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Transcript: IndirecTV™ video update – August 2012

Key GST developments affecting the government sector

[John Koutsogiannis] Welcome back to Deloitte IndirecTV™.

In this episode, Sanjeev Fernandez and Sasha Meakins look at some of the more important GST developments affecting government agencies - the appropriations concession, financial assistance payments, and GST on government taxes, fees and charges.

[Sanjeev Fernandez] The appropriations concession exempts certain payments between government related entities from GST.

Recently, the GST law was amended to change the way the appropriations concession operates.

Significantly, the concession no longer requires that a payment be “specifically covered” by the appropriation to qualify for GST exemption. In practice, this means that it’s no longer necessary for the appropriation to specify the government related entity receiving payment, either by name or by class.

However, the concession now includes a “non-commercial” test, which arguably narrows its scope. Under this test, GST exemption is unavailable for appropriated amounts paid to government related entities for supplies being made under commercial arrangements – that is, where the government related entity receives more than needed to cover the cost of making the supply.

With the amendments applying to all appropriation payments made from 1 July 2012, government agencies should be reviewing their funding arrangements to determine whether GST exemption applies.

In another development affecting the treatment of funding arrangements for government agencies, the ATO has issued a new GST ruling about financial assistance payments.

The new ruling retains the fundamental principle that a grant or financial assistance payment can only be subject to GST if there is a sufficient nexus between the payment from the payer and a supply made by the payee.

The new ruling provides additional clarification about when the Commissioner considers a sufficient nexus exists.

In light of the Commissioner’s updated views, government agencies should review their grant and funding flows, to determine whether GST treatment may be affected and if remedial action is necessary.

[Sasha Meakins] Another key change for government agencies has been the revision of Division 81, which deals with the GST exemption for taxes, fees and charges.

Division 81 has been revised to require government agencies to self-assess whether their taxes, fees and charges are exempt from GST, according to prescribed principles. This principles-based approach replaces exempt taxes, fees and charges being listed in the twice-yearly Treasurer’s Determination.

Additionally, to provide greater clarification, new regulations identify categories of fees and charges that may, or may not, qualify for GST exemption.

Grandfathering of the final Treasurer’s Determination has been extended to 30 June 2013, so government agencies now have more time to review whether the GST treatment of pre-existing fees and charges may change under the new rules.  

Keep in mind however, that the new rules already apply to new fees and charges not included in the final Treasurer’s Determination.

So it is important for government agencies to consider their current fees and charges to determine how and when the new rules apply.

[John Koutsogiannis] As you can see, the GST issues facing government agencies are complex and continually evolving.

Now is the time for government agencies to review their arrangements to ensure compliance with the GST law, as well as to take advantage of any potential GST savings opportunities.

To discuss these developments, please contact your Deloitte indirect tax adviser.

Thanks for watching.

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