Combined Assurance Reviews and GST – are you ready?

What is a Combined Assurance Review? 

The CAR program is the evolution of a range of risk, issue, and data driven reviews with the overall goal of demonstrating through evidence-based enquiry that you are paying the right amount of tax (the concept of ‘Justified Trust’). 

While the data from the ATO suggests that overall assurance has steadily improved, 13 per cent of CARs are still escalated for further action when it comes to GST matters.

The importance of tax governance cannot be overstated. In FY23, a significant amount of taxpayers were only able to achieve a medium assurance rating for GST governance due to the absence of fully documented, tested, and validated policies and procedures.

Over 40 per cent of CARs result in taxpayers making voluntary disclosures in relation to GST. In some respects, prompting a voluntary disclosure is a key goal of the CAR program and should not be shied away from. The ATO expects the ongoing and proactive review of GST outcomes as a key part of good governance – rather than waiting for ATO review.

How does GST intersect?

There are a range of both specific and general questions to which you will need to respond including:

• Outlining your GST procedures and governance – we find that the policies many clients have are either not formally documented, or are not tested to the ATO’s satisfaction, which sets a very high bar.
• General outline of the types of supplies and acquisitions as a guide for more detailed enquiries.
• Review of issues surrounding GST, FBT, employee benefits and entertainment – many voluntary disclosures are made on these issues.
• You will need to provide three BAS and supporting detailed workpapers – while a CAR is not an audit, BAS’ are reviewed in great detail.
• Review of cross-border transactions and the processes for adopting GST-free treatment, applying the reverse charge, and managing deferred GST.
• Financial supplies, especially reverse charge GST, GST apportionment methodologies, M&A activity, and associated Input Tax Credit Recovery. The ATO is particularly sensitive to how you approach issues such as the Financial Acquisitions Threshold testing and identifying Reduced Input Tax Credit entitlements appropriately.
• Residential property development receives particular attention, with a focus on special rules such as the Margin Scheme. Further detailed queries will follow.

Finally, the ATO will also require you to complete the GST Analytical Tool (GAT) – essentially a book to tax reconciliation, with a view to demonstrating consistency between economic activity/performance, and GST reporting. We have found that most taxpayers underestimate the difficulty and time involved in undertaking this reconciliation, and that the ATO places great importance on it.

How can we help?

A CAR is a significant milestone in your tax compliance journey and ATO relationship, and takes significantly more time, energy, and resources than most taxpayers expect.

By putting in up-front effort to be CAR ready, you can demonstrate compliance and build confidence in your tax affairs, avoiding a last-minute rush to meet the ATO’s tight deadlines which can lead to an extended ATO review.

Our experienced GST team has assisted many clients through this process. We have also published a helpful series of webinars on all aspects of CARs which will give you a greater understanding of exactly what the ATO will be looking for and how you can prepare.

Please contact us today if you would like to make a start on CAR readiness, or need some assistance if the ATO has already contacted you.