GST Stewardship Group key messages 11 November 2021

GST gap update

The ATO provided an update on the latest developments in the GST gap project including the latest estimates for 2019–20, the expanded GST gap program and feedback from consultation with external partners.

GST gap data from the Commissioner of Taxation Annual Report 2020–21(PDF 3.21MB)This link will download a file shows the GST gap has remained steady over the past few years. The figures reported in the Annual Report show: the overall net tax gap is 7.3% ($33.5 billion) with the GST net gap at 7.8% ($53 billion).

Current published estimates are based on data from the national accounts from the Australian Bureau of Statistics (ABS) and are referred to as ‘top-down’ estimates. The ATO has commenced initial ‘bottom-up’ estimates that draw on both ABS data and the ATO’s audit program.

The random enquiry program in the small business market will help to better understand the behavioural drivers of the GST gap in that market. The drivers of the gap are different in the different markets.

Members raised the following questions and observations:

• To what extent does cash drive the tax gap in small business? The ATO noted current estimates are that 47% of the total small business income tax gap is within the shadow economy.
• To what extent can the gap be attributed to people lodging their own returns compared with those using intermediaries?
• The GST gross gap is large – what is this telling us? The ATO noted the gross gap is the revenue uncollected without ATO intervention. The net gap shows the remaining amount uncollected after ATO intervention such as the lodgment, nudges, and high risk refund and client engagement work on risk such as real property transactions.
• How do we influence community attitudes to support tax compliance versus non-compliance, especially towards not paying GST / hiding cash transactions?

The ATO asked members to consider what is a tolerable and aspirational GST gap for the system and ways in which the gap can be reduced over time.

Members would like to see more granular information, with small business gap data broken down by taxpayer turnover levels.

The GST gap will be a regular topic for future meetings.

Community and industry insights roundtable

Members discussed issues they are seeing in various sectors and provided their views about the health of the system coming out of lockdown and any impacts on GST.

Members’ observations included:

• There has been an increase in activity in the business community, especially in mergers and acquisitions.
• There is a need to educate small businesses and tax professionals to check that data provided by clients is accurate and complete.
• They are seeing some instances of when entities are registered for GST and do not need to be and vice versa. Increased education for both clients and agents is needed on when to register for GST and registration thresholds and how to identify what to do when a hobby turns into a business.
• While small businesses adopting e-commerce platforms and technology may be helping them expand, it is also adding to complexity.
• There is concern about high levels of debt for businesses coming out of lockdown.
• More clarity is required about when government grants are subject to GST. More could be done around tax time for people that have received a grant to explain the GST treatment.
• Some large taxpayers are not used to increased levels of attention on GST especially when they are considered low risk for other tax matters.
• There are risks associated with the level of tax knowledge in the not-for-profit sector, especially for some charities and not-for-profit entities who may not fully understand their GST obligations.

GST Real Property research and online decision tool

The ATO commissioned RMIT University to undertake research on property and GST issues to help the ATO understand patterns and emerging behaviours in the industry. The ATO is using the findings to provide insights on impacts from the pandemic on existing real property holdings within Australia, including expected investment over the next five years.

The research yielded a range of findings across several market sectors including:

• commercial, retail and industrial markets
• the expansion of build-to-rent developments
• changes in aged care housing
• student accommodation.

Members noted:

• The RMIT report did not consider all the existing ATO rulings and guidance.
• Consideration should be given to whether there may be a need for legislative change regarding social housing where governments own housing and are not getting credits.
• The lack of a national register of beneficial ownership is an emerging challenge for multiple players.

The ATO provided members with a demonstration of the online GST property decision tool which provides guidance to sellers, purchasers, lessees and lessors.

• The tool was updated on 26 October 2021 and now includes obligations for both parties under the GST at settlement regime.
• Members of the ATO Property and Construction Stakeholder forum provided input into its redesign.

Members noted the use of the term ‘going concern’ in the tool, for both GST at settlement and for selling a ‘going concern’, may be confusing unless it is clarified. The ATO invited them to provide feedback on the tool.

Contemporising GST risk models and GST refund integrity

This project aims to modernise and improve the ATO’s capability to manage GST compliance risks by replacing or updating the 44 existing risk models that run across the 2.8 million GST-registered population. The existing ATO risk models for GST operate across legacy systems, with capacity and capability becoming increasingly limited.

The focus and vision of the project is to develop and enhance risk models that have:

• real time risk assessment and treatment
• automated processes
• flexibility to address emerging risks
• right techniques, data and problems
• integrated risk model outcomes.

GST refund integrity is a priority with a focus on:

• GST refunds risk assessed when Business Activity Statements (BAS) are lodged
• analytical models, risk rules and risk scoring being used to identify suspect refunds and prevent a refund from issuing until review action can be completed
• early intervention, which allows correction of activity statement errors for the release of correct refund entitlements, and client education for future BAS lodgments.

Client experience improvements include nudge messaging to allow for self-correction of errors before BAS are lodged.

The ATO is continuing to develop new risk models in areas such as property transactions, registrations, and correct reporting in all market segments.

Members raised the following questions and observations:

• What is the incentive for software developers to build the nudges into their software?
• Does the ATO provide risk models for software developers to build in?
• Some of the existing GST Stewardship Group (GSTSG) members were involved in a workshop a few years ago on the ATO’s high risk refund models that provided input into this project.
• There would be value in undertaking a deep dive on risks and the risk models.

Global taxation matters

Treasury provided an update on the Organisation for Economic Co-operation and Development's (OECD) two pillar solution to address the tax challenges of the digitalisation of the economy and ensuring the implementation of global minimum taxation.

Pillar 1 will transfer profits into areas where the revenues are generated. Pillar 2 will see the implementation of a global minimum tax rate of 15%. All G20 nations have signed up and are working towards a 2023 start date.

GST is unlikely to be affected by implementation of the two-pillar solution.

Agency updates

Agency representatives from Treasury and the ATO provided written updates which were included in the meeting papers provided to members.

Treasury

The key issues covered in the written update were:

• legislative updates including the Financial Sector Reform Bill and the Offshore Petroleum Bill 2021
• recent consultation on  
  • clarifying the treatment of trusts under insolvency law
  • clarifying income tax exemptions for Australians engaged by the International Monetary Fund and World Bank Group
  • expanding Australia’s Tax Treaty Network
  • Australian Charities and Not-for-profits Commission Amendment (2021 Measures No 3) Regulations 2021.
   

Members asked about the status of the review into compliance costs on fringe benefits tax. Treasury will follow up on the status of this work.

ATO

Written updates were provided on:

• new measures
• the Modernising Business Registers program
• e-invoicing
• GST rulings and public advice
• GST litigation and GST service standards.

The GST Administration Performance Agreement with states and territories expires at the end of the 2022–23 financial year as does the current GST Compliance Program. The ATO is starting to consider the focus for the next compliance program.

The ATO will engage members in a meeting in March 2022 to obtain stakeholder feedback about future GST administration approaches.

2021 year in review and work plan for 2022

Members were asked to provide feedback on the GSTSG and, in particular, consider what worked well in 2021 and what could be improved for 2022.

Members’ initial feedback was that:

• They were impressed that the ATO is willing and wanting to talk to the community and industry.
• The expansion of the group has been positive; particularly the diversity of members.
• The timely distribution of pre-reading material has enabled more discussions on topics rather than just on presenting the material.
• A return to in-person meetings and increased time for agenda items will be positive to enable a fuller discussion.
• Out-of-session consultations have been valuable, however there is a need to be conscious that the right group is involved.
• A short session each meeting showing what GST-related topics other stewardship groups and consultation forums are discussing would be useful to include.

Other business

In 2022 there will be two formal meetings (face-to-face) with additional specific-purpose meetings on targeted topics. In addition to GST assurance reviews the group will also focus on:

• improving performance of the system, including the GST gap and performance results
• digitally transforming GST, including becoming more streamlined and data driven
• shaping the future, including GST-specific commitments such as the compliance program
• managing GST risk issues effectively and efficiently.

Attendees

Attendees list

Organisation	Member
ATO	Deborah Jenkins (Co-chair), Small Business
ATO	Andrea Wood, Small Business
ATO	Emma Tobias, Small Business
ATO	Sue Goodear, Small Business
ATO	Sylvia Gallagher, Individuals and Intermediaries
Australian Banking Association	Chris Plakias
Chartered Accountants Australia and New Zealand	Kevin O’Rourke
Coles Finance	George Nikolaou
Corporate Tax Association	Paul Suppree
CPA Australia	Ken Fehily
Digital Service Providers Australia New Zealand	Matthew Prouse
Independent member	Jennee Chan
Law Council of Australia	Andrew Sommer
Property Council of Australia	Andrew Howe (Co-chair)
Small business representative	Amanda Gascoigne
The Tax Institute	Bastian Gasser
Treasury	Geoff Francis

Guest attendees

Guest attendees list

Organisation	Attendee
ATO	Carl Mitchell, Small Business
ATO	Gordon Brysland, Tax Counsel Network
ATO	Kasey Macfarlane, Private Wealth
ATO	Loretta Bishop-Spalding, Private Wealth
ATO	Louise Clarke, Private Wealth
ATO	Mario Rinaudo, Small Business
ATO	Michael Morton, Small Business
ATO	Rowan Fox, Policy, Analysis and Legislation
ATO	Ryan Kinsella, Public Groups and International
Treasury	Kathryn Davy

Apologies

Apologies list

Organisation	Member
ATO	Ben Kelly, Tax Counsel Network
States and territories representative	Giles Wilmer
University of New South Wales	Michael Walpole

Information about the key topics discussed at the GST Stewardship Group meeting on 11 November 2021.