Intercompany GST: Basics

Several related companies can apply to be treated as a single body (taxpayer) for GST purposes and nominate one of them as the representative member responsible for lodging GST returns (Division 48 of GST Act 1999). Once approved, these related companies may ignore the GST consequences for supplies & acquisitions made wholly within the group.

Conversely, therefore, GST will generally need to be charged between two or more companies if they are not members of the same GST group.

Requirements for application for becoming members of a GST group are that each member of these companies must:
1. be GST-registered
2. all have the same tax periods & accounting basis
3. satisfy Ownership Test i.e. each member must have at least 90% stake in the other OR if a 3rd company has a minimum 90% stake in the other two (s.190-1)

* Emil Jayaputra *

Reference: Australian Master Tax Guide 44th Edition 2009 - CCH [34-180]


From another source...

« INTERCOMPANY & BRANCH TRANSACTIONS »

Does GST apply to intercompany charges between branches or associates companies?

Yes, unless all inter-companies' branches are registered as a group.

If company A receives an invoice for license fees from an overseas associated company and then has to on-charge other branches and intercompanies. Does company A charge company B, C or D GST on their portion of the Fees?

No, GST from overseas company to A.

Yes, GST applicable from A to B, C, D unless grouped.

« EXPORTS »

If your client is an overseas company, do you have to charge the GST as exports are GST free?

e.g. Company X from the USA writes a questionnaire and commissions field work in Australia and the data is sent back to the USA.

Section 38-190
If service carried out in Australia for overseas client and the information is to be used overseas then no GST is payable.
However if the research were to be used for a marketing product in Australia then it would be subject to GST.


Source: Australian Market Research Society website

IAS 2 on Inventories

International Accounting Standard on Inventories (IAS 2)

The following is a brief summary of IAS 2 on Inventories.

Definition

Inventories include:

1. FG = Finished Goods (assets held for sale in the ordinary course of business)

2. WIP = Work in Process (assets in the production process for sale in ordinary course of business)

3. DM = Materials & supplies consumed in production (raw materials)

Valuation

Inventories are valued at Lower of Cost and NRV (Net Realisable Value).

NRV = Net Realisable Value = the Estimated selling price in normal course of business less the Estimated cost to complete and make the sale.

FV = Fair Value = The amount at which an asset could be exchanged or liability settled between knowledgable willing parties in an arm's length transaction.

Cost of Inventories = Purchase cost + Conversion cost + Other costs incurred in bringing them to their present location & condition.

* Purchase Cost = PP (purchase price) + import duties + transport + handling cost for acquisition of the goods.

* Conversion Cost = Direct Labor + Overhead (variable + fixed)

* Other costs = Cost of designing products, etc

Excluded Costs from Inventory valuation:

- Abnormal amounts of wasted material, labor, other product costs.

- Storage costs

- Admin OH unrelated to production

- Selling costs

- Forex differences from acquisition of the inventories

- Interest cost

These costs should be expensed during the period.

Measurement

Inventory cost should be measured using one of these two methods:

* FIFO Method, or

* WAC (Weighted Average Cost) Method

Source: IAS 2 (www.iasplus.com/standard/ias02.htm)

One big idea per decade

Measuring performance from financial point of view is really just one of a bunch of many performance measurements that collectively determine the real value of the organisation and the keys it needs to hold for the future. (EJ)

Balanced scorecard

Dec 26th 2008
From Economist.com

ROBERT KAPLAN seems to come up with one big idea per decade. In the 1980s it was activity-based costing; in the 1990s it was the balanced scorecard.

The idea was first set out in an article that Kaplan wrote in 1992 for Harvard Business Review, along with David Norton, president of a consulting firm. The article, entitled "The Balanced Scorecard—Measures that Drive Performance", began with the principle that what you measure is what you get. Or, as the great 19th century English physicist Lord Kelvin put it: "If you cannot measure it, you cannot improve it." If you measure only financial performance, then you can hope only for improvement in financial performance. If you take a wider view, and measure things from other perspectives, then (and only then) do you stand a chance of achieving goals other than purely financial ones.

In particular, Kaplan and Norton suggested that companies should consider the following:

• The customer's perspective. How does the customer see the organisation, and what should the organisation do to remain that customer's valued supplier?

• The company's internal perspective. What are the internal processes that the company must improve if it is to achieve its objectives vis-à-vis customers, shareholders and others?

• Innovation and improvement. How can the company continue to improve and to create value in the future? What should it be measuring to make this happen?

The idea of the balanced scorecard was embraced with enthusiasm when it first appeared. Companies were frustrated with traditional measures of performance that related only to the shareholders' point of view. That view was seen as unduly short-termist and too concerned with stockmarket twitches; it prevented boardrooms and managers from considering longer-term opportunities. The balanced scorecard not only broadens the organisation's perception of where it stands today, but it also helps it to identify things that might guarantee its success in the future.

Kaplan and Norton saw the benefits of the balanced scorecard as follows:

• It helps companies to focus on what needs to be done to create a "breakthrough performance".

• It acts as an integrating device for a variety of often disconnected corporate programmes, such as quality, re-engineering, process redesign and customer service.

• It translates strategy into performance measures and targets.

• It helps break down corporate-wide measures so that local managers and employees can see what they need to do to improve organisational effectiveness.

• It provides a comprehensive view that overturns the traditional idea of the organisation as a collection of isolated, independent functions and departments.

Further reading

Kaplan, R.S. and Norton, D.P., "The Balanced Scorecard—Measures that Drive Performance", Harvard Business Review, January–February 1992

Kaplan, R.S. and Norton, D.P., "The Balanced Scorecard: Translating Strategy into Action", Harvard Business School Press, 1996

Kaplan, R.S. and Norton, D.P., "Using the Balanced Scorecard as a Strategic Management System", Harvard Business Review, 1996, reproduced July/August 2007

Niven, P.R., "Balanced Scorecard Step-by-Step: Maximising Performance and Maintaining Results", John Wiley & Sons, 2002; 2nd edn, 2006