By Sasha Smith, Director and Justin Ward, Partner,
Tax and Legal, Deloitte
On 15 July 2020, the Australian Taxation Office (ATO) published the GST Governance, Data Testing and Transaction Testing Guide (guide).
Context for the guide: GST assurance review programs
Under its Justified Trust framework, the ATO has moved to an evidence-based assurance program designed to “maintain community confidence that taxpayers are paying the right amount of tax,” including goods and services tax (GST). The current GST assurance programs have a specific focus on the Top 100 and Top 1,000 taxpayers. The programs involve the roll out of GST streamlined assurance reviews (SARs) that will see the ATO review, challenge and validate, based on objective evidence, a taxpayer’s GST compliance and control framework.
In terms of coverage across the programs, the ATO is endeavoring to conduct 100 GST SARs each financial year through to 30 June 2023, made up of 20 from the Top 100 and 80 from the Top 1,000. Prior to December 2019, approximately 30 Top 100 and Top 1,000 SARs had been completed across a range of industry groups with taxpayers selected based on GST risk factors.
With the economic and COVID-19 health situation generally improving across the country, review activity is set to ramp up with the ATO investing more resources across its GST assurance programs. Thirty top 1,000 taxpayers have received notification during June 2020 that the ATO intends to commence a GST SAR for them in August.
It is not surprising that taxpayers that have had an income tax assurance review may find themselves “first in line” for a GST SAR and we are seeing this play out in practice with some of those taxpayers already selected for a GST SAR. To this end, we expect that the ATO will leverage any findings it has obtained as part of its income tax assurance reviews – whether that be areas for which assurance was given or areas instead identified as presenting critical tax risk issues for the taxpayer.
GST systems, processes and controls are the central focus under the GST assurance programs. As noted in the ATO guide, “[t]he way in which your business systems create, capture, collate and report GST impacted transactions is fundamental to the correct reporting of your GST obligations.”
The GST Governance, Data Testing and Transaction Testing Guide
The ATO’s release of the guide for the Top 100 and Top 1,000 taxpayers is a welcome development. The guide underwent extensive consultation with the tax profession, including Deloitte, before its final release.
We consider the guide to be both comprehensive and practical in providing taxpayers with guidance in assessing their readiness for a GST SAR. It contains detailed guidance covering what is required from taxpayers in providing objective evidence that their GST controls are both designed and operating effectively in achieving Justified Trust and a Stage 3 (Green) assessment.
What does the guide mean for your business?
The guide is directly relevant to any Australian-headed or foreign owned economic group with turnover greater than AUD 250 million, being the pool from which the Top 100 and Top 1,000 taxpayers are drawn.
As its name suggests, the guide provides affected taxpayers with practical guidance about how to conduct a self-review of their GST governance framework, as well as for undertaking GST data and transaction testing.
You can use the guide to:
- Assess your readiness for a GST SAR;
- Review the design and operation of your GST controls; and
- Guide the scope and methodology for the regular data testing and transaction testing that the ATO expects GST taxpayers to undertake.
From a GST governance perspective, the guide sets out the core elements and what the ATO looks for in the context of a GST SAR in reviewing the three fundamental GST controls, being:
- Periodic internal control testing: BL4;
- Controls in place for data (GST only): ML4; and
- Documented control frameworks: ML6.
Importantly, the ATO will look for evidence of an independent review that has tested your GST controls in order to provide an independent level of assurance to your business’s Audit Committee and/or Board as well as, and importantly, to the ATO in the context of a GST SAR.
The benefits of being ready
Taking action now in assessing your readiness for a GST SAR can deliver the following benefits:
- The ability to generate complete and defensible objective evidence that your business’s systems, processes and controls are in line with the ATO’s expectations under the GST assurance programs;
- The ability to demonstrate the measures your business has taken to achieve Justified Trust and its commitment to achieving a Green Stage 3 assessment; and
- Safeguarding your business, helping to reduce its exposure to GST risk and effectively manage GST compliance and associated costs.
This article was originally published on Deloitte. tax@hand
