4.8 Goods and Services Tax (GST)

GST must be paid on funding to GST registered private and community organisations, where there is an undertaking to supply specified services for that funding.

'Gifts' made to the organisation by the department are not subject to GST. A gift is defined as a transfer of funds where there is no contractual obligation attached to those funds.

The process for GST payment is as follows:

• the department will pay the organisation the agreed funding, plus the 10 per cent GST for each funded activity
• the organisation will remit the GST to the ATO
• the department will claim the 10 per cent GST from the ATO.

Figure 3 GST payment flow

Summary of GST criteria

If the funded organisation does not have an Australian Business Number (ABN), a withholding tax of 48.5 per cent will be applied on the funding, subject to exceptions listed on the statement by a supplier (see ATO internet site for further information). The department's preference is to enter into service agreements with organisations that do have an ABN.

If the funded organisation has an ABN, but is not registered for GST, the payment will not be grossed up by 10 per cent. See http://www.abr.business.gov.au (external link) for further information about registration.

If the funded organisation has an ABN and is registered for GST, the payment is grossed up by 10 per cent when there is a taxable supply.

Australian Business Number (ABN)

ABN registration online

An ABN is a key part of the new tax system. The ABN uniquely identifies every Australian trading entity that has a relationship with the ATO, whether business, government or not for profit. All organisations should register with the ATO for an ABN because:

• it is the precursor to registering for GST
• payment made to organisations that do not have an ABN will be subject to a 48.5 per cent tax withholding, in accordance with changes to Pay As You Go (PAYG) legislation.

The department will retain records relating to the ABN for each organisation. If the ABN is not recorded, the department will be required to withhold 48.5 per cent from every service payment and forward this amount to the ATO. It is in the interests of all service providers, no matter how small, to register for an ABN.

Where an organisation has more than one ABN, the department requires the ABN that relates to the business entity with which the department has the service agreement.

If the organisation is also the lead organisation for a consortium, the organisation will need to return the ABN and GST registration details for that consortium, in addition to its own GST and ABN details. The ATO provides a separate GST registration form for organisation groups (consortia).

GST registration

The ATO requires that all entities carrying on an enterprise must register for GST if their annual turnover is at or above the threshold of $50,000 (for commercial organisations) or $100,000 (for non-profit organisations). This includes income from all sources, not just funding from the department.

Not for profit organisations with an annual turnover of below $100,000 have an option to register for GST. Organisations deciding not to register will be unable to charge GST on services delivered and the department will not require a Recipient Created Tax Invoice (RCTI). Organisations will need to inform the department of the option chosen and if their GST status changes.

Although an organisation may decide not to register for GST, it will still need to obtain an ABN to avoid the withholding tax of 48.5 per cent from each service payment.

Recipient Created Tax Invoices

GST legislation requires that where a taxable 'supply' is provided, and there is a need for documentation to accompany this supply, the documentation should be in the form of a tax invoice. The ATO has provided guidelines regarding the content of the tax invoice.

Where payments to an organisation are grossed up by 10 per cent for GST, the department will issue a RCTI.

The benefits of using RCTI include:

• retaining current cash flow of payments to organisations. Payments by the department to organisations will continue to be made in advance - payment after the event would severely disrupt the cash flow to organisations.
• providing advice on service payments by activity with separate identification of the GST payment to be remitted to the ATO by the organisation
• avoiding confusion between service payments and the GST calculation
• no requirement for organisations to invoice the department for services provided.

A key requirement is that there must be a written agreement to the provision of the RCTI by the department. The agreement for the RCTI must be in place between the organisation and the department prior to the first payment.

If the organisation has an annual turnover of below $100,000 and has chosen not to register for GST, the RCTI will not apply and a normal remittance advice will be provided.

Funding information provided at service plan and activity levels is exclusive of GST. The GST is then added where appropriate at the applicable rate (10 per cent). The intention of the department is to make transparent to organisations the funding related to service delivery and the separate GST component. This will enable organisations to immediately identify the GST component of the department's funding, which must be remitted to the ATO.