Large capital expenditure reporting on Business Activity Statements

Large capital expenditure reporting on Business Activity Statement continues to be a frustration effecting all industries and taxpayers, small or large. 

When you outright purchase a capital asset or purchase by chattel mortgage or hire purchase, one of the biggest concerns you have is to report it on your BAS to obtain the GST refund on that asset.  In fact, it is often the case that a financier will request that GST credit be refunded to them in a large repayment 3 or 4 repayments into your finance contract.

However, under extended powers granted to the Commissioner in June last year, the ATO has the right to withhold that refund for an initial period of 60 days without objection - effectively until they are satisfied that the credit is legitimate.  This means that you will have to provide copies of valid Tax Invoices for the purchase; evidence of how you have paid for or financed the purchase and other accounting records that show you are legitimately operating a business and keeping appropriate records.

The ATO will then consider this paperwork and are increasingly contacting the seller as well to ensure that the transaction will be correctly reported on their side.

As Tax Agents, our frustration is that we are at the mercy of the ATO's timeline in processing the lodgement of the Business Activity Statement, validation of the paperwork and subsequent release of the refund.  We have heard of cases where this has taken more than 6 months.

The lesson for the moment is, if you are making any capital purchase that will result in an unusually large GST refund for your business, make sure you provide us with all the relevant paperwork and notify us if your financial contract includes a GST repayment schedule to the lender. 

Be aware that you can be caught short if the ATO has not refunded your GST before it becomes due to the lender.