• Service: Tax, Indirect Tax
  • Type: Business and industry issue
  • Date: 18/04/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Michelle Bennett

Michelle Bennett
Partner, Tax

+61 3 9288 5910

Are your customers buying what you think you are selling? 

by Michelle Bennett, Indirect Tax Specialist

More than any other tax in Australia, the Goods and Services Tax (GST) requires businesses to fully understand the "substance, purpose and commercial reality" of their sales. Tax managers who work closely with their commercial teams are in the best position to reduce GST costs by optimising transaction structures, product characterisation and input tax credit entitlements.

The value of this understanding was highlighted in ATS Pacific Pty Ltd v Commissioner of Taxation  where Bennett J of the Federal Court relied on such factors to supplement a “mere contractual analysis”. The entirety of the relationship between the supplier and the customer had to be considered to determine the GST characterisation of the supplies. What the customers believed they were buying became a critical question, and the answer led to the margin derived on the product being GST-free. 


Consider that the business clawed back 10 percent on its margin, despite the margin not being charged or even disclosed separately to customers who were purchasing taxable supplies. On the flip side, had the customer looking more closely at its business inputs, it might have discovered it was paying more than it needed to and realised its own cost savings.


In our increasingly competitive global market, pricing decisions can make or break a product or service. Failing to identify savings or charging GST when you don’t need to is simply bad business.  Working with your business to save costs demonstrates the value your tax team brings in even the most challenging environments.


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