Speaking to Accountants Daily, Tax Institute senior tax counsel, Professor Robert Deutsch, said there might have been an oversight when the Treasury Laws Amendment (Enterprise Tax Plan) Act 2017 passed, giving small businesses with an aggregated turnover of up to $10 million the ability to account for GST on a cash basis, but not applying the same threshold to entities that do not carry on a business, as per Section 29-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
“For small businesses, the amount is governed by the definition of small business entity which basically means it's $10 million in aggregated turnover but if you don't carry on a business, and you are still caught by GST, which is possible, then it goes to the definition of the cash accounting turnover threshold which is separately defined in Section 29-40 Sub 3 [of the GST Act] to mean $2 million or a higher amount as the regulation specifies,” said Professor Deutsch.
According to Professor Deutsch, the difference in threshold amounts would affect entities that are registered for GST, such as entities carrying on an enterprise including owners’ corporations for strata plans, entities that lease goods or real property, or charities.
“So if you are a leasing entity, but you're not actually carrying on a business then you're subject to the $2 million cash accounting turnover threshold which seems odd because if you're going to change it to $10 million for one of those groups, you would have thought they would want to change it for all of them but they haven't,” said Professor Deutsch.
“A lot of [tax agents] may miss the point that if you are an entity subject to GST but you don't carry on a business, their threshold is actually $2 million, not $10 million.
“It could lead to some fairly serious errors but apart from that it's going to affect them in that they have to explain to their clients that if you're not carrying on a business, but you are carrying on an enterprise, your threshold is different so I think there is a possible negligence on the part of agents who aren't aware of this strange anomaly and if they are aware of it, they are going to have to explain it with some difficulty to their clients.”
Professor Deutsch added that the Tax Institute has followed up with a submission to Treasury to raise the cash accounting threshold for non-businesses in the GST Act to $10 million to correct what may be “just an oversight”.
Jotham Lian is the news editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
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