Page Contents

Introduction – Record Keeping and Managing GST
Record Requirements
Retention Periods
Registration Records
Tax Invoices
Examples of Tax Invoices
GST Record Keeping
Accounting Systems
Accounting for the GST
Penalties
Managing GST
Ready for a GST Audit

Record Keeping and Managing GST

Introduction

The GST system requires significant record keeping in order to calculate the net amount of GST. This net amount is then remitted to or refunded by the Taxation Office each GST period.

Input tax credits can only be claimed on purchases if tax invoices are held.

There is also a need to ensure that the GST process is properly managed and that staff are adequately trained to deal with the issues.

The following pages look at the specific record keeping requirements in the GST law and ways that a church can ensure that it complies with its obligations.

Record Requirements

If the church makes any transaction involving GST, whether a sale or a purchase, it must keep records that explain the transaction. The records must be kept for at least 5 years.

The records should be in English or readily accessible and convertible to English. Possible types of documents include:

• Books of accounts, whether paper or electronic
• Till tapes
• Receipts
• Invoices
• Tax invoices
• Adjustments notes
• Credit and debit notes
• Bank statements
• Log books
• Stock take records
• Details of the calculation of any apportionment between church and private expenditure
• Basis on which church related activities are to be treated as non-profit sub-entities or fundraising activities; and
• Cost calculations and market valuations to substantiate the application of GST-free non-commercial exemption
• Basis on which some church activities that are borderline religious services are treated as religious services such as camp programs and an analysis of the religious content
• Basis of the assessment of the various income types (ie. GST-free, input taxed, or taxable).

Note – No input tax credit is available to be claimed if the tax invoice is not held.

Retention Periods

You are required to keep records for at least five years after the completion of the transaction or act. This includes tax invoices and receipts, but also includes any elections, estimates, calculations, etc. For examples, where a church has determined that a supply it makes is GST-free, a record of that decision and the reasons for it must also be retained for at least five years.

Due to the rules for adjustments for change of use, it may be necessary to keep some records for more than 15 years. For example, where a church acquires an asset for more than $500,000 (e.g. a building), there can be ten adjustment periods. The records must be held for at least five years after the end of the adjustment period.

Example – A church acquires a building in October 2011 for $600,000. The first adjustment period ends on 30 June 2013, being the tax period ending on 30 June that occurs at least 12 months after the end of the tax period to which the acquisition relates. The tenth adjustment period ends on 30 June 2022. Five years further is 30 June 2027.

Records must be retained of a choice to treat a branch or activity of the church as a non-profit sub-entity. The record of this choice must be kept for five years after the choice is revoked. If the choice is never revoked, the records must be kept indefinitely.

Registration Records

You should ensure that details of your church and its registration records are correctly recorded with the Taxation Office and the ACNC. Your church office bearers may change on a regular basis. Some churches elect their office bearers annually. It is important that you notify the Taxation Office and the ACNC of any such changes. Failing to notify the Taxation Office may lead to the church being unable to access information or resolve issues that subsequently arise. It is recommended the Taxation Office be notified as soon as any of the following changes occur:

• Church name
• Postal, e-mail or Church addresses
• Office bearers
• Authorised contact person, and
• Bank account details (for GST refunds).

Changing Details

Details with the Taxation Office can be updated online via its Business Portal. You can also update details online through the Australian Business Register (you will need an Administrator AUSkey). You can contact the Taxation Office on 1300 130 248 but you will need to provide proof of identity details. The Taxation Office must have the person listed as an authorised contact.

Changes should be notified to the ACNC within 28 days for medium and large charities and within 60 days for small charities. Changes should be made online through the ACNC’s charity portal. Some changes can also be notified by using Form 3B. This form can be downloaded from the ACNC’s website.

Australian Business Register

Changes to the Australian Business Register should be notified within 28 days. Not all information on the ABR is made available to the public. The following information is generally available:

• ABN and date of registration
• Legal name and trading name
• Entity type
• State and postcode
• Whether the entity is registered for GST and if so the date of registration
• Whether the entity has DGR (deductible gift recipient) status
• Charitable status
• The concessions for which the entity is endorsed and the date of endorsement

The following information is confidential:

• Name and contact details of authorised contact persons
• Tax file number
• Telephone numbers
• Business activity details
• Taxation information obtained from the Taxation Office
• Details of associated individuals and organisations (including office bearers)

Tax Invoices

A claim cannot be made for GST on a good or service purchased unless the church holds a tax invoice or unless the purchase price was less than $82.50 GST inclusive.

Suppliers must issue a tax invoice within 28 days of the purchaser asking for one (except if the invoice is less than $82.50 GST inclusive). In practice, most suppliers will provide the required tax invoice at the time of supply.

Requirements of a Tax Invoice

What is shown on the invoice depends on the type of transaction as follows:

Type of Transaction	Tax Invoice Requirements
Normal GST taxable transaction	Must show either:
	The words “The total price includes GST for the supply”, or The GST-exclusive value and the amount of GST
Long term accommodation in commercial residential premises.	Must show the GST-exclusive value and the amount of GST
Mixed transactions (partly normal GST taxable transaction and partly GST free or input taxed)	Must identify each taxable transaction and show:
	The GST-exclusive amount The amount of GST payable; and The total amount payable

A tax invoice must also contain:

• The supplier’s Australian Business Number
• The GST inclusive price of the taxable supply
• The words “tax invoice” stated prominently on the invoice
• The date of issue
• The name of the supplier; and
• A brief description of each good or service supplied

If a tax invoice is for more than $1,000, it must also show:

• The name of the recipient
• The address or ABN of the recipient
• The quantity or volume of the supply.

If a transaction is totally GST-free or input taxed, there are no specific invoice requirements for the invoice, as the purchaser cannot claim back the GST. There is no need to provide a valid tax invoice.

See Examples of Tax Invoices for the alternative invoice formats that comply with the Taxation Office requirements.

Hint – The last example invoice in Examples of Tax Invoices covers all requirements. Creating an invoice in this format in either a word-processed document or a spreadsheet and printing onto church letterhead is an easy way to satisfy the tax invoice requirements.

Adjustment Notes

An adjustment note must contain the following:

• The words “adjustment note” in a prominent place on the document
• The name of the supplier
• The issue date of the adjustment note
• The old price, the corrected price and the difference between the amounts
• A brief explanation of the reason for the adjustment, eg discount, return of goods, etc; and
• the amount of the adjustment to the GST payable or a statement to the effect that the difference in the price of the taxable supply or supplies includes GST

If the GST inclusive price on the previous tax invoice was $1,000 or more, the adjustment note must also show:

• The name of the recipient
• The address or ABN of the recipient

No adjustment note is required if the GST exclusive price of the supply is $75 or less. Note it is the price of the supply that must be $75 or less, not the adjustment.

Examples of Tax Invoices

Where invoice relates to taxable supplies totalling less than $1,000

Tax Invoice
Kids’ Support Inc		14 William Street Williamstown VIC
ABN:	12 345 678 901
Date:	12 August 2000
Description of supply		Total
Tapes		$550.00
Total price including GST		$550.00

Supplies of less than $1,000

Tax invoices for taxable supplies of less than $1,000 must include:

	The Australian Business Number of the supplier
	The GST-inclusive price of the taxable supply
	The words “tax invoice” stated prominently
	The date of issue of the tax invoice
	The name of the supplier
	A brief description of each thing supplied
	Where GST payable is exactly 1/11th of the total price, either a statement that “the total price includes GST” or the GST-exclusive value and the amount of GST.

Where invoice relates to taxable supplies totalling more than $1,000

Alternative One

Tax Invoice
Kids’ Support Inc		14 William Street Williamstown VIC
ABN:	12 345 678 901
Date:	12 August 2000
To:	Bill Bloggs 19 Grove Street Box Hill VIC
Description of supply		Total
1500 Tapes		$1,100.00
Total – the total price includes GST		$1,100.00

Supplies of $1,000 or more

Tax invoices for taxable supplies of more than $1,000 must include:

	The Australian Business Number of the supplier
	The GST-inclusive price of the taxable supply
	The words “tax invoice” stated prominently
	The date of issue of the tax invoice
	The name of the supplier
	The name of the recipient
	The address or Australian Business Number of the recipient
	A brief description of each thing supplied
	The Quantity of the goods of the extent of services supplied
	Where GST payable is exactly 1/11th of the total price, a statement that “the total price includes GST” or the GST-exclusive value and the amount of GST.

Where invoice relates to taxable supplies totalling more than $1,000

Alternative Two

Tax Invoice
Bluewater Church Inc		14 William Street Williamstown VIC
ABN:	12 345 678 901
Date:	12 August 2000
To:	Bill Bloggs 19 Grove Street Box Hill VIC
Description of supply		Total
1500 Tapes		$1,000.00
GST		$100.00
Total		$1,100.00

Supplies of $1,000 or more

Tax invoices for taxable supplies of more than $1,000 must include:

	The Australian Business Number of the supplier
	The GST-inclusive price of the taxable supply
	The words “tax invoice” stated prominently
	The date of issue of the tax invoice
	The name of the supplier
	The name of the recipient
	The address or Australian Business Number of the recipient
	A brief description of each thing supplied
	The Quantity of the goods or the extent of the services supplied
	The GST amount

GST Record Keeping

Accounting Systems

Some churches have been maintaining their accounts using a manual system. It is possible to continue with a manual system for GST.

However, unless the church is small and has few transactions, it is likely to be easier to maintain accounts and prepare the GST return using a computerised system.

A computerised system can be used to effectively capture GST on each transaction. Most software will also be able to produce tax invoices in the required format.

Irrespective of whether a manual or computerised system is used, the user must be able to identify on which transaction GST has been charged. Similarly, GST will not have been paid on all purchases, eg tea, coffee, etc. Tax invoices should be used as the primary source for entering data.

The user must also be able to identify those purchases where the GST paid cannot be claimed. This will primarily be in relation to cost incurred in providing residential rents and non-deductible entertainment expenses.

Computerised Systems

We have documented below two of the more common computerised accounting systems, which may be suitable for a church. When choosing a suitable accounting software, you need to consider what you intend to use the software for and possibly consider seeking advice.

Desktop packages

These desktop packages are typically bought off the shelf and then can be upgraded on an annual basis to maintain the latest features and tax rates.

Reckon Accounts (formerly QuickBooks)

Reckon Accounts is a full range ledger based accounting package including modules for maintaining debtors, creditors and if required, inventory. The more advanced versions of QuickBooks also have the capability to process Payroll, import bank statements, process credit card payments, etc.

Accounts EasyStart, Accounts Accounting, Accounts Plus, Accounts Pro and Accounts Premier all have the capability to automatically calculate GST based on the tax code allocated to the transaction. All the above versions of Reckon Accounts except for Accounts EasyStart can produce a Business Activity Statement and lodge it online. Those with Accounts EasyStart will need to prepare and lodge paper Business Activity Statements. However, the Accounts EasyStart can produce a tax liability report which can be used to obtain figures required to complete the paper Business Activity Statement.

MYOB

MYOB is another full general ledger based accounting package that has similar functionality to QuickBooks.

MYOB Business Basics, MYOB Accounting , MYOB Accounting Plus and MYOB Premier all include GST and Business Activity Statement functionality. These versions of MYOB can produce a Business Activity Statement and lodge it online. These versions can handle all types of GST transactions. All GST paid will be recorded in one single general ledger account and GST collected will be recorded in another general ledger account. A report can be generated to show all transactions by tax code, ie for all GST free transactions, capital acquisitions, input taxed transactions etc. MYOB will also produce various reports showing how the GST has been collected and paid. MYOB can produce a cash based profit and loss statement and transaction listing. However, unlike Reckon Accounts, it cannot produce a cash based Balance Sheet.

MYOB is available for both Windows and Macintosh operating systems.

Cloud Packages

These Cloud Accounting packages that are operated through a web browser and the data is kept on another computer, not your desktop computer.

Xero

Xero is also a full general ledger based accounting package.

Xero has several different pricing plans that all include GST and Business Activity Statement functionality with varying levels of transaction and employee limits. Xero can produce a Business Activity Statement report with labels that directly correspond to the labels of the Business Activity Statement. Xero can handle all types of GST transactions (including non taxable supplies such as donations received). All GST transactions will be recorded in one single general ledger account. A GST audit report can be generated to show all transactions by tax code, ie for all GST free transactions, capital acquisitions, input taxed transactions etc. Xero can produce a cash based profit and loss statement, balance sheet and transaction listing.

As a web-based package, Xero is available for both Windows and Macintosh operating systems.

Saasu

Saasu is another full general ledger based cloud accounting package.

Saasu also has several different pricing plans that all include GST and Business Activity Statement functionality with varying levels of transaction, bank feeds and employee limits. Saasu can also produce a Business Activity Statement Summary report with labels that directly correspond to the labels of the Business Activity Statement. Saasu can handle all types of GST transactions with the ability to create custom GST codes to complement the standard codes. All sales GST transactions will be recorded in a liability general ledger account called “Tax Collected from Sales” and all purchases GST transactions will be recorded in a liability general ledger account called “Tax Paid on Purchases”. A detailed GST report can be generated to show all transactions by tax code, ie for all GST free transactions, capital acquisitions, input taxed transactions etc. Saasu can produce a cash based profit and loss statement.

As a web-based package, Saasu is available for both Windows and Macintosh operating systems.

Intuit Quickbooks Online

Quickbooks Online is another full general ledger based accounting package that has similar functionality to the original QuickBooks desktop version, albeit with a different look and feel.

Quickbooks Online has several different pricing plans that all include GST and Business Activity Statement functionality with varying levels of transaction and employee limits. Quickbooks Online can produce a Business Activity Statement report with labels that directly correspond to the labels of the Business Activity Statement. It can handle all types of GST transactions (including non taxable supplies such as donations received). All GST transactions will be recorded in one single general ledger account. A detailed GST report can be generated to show all transactions by tax code, ie for all GST free transactions, capital acquisitions, input taxed transactions etc. Quickbooks Online can produce a cash based profit and loss statement, balance sheet and transaction listing.

As a web-based package, Quickbooks Online is available for both Windows and Macintosh operating systems.

QuickBooks

QuickBooks is a full range ledger based accounting package including modules for maintaining debtors, creditors and if required, inventory. The more advanced versions of QuickBooks also have the capability to process Payroll, import bank statements, process credit card payments, etc.

QuickBooks EasyStart, QuickBooks Accounting, QuickBooks Plus, QuickBooks Pro and QuickBooks Premier all have the capability to automatically calculate GST based on the tax code allocated to the transaction. All the above versions of QuickBooks except for EasyStart can produce a Business Activity Statement AS and lodge it online. Those with QuickBook EasyStart will need to prepare and lodge paper Business Activity Statements. However, the EasyStart can produce a tax liability report which can be used to obtain figures required to complete the paper Business Activity Statement.

MYOB

MYOB is another full general ledger based accounting package that has similar functionality to QuickBooks.

MYOB Business Basics, MYOB Accounting , MYOB Accounting Plus and MYOB Premier all include GST and Business Activity Statement functionality. These versions of MYOB can produce a Business Activity Statement and lodge it online. These versions can handle all types of GST transactions. All GST paid will be recorded in one single general ledger account and GST collected will be recorded in another general ledger account. A report can be generated to show all transactions by tax code, ie for all GST free transactions, capital acquisitions, input taxed transactions etc. MYOB will also produce various reports showing how the GST has been collected and paid. MYOB can produce a cash based profit and loss statement and transaction listing. However, unlike Quickbooks, it cannot produce a cash based Balance Sheet.

MYOB is available for both Windows and Macintosh operating systems.

Accounting for the GST

It is generally accepted that the GST collected and the GST paid should not be treated as part of revenue and expenditure of the church but rather as an asset or liability when collected or paid. This would generally be achieved by using clearing accounts.

GST Collected

The GST collected from the provision of taxable goods and services should be treated as a liability on the balance sheet of the church until such time as it is remitted to the Taxation Office.

In the example below the church uses a cashbook maintained on a spreadsheet.

Example – The Bluewater Community Church is GST registered and operates a bookshop. On 1 July 2018 the bookshop sold books to the value of $550. $50 of GST was collected from the sales. Bluewater therefore owes the Taxation Office $50 in relation to the supplies and needs to remit this amount to the Taxation Office when lodging BAS for that period. An illustration of Bluewater’s receipts records is provided below.

GST Paid

The GST paid on the acquisition of goods and services should be treated as a receivable on the balance sheet of the church until such time as it is refunded by the Taxation Office.

In the example below the church uses a cashbook maintained on a spreadsheet.

Example – On the same day, Bluewater bookshop orders 1,000 tracts, which cost a total of $1,100. The tax invoice clearly states that the $1,100 includes $100 of GST. The tract supplier has collected $100 GST on behalf of the government and Bluewater can claim an input tax credit for this amount. The Taxation Office therefore owes Bluewater $100 in relation to the acquisition of the tracts. This amount will be paid to Bluewater once the BAS for that period has been lodged. An illustration of Bluewater’s payments records is provided below.

Illustration of Bluewater’s receipts records

Date	Detail	Total	GST Free Offering	Programs	Taxable Bookshop	GST Payable	GST Adjustment
1/7/2018	Bookshop takings	550			500	50

Illustration of Bluewater’s payments records

Date	Payee	Total	Bookshop	Capital	Wages	Input Tax Credit	GST Adjustment
1/7/2018	Central Tracts Ltd	1,100	1,000			100

Penalties

The Taxation Office can impose significant penalties for failure to comply with the GST law and paperwork requirements. The amount of the penalties is listed below.

Offence	Penalty
Fail to register	20 penalty points
Incorrect GST	General Interest Charge (GIC)
Underpayment of tax	General Interest Charge (GIC)
Late lodgement of GST	1 penalty unit per 28 day period or part thereof (small entity)
Fail to issue a tax invoice or adjustment note	20 penalty points
Fail to keep appropriate records	20 penalty points

A penalty point is $210.

Late Lodgement

A base penalty applies for the late lodgement of a BAS or IAS. This base penalty is 1 penalty unit for each 28 days or part of a period of 28 days. The maximum base penalty is 5 penalty units.
Example – Community Church was due to lodge its BAS on 28 April 2019. It lodged the BAS on 1 June 2019. As the return is 34 days late, the base penalty is 2 penalty units, being $420.

The base penalty amount is multiplied by 2 if:

• the entity is a medium withholder
• the entity’s assessable income is more than $1 million but less than $20 million (not relevant to churches that have obtained endorsement of their tax exempt status); or
• the entity’s current annual GST turnover in the month where the relevant BAS is due is more than $1 million but less than $20 million.

The base penalty amount is multiplied by 5 if:

• the entity is a large withholder
• the entity’s assessable income is $20 million or more (not relevant to churches that have obtained endorsement of their tax exempt status); or
• the entity’s current annual GST turnover in the month where the relevant BAS is due is $20 million or more.

Example – Assume the Community Church in the above example is a medium withholder. The base penalty is multiplied by 2. Therefore, the penalty is $840.

Withholder Status

As stated above, the amount of the penalties can depend on whether the entity is a small, medium or large withholder. Special rules determine an entity’s withholder status. Most churches will be small or medium withholders. Generally a church is a small withholder if the amount of its PAYG withholding each year is less than $25,000. If it is between $25,000 and $1m, it will usually be a medium withholder. The specific rules are outlined below:

Withholder Status Tests to be Satisfied

Large
Large remitter for June 2001.
The amounts withheld during a financial year ending at least two months before the current month exceed $1m; or
The Commissioner determines that the entity is a large withholder.

Medium
It is not a large withholder and:
It was a medium withholder for June 2001.
The amounts withheld during a financial year ending before the current month exceed $25,000; or
The Commissioner determines the entity is a medium withholder.

Small
It has withheld at least one amount during the month and it is neither a large nor a medium withholder for that month.

Remission of Penalties

The Taxation Office will impose penalties for late lodgement of Business Activity Statements. This is likely to also include GST Information Reports. However, it has indicated in Practice Statement PS LA 2000/9 that penalties will not be applied for one-off or isolated late lodgements. Therefore, we recommend that if you expect to be lodging late, you should contact the Taxation Office in advance and seek to minimise the penalty. If the Taxation Office is given earlier notice of a late lodgement and that there is a genuine reason for the delay, the Taxation Office will usually not impose late lodgement penalty.

The Taxation Office has also released a Practice Statement on penalties for failing to keep or retain good records. The Taxation Office will generally only impose a penalty where help and education have failed to change the taxpayer’s behaviour. Some of the main features of the Taxation Office’s approach are:

• Tax officers will normally provide help and education to entities as the first step in improving record keeping practices
• An entity will usually be given the opportunity to improve its record keeping before a penalty is imposed
• Where records are not correctly maintained, but the correct tax is being remitted, record keeping penalties will usually be remitted in full
• Entities that use electronic records are expected to retain back up copies or have some other method to enable them to readily reconstruct their accounts and transactions

General Interest Charge

In addition to the imposition of penalty points, entities will also be subject to the General Interest Charge (GIC) on any understatement of tax or unpaid tax liability, including GST, FBT, PAYG withholding and penalties. The outstanding amount will accrue interest on a daily compounding basis from the due date until the amount is paid in full.

GIC rates is determined using a base interest rate plus an uplift factor of 7%. The base interest rate is the 90-day Bank Accepted Bill Rate. The following table are GIC rates for the most recent quarters:

Quarter	GIC per annum
July – September 2019	8.54%
April – June 2019	8.96%
January – March 2019	8.94%
October – December 2018	8.96%
July – September 2018	8.96%
April – June 2018	8.77%
January – March 2018	8.72%
October – December 2017	8.70%
July – September 2017	8.73%
April – June 2017	8.78%
January – March 2017	8.76%
October – December 2016	8.76%
July – September 2016	9.01%
April – June 2016	9.28%
January – March 2016	9.22%
October – December 2015	9.14%
July – September 2015	9.15%
April – June 2015	9.36%
January – March 2015	9.75%
October – December 2014	9.63%
July – September 2014	9.69%
April – June 2014	9.63%
January – March 2014	9.59%

Remission of GIC

Under the ATO Receivables Policy Statement, the GIC may be remitted under certain circumstances.

The Commissioner may remit in part or in full GIC where circumstances that contributed to the delay in payment was beyond the entity’s control and specific to that entity, for example natural disasters, unforseen collapse of a major debtor. However, general economic downturn prevailing across the whole community would not be acceptable basis for remission of GIC.

Act or omission by taxpayer on a soundly based decision which has unforseen circumstance may also warrant remission of GIC, as well as any other special circumstances in which it would be fair and reasonable for the Commissioner to remit the GIC.

An entity can request for remission of GIC. It iis up to the entity requesting for the remission of GIC to provide adequate evidence to demonstrate that a remission is warranted. In considering the remission of the GIC, the Taxation Office will look at:

• Factors the resulted in the late payment
• whether reasonable steps were taken to mitigate the reasons for the delay in payment
• Other factors relevant to the late payment such as the entity has no other unpaid debts to the Taxation Office and the amount of the GIC is small.

Managing GST

Appoint a GST Administrator

At least one person in the church should have a good understanding of the GST and how it will affect the church. In larger churches, it may be preferable to have several people with an understanding of the GST requirements.

This person may or may not be responsible for the record keeping and preparing the GST return. However, they should have a reasonable understanding of when GST must be charged, when it can be claimed back and what record keeping is required.

Training Staff and Members

It is important that staff and members who are organising events or entering into transactions are aware of their GST obligations. Some churches may have a requirement that staff and members seek advice from the GST administrator before prices and events are announced.

Many churches currently delegate financial responsibilities for certain areas to particular members. For example, the youth group leader may be given a budget for the year. The leader organises events, etc with little communication with the church treasurer, finance committee, etc. If no GST guidance is given, it is likely that GST will not be correctly charged or claimed.

The church must address these issues. The church has a legal obligation to remit GST on taxable supplies if it is registered for GST. Each transaction must be considered to determine whether it is a taxable supply and therefore whether GST should be charged. If the GST is not charged, 1/11th of the consideration received must still be remitted to the Taxation Office.

Record Keeping

The church must put procedures in place to ensure that tax invoices are issued for all required sales and tax invoices are maintained for all purchases.

If the church uses a computerised accounting system, the software should be reviewed to ensure it can effectively account for GST and generate the tax invoices for sales of goods or services. Accounting software should also be reviewed to ensure that correct tax codes have been used for each accounts. This will ensure that BASs is completed accurately and on time.

If a manual accounting system is used, tax invoices will need to be manually generated. Blank tax invoice books can be purchased from stationery outlets.

There should also be procedures to ensure the GST return is completed accurately and on time. Late lodgement penalties apply.

Records should be kept in a safe place. It is also good practice to make backups of the records and keep backups offsite.

Cash Flow

The GST has a cash flow impact for churches. The actual impact partly depends on whether the church uses the cash or accruals method and whether it lodges its GST return quarterly or monthly.

Where a church collects GST, it has the benefit of the use of those funds for the period of time until the GST must be remitted to the Taxation Office. On the other hand, a church may have to pay GST some time before it can claim it back from the Taxation Office.

Most churches pay more GST on inputs than they collect on sales and receive a tax refund. Thus, the church has a cash flow detriment. It must fund the shortage until it receives the refund from the Taxation Office.

Example – The church currently receives $3,020 income per month from various sources. It pays out $3,100 in expenses each month.
Most of its collections are from offerings, which do not include GST. However, approximately $220 per month is received from book sales, social activities, etc, which include GST.
Of the $3,100 of expenses, $2,000 relates to wages and no GST applies. The balance relates to general operating expenses and GST applies, including $100 GST.
The church can claim back $80 from the Taxation Office ($20 less $100) on its next GST return. However, in the meantime it must fund the shortfall. The shortfall is exacerbated if the church lodges GST returns quarterly, rather than monthly.

Churches, which largely obtain their income from tithes and offerings and whose major expense is wages, generally have only a small shortfall each GST period. However, if the church acquires a large capital item, eg photocopier, the shortfall for that period could be much more significant.

Larger churches, which have significant overheads, are likely to have a greater shortfall. For this reason, larger churches may choose to use the accruals method of accounting in order to minimise the cash effect. Under the accruals method, a church maybe able to claim the GST credit on some purchases before payment has been made.

It is recommended that a church considers the cash flow impact of GST and includes the effect in the church’s budgets.

Ready for a GST Audit

The Taxation Office is conducts regular audits in the area of GST. Therefore it is important that every church consider its ability to satisfy the tax auditors. Things that should be considered include the following:

Understand your structure

It is important that the church understands the basis on which it is registered for GST and that the treatment of the transactions is consistent with that structure.

Things to consider will include:

• Cash vs accruals
• Monthly or quarterly
• Charitable status
• Relationship with associated entities (ie a church and the playgroup)
• GST treatment of transactions with or through these associated entities
• Use of non-profit sub-entities and the appropriate documentation of your decisions

Charge GST on all taxable transactions

If the church fails to charge GST on a supply when it is required to, it will still be liable to remit GST on that supply to the Taxation Office but may not be able to recoup that amount from the purchaser.

Therefore, as a GST registered entity it is important that a church charge GST on all its revenue transactions unless they are specifically exempted from GST. Only limited transactions are exempt from GST and it is important that the church maintains adequate documentation supporting why it has not charged GST on particular transactions. This documentation may include information on the assessment of market values or the use of the fundraising exemptions. GST also needs to be charged on the sale of second hand goods, unless the second hand good exemption or the non-commercial supply exemption applies..

Documentation to support claims for GST paid

There are certain requirements in relation to tax invoices that must be satisfied before an organisation is eligible to claim back the GST paid/incurred. For example, the tax invoice must have specified information in order for it to be a valid tax invoice.

There are also circumstances where it cannot claim back GST paid on certain transactions. For example, there is no input tax credit entitlement for non-deductible entertainment expenses or the purchase of a real property in which GST liability was calculated under the margin scheme.

Correct completion of the BAS

It is important that the business activity statements are completed and lodged within the required timeframe and include all the correct information. If errors have been made in past BASs the church must follow the prescribed correction procedures.

Information in the BAS is consistent with information in the accounting records

If there are differences between your accounting records and the GST position or there have been regular amendments made, you should review your record-keeping to ensure that the GST treatment is correct. Where a church regularly has difficulty reconciling the records it maybe that the accounting procedures need to be reviewed.

It is important and good practice to perform a GST reconciliation at least once a year to reconcile information on the BASs with the accounting records.

Input Tax Credits

Ensure that the amount of input tax credits that have been claimed have not been overstated. Generally GST paid on acquisitions are claimable unless churches made input taxed transactions or transactions by an unregistered non-profit sub-entities. Under such circumstances, it may be necessary to apportion expenses between the general church operations and the input taxed or unregistered non-profit sub-entities activities. Common input taxed transactions are residential rents and fundraising activities. The portion of input tax credits relating to the input taxed activities or the unregistered non-profit sub-entities activities will not be claimable. Expenses that may need to be apportioned include power, rent, repairs, etc. Method of apportionment used must be reasonable.

Elections

Where a church decides to treat an activity as a non-profit sub-entity or as an input taxed fundraising activity, the church must record that decision in its records. It is highly likely that the Taxation Office will ask to see these records during a GST audit.

Seek expert advice in relation to large or complex transactions

Given the complexity and the financial exposure, entities should seek expert advice or even a private ruling from the Taxation Office in relation to the GST treatment of significant transactions. This is particularly the case in relation to the purchase and sale of real property, grants, international transactions or transactions involving multiple parties.

Using a registered Tax or BAS Agent

Churches that use a registered Tax or BAS Agent to prepare their BASs benefit from a safe harbour. Penalties do not apply where a false or misleading statement is made carelessly, provided the church has taken reasonable care to comply with their tax obligations by giving the BAS agent the information necessary to make the statement.

The safe harbour does not apply if an unregistered Tax or BAS Agent is used to prepare the BASs.