• ATO’s GST changes for mutual banks – are the benefits mutual?

As businesses continue to navigate the influx of Government reform, there’s also a lot of change coming from the Australian Taxation Office (ATO).

Customer-Owned Banking Institutions – also known as mutual banks and credit unions – are the current focus. The latest changes are set to provide more clarity around the application of a GST ‘safe harbour’ rate for a COBI’s acquisitions, yet require strict reporting to validate its application.

What’s the change?

The ATO has just published its finalised ‘Practical Compliance Guideline’ for mutual banks and credit unions. The focus of the Guidelines is around the ATO’s approach to applying the 18 per cent ‘safe harbour’ rate for Customer-Owned Banking Institutions (COBIs). This new approach can provide COBIs with cost and administrative saving opportunities.

Put simply, a ‘safe harbour’ is a matter of practical administration offered by the ATO that will enable eligible banks and credit unions to minimise compliance costs for GST recovery. 

The new approach

Under the new Guideline, the ATO will accept a rate of no more than 18 per cent as a ‘safe harbour’ for the extent of a COBI’s GST creditable purpose in the following circumstances:

  • For partly creditable acquisitions: that is, where a COBI is in a position to identify acquisitions that solely relate to taxable, GST-free or input taxed supplies, it may apply the 18 per cent rate to all remaining acquisitions that are partly creditable.
  • For all acquisitions: where a COBI is in not in a position to identify acquisitions that solely relate to taxable, GST-free or input taxed supplies, it may apply the 18 per cent rate to all acquisitions (to the extent that the supply to the COBI was taxable).  The ATO considers that a COBI will not be in a position to identify acquisitions that solely relate to taxable, GST-free or input taxed supplies where it is practically difficult and burdensome to do so (for example due to limited accounting system capability).

What’s next?

The Guideline applies to tax periods starting with effect from 1 July 2017. For periods prior to this date, opportunities exist for COBI’s to undertake a review of GST apportionment methodologies to recover additional input tax credits.

For tax governance purposes, COBIs should ensure sufficient analysis exists to substantiate why it applied the 18 per cent rate to the either the 1st or 2nd category of above acquisitions.

We regularly work with clients to help them identify and apply changes coming from the ATO in a coordinated way, as well as meet the tax governance reporting requirements linked to transparency.  Get in touch with the team.