Accounting for GST revenue to the States

Under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, all GST collections are provided to the States and Territories (the States) and thus are not available for expenditure by the Australian Government. As such, the GST is a state tax, with the Australian Taxation Office (the ATO) acting as the States' agent in the collection of the tax. Consequently, collections of GST from taxpayers and provision of GST revenue to the States are not recorded as revenues and expenses of the Australian Government in the financial statements in Part 1.

The Australian Government finalises payments to the States of annual GST collections in June, based on an estimate of GST expected to be collected for the full financial year. The final outcome for GST collections can therefore differ from the earlier payment. This difference is recorded in the financial statements in Part 1 as an expense variation, rather than a transaction where the Australian Government is acting as an agent. To ensure that the States receive the exact amount of GST collections for a financial year, a balancing adjustment is made in the following financial year.

In Part 2, the financial statements are presented including GST as Australian Government revenue. As a result, the fiscal balance, net operating balance and net worth amounts in this part differ from those reported in Part 1. The fiscal and net operating balances are adjusted to include accrual GST revenue and a GST payable to the States (which is equivalent to actual cash GST receipts as GST obligations to the States are on a cash basis). An adjustment is also made to Australian Government expenses to record the write-off of GST debt outstanding (GST mutually agreed writedowns in Table A2). These adjustments result in the Part 2 fiscal and net operating balances differing from those in Part 1 by accrual GST revenue, less actual GST receipts and GST mutually agreed writedowns (these amounts are shown in Table A2). The total difference is shown in Table A3. The differing accounting approaches also flow through to differences in net worth as a result of the inclusion of GST receivables and payables in the balance sheet in Part 2.

The net impact on cash flows is the same regardless of the accounting approach. Therefore, the underlying cash balance is the same whether it is calculated on the basis that the GST is a state tax or an Australian Government tax.

While the net impact on cash flows is the same, gross GST receipts on an Australian Government tax basis can differ to gross GST receipts measured on a state tax basis. This is due to recognising GST transactions between Australian Government entities and the ATO as external transactions when the ATO is acting as an agent of the States but, when GST is recorded as Australian Government revenue, these transactions are recognised as transactions within the total general government sector and their impact is eliminated.

Further information on accounting for GST to the States and Territories can be found on page 10 of the Final Budget Outcome 2000-01.