Sam Mohammad examines the ATO's recent Practical Compliance Guideline on GST and countertrade transactions.
Transactions between two parties that are entirely for non-monetary consideration (countertrade transactions) have historically posed a compliance and reporting headache for all concerned. More often than not, countertrade transactions have no net revenue effect for the Australian Taxation Office (ATO) since any GST payable by one party will be recoverable by the other party as an input tax credit. Such transactions, variously known as barter or in-kind transactions, often sit outside of an entity’s accounting and billing systems and require manual workarounds to be appropriately valued, invoiced and accounted for.
The ATO has attempted to eliminate some of these compliance frustrations through last week’s release of Practical Compliance Guideline 2016/18: GST and countertrade transactions (the Guideline). The Guideline, while not mandatory, seeks to provide a ‘practical compliance approach’ for qualifying, GST-neutral countertrade transactions.
While the ATO’s attempt at a practical solution to what has often been an unnecessarily burdensome compliance obligation is admirable, the Guideline does not seem to provide the certainty that many taxpayers would need in order to apply it. While the ATO states that it “will not apply resources to verify your compliance with your GST reporting obligations”, it is unclear whether this will afford sufficient comfort to taxpayers if they do not issue tax invoices and report these transactions in their business activity statements.
The ATO gives no assurances that it won’t simply divert those compliance resources into testing whether a taxpayer has correctly assessed their eligibility to apply the Guideline. Finally, it is not clear how in a practical sense a transaction would be invoiced and reported if one party wanted to rely on the Guideline but the other party did not agree to.
The ATO’s intention behind the release of the Guideline is welcome recognition that GST and countertrade transactions is a difficult area in need of simplification. However, in the pursuit of simplicity, the Guideline seems to have raised more issues than it has solved. Taxpayers that engage in countertrade transactions should consider whether the Guideline provides enough certainty to warrant its use or whether they should continue to fully invoice for, and report, such transactions.