How we operate
Our Top 500 GST assurance program supports and expands on existing compliance approaches, including justified trust reviews for income tax.
Our specialist GST teams engage with the income tax engagement and assurance team and each taxpayer to gain assurance that they are reporting the right amount of GST.
We also have resources, such as the Tax governance guide for privately owned groups, that outline the key features of governance we believe a business should have to effectively manage tax risks.
How we tailor our compliance approach
Under the Top 500 program, GST and income tax teams work collaboratively to deliver justified trust assurance reviews across both taxes. We gain assurance by engaging with the Top 500 group and will:
- review a 12 month period that aligns to the income tax year under review
- issue a combined GST and income tax assurance letter providing
- details of assurance outcomes for entities within the group for the relevant years
- next actions (if applicable).
During our engagement we apply our justified trust methodology and tailor our approach to the circumstances of the Top 500 group, including:
- the taxpayer’s overall GST performance
- the type and size of business activities
- GST risk management and governance
- our understanding of the taxpayer from income tax engagements.
How justified trust applies to your engagement
We apply the justified trust methodology and we seek to obtain assurance that:
- appropriate GST risk and governance frameworks exist and are designed effectively
- none of the GST risks we have flagged to the market are present
- the GST outcomes of data testing, atypical, new or significant transactions are appropriate
- we can understand and explain the various streams of economic activity and how they are treated for GST by reviewing the differences between the accounting and GST results.
A GST assurance review will focus on the same financial year as the existing income tax review.
Tax governance
When reviewing your tax control framework for GST purposes, we work collaboratively with the income tax team.
While all 7 principles of effective tax governance are considered for the Top 500 group, for GST we focus on 2 of these principles. The design of these principles directly influences the likelihood the correct amount of GST is remitted or refunded. These 2 principles are:
- recognising tax issues and risks
- integrity in reporting.
Recognise tax issues and risks
Having regard to the activities and type of entity, this should include having a documented process to prepare the business activity statement (BAS).
Integrity in reporting
Having regard to the activities and type of entity, this should include:
- periodically review systems and controls in place to ensure the controls are operating effectively, noting that this does not need to be tested by an independent tester
- regularly review the underlying data, noting that this does not need to be tested by an independent tester
- data controls for information set up and manual processing of data.
Data and transactional testing – ongoing transactions
Data and transaction testing is also undertaken, generally focusing on 3 to 12 months of consecutive BAS periods, to determine whether GST outcomes are appropriate.
Differences in accounting and GST results
We have developed an approach to better understand why accounting and GST results vary. This approach is one of the ways we obtain greater assurance you are paying the right amount of GST.
The approach uses a standard method statement applying a top-down approach to identify and understand variances between accounting figures reported in prepared financials and GST reported on the BAS. The approach is not intended for use by taxpayers with predominately input taxed supplies.
The method is based on the same principles as the GST analytical tool (GAT) referring back to financial accounts. However, it has been tailored specifically to take into account the differences between public and private groups.
The method statement starts with the revenue and expenses reported in your profit and loss statement. It works through a series of adjustments to compare this information with your annualised BAS covering your financial reporting year.
We seek to understand what parts of your reported accounting revenue represent:
- taxable supplies
- GST-free supplies
- input taxed supplies
- transactions that are not supplies for GST purposes (out-of-scope supplies).
We also seek to understand what parts of your reported accounting expenses represent:
- GST-bearing expenses
- non-GST bearing expenses.
The 4 key steps to the approach are:
- grouping variances between reporting entities
- non-GST bearing items (permanent differences)
- balance sheet and cashflow items (temporary differences)
- other adjustments (offsetting items/industry specific).
This helps us to understand variances between your financial statements and your BAS results. It also assists us to determine whether those variances are within our expectations relating to the other key focus areas of the justified trust methodology. The approach is not designed to quantify tax shortfalls or overpayments.
We will gain an understanding about the following justified trust focus areas:
- effective tax governance
- tax risks flagged to market
- ongoing and atypical transactions (including GST data and transaction testing).
Once this is progressed, we will use that information about your business to assist our understanding of any potential variances. We will engage with you throughout this process including seeking further explanations where any variances cannot be explained from the information we hold.