Top 100 GST assurance program

About the Top 100 GST assurance program

The top 100 population is a significant contributor to total GST collections. In 2022–23 the top 100 population contributed about $10.2 billion in GST collections, which was about 13.2% of total GST collections.

As at 30 June 2024, one or more GST reporters in over 88% of our top 100 economic groups have had a GST assurance review under the Top 100 GST assurance program. The remainder, except for some recent entrants, have a GST assurance review underway or commencing in 2024–25.

GST reporters who attain overall high or medium assurance will have a tailored engagement where they will be reviewed on a periodic basis at least once every 4 years (refresh review). The Top 100 GST Program Future GST engagement after initial GST assurance review (Future engagement approach) outlines this approach.

During the monitoring and maintenance period between the initial review and the refresh review (M&M period) GST reporters are expected to proactively engage with us and make relevant disclosures. We'll actively monitor the GST reporter to safeguard against non-disclosure or non-compliance during the M&M period and may also conduct targeted assurance activities if required. We don't provide TARs during the M&M period.

The refresh review will resume a whole of business approach, applying the full justified trust methodology across the economic group and applying all 4 focus areas of justified trust.

Data and transaction testing will be tailored in the refresh review based on a holistic understanding of the taxpayer across the 4 focus areas of justified trust.

The refresh review will also address actions or matters identified in the initial review's Future Action Plan that were not addressed in the M&M period. At the conclusion of the refresh review, the taxpayer will receive a TAR.

Obtaining high assurance for GST

In the Top 100 program, we apply a principled approach to reaching overall high assurance (justified trust). This is based on 2 elements:

1. a quantitative threshold of more than 90% tax assured and economic activity correctly reported
2. an objective assessment of 6 qualifying factors.

The quantitative threshold of element 1 must be met before the qualifying factors in element 2 can be applied.

These 6 qualifying factors are outlined below.

1. Governance

Governance has been rated at least a stage 2 in the GST TAR.

2. Tax risks flagged to market

Any tax risks flagged to market (Practical Compliance Guidelines, Taxpayer Alerts, Public Rulings) have been rated at least a medium level of assurance in the TAR and aren't of immediate concern or identified as necessitating further action based on the information provided.

3. New, significant transactions and specific tax risks

Any material significant, new, or specific transactions reviewed have received at least a medium level of assurance in the TAR and aren't identified as necessitating further action based on the information provided.

4. Alignment between accounting and tax results

The GST Analytical Tool (GAT) calculation and any underlying assumptions or proxies have been verified with objective evidence provided by the taxpayer. The GAT calculation has not highlighted any areas of concern for us and is rated Stage 2.

Completion of the GAT is mandatory for all top 100 taxpayers except in relation to taxpayers who are predominately input taxed.

For top 100 taxpayers who don't apply the GAT (that is, predominately input taxed taxpayers) we expect an alternative methodology be applied to identify the key variances between accounting and tax. The outcomes of this analysis must be rated at least a medium level of assurance.

5. Correct Reporting

The results from data testing and transaction testing (by the ATO or a third party) have been verified with objective evidence provided by the taxpayer. The data and transaction testing has not highlighted any areas of concern for us and is rated as high assurance.

6. Cooperative and collaborative behaviour

It has been a cooperative and collaborative process and when working with a taxpayer we haven't observed any non-cooperative behaviour.

An overall provisional high assurance rating may still be possible in limited circumstances. Such circumstances may include where the taxpayer has provided an undertaking and is actively working on addressing a specific design gap in their tax governance framework, or there is ongoing compliance activity. Where there is ongoing compliance activity, provided the quantitative threshold is met (inclusive of the unassured issue), the availability of a provisional rating will depend on the nature and stage of the compliance activity.

Overall levels of assurance

The overall level of assurance is based on an objective view (having regard to objective evidence) of whether the taxpayer is considered to have reported the right amount of GST.

Ratings

We apply consistent rating categories when considering our overall level of assurance.

Rating categories

Colour indicator	Rating	Category description
	High	We obtained assurance that the taxpayer reported the right amount of Australian GST for the period reviewed.
	Medium	We obtained assurance for some but not all areas reviewed. For those areas not yet assured, further evidence or analysis will be required before we obtain assurance that the taxpayer reported the right amount of Australian GST.
	Low	We have specific concerns around the taxpayer’s compliance with the Australian GST law and the amount of Australian GST paid and GST refunds claimed for the period reviewed.

The GST assurance reviews completed to the end of June 2024 resulted in the following ratings.

Graph 9 – Overall assurance ratings for the most recent GST reviews completed as of 30 June 2024

Note: GST findings in this report reflect outcomes based on the last completed review for the GST reporter.

'Not rated' is applied to GST reporters that have not completed a full justified trust review across all 4 focus areas.

Graph 10 – Overall assurance ratings for the most recent GST reviews completed by industry as of 30 June 2024

You can also view overall assurance ratings for the most recent GST reviews completed by industry data in table format.

Note:

• These groupings align with the industry segments used by us as part of the Corporate Tax Transparency Reporting except where we have amalgamated the Banking, Finance and Investment (BFI), Insurance (ISR) and Superannuation (SUP) segments into a Financial Services (FS) segment. The groupings are:
  • Banking, Finance and Investment, Superfunds and Insurance (FS)
  • Manufacturing, Construction and Agriculture (MCA)
  • Mining, Energy and Water (MEW)
  • Wholesale, Retail and Services (WRS).
• Graph 10 depicts all current top 100 GST reporters that have had a completed GST assurance review (this does not include GST reporters that have exited the top 100 population).
• To ensure we have sufficient coverage of each taxpayer economic group, we consider a range of factors including:
  • coverage of at least 75% of GST throughput
  • additional criteria based on our knowledge of the taxpayer's business operations and industry (as outlined in section 4 of the GST Governance Data Testing and Transaction Testing Guide including unique or complex transactions, input taxed supplies and GST-free supplies).

For this reason, multiple GST reporters within an economic group may be reviewed. Economic groups in the MEW industry segment have more GST reporters subject to a review, as these taxpayers (GST economic groups) typically comprise of multiple GST reporters that make GST-free supplies and have lower GST throughput.

Observations

Overall high assurance was attained by 30% of GST reporters reviewed (an increase from 23% in 2023), meaning we have assurance these GST reporters have reported the right amount of GST for the period reviewed. These GST reporters typically have:

• overall Stage 2 or provisional Stage 2 rating for governance
• high assurance for correct reporting
• no identified concerns or issues with GST risks flagged to market or treatment of significant transactions.

We also have a good understanding of, and can explain, the various streams of economic activity and how they are treated for GST.

A large proportion of GST reporters reviewed have attained an overall medium level of assurance (63%). This means we obtained assurance in relation to most areas reviewed but not all areas.

Reasons why an overall high assurance rating was not attained include the inability to attain the following:

• An overall Stage 2 rating for governance due to insufficient objective evidence to demonstrate that a tax control framework exists and has been designed effectively with respect to GST. Design gaps in their tax control and governance frameworks for GST were found in 43% of GST reporters reviewed.
• Assurance for other focus areas, including the presence of GST risks flagged to market, issues with correct reporting and insufficient evidence to assure significant transactions. Over 26% of the GST reporters reviewed could otherwise reach overall high assurance but for these factors.
• An overall Stage 2 rating when applying the GAT. Applying the GAT to understand the alignment between accounting figures for the various streams of economic activity and how they are treated for GST. A further 14% of GST reporters that had the GAT applied didn't attain at least an overall Stage 2 rating.

Less than 2% of GST reporters reviewed have attained an overall low assurance rating. This means we have specific concerns around the GST reporter’s compliance with the Australian GST law and the amount of Australian GST paid and GST refunds claimed for the period reviewed. These GST reporters typically have Stage 1 governance, attained low assurance over multiple focus areas (including tax risks flagged to market, specific GST issues or correct reporting) and the variances between accounting figures and the amounts reported on the BAS are not understood or explained. We will comprehensively and intensively review these GST reporters through an annual comprehensive justified trust assurance review to improve their assurance rating.

There are also 5% of GST reporters reviewed who've had an interim review that only focused on 2 of the 4 justified trust focus areas with no overall GST assurance rating assigned. These GST reporters will have a review on the remaining focus areas, at which point they will be assigned an overall GST assurance rating.

Our reviews are encouraging improvements in correct reporting. Nearly 54% of GST corrections through voluntary disclosures in 2024 were made while a top 100 GST assurance review was in progress. The GST corrections continued to be made by GST reporters who've had a GST assurance review and were in the M&M period, accounting for 35% of voluntary disclosures in 2024. Importantly, these GST reporters have implemented, or have plans to implement, improvements to their controls, processes and procedures to prevent the reoccurrence of these errors.

Some taxpayers have further undertaken to continue to review their activity statements in relation to periods outside of the review periods to ensure compliance and to correct any GST errors identified. Others have also expanded their self-reviews to include other GST reporters in the economic group. We note that 23% of GST revenue raised through voluntary disclosures in 2024 was from other GST reporters in the economic group that hadn't had a GST review.

Tax risk management and governance

Tax governance is a key focus area under the justified trust methodology. This is important as errors due to poor governance and controls is the largest driver of amendments in the large market. As outlined previously, we review governance by requesting objective evidence of the design of tax controls. We review the design of controls based on documentation given to us and look for evidence in the form of approved policies and procedures demonstrating the existence and design of a tax control framework (for example, work instructions, templates, and process maps).

The GST Governance, Data Testing and Transaction Testing Guide outlines how we apply the justified trust methodology in our top 100 GST assurance reviews when reviewing the existence, design and operation of a taxpayer’s GST controls as part of an effective tax control framework.

We consider the 8 controls outlined previously. There are 3 controls that are fundamental because the design of these controls directly influence the way GST is reported. These fundamental controls are:

• Board-level control 4: Periodic internal control testing
• Managerial-level control 4: Controls in place for data
• Managerial-level control 6: Documented control frameworks.

We also consider the other 5 controls as these are common controls and the design is equally as critical for both income tax and GST. There are common features in the way these controls are evidenced for both taxes.

Ratings

We apply the same standard ratings system as outlined previously for income tax when considering the existence, design, and operation of a tax control framework for GST purposes.

The GST assurance reviews completed to 30 June 2024 resulted in the following ratings.

Graph 11 – Overall GST governance ratings for the most recent GST reviews completed as of 30 June 2024

Graph 12 – Overall GST governance ratings for the last GST reviews completed by industry as of 30 June 2024

You can also view overall GST governance ratings for the last GST reviews completed by industry data in table format.

Observations

The governance ratings for the GST assurance reviews to date show that over half of the top 100 GST reporters have obtained a Stage 2 or Stage 3 rating (56% in 2024) with the remaining GST reporters at Stage 1 or not rated (44% in 2024).

Poor governance that includes gaps in procedures or controls often leads to incorrect reporting of GST obligations. Taxpayers may inadvertently underpay GST or over-claim input tax credits due to a breakdown in a part of their processes or systems that capture, collate, report and reconcile the data that determines their GST liability. For instance:

• systems issues can arise due to coding errors and issues with the flow of information through the business system
• controls issues can arise due to the failure to undertake reconciliations and testings of controls
• process issues can arise due to deficiencies in documented procedures and having unstructured manual interventions or workarounds.

Where errors are identified (through voluntary disclosures or the assurance review), we have focused on understanding how these errors have occurred and reviewing the taxpayer’s processes and procedures to ensure that they are designed effectively to prevent the same errors from re-occurring when assigning ratings to GST controls. Through improved governance, we expect to see fewer system type errors resulting in amendments lodged or corrections made in subsequent periods.

We've also identified links between GST errors made in applying the GST special rules and the design of GST controls. Some examples include the application of the reverse charge provisions, financial acquisitions threshold (FAT) and input tax credit (ITC) estimators where we've observed inadequate system controls and missing detailed steps in BAS preparation procedures.

Periodic independent governance control testing continues to be a control that top 100 taxpayers find challenging for GST. Some taxpayers and their advisers are designing GST testing plans which cover only the 3 fundamental controls and not the common controls. Controls in place for data is another fundamental control for GST with limited formal documentation.

We strongly encourage taxpayers to develop procedures to explain significant differences between BAS reporting and financial statements. We're increasingly using the GAT or similar top-down methods to determine whether reported GST outcomes are plausible. We continue to observe in practice that GST errors occur because there are no natural systems to check outcomes as taxpayers continue to rely on bottom-up systems. We're of the view that procedures to explain significant differences should be part of taxpayers’ governance systems.

Systems and BAS walkthroughs performed in top 100 assurance reviews help inform us of aspects of our governance review, however, we also require source documents to evidence the tax control framework. We will leverage from the walkthroughs to identify systems and BAS controls and request evidence during these meetings to help to generate overall efficiencies with our governance reviews.

We continue to consult with stakeholders where appropriate and refine our approach when rating GST controls to ensure that the better practices set out in the guides are practicably achievable and able to be sustained in light of current business practices. This includes providing a page turn walkthrough of the GST Governance, Data Testing and Transaction Testing Guide and workshops to discuss design gaps identified during the reviews.

Stage 3

To obtain a Stage 3 rating for GST, we look for evidence that the documented GST control framework is both designed and operating effectively in practice.

This stage requires evidence in the form of a detailed report of findings, where taxpayers have independently tested the operation of their GST control framework in practice and concluded that their GST controls are operating effectively.

To date, 9% of top 100 GST reporters have provided us with their testing results, which demonstrate that their GST control frameworks are operating effectively to achieve a Stage 3 rating. Like income tax, we anticipate a further increase in the number of GST reporters obtaining a Stage 3 rating over the coming years.

Stage 2

A Stage 2 rating is required to achieve overall high assurance or justified trust for GST. This means taxpayers have provided objective evidence to demonstrate that a GST control framework exists and has been designed effectively.

We have observed that some top 100 taxpayers are highly committed to investing in GST governance with the result that they can obtain a Stage 2 rating at the conclusion of their initial GST assurance review. We expect that taxpayers with a well-designed and effective GST governance framework will result in less incorrect reporting of GST in future periods.

We continue to work with top 100 taxpayers to support their efforts to obtain a Stage 3 rating as part of our future engagement approach.

Stage 1

A Stage 1 rating recognises that a tax control framework for GST exists but reflects that further work is needed to demonstrate that it is designed effectively. We continue to work with taxpayers to improve their tax governance framework for GST as part of our future engagement approach.

In this regard, the main areas recorded with limited formal documentation in place are controls in place for data, BAS preparation procedures, BAS reconciliation to financial statement procedures and the periodic internal controls testing program.

Not rated

This rating is only applied in the top 100 program in a small number of cases for GST governance (1% in 2024). The reasons for this vary but include large scale mergers and acquisitions resulting in changes to the GST reporter and where only some of the 3 fundamental controls were included in the review. In these circumstances, we typically review the remaining fundamental controls in the following review.

GST risks flagged to market, significant or new transactions, and specific tax risks

We seek to understand that the GST outcomes of atypical, new or large transactions are appropriate. We also review GST risks or concerns we communicated to the market and determine whether these risks may be present.

Ratings

We apply a consistent rating system when reviewing and assessing the GST reporting and GST treatment of a taxpayer’s business activities, particularly significant and new transactions, and GST risks or concerns communicated to the market.

Staged rating system

Colour indicator	Rating	System description
	High	With respect to this issue, we obtained a high level of assurance that the right Australian GST outcomes were reported in the GST reporter's Business Activity Statements.
	Medium	More evidence and analysis is required to establish a reasonable basis to obtain a high level of assurance.
	Low	More evidence and analysis is required to determine whether a tax risk is present.
	Red flag	We have concerns there is non-compliance with the GST law.
–	Not rated	We have not evaluated this item and not expressed a rating.

Observations

Our assurance reviews assess correcting reporting, including using data and transaction testing. We have published guidance to assist taxpayers in relation to this, including the GST Governance, Data Testing and Transaction Testing Guide and the Guide to Independent Data Testing by Third Party Advisors (TPDT Guide).

We expect that taxpayers undertake robust and regular assurance and verification procedures that align with their business and that are tailored to their own operating environment. We have continued to observe positive actions taken by top 100 taxpayers to strengthen their GST compliance systems. We've also seen them adopt processes to support correct reporting, with examples including embedding data and transaction testing or aspects of the testing into their own systems, including specific GST verification checks prior to lodgment of the BAS. Taxpayers are implementing and automating data and trend tests to produce the correct results before the BAS is lodged.

Third party data testing

As at 30 June 2024, 22% of completed reviews that included data testing involved data testing by a third-party advisor (a reduction from 28% in 2023).

The TPDT Guide provides practical guidance on our expectations and the conditions that must be met for a taxpayer's advisor to undertake independent data testing that can be relied upon in a GST assurance review. Where the conditions cannot be met, we will conduct the data testing. One key condition that must be met is the independence of the advisor.

The scenarios in the TPDT Guide provide practical guidance on what independence means in respect to advisors undertaking data testing. These scenarios illustrate some factors that may impact on the independence of the third-party advisor, noting it isn't feasible to cover every possible scenario.

We're continuing to work closely with taxpayers and their advisors where third-party data testing is conducted in our reviews to ensure that the outcomes are sufficiently robust. This provides the intended degree of confidence with respect to correct reporting, and ensures that significant delays don't arise.

The following sections outline areas of concern and items that attract our attention. We don't see these in all cases.

Incorrect reporting

The risk of top 100 taxpayers incorrectly reporting their GST obligations continues to be a key focus area.

As at 30 June 2024, 44% of the completed reviews had issues or concerns with correct reporting of GST obligations. GST corrections, including those amounts that were voluntary disclosures, were commonly not material in dollar terms. However, in some cases the amounts of errors were large and, in a small number of cases, failure to take reasonable care penalties applied due to the taxpayer's circumstances. We have a particular focus on ensuring that top 100 taxpayers who have made voluntary disclosures implement improvements or safeguards in their controls, processes and procedures to prevent or mitigate the risk of the same or similar errors occurring in the future.

Here are some examples of reporting errors we've observed in assurance reviews completed up to 30 June 2024:

• Inaccuracy of input tax credit estimators resulting in overclaimed input tax credits.
• Incorrect GST credit claims on transaction costs for significant transactions. Where businesses engage in securities transactions such as IPOs, mergers, demergers, company acquisitions or other similar activities, these activities may give rise to input taxed financial supplies. As such, there's a need for these entities to consider restricting input tax recovery on attributable costs where the financial acquisitions threshold is exceeded and, if so, to also consider whether any reduced input tax credits (RITCs) are available. This includes consideration of preparatory or 'set up' costs for the disposal of businesses or subsidiaries.
• Failure to apply the 'reverse charge' GST provisions on services acquired from overseas that relate to making of input taxed financial supplies (where the financial acquisitions threshold is exceeded), including supplies from parent entities outside Australia.
• Incorrect completion of the labels on Business Activity Statements - for instance, where transactions are incorrectly recorded as being GST-free when the arrangements are 'not rated'.
• Errors with respect to Recipient Created Tax Invoices (RCTIs) include RCTIs being issued to unregistered suppliers; issued without appropriate RCTI wording or deficient wording or issued with incorrect ABNs or taxpayer names. We have also identified a number of expired RCTI agreements. However, in reviews across a range of industries, we've observed positive changes with taxpayers updating their processes to ensure that they periodically check that the supplier remains GST-registered (including automated validation checks), in line with ATO expectations. The Commissioner has combined the relevant requirements into one legislative instrument - an RCTI will only be valid if all the requirements are met, including that both the supplier and recipient are registered for GST at the time the invoice is issued.

Other key GST risks

In addition to incorrect reporting, we've observed other key GST risks and errors in the reviews completed and existing reviews in progress that can be grouped broadly as follows.

GST product classification

The review of entities’ product master lists has identified the incorrect GST classification of food and health products.

We continue to identify that GST classification issues are attributable to the following risk drivers:

• inaccuracy or gaps in governance controls around onboarding of new products, processing of transactions, including 'manual data' controls
• taxpayers not undertaking regular reviews of their product master data
• incorrect interpretation of the GST exemptions in the GST Act
• taxpayers’ reliance on a supplier’s classification without undertaking due diligence to determine the correct GST classification of the products being supplied.

Recent public advice and guidance has been published to assist taxpayers with their GST classification decisions including the following:

• GSTD 2024/1 Goods and services tax: supplies of combination food. The Determination provides guidance on when a supply of food is a combination of one or more foods, at least one of which is a taxable food (that is, a combination food) for the purposes of paragraph 38-3(1)(c) of the GST Act. It explains the Commissioner’s view, by reference to the recent AAT decision in Chobani, across the range of scenarios where the issue of combination food arises.
• Draft GSTD 2024/D1 Goods and services tax: supplies of food of a kind marketed as a prepared meal. This draft Determination outlines the Commissioner's view on the meaning of 'food of a kind marketed as a prepared meal' by reference to key concepts referred to in the Federal Court decision in Simplot.
• Updates to the Detailed Food List which included
  • adding and updating entries that were identified as a priority through industry feedback
  • adding new entries to reflect ATO views in recent advice and compliance activities
  • updating 304 food and beverage product entries to better explain why they are GST-free.
• A new self-review guide (for medium and large businesses) for GST classification of products has been published to provide taxpayers with practical step-by-step guidance to
  • undertake regular self-review of the GST classification of their supplies
  • assess the robustness of business system processes and controls that directly impact the decisions on GST classification of supplies.

Financial services and insurance

A key focus of our reviews of financial services entities is ensuring that they:

• correctly deny input tax credits on costs to the extent they relate to making input taxed financial supplies
• have adopted approaches in line with current ATO public guidance, correctly claim reduced input tax credits and apply the reverse charge on cross-border acquisitions.

For insurers, we ensure that relevant provisions (such as those for decreasing adjustments) are applied correctly.

We made some key observations:

• We've seen errors where extent of creditable purpose rates are being applied using a 'set and forget' approach without consideration of whether the method was fair and reasonable. Similarly, we have seen a 'set and forget' approach being applied in relation to claiming reduced input tax credits based on general ledger codes, without conducting periodic self-review transactional analysis.
• We've also observed that while financial institutions generally are within the green zone (low risk) of PCG 2019/8: ATO compliance approach to GST apportionment of acquisitions that relate to certain financial supplies, we continue to have concerns with a small number who adopt high risk positions in their apportionment methodologies, including continual use of retrospective amendments for earlier periods to uplift claims.
• General insurers should be mindful of ensuring that there are controls in place to verify or sense check the input tax credit entitlement of the insured used in calculating decreasing adjustments.
• Taxpayers should be aware of ATO expectations around the ability to claim decreasing adjustments in respect to remediation payments, and ensure they have evidence of a supply and an adjustment note or recipient-created adjustment note to substantiate any claim.

We encourage taxpayers to consider practical ATO guidance published in relation to:

• Eligibility of super funds and investor-directed portfolio services investment platforms to claim reduced input tax credits on adviser feesThis link will download a file
• ATO expectations on how you support your reduced input tax credit claims on complex information technology outsourcing agreements
• Application of the reverse charge provisions – findings of reviewsThis link will download a file
• GST data tests for the financial services and insurance industry.

International GST risk

This risk is associated with the correct GST treatment of goods or services supplied by offshore entities to Australian consumers.

We continue to observe that top 100 taxpayers in the digital economy have related offshore entities which are liable to remit GST because they:

• make sales of digital products and services or low value imported goods
• facilitate supplies by offshore merchants through platforms they operate.

Real property, accommodation and retirement villages

We have a continued focus on assuring the correct treatment of property transactions and supplies of accommodation. For instance, we check that the margin scheme is applied correctly, and ensure that supplies are correctly classified in arrangements for the provision of short-term accommodation by accommodation providers.

Key focus areas are the:

• characterisation of supplies
• treatment of inter-group and related party arrangements
• correct application of the adjustment provisions and apportionment of related costs for relevant taxpayers where there are supplies of input taxed residential premises (for example, in build to rent developments, where broadly we have seen supplies are being classified correctly, but an area for improved compliance is in relation to adjustments under Division 135 for acquisitions of a going concern).

Understanding the alignment between accounting and GST

We seek to understand and explain the various streams of economic activity and how they are treated for GST, which may include applying the GAT.

Ratings

We apply a consistent rating system when reviewing and assessing the alignment of accounting figures to amounts reported on the BAS. This includes also understanding the reasons for any variances.

	Stage 3	We understand and can explain the variance between accounting figures and the amounts reported on the BAS. As a result of applying the GAT, we understand why accounting and GST results vary and this understanding is sufficiently supported by objective evidence.
	Stage 2	Further analysis and explanation are required to understand the variances between accounting figures and the amounts reported on the BAS. As a result of applying the GAT, we do not fully understand why accounting and GST results vary or this understanding is not sufficiently supported by objective evidence.
	Stage 1	We don't understand and can't explain the variances between accounting figures and the amounts reported on the BAS.
	Red flag	We identified concerns from our analysis of the variances between accounting figures and the amounts reported on the BAS.
NR	Not rated	We haven't assessed the various streams of economic activity or why accounting and GST results vary using the GST analytical tool.

Observations

The GAT is applied under this focus area. We apply the GAT in each top 100 GST assurance review except in relation to GST reporters who are predominately input taxed, for example banks and APRA regulated super funds.

The GAT uses a standard method statement applying a ‘top down’ approach to identify and understand key variances between accounting figures reported in audited financial statements and GST reported in the BAS’. The GAT is a useful tool for taxpayers to check how their various streams of economic activity are treated for GST purposes and have confidence in relation to their GST outcomes.

The application of the GAT is an important component in respect of assuring the GST outcomes of taxpayers in the top 100 GST assurance reviews. As we continue to refine and enhance the GAT analysis, it's helping to provide an informed basis to drive the work program and areas of focus across assurance reviews. This is because identifying the key variances between accounting and tax is helping us understand the various streams of economic activity of a taxpayer and how they are treated for tax purposes. This helps us identify and target our reviews to the most important or critical GST risks.

The GST Analytical tool (GAT) FAQ, top 100 and top 1,000 support taxpayers and their advisers with their GST assurance reviews. There's an expectation as part of good GST governance that a taxpayer has a process in place to explain BAS reporting of GST payable and receivable compared to business outcomes, as well as to explain the key variances in comparison to financial statements.

We have observed generally that the completion of the GAT can assist in identifying GST reporting errors. We continue to work closely with taxpayers to apply the GAT to demonstrate how understanding the variances between accounting and tax can be practically achieved.

Our approach has resulted in most taxpayers preparing their own GAT calculations for top 100 reviews and achieving either a Stage 3 or Stage 2 rating based on our analysis of those calculations. We strongly recommend that top 100 taxpayers, (who are required to prepare the GAT), should embed the GAT process into their GST reconciliation and governance procedures to enable them to compare and explain variances between GST reporting on the BAS and business outcomes as reported in financial statements.

Graph 13 – GAT ratings for the most recent GST review completed where the GAT has been applied as of 30 June 2024

We have observed that 30% (an increase from 23% in 2023) of GST reporters who've had the GAT applied in their assurance review attained the highest rating for this focus area (Stage 3). This means that there's sufficient objective evidence to support our understanding why accounting and GST results vary. In most of these cases, the GAT was completed by the taxpayer where calculations provided have been supported by objective evidence and explanations.

A further 56% of GST reporters who've had the GAT applied attained a Stage 2 rating. This means that we don't have sufficient objective evidence to fully understand why accounting and GST results vary. In most cases with Stage 2 rating, we observed that there was a lack of evidence provided for some key adjustments. If these adjustments were to be evidenced correctly, Stage 3 ratings could have been achieved. For many GST reporters, a Stage 2 rating will be a satisfactory rating for the alignment between accounting and GST focus area.

The remainder of GST reporters who have had the GAT applied (14%) attained a Stage 1 rating.

One of the early challenges associated with the application of the GAT related to reconciling complex grouping variances. We have since worked closely with taxpayers to provide tailored solutions for their grouping variances. This has resulted in greater ease for taxpayers when making adjustments for grouping variances.

We've observed that most GAT calculations have resulted in small overall variances when comparing the adjusted revenue and expenses to the 1A - GST on sales and 1B - GST on purchases labels in the BAS. The key difference between a Stage 3 and a Stage 2 rating comes down to how well those adjustments can be explained, the quantum of overall unexplained variance and the extent to which they can be supported by objective evidence. We note however that while in some cases the overall unexplained variances may be low, there can also be significant unexplained variances between the value of the adjustments and the objective evidence provided, which would mean Stage 2 rating is provided rather than Stage 3 rating.

A very small number of top 100 GST reporters have so far prepared documents detailing their procedures in place to perform the BAS to financial statement reconciliation (including where applicable, GAT preparation or similar methodology) as part of their MLC 7 controls within their GST governance framework. We consider this to be best practice and encourage all taxpayers to embed the GAT into their governance systems.

What a high assurance rating means for GST

An overall high assurance rating means that we obtained assurance that the GST reporter paid or reported the right amount of GST for the period reviewed.

Where a GST reporter receives a high assurance rating for a significant or new transaction, a transaction with respect to a tax risk flagged to market, or a specific tax risk, this means that with respect to this issue, we obtained assurance that the taxpayer reported the right amount of GST in their activity statement.

The GST reporter can therefore rely on a high assurance rating to mean we won't initiate any review (including assurance) or audit activity for the period reviewed on relevant issues in the activity statement reviewed, other than any issues listed as requiring further review in the future assurance plan or similar work plan. Only in exceptional circumstances will we initiate further review.

Similar work plan includes a taxpayer specific justified trust maintenance plan, issues register or annual review plan. It also extends to our general issues registers available on our website.

It will only be in exceptional circumstances that we'll apply compliance resources to review any of the relevant issues in the period reviewed. The following circumstances are likely to constitute exceptional circumstances:

• Legislation is enacted, a final decision of the court or tribunal is made, or there is a precedential ATO view that applies retrospectively to the period reviewed.
• A review is required to complement compliance activity or give effect to a determination, of another government agency or regulator.
• There's a self-amendment or objection to the activity statement for the period reviewed (we'll review the statement in relation to the issue covered by the self-amendment or objection and related issue) or the issue is impacted by the taxpayer correcting an error in relation to that issue in a later tax period.
• The taxpayer has subsequently notified us of a disclosure issue or error that should be corrected. Relevant factors for consideration include materiality, potential risk to revenue and likely proliferation in the market or consistency with the policy intent.
• There's a change of tax treatment or position by the taxpayer or a party to a supply in which the taxpayer is a participant in that period or in subsequent periods (other than due to a retrospective change in law or a precedential ATO view). Specifically, where it means that no GST is ever payable on a supply, there is a double input tax credit benefit (such as 2 entities claiming the same input tax credit on a supply), or that an input tax credit is available for one entity with no GST being payable by the other.
• It becomes apparent to us that full and true disclosure was not made.
• There's potential application of the anti-avoidance provisions.
• Fraud or evasion becomes evident to us.