Tax Alert

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Are your GST processes and controls up to scratch?

Tax Alert - December 2017

By Sam Hornbrook and April Wong

With the launch of GST online administration via “MyIR”, Inland Revenue’s Business Transformation program has certainly kept its promise of reducing paper-based compliance for its customers and tax agents alike. Since MyIR went live earlier this year in February, more than a million GST returns have been filed online and around 163,000 direct debit payments worth $1.6 billion have also flowed through MyIR.  

This shift towards administering GST online via MyIR has also enhanced Inland Revenue’s visibility into taxpayer activity using data analytics. Inland Revenue has advised they are paying close attention to taxpayers’ wider GST processes and systems as part of its routine risk reviews. Inland Revenue expects taxpayers to be:

  1. Ensuring that at least one person is preparing the GST return and another in charge of reviewing;
  2. Performing trend analyses (at the minimum, taxpayers should be tracking any unusual trends between their GST returns filed);
  3. Creating or maintaining a GST controls / processes manual, and following the manual in its GST compliance practices. This manual should also be regularly updated for any business changes that impact GST; and
  4. Undertaking full GST reconciliations monthly, or at the very least, annually.  

Number 4 on that list in particular should not be overlooked as we are aware that many clients do not presently perform a full GST reconciliation. Data analytics has given Inland Revenue the ability to perform their own sophisticated GST reconciliations using a taxpayer’s GST return information and financial statements. Inland Revenue will be able to look at 12-months’ worth of GST returns filed and compare this to the information in the taxpayer’s financial accounts. Generally, a GST reconciliation requires comparing your GST output tax to the level of income earned in the period, plus asset sales. You should compare your input tax amount to expenses incurred, excluding expenses with no GST (e.g. interest, depreciation, salary and wages) and add asset purchases.

A few different forms of GST sense checks exist across the taxpayer base. For example, one may look at the GST General Ledger (GL) and check that the GST balance matches what goes in the GST return. However, this process assumes accuracy of the GST treatment in the GL. There are often GST coding issues with sundry income, insurance pay-outs and barter transactions. Fully reconciling the GST return and the financials can be challenging for larger organisations that deal with more complex transactions. Nevertheless, Inland Revenue expect businesses to be performing these GST reconciliations and this will be an area of focus now that they are becoming more sophisticated at using taxpayer data. While Inland Revenue accepts a certain level of variance between the two sets of data in the wider context of the organisation’s materiality thresholds, the extent to which Inland Revenue will accept this variance will be re-examined and likely narrowed in light of Business Transformation practices.

Given the potential complexity involved with GST reconciliations and Inland Revenue’s recent focus on ensuring that all taxpayers are returning and claiming back the right amount of GST, we recommend involving an Indirect tax advisor at Deloitte. We have our own GST reconciliation tool that will help ensure that your GST processes and controls are up to Inland Revenue’s standards.

Are you issuing correct invoices?

Inland Revenue has released a draft QWBA (PUB00306) which considers whether a GST registered person can issue a tax invoice and a credit note in a single combined document. The item notes that a GST registered person may do so if the tax invoice and credit note each relate to a different supply of goods and services. However, a tax invoice and credit note may not be combined into a single document if they both relate to the same supply. There are also differences between a prompt payment discount and a credit note. If the terms of a prompt payment discount are clearly shown on the face of the tax invoice, then the supplier need not issue a credit note.

Submissions on the item close on 8 December 2017. Please contact your Deloitte Indirect Tax Advisor if you wish to clarify anything in relation to your invoicing practices.

December 2017 Tax Alert
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