Franchisors that provide services to assist franchisees with their obligations under GST, FBT and PAYG withholding laws, among others, need to consider whether new laws, to commence 1 March 2010, will require them to be registered as Business Activity Statement (BAS) agents or to modify franchise agreements and services to franchises so that regulation will not be necessary.
Previously, entities that provided a “BAS service” – such as preparation or lodgement of a BAS on behalf of a taxpayer or giving advice about a “BAS provision” – were not required to be registered. However, entities that provide a “BAS service” for a fee or reward will be required to be registered from 1 March 2010. A “BAS service” is defined broadly to mean a tax agent service that:
- relates to ascertaining or advising an entity’s liabilities, obligations or entitlements under a BAS provision, or
- representing an entity in their dealings with the Commissioner of Taxation relating to a BAS provision
in circumstances where the entity can reasonably be expected to rely on the service to satisfy its liabilities or claim an entitlement under a BAS provision.
A “BAS provision” covers matters such as the collection and recovery of tax under FBT law, GST law, wine tax law, luxury car tax or fuel tax law and the PAYG withholding and instalment provisions.
The existing requirement for entities providing “tax agent services” for a fee or reward to be registered will be retained under the new regime. Tax agent services is likewise defined broadly to cover any service that relates to ascertaining or advising an entity as to its liabilities, obligations or entitlements under a taxation law in circumstances where it can reasonably be expected that the entity will rely on the service to satisfy its liabilities or claim an entitlement under a taxation law.
Franchising arrangements are structured in many different ways. The broad definition of “BAS service” in the new provisions, and the introduction of a registration requirement, may mean that franchisors providing certain services who were not previously required to be registered may now be caught by the new regime.
For example, if a franchisor prepares or lodges an approved form about a franchisee’s liabilities, obligations or entitlements concerning GST, and the franchisee is not expected to re-work the forms prepared, that could constitute the provision of a “BAS service”. Likewise, if a franchisor provides services such as setting up software for franchisees and the software generates PAYG reports, and the franchisees are not expected to review the accuracy of those reports, that could constitute the provision of a “BAS service”.
A failure to register where required is a contravention of a civil penalty provision. Heavy penalties may be imposed for any contravention. Accordingly, franchisors should review their franchising arrangements, and particularly their training programs and operations manuals, to ensure that they comply with the new laws. Norton Rose Australia can assist franchisors to identify if any of the services provided may require them to be registered as a provider of “BAS services”. Norton Rose Australia can advise what modifications to the services or the agreements in place with franchisees would be required to remove any need for registration.