Senate

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

GST-free supplies and input taxed supplies

Schedule 1 to this Bill amends the GST Act to:

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ensure that an entity will be able to claim an input tax credit on an acquisition or importation that it uses in making input taxed supplies through an enterprise, or part of an enterprise, that it carries on outside Australia;

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update the provisions that relate to child care;

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provide for the GST-free treatment of travel agent fees for arranging overseas supplies such as accommodation, rail transport, car hire, entertainment and sight-seeing tours;

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provide that the supply of a freehold interest or long-term lease made after a short-term lease is also GST-free;

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provide that the sale of residential premises that have been used as residential premises for at least 5 years will be input taxed;

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clarify that reduced input tax credits are only denied to the extent that the entity is entitled to an input tax credit for that acquisition under another provision of the GST Act; and

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allow certain low-value supplies through coin-operated devices to be treated as input taxed.

Date of effect : Various.

Proposal announced : Not announced.

Financial impact : Negligible.

Compliance cost impact : Minimal.

Imports

Schedule 2 to this Bill amends the GST Act, LCT Act, WET Act and the Customs Act to:

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ensure that the conversion rate used for the international transport and insurance component of a taxable importation or re-importation is the same rate used for the customs value of the importation or re-importation;

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ensure that the re-importation of goods that were acquired prior to 1 July 2000 and are returned to the original owner, without having being subject to any change since their export, are not subject to GST;

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ensure that re-imported breeding livestock is only subject to GST on the increase in value;

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exempt certain goods, imported temporarily into Australia without payment of Customs duty, GST and LCT from having to be exported from Australia; and

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ensure that the re-importation of goods that have been previously subject to WET or LCT is not subject to WET or LCT a second time. Date of effect : 1 July 2000 except the conversion rate for international transport and insurance which applies from date of introduction.

Proposal announced : Not announced.

Financial impact : Negligible.

Compliance cost impact : Nil.

Fringe benefits

Schedule 3 to this Bill amends the GST Act to:

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extend Division 71 to operate to deny input tax credits for acquisitions or importations that are provided as fringe benefits on which FBT will be payable and where the acquisition or importation also relates to making input taxed supplies;

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ensure that entities can only claim input tax credits to the extent that an acquisition or importation in relation to entertainment is deductible under income tax law;

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allow entities to make a GST election in relation to their meal entertainment and entertainment leasing expenses and include a new adjustment event for these expenses to minimise an entitys compliance costs caused by the timing differences between GST and FBT; and

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extend the application of Division 111 so that an entity can claim input tax credits for all expense payment benefits that are fringe benefits.

Date of effect : Various.

Proposal announced : Not announced.

Financial impact : Negligible.

Compliance cost impact : These measures will substantially reduce compliance costs.

Adjustments

Schedule 4 to this Bill amends the GST Act to:

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ensure that a decreasing adjustment will be available where an entity makes a taxable supply, in the course of carrying on its enterprise, of a thing that has been used solely or partly for a private or domestic purpose;

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provide special rules for adjustments for bad debts that are not fully taxable or creditable;

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provide an increasing adjustment to the recipient of a going concern where the going concern is used to make solely input taxed supplies; and

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provide rules for adjustments occurring after a representative has been appointed but relate to supplies made by the incapacitated entity.

Date of effect : 1 July 2000

Proposal announced : Not announced.

Financial impact : Negligible.

Compliance cost impact : Minimal.

Administration

Schedule 5 to this Bill amends the GST Act and the TAA 1953 to:

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allow the Commissioner, in certain circumstances, to cancel an entitys GST registration where it has applied to the Commissioner for cancellation before it has been registered for 12 months;

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allow the Commissioner, in certain circumstances, to revoke an entitys one month tax period election before 12 months after it came into effect and the entity requests it to be revoked;

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make minor technical amendments to the provisions on reviewable decisions relating to GST, wine tax and indirect tax;

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ensure that those persons responsible for the management of a non-profit sub-entity are jointly and severally liable for amounts payable under the GST law by that sub-entity;

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extend the indirect tax record-keeping requirements to special transitional credits;

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ensure that where an entity has delayed claiming their entitlement to an input tax credit (see Chapter 6), the entity must keep records relating to that acquisition for 5 years from the date it lodged its GST return; and

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give the Commissioner the discretion to be able to refund an RBA surplus or credit rather than apply it against a tax debt where:

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the debt, other than a BAS amount, is due but not yet payable;

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the taxpayer has complied with an arrangement to pay the debt by instalments; or

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the Commissioner has agreed to defer recovery of the debt.

Date of effect : Various.

Proposal announced : Not announced.

Financial impact : Negligible.

Compliance cost impact : These amendments are expected to decrease compliance costs.

Other amendments

Schedule 6 to this Bill makes various amendments to the GST Act, GST Transition Act, LCT Act, WET and LCT Transition Act and the ITAA 1997. They include amendments to:

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treat returnable containers as second-hand goods;

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allow an entity to attribute input tax credits to a tax period later than one in which it holds a tax invoice;

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ensure that an entity is able to claim its correct entitlement to input tax credits where it leases or hires a car, acquires a GST-free or partly GST-free car or acquires a car only partly for a creditable purpose;

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ensure the definitions of representative and incapacitated entity are aligned with the Corporations Law and Bankruptcy Act 1966 ;

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ensure that a car manufacturer is subject to the correct amount of LCT where they supply a luxury car by way of lease or hire;

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align the time to claim special credits provided for under the WET and LCT Transition Act with other special credits in the GST Transition Act;

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treat the special credits provided for under the WET and LCT Transition Act as assessable income;

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ensure that an entity that has a GST branch or branches cannot become a member of a GST group;

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allow partnerships, trusts and individuals to apply to be approved as additional members of existing GST groups;

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ensure that all partnerships, trusts and individuals, that satisfy the membership criteria in relation to a particular GST group, are not required to apply to be members of that GST group;

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stipulate that all partnerships, trusts and individuals, that are GST group members, must have the same tax periods and accounting basis as all other members of the GST group;

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ensure that companies cannot form GST groups with unrelated entities;

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ensure that the associates provisions operate in relation to non-profit sub-entities;

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ensure that an input tax credit is available to a GST group where the reverse charge rules have applied to make supplies within the group taxable;

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provide that an entity will not be required to provide a tax invoice to a recipient, where the supply is a taxable supply of real property under the margin scheme;

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ensure that there is no denial of input tax credits for acquisitions or importations made by insurers directly for the purpose of settling claims under policies that would have been subject to GST if supplied after 1 July 2000 that were supplied before 1 July 2000;

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ensure that the denial of input tax credits for acquisitions or importations made by insurers directly for the purpose of settling claims under GST-free policies applies for things other than goods;

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correct the notification requirement in relation to insurance policies acquired by members of GST-groups;

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clarify the application of the treatment of settlements made to third parties injured or damaged by the insured;

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provide for an increasing adjustment for insurers in relation to the excess paid to them in certain circumstances;

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remove the GST reverse charge from payments in relation to the provision of an employee share scheme by a non-resident entity;

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remove the GST registration requirement for a non-resident entity that is only making supplies of employee services to a wholly-owned subsidiary in Australia;

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extend the concessional treatment of long-term accommodation to accommodation provided at marinas; and

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the GST Transition Act to ensure that the correct amount of GST is calculated on the supply of a construction project in progress at 1 July 2000.

Date of effect : Various.

Proposal announced : Not announced.

Financial impact : Negligible.

Compliance cost impact : Minimal.

Technical corrections

Schedule 7 to this Bill contains a number of minor technical corrections to the GST Act, the A New Tax System (Indirect Tax and Consequential Amendments) Act 1999 , the A New Tax System (Indirect Tax and Consequential Amendments) Act (No. 2) 1999 , the A New Tax System (Tax Administration) Act (No. 2) 2000 , the Indirect Tax Legislation Amendment Act 2000 and the Taxation (Interest on Overpayments and Early Payments) Act 1983 .

Date of effect : Various.

Proposal announced : Not announced.

Financial impact : Nil.

Compliance cost impact : Nil.