By Paul Smith and Allan Bullot
Friday 31st March 2000
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The applications must be received by the Australian Tax Office (ATO) by May 31, 2000, to receive an ABN in time for the start of GST on July 1, 2000.
Doing business in Australia without an ABN has some serious risks. This includes a potential withholding of 49.5% by Australian customers of the payment they would otherwise make to their suppliers.
The requirement to withhold 49.5% if a supplier does not provide an ABN number is to prevent non-GST registered businesses performing cash jobs outside the tax net. However, the withholding requirements may also catch many New Zealand businesses operating in Australia.
A person must register for Australian GST if they carry on an enterprise, they make supplies in excess of $50,000 and the supplies are "connected" with Australia.
Excluded from the threshold are "input taxed" supplies (or "exempt" supplies, to use the New Zealand-equivalent term). These include certain financial supplies that are defined in the Australian GST legislation. The threshold is also increased to $100,000 for non-profit bodies.
The fundamental question for New Zealand businesses to answer is whether their supplies are "connected" with Australia. The Australian test for registration is broader than the New Zealand GST test which focuses primarily on the residency status of the person making the supply (although there are mechanisms to bring non-residents into the New Zealand GST net in certain situations).
To determine whether supplies are connected with Australia, New Zealand businesses need to consider the nature of their supplies as the test of "connection" varies according to the type of supply made. Broadly, a supply of goods is connected with Australia where goods are physically located in Australia, are imported into Australia or are exported from Australia.
It also includes goods assembled or installed in Australia. New Zealand businesses tendering for "supply and install" contracts in Australia should therefore beware.
A supply of real property is simply connected with Australia if the real property or land is situated in Australia. New Zealand property developers will face significant Australian GST issues if their existing portfolio includes properties in Australia or where Australian properties are to be bought.
A New Zealand business will fall within the Australian GST system if its services are performed in Australia or if it carries on an enterprise in Australia.
The Australian GST legislation also contemplates supplies that are partly connected with Australia. For example, a service will be connected with Australia even if only part of the service is physically performed in Australia.
In these situations, care will need to be taken to ensure the services performed in New Zealand are not also drawn into the Australian GST regime. Failure to do so could result in a supply being taxed in both Australia and New Zealand.
Where a liability to register for Australian GST is established, New Zealand busin-
esses will need to act fast as they will face an incredibly tight schedule of GST implementation.
The ATO's ability (or rather inability) to cope with a surge of ABN applications in the coming months has been well reported.
However, the situation is not being helped by the ATO's rejection of many applications from non-residents who do not have a physical presence in Australia. New Zealand businesses should take this into account when applying for an ABN.
The May 31 deadline must be complied with to obtain an ABN number on time for the start of GST.
Customers will be required to withhold 49.5% of any payment they make to a supplier who does not hold an ABN. The 49.5% is the grand total of the top marginal income tax rate for individuals plus the Medicare levy, including the Timor levy.
The withholding tax applies regardless of whether the supply was GST-taxable or not. But it only applies where the supply is made through an enterprise that is carried on in Australia.
This raises some interesting questions where it is not obvious to the customer through which enterprise the supply was made and whether the customer should withhold or not in cases of uncertainty.
The ATO has indicated a potential 12-month waiting period before businesses can recover the withholding tax in excess of any final GST liability.
It is an area where businesses operating in Australia simply cannot afford to slip up.
Paul Smith (left) is a manager and Allan Bullot is a senior manager in Ernst & Young's Auckland office. Both specialise exclusively in New Zealand and Australian GST. Ernst & Young will present Australian GST updates at a series of ICANZ presentations throughout the country from April 17
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