1. Tax at UNSW for GMO Anne Harvey – Group Tax Manager, Corporate Finance

2. Agenda GST, risks and Compliance Grants and Appropriations Financial Assistance Payments Appropriations General Discussion on GST Free Bills FBT - General Overview FBT – Entertainment Living away from Home allowances/Living Allowance - FBT Living Allowances in Research and the impact to UNSW Questions

3. GST - Risks and responsibility for Compliance Risks If Taxable Supply and GST not charged, UNSW still have to remit 1/11 th of total amount to ATO in subsequent periods without the ability to pass on the cost to the recipient. Loss of revenue received by UNSW – only 10/11ths. Audit risk – inadequate processes, controls, supporting documentation; placed in a higher risk quadrant by the ATO. Penalties and Fines Reputational risk BAS amendments; outside of the time limits could result in penalty interest. Incorrect claiming of Input Tax Credits – No Tax Invoice, No GST charged Responsibility for Compliance AP, Expense, Credit cards - Enterer and Approver Billings – Requestor/User raising the Bill BAS Preparation, based on transactions entered - Tax Payment or claiming of GST with ATO - Tax

4. Common GST Mistakes Mixed Supplies – need to enter Taxable items and GST free items on separate lines with GST code AP - Assume GST applies to total – check for GST free items Tax calculated in system not agree to GST on Tax invoice – may need to split lines into GST free (FRAO) and Taxable (AO) Use GST code from PO - check if agrees to Tax Invoice Relying on default GST codes in EMS No Tax Invoice held - not attached to Expense claim, Credit card reconciliation Deposits – claiming GST on deposit. Adjust on final Tax invoice. For example booking a conference room at a hotel; the final settlement invoice should contain the GST on the applied deposit. Credits from prior month. Check GST charged on Invoice. For example Telstra bills might have carry forward credits & international calls. GST not charged on Taxable Supply – should be SALE not FREE

5. Grant Can be consideration for a supply Could be made by a private entity to a government entity or vice versa Can be made by an individual, body corporate or legal entity. A competitive Grant could be open to private companies and government related entities Appropriation Is not part of a commercial transaction and would normally reflect the non- commercial activities of government. Is between government and government related entities. The authority behind an appropriation is to be found in an appropriation Act of Parliament or other legislation. Is only available to government or government related entities. Grants and Appropriations

6. GSTR 2012/2 Financial Assistance Payments Taxpayer determines GST based on whether sufficient nexus between a supply made by payee and financial assistance payment made by payer (financial assistance is consideration if in connection with, in response to or for inducement of a supply) Apply an overall objective test having regard to all surrounding circumstances of arrangement Written documentation determines whether sufficient nexus established Surrounding circumstances (consider whole arrangement) –statutory purpose in providing financial assistance –activities to be undertaken –other terms and conditions attached to payment Not determinative of sufficient nexus Repayment clause Payee to provide report on use of grant funds

7. Financial Assistance Payments - GSTR 2012/2 Things ProvidedExample GST Outcome for PayeeGST Outcome for Payer Rights Payer obtains Material benefit. Payer provides Payee with funds to undertake research project and payer receives right to commercially exploit the IP from research. Liable to GSTEntitled to ITC Advice or information Payer pays Payee for right to use research findings. Payment made for purpose of obtaining information/advice. Liable to GSTEntitled to ITC Sponsorship Promotes payer's business. Payee provides advertising & promotional activities for payer's sponsorship payment. Liable to GSTEntitled to ITC Obligation to do something To do something. Payee enters into obligation with payer, and payee required to deliver specified services to community. Payer makes payment for the purpose of those services being delivered. Liable to GSTEntitled to ITC Obligation to not do something Refrain from doing something. Payee enters into obligation to exit their industry and refrain from returning to the industry in return for financial assistance payment. Liable to GSTEntitled to ITC Supplies with insufficient nexus Merely incidental. Only supply is acknowledging the payment received, submitting application for payment, agreeing to repay unspent funds, &/or giving report how money spent No GST payableNot entitled to ITC No supply Not binding greement Payment made in circumstances which create expectations without a binding agreement or anything else provided by payee No GST payableNot entitled to ITC Gift Payee is non-profit body and payment meets definition of a gift No GST payableNot entitled to ITC

8. GST liability – Section 9-5. Taxable Supply Supply is made for consideration, and Supply is made in the course or furtherance of an enterprise that is carried on, and Supply is connected with Australia, and You are registered or required to be registered However the supply is not a taxable supply to extent that it is GST-free or input taxed

9. Previously GST Act paragraph 9-15(3)(c) Payment made by GRE to another GRE is not consideration for GST purpose if payment specifically covered by appropriation under Australian law Following requirements to be met for payment not to be consideration  Be Appropriation under Australian law  Payment made by GRE to GRE ( not where to GRE or non GRE)  Payment made pursuant to appropriation  Specifically covered by appropriation – specify GRE by name or class of GRE  No GST – outside scope of GST New legislation -1/7/2012 Restore Policy intent – non commercial activities of GRE not subject to GST GST Act paragraph 9-17(3) and (4) For appropriation to not be provision of consideration for supply current requirement to be specifically covered by appropriation removed – (no need to specify GRE recipient by name, or generically) New “non-commercial” test satisfied Not consideration (No GST) if  payment from GRE to GRE for making a supply  covered by appropriation under Australian law  satisfies non commercial test (sum of payment received by GRE + anything else from another entity in connection with supply does not exceed anticipated or actual costs of making the supplies). No Profit margin.  If payment to GRE for commercial supply-GST  If margin above cost of supply – GST Appropriations

11. Appropriations: Example 1 Appropriation Funding $5m (terms state purpose funds are appropriated) GRE Department (DoHA) $5m UNSW $5m Covered by Appropriation GRE to GRE Non Commercial test satisfied (Anticipated cost $6m, UNSW funds extra $1m shortfall) Out of Scope – No GST charged GST code EXCL Appropriation Funding $5m (terms state purpose) GRE Department (DoHA) $5m Another GRE Department UNSW $5m Covered by Appropriation GRE to GRE Non Commercial test satisfied (Anticipated cost $6m, UNSW funds extra $1m shortfall) Out of Scope – No GST charged GST code EXCL Supply

12. Appropriations: Example 2 Appropriation Funding to Government related entity $5m Non Government entity $2m Education Department Government Related Entity $5m (funding based on anticipated costs of education outcomes) Non Government Entity $2m + GST No GST GST Supply

13. Appropriations – Example 3 Appropriation $10m GRE Department (DoHA) $10m. Agreement with UNSW Covered by Appropriation GRE to GRE Non Commercial test satisfied (Anticipated cost $12m) Out of Scope – No GST charged GST code EXCL UNSW – MIA with other Universities Uni 2 - $2m GST Applies – GST code SALE Uni 1 - $3mUni 3 - $1m UNSW $10m Supply

14. Appropriations – Example 4 Appropriation $10m GRE Department (DoHA) $10m Agreements with University 1-5 ($2m each) Covered by Appropriation GRE to GRE Non Commercial test satisfied (Anticipated cost $10m) Out of Scope – No GST charged GST code EXCL University 2 - $2m University 3 - $2m University 4 - $2m University 5 - $2m Covered by Appropriation GRE to GRE Non Commercial test satisfied (Anticipated cost $2m each) Out of Scope – No GST charged GST code EXCL Supporting Documentation for Auditors UNSW (Uni 1 - lead University) $10m Supply

15. Appropriations Consideration (for a supply) Non-commercial test Anticipated or actual cost of GRE Supplier making: the supply, or any other related supply Appropriation made by GRE under Aust law to GRE Supplier for making a supply 3rd party payments (monetary and non- monetary) + 3 rd party payments – in connection with, or in response to, or inducement of the supply or any other related supply Anticipated costs – amount determined at time amount to be paid worked out (before supply made) Actual costs – amounts determined after supply made Is supply by GRE? – No, not appropriation, out of scope, usual GST rules. If yes … Is payment to Government and Private (co contribution)? If yes … Is there a margin? Yes, failed non-commercial test. GST on Government and non Gov’t supplies. If determine non commercial – document reasons why Appropriations ≠ ≥

16. Appropriation and Subsidy– Example 5 Appropriation $5m GRE Department $5m Covered by Appropriation GRE to GRE Non Commercial test applies to $7.2m total funding Anticipated cost $8m > Total Funding $5m + $2.2m Non commercial test satisfied Out of Scope – No GST charged GST code EXCL Not GRE to GRE Non Commercial test applies to $7.2m total funding Non commercial test satisfied Anticipated cost $8m GST Applies – GST code SALE GST payable by Third Party $200K (1/11 th of $2.2m) UNSW $5m Supply Third party $2.2m (includes GST) $2.2m Related Supply

17. Appropriation and Subsidy– Example 6 Appropriation $5m GRE Department $5m Covered by Appropriation GRE to GRE Non Commercial test applies to $7.2m total funding Anticipated cost $6m < Total Funding $5m + $2.2m Non commercial test not satisfied GST Applies – GST code SALE Not GRE to GRE Non Commercial test applies to $7.2m total funding Non commercial test satisfied Anticipated cost $6m GST Applies – GST code SALE GST payable by Third Party $200K (1/11 th of $2.2m) UNSW $5m Supply Third party $2.2m (includes GST) $2.2m Related Supply

18. Financial Assistance Payments and Appropriations Is there a sufficient connection between the payment and a supply? Yes Is the payment an appropriation made: a)Under an Australian law: and b)Made by a GRE to a GRE for making a supply? No Outside scope of GST No Taxable Yes Is the non-commercial test satisfied? No Taxable Yes Outside scope of GST Assumes requirements for taxable supply met, i.e. registration for GST, enterprise, connected with Australia

19. Discussion on GST Free Bills Does current Billing follow this GST approach? Is there supporting documentation kept for each Bill to explain why GST free? Is supporting documentation readily available? Are there issues/queries with customers where Bills are raised with GST, but customer queries? Are there issues/queries with other Universities on the GST treatment for shared grants? Is the GST treatment agreed in advance of raising Bills?

20. FBT – General Overview – Facts on FBT FBT year 1 April to 31 March Tax Rate 47% - Calculated on Grossed Up Taxable Value FBT paid by employer – UNSW Includes benefits under a salary sacrifice arrangement Reportable Fringe Benefit included on Payment Summary in June, if > $2000 FBT is tax on benefits (right, privilege, service or facility)  provided to employees & associates (relative, partner/ spouse, child)  by an employer, associate of employer or under an arrangement with a third party  in respect of employment – reward for service “Employee” includes current, former and future employees If pay Salary  PAYG deduction  Employee pays tax If provide fringe benefit  no PAYG deduction  Employer pays tax

21. Type 1 Entitlement to ITC Gross Up rate 2.0802 Taxable Value – incl GST $1000.00 * Gross Up rate 2.0802 Grossed up TV$2080.0 FBT rate47% FBT cost$977.69 Type 2 No entitlement to ITC Gross Up rate 1.8868 Taxable Value - no GST$1000.00 * Gross Up rate1.8868 Grossed up TV$1886.80 FBT rate47% FBT cost$886.80 FBT Calculation PRT = $1000 * 1.8868 * 5.45% = $102.83

22. On premises – less likely entertainment Off premises – more likely entertainment Overtime – Sustenance Employee travelling – Sustenance After work - FBT How elaborate Sit down meal – FBT With alcohol - FBT Finger food – sustenance Coffee - sustenance Social – FBT Complete working day in comfort – Sustenance CPD seminar - sustenance WhyWhat WhereWhen Entertainment v Sustenance

23. Travelling v LAFH Short periods Commercial style accommodation –hotel, motel Unaccompanied by family Move from location to location Maintain home at previous location Longer Term Set up new home Lease Longer term Accommodation Accompanied by Family Stay in one place Duration Family Nature of Accommodation Frequency of trips Move around/ Fixed place Travelli ng LAFH ATO Travel Allowanc es Difference Tax Treatment – Within FBT legislatio n

24. Living Allowance Pay Living Allowance  FBT legislation on LAFHA Meet eligibility requirements Meet Conditions Does an Exemption apply Requirements – Declarations, substantiations Limits – Time and Dollar No Exemption – FBT applies FBT is Additional cost if pay LA Alternatively Pay as Taxable Allowance - PAYG deductions

25. Living Allowance – Eligibility Requirements from 8 May 2012 Required by employer/future employer to live away from normal residence in Australia –Must be a home in Australia Employee or spouse have an ownership interest in normal residence in Australia. –Incur ongoing cost of maintaining residence, e.g. mortgage, rates, rental payments Maintain a home in Australia (at which they usually reside) which is available for their immediate use and enjoyment at all times while LAFH. –Residence cannot be rented out or sublet while away –Residence can be left vacant or family continue to live there –Adult children living at home with parents specifically denied LAFH Expect to return to normal residence upon completion of job Eligibility based on exemption in FBT legislation

26. Living Allowance - Conditions LAFH concessions restricted to maximum period of 12 months –12 months per location, per employee –If work location changes, 12 month period starts again, but distance between old and new cannot be commutable –12 month period can be paused if employee resumes living at usual residence, e.g. annual leave Employee to provide a LAFH declaration – each FBT year Substantiate amount spent on accommodation –Exempt from FBT actual expenditure incurred and substantiated, e.g. rental receipts, bank statements, credit card statements, statement from landlord. Excludes mortgage repayments –Any allowance not spent on accommodation subject to FBT Food and Drink can provide an allowance –If not exceed ATO’s reasonable limits, no substantiation required –If exceeds ATO’s reasonable limit full amount must be substantiated ATO sets reasonable F&D rates each FBT year. 1 April – 31 March. Rates based on location and family size.

27. Australian employee Own Australian home NHMRC grant for 4 years from 1/4/2014 to work in USA NHMRC grant includes Living Allowance for first 2 years of $40,000 each year Family remain in Australia and continue to live in the home Employee rents property in USA Employee returns to Australian home for one month’s Annual Leave in December 2014 and December 2015 ATO’ s Reasonable F&D rate for 1 adult in USA $310 pw or $16,120pa (2014/2015 year) –FBT on first $42pw, statutory amount Eligible for LAFH Exempt first 12 months from FBT –April to November 2014 (8 months) and January to April 2015 (4 months). No LA paid in December 2014 while on AL FBT applies to LA from Year 2 –May to November 2015 (7 months) and January to May 2016 (5 months). No LA paid in December 2015 while on AL Provide LAFH declaration Provide receipts for accommodation to show amount actually spent of $30,000 in Year 1- first 12 month period Additional $10,000 of LA Year 1 is for F&D. No need to substantiate as within ATO reasonable rate – Year 1 Year 1 F&D $10000 fully exempt from FBT. $16120 - $2184 ($42*52) = $13936 (max exempt) Living Allowance – Example 1 Eligible for LAFH Year 1, F&D within ATO rates

28. Australian employee Own Australian home NHMRC grant for 4 years from 1/4/2014 to work in USA NHMRC grant includes Living Allowance for first 2 years of $50,000 each year Family remain in Australia and continue to live in the home Employee rents property in USA Returns to Australian home for one month’s Annual Leave in December 2014 and December 2015 ATO’ s Reasonable F&D rate for 1 adult in USA $310 pw or $16,120pa (2014/2015 year) –FBT on first $42pw, statutory amount Eligible for LAFH Exempt first 12 months from FBT –April to November 2014 (8 months) and January to April 2015 (4 months). No LA paid in December 2014 while on AL FBT applies to LA from Year 2 –May to November 2015 (7 months) and January to May 2016 (5 months). No LA paid in December 2015 while on AL Provide LAFH declaration Provide receipts for accommodation to show amount actually spent of $30,000 in Year 1- first 12 month period Additional $20,000 of LA is for F&D. Full amount to be substantiated as exceeds ATO reasonable rate – Year 1 F&D - FBT on first $42pw, i.e. on $2184 F&D - $2184 * 1.8868 * 47% = $1937 Living Allowance – Example 2 Eligible for LAFH Year 1, F&D Exceeds ATO rates

29. Australian employee Own Australian home NHMRC grant for 4 years from 1/4/2014 to work in USA NHMRC grant includes Living Allowance for first 2 years of $40,000 each year Family moves overseas with employee and rents out Australian home Employee rents property in USA Not Eligible for FBT exemption on LA Australian home not available while away FBT applies to $40,000 pa from Day 1 FBT on $40,000 is $35,472 calculated as $40000 * 1.8868 * 47% FBT rate due to increase from 1/7/14 when top marginal tax rate increases to 49% No need to provide LAFH declaration - Cannot exempt from FBT No need to substantiate expenses - Cannot exempt from FBT Living Allowance – Example 3 Not eligible for LAFH _ Australian home rented out

30. Employee from overseas No home in Australia NHMRC grant for 4 years from 1/4/2014 to work in USA NHMRC grant includes Living Allowance for first 2 years of $40,000 each year Family moves overseas with employee Employee rents property in USA Not Eligible for FBT exemption on LA No Australian home FBT applies to $40,000 pa from Day 1 FBT on $40,000 is $35,472 calculated as $40000 * 1.8868 * 47% FBT rate due to increase from 1/7/14 when top marginal tax rate increases to 49% No need to provide LAFH declaration – Cannot exempt from FBT No need to substantiate expenses – Cannot exempt from FBT Consider Tax Residency status – if not Australian tax resident, no FBT Living Allowance – Example 4 Not eligible for LAFH – No home in Australia

31. Australian employee Owns home in Sydney Grant for 1 year from 1/4/2014 to work in Canberra Grant includes Living Allowance of $35,000 for the year Family remain in Sydney and continue to live in the home Employee rents property in Canberra Employee returns to Sydney on weekends ATO’ s Reasonable F&D rate within Australia for 1 adult - $236 pw or $12,272pa (2014/2015 year) –FBT on first $42pw, statutory amount At end of 12 months in Canberra, returns home for 4 months, then offered LA grant to work in Queanbeyan for 12 months Eligible for LAFH for Canberra Exempt 12 months in Canberra from FBT F&D should be pro-rated as only LAFH 5 days per week. $236 * 5/7 = $168.57pw Provide LAFH declaration Provide receipts for accommodation to show amount actually spent of $30,000 Additional $5,000 of LA is for F&D. No need to substantiate as within ATO reasonable rate. $12,272 *5/7 = $8766 Year 1 F&D $5000 fully exempt from FBT. $12,272 - $2184 ($42*52) *5/7= $7206 (max exempt) Not eligible for FBT exemption on LA in Queanbeyan Maximum of 12 months per location Within commutable distance from Canberra Living Allowance – Example 5 Part week F&D. Second assignment after 12 months

32. Questions