entity StatusThe GST treatment of supplies made on orafter 1 July 2000 under a contract enteredinto prior to 1 July 2000 depends uponwhether the ‘buyer’ is entitled to a fullinput tax credit for those supplies.

Your organisation will need to implementsystem checks to determine this:

▲ First decide whether the ‘buyer’ is a‘business’ entity or a private ‘consumer’.Private consumers are not entitled toclaim input tax credits;

▲ If the ‘buyer’ is a ‘business’ entitydetermine whether they are registeredfor GST; and

▲ If they are registered for GST determinewhether they make input taxed supplies.For example, they provide financialservices (banks), or the rent ofresidential accommodation.

27.5 Funeral AgreementsSpecial transitional rules exist for funeralagreements that override the generalcontractual rules. The supply of a funeralafter 1 July 2000 under a contract prior to1 December 1999 will be GST-free providedthe contract is paid in full prior to 1 July2005, or a review date after 8 July 1999,whichever is earlier. If the payment is madeafter this time and the funeral is suppliedon or after 1 July 2000, GST will apply.

The supply of funeral services undercontracts entered into after 1 December1999 will attract GST if the funeral issupplied on or after 1 July 2000, regardlessof when payment is made

27.4.2 Reviewable contractsA reviewable contract is one that allowsreviews of the price of anything suppliedunder the contract.

Contracts likely to be affected are those:

▲ For the supply to, or by, your organisationof both goods and services;

▲ For the rent or lease of premises and/orcapital equipment;

▲ For the purchase of capital assets;▲ For the sale of capital assets;▲ For construction of major assets; and▲ For other long term contracts.



27

GST implications of reviewable contracts:

SCENARIO GST TREATMENT

Buyer entitled to a full input tax credit for thesupply. The contract was entered into prior to 8July 1999.

Buyer not entitled to a full input tax credit forthe supply. The contract was entered into prior to2 December 1998.

Buyer not entitled to a full input tax credit forthe supply. The contract was entered into after 2December 1998 and prior to 8 July 1999.

The contract was entered into and paid in fullprior to 2 December 1998.

Contract entered into after 8 July 1999.

Supplies are GST-free until the first opportunity toreview the price of any supplies, or 1 July 2005,whichever is earlier.

Supplies are GST-free until the first opportunity toreview the price of any supplies, or 1 July 2005,whichever is earlier.

Supplies made after 1 July 2000 will be subjectto GST.

GST-free regardless of whether the buyer isentitled to full input tax credits.

Supplies made after 1 July 2000 will be subjectto GST, regardless of whether the buyer isentitled to full input tax credits.

27.6 Stock on HandIf your organisation is registered for GSTand is holding goods for resale on 1 July2000 you may be entitled to a special GSTcredit.

The credit is only available for stock heldfor sale or exchange. It is not available forgoods to be consumed within yourorganisation.

The credit, if available, can be claimed inone BAS lodged prior to 22 January 2001.

New StockThe GST credit available is equal to theWST that was paid on that stock.

Second-hand GoodsThe GST credit available is the lesser of:

▲ 1/11th of the amount paid for the good;or

▲ The amount of GST payable when thegood is sold.

If your organisation holds stock for resale,either new or second-hand, a stocktakemust be performed on 30 June 2000. Thisstocktake must be documented and thedocumentation needs to be retained forfive years. The calculation of the specialGST credit must also be documented.Again, this must be retained for five years,with any supporting documentation (forexample, purchase invoices).

27.7 Actions required now▲ All existing contracts extending beyond

1 July 2000 should be reviewed;▲ The GST implications on all the existing

contracts should be checked;▲ The GST implications of new contracts

entered into from now until 1 July 2000should be considered; and

▲ Consider what further actions may beneeded as a result of the above, forexample, contact a solicitor.



27

GST Start-Up Assistance Office

www.gststartup.gov.au

GST Community Sector Assist Helpline

13 30 88

The Australian Taxation Office (ATO) - Tax Reform Office

www.taxreform.ato.gov.au

Australian Competition and ConsumerCommission (ACCC)

www.accc.gov.au

The Catholic Church Tax Working Group

www.tax.thechurch.com.au

C o n t a c t s

Contacts
