For a number of years, the Australian Taxation Office (ATO) has been revisiting long-held formal and informal positions it has taken with respect to the GST treatment of a range of banking products and financial services.
After being delayed by the urgent need to divert resources to its pandemic response, the ATO has now finalised a suite of rulings and other guidance products which it believes puts to bed some of the more contentious GST issues affecting banking and financial services.
While it is fair to say that the banking industry has not always embraced the renewed focus on its GST positions, or the fact that this is likely to result in less GST being recovered on overhead costs for most taxpayers, many banks will at least welcome the certainty the final products will provide.
What are the new ATO products and what do they say?
On 25 September 2020, the ATO released the following four guidance products:
- GSTR 2020/1: determining the extent of creditable purpose of acquisitions in relation to transaction accounts;
- GSTD 2020/1: when is the supply of a transaction account GST-free under table item 3 or table item 4(a) of subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999;
- Addendum to GSTR 2004/4: assignment of payment streams including under a typical securitisation arrangement; and
- PCG 2019/8: ATO compliance approach GST apportionment of acquisitions that relate to certain financial supplies.
Perhaps the most important point is that the guidance products affect not just banks, but any authorised deposit-taking institutions (eg credit unions and building societies) (ADI) and card issuers.
The following table sets out the main issues dealt with in each product, but it is worth appreciating that the products contain a significant amount of detail and should be understood in context and in their entirety:
Risk-based approach to compliance (per PCG 2019/8)
A key take-away from the guidance products is that, for the first time in a GST context, the ATO has explicitly broken out its risk assessment framework into five “risk zones”, together with the ATO’s associated compliance approach:
Suggested next steps
All banks, building societies and credit unions should review their existing GST recovery methodologies to benchmark where they sit in the ATO’s risk framework. Particularly for those ADIs who will fall within the red, yellow and blue zones, serious consideration will need to be given to whether the current position remains sustainable and whether taking such a heightened risk is appropriate in the context of providing the ATO with “justified trust” that it pays the right amount of tax.
The issuance of the guidance products represents a “reset” by the ATO as it revisits and resolves a number of long-standing GST issues. Therefore, it is particularly important for ADIs to ensure that they review their current ITC recovery positions and not simply continue with their existing GST treatment as these may now be considered high-risk.
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