13.3 Goods and services tax
Guidance notes - Goods and services Government departments are entitled to claim back from the Australian Tax Office (ATO), any GST remitted. The Australian Tax Office advise that they aim to refund GST within 14 days of lodgement of the Business Activity Statement. The cost resulting from the timing lag between the remittance of GST and the ATO refund of GST is not considered material, and therefore, the PSC is calculated net of GST. |
GST is paid on most services at a rate of 10 per cent and the Procuring Agency is entitled to a GST refund from the Australian Tax Office (ATO) for any GST paid.16
The ATO advises that GST refunds are paid within 14 days of the lodgement of the Business Activity Statement (BAS) (lodged on the 21st of each month). The BAS details the GST paid and received (if applicable) for the month. This indicates whether the entity is entitled to a refund or has to remit GST to the ATO. For the purposes of this exercise, the analysis assumes that the physical cash outflow due to GST occurs when the BAS statement is lodged every month, and the refund is received from the ATO in the middle of the following month, i.e. a one month time lag between payment and refund of GST for this project.
Analysis based on a review of the timing effect of GST on the reference project suggests that the effect of GST on the PSC is not material.
The Procuring Agency, as a GST-paying entity, may be able to offset various project GST payments/receipts against one another. For example, the GST paid on this project may be offset against any GST received from another Procuring Agency project. Therefore, the GST cash flow timing impact may differ where the project is considered within the Procuring Agency as a whole compared to the GST impact on the project as a stand-alone project.17
The GST cash flows were derived using the following general assumptions:
• Cash flows have been modelled on a monthly basis and GST cash flows have been assumed to be paid and received in the middle of each month.
• Nominal monthly GST cash flows have been obtained from the Project's PSC model, then multiplied by 10 per cent.
• Net GST cash flow for the month is calculated by adding the refund from the ATO and the GST paid for the month.
• NPC is calculated on the net GST for the month as at 1 July 2002.
• Cash flows were discounted based on an assumed real, pre-tax rate of 5.00 per cent per annum.
• At the assumed inflation rate of 2.50 per cent per annum, the real annual discount rate equates to a nominal rate of 7.62 per cent per annum.
The NPC (as at 1 July 2002) of the GST impact under a public sector delivery method is estimated at $0.2 million or 0.1 per cent of the project's Raw PSC of $320.6 million. For comparative purposes, the NPC of the GST impact - assuming a service payment of $40 million per annum under a PPP private sector delivery method - is estimated at $0.2 million in NPC terms.
As noted, the results indicate that GST is not a material item in terms of overall project cost under a PPP project delivery method or under a public sector delivery method.
Given this analysis and bearing in mind that the Procuring Agency may be able to offset various projects' GST payments and/or remittances against each other, it is recommended that the value-for-money evaluation be based on the project's PSC and bidder's Proposals excluding GST. All numbers provided in this report are exclusive of GST.
Note that the RFP issued to private sector bidders should state that all costs are to be exclusive of GST unless otherwise notified.
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16 As advised by [insert name of consultant], GST specialist tax consultant
17 As advised by [insert name of consultant], GST specialist tax consultant