GST and countertrade transactions
The Commissioner has issued Practical Compliance Guideline PCG 2016/18 which outlines a practical compliance approach for certain countertrade transactions that are GST neutral. In this context, “countertrade” refers to the direct exchange of things by one entity for things provided by another entity, and does not include transactions where any of the consideration is monetary.
The Commissioner will apply the compliance approach outlined below to an entity that has entered into a countertrade transaction as part of carrying on its enterprise, provided that countertrade transactions account for no more than approximately 10% of the entity’s total number of supplies.
“The Commissioner has issued a practical compliance guideline which outlines a simplified approach for certain countertrade transactions that are GST neutral.”
Commissioner's compliance approach
The Commissioner will not apply resources to verify an entity’s compliance with its GST reporting obligations for a countertrade transaction, in these circumstances:
- the entity is registered for GST
- the entity engages in a countertrade transaction, under which it directly exchanges things with another entity, at arm’s length, without any monetary consideration
- the other entity to the countertrade transaction is also registered for GST
- both entities made wholly taxable supplies to each other, with the amount of GST payable being 1/11th of the GST-inclusive market value of those taxable supplies
- the entity made a wholly creditable acquisition for which it is entitled to a full GST credit
- the net effect of the countertrade transaction would be GST neutral to the entity in the same tax period because:
- both entities to the countertrade transaction agree that the GST-inclusive market values of their countertrade supplies are equal, or
- where both entities to the countertrade transaction do not agree on the GST-inclusive market value, the entity calculates its GST payable and its corresponding GST credit based on the GST-inclusive market value of its own supply.
- the entity has records that show
- when the countertrade transaction was entered into and occurred
- what was exchanged (what was supplied and acquired)
- the identity and ABN of the other entity
- the GST-inclusive market value that the entity and the other party agreed on (if applicable), and
- there is no evidence of fraud or evasion.
“‘Countertrade’ refers to the direct exchange of things between entities without monetary consideration, and may be GST neutral if all conditions are met.”
Date of effect
The Commissioner will adopt the compliance approach outlined in the Guideline from 18 November 2016.
Please feel free to call Norman Ruan or Martin van der Saag on 02 9984 7774 if you have any questions.
About the author
Cayle Petritsch - Director & Wealth Advisor
Cayle Petritsch, Director and Wealth Advisor, works with our existing clients who have recognised the importance of business owners making strategic financial choices not only for their company, but for their personal finances too.
Cayle saw a great opportunity to expand North Advisory’s services into SMSF/superannuation, personal wealth management, asset protection services and other crucial personal finance facets that business owners need to consider.
His approach to wealth management allows you to receive highly personalised wealth advice. Working closely with Marius, Cayle understands the unique needs of every client, from their lifestyle and business goals to their retirement plans.
Key Takeaways
Countertrade transactions involve exchanging goods or services instead of paying cash.
These transactions are treated as supplies and acquisitions for GST purposes, even without monetary payment.
The ATO’s practical compliance approach aims to reduce GST compliance burden where the net effect is revenue neutral.
This guidance helps taxpayers avoid unnecessary verification where countertrade transactions meet specific criteria.
To qualify for this approach, both parties must be GST registered and supplies must be wholly taxable.
Each entity must be entitled to full GST credits on acquisitions to ensure a GST-neutral outcome.
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Frequently Asked Questions
What is a countertrade transaction for GST purposes?
A countertrade transaction is a direct exchange of goods or services between registered entities where no money changes hands, but supplies are made that would otherwise attract GST based on their market value.
Why has the ATO issued a compliance guideline for these transactions?
The guideline exists because traditional GST reporting on non-monetary exchanges can be burdensome and complex, especially where the net effect on revenue is neutral. The guideline helps simplify compliance in certain situations.
Under what conditions will the ATO not review a countertrade transaction?
This may occur where both parties are registered for GST, exchanges are at arm’s length, supplies are wholly taxable, the acquisition is fully creditable, agreed market values are equal (or determined reasonably), and the net GST effect is neutral.
Is monetary consideration allowed in a countertrade transaction for these rules?
No — for the practical compliance approach to apply, the transaction must involve no monetary consideration; it is strictly an exchange of things (goods or services).
How much countertrade can a business engage in and still qualify for the simplified compliance approach?
Countertrade transactions should make up no more than approximately 10 % of the entity’s total number of supplies in a relevant period for the guideline to be comfortably applied.
What is a “countertrade transaction” for GST purposes?
A countertrade transaction is the direct exchange of things between two entities, with no monetary consideration involved.
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