Earlier this week, the Tax Institute spotted an apparent oversight in the Treasury Laws Amendment (Enterprise Tax Plan) Act 2017, which passed last year.
The changes allow small businesses with an aggregated turnover of up to $10 million the ability to account for GST on a cash basis, but the same threshold does not apply 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 Tax Institute senior tax counsel Professor Robert 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.
Responding to Accountants Daily’s story yesterday, shadow assistant treasurer Andrew Leigh said the oversight was an example of how the government had botched tax changes.
“If true, this would not be the first time the government had botched its company tax changes,” said Mr Leigh.
“Last year, the Turnbull government was forced to go back to Parliament with amendments to ensure that passive investment companies would not get the benefit of the tax cut for small and medium-sized firms.
“Now tax agents and small and medium businesses are worried that the government has made yet another legislative drafting error.”
In reply, Treasurer Scott Morrison’s office told Accountants Daily that there had been no oversight but did not specify reasons for the different threshold limits.
“There is no oversight in the legislation. Labor is resorting to cheap stunts because they are embarrassed with their proposals to increase taxes on Australian small businesses,” said a Treasurer spokesperson.
“Carrying on an enterprise for GST purposes is not the same as being a small business. As pointed out by the Tax Institute, being an enterprise for GST purposes is broader and may include activities which are largely passive (e.g. leasing property or other assets) without satisfying the requirements of carrying on a business.
“The Enterprise Tax Plan has not changed the tax treatment for enterprises that do not carry on a business – they retain access to cash-accounting for GST purposes where their GST turnover is $2 million or less.”
However, 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, as it sees no “good policy reason for making a distinction between such entities for GST purposes”.