Senate

Revised Explanatory Memorandum

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

Chapter 5 - Administration

Outline of Chapter

5.1 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 so 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.

Detailed explanation of new law

Cancellation of GST registration

5.2 Under section 23-10 of the GST Act, an entity can choose to register for GST if it carries on an enterprise but its annual turnover is below the registration turnover threshold. Once an entity is registered for GST it must apply to the Commissioner if it wishes to have its registration cancelled. However, the current legislation does not allow the Commissioner to cancel the GST registration of such an entity unless the entity has been registered for at least 12 months at the time of application.

5.3 New subsection 25-57(1) allows the Commissioner to cancel an entitys GST registration where that entity has applied to the Commissioner in the approved form before it was registered for 12 months and that entity is not required to be registered [item 1] . In considering whether to cancel the GST registration of an entity before it has been registered for 12 months, the Commissioner may have regard to such things as:

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how long the entity has been registered;

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whether the entity was previously registered; and

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any other relevant matters. [Subsection 25-57(2)]

5.4 Item 7 amends the TAA 1953 to ensure that the Commissioners decision under new section 25-57 of the GST Act is a reviewable GST decision. Since the Commissioners decision under new section 25-57 is reviewable, the Commissioner must notify an entity of a decision he makes under that section. [Item 1, subsection 25-57(3)]

5.5 Item 2 makes a consequential amendment to subsection 25-60(1) to include new section 25-57 in that section. This ensures that the Commissioner must decide the date on which an entitys GST registration is cancelled under new section 25-57 . The Commissioners decision under section 25-60 is a GST reviewable decision. However, in deciding the date on which an entitys GST registration is cancelled under new section 25-57 , the Commissioner is unable to decide on a date that is before Royal Assent of this Bill [item 18] . This policy decision reflects the impracticalities of cancelling an entitys registration at an earlier stage since this would require the unwinding of all transactions between the entity and other parties.

Revoking an election for monthly tax periods

5.6 Under section 27-5 of the GST Act, a GST registered entity will generally lodge its GST returns and pay its net amount on a quarterly basis. In certain circumstances, it must do this monthly. Entities that are not required to account for GST monthly may still elect to account monthly by applying to the Commissioner under section 27-10.

5.7 Once the monthly election commences, an entity that would be entitled to use the quarterly basis may change back to quarterly by applying to the Commissioner. However, under the current legislation, the entity must use monthly tax periods for at least 12 months before it can revert to using quarterly tax periods. The Commissioner has no discretion to reduce that period.

5.8 New subsection 27-22(1) allows the Commissioner to revoke the monthly tax period election of an entity that is not required to have monthly tax periods before 12 months after the election takes effect. However, the entity must request the Commissioner to revoke the election in the approved form. [Item 3]

5.9 This revocation will take effect from the date specified in the instrument of revocation but must be 1 January, 1 April, 1 July or 1 October. The date specified may be a retrospective 1 January, 1 April, 1 July or 1 October. [Subsection 27-22(3)]

5.10 In considering whether to revoke an entitys monthly tax period election before it has had effect for 12 months, the Commissioner may have regard to such things like:

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how long the entity has had monthly tax periods;

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whether the entity was previously registered, and whether monthly tax periods applied; and

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any other relevant matters.

[Subsection 27-22(2)]

5.11 Item 8 amends the TAA 1953 to ensure that the Commissioners decision under new subsection 27-22(1) and new subsection 27-22(3) of the GST Act is a reviewable GST decision.

Reviewable decisions relating to GST, wine tax and indirect tax

5.12 Section 62 of the TAA 1953 allows an entity dissatisfied with a reviewable decision to object against the decision. Subsection 62(2) lists reviewable GST decisions that are made under provisions of the GST Act. Subsection 62(2A) lists reviewable wine tax decisions made under the WET Act. Subsection 62(3) lists reviewable indirect tax decisions that are made under this Act and only relate to indirect tax.

5.13 Items 9 to 11 make minor technical amendments to subsections 62(2) and 62(3) by updating the references in the table and notes so that it correctly reflects prior amendments already enacted.

5.14 Item 5 makes a consequential amendment to section 14ZW to correct the subsection numbers and remove the reference to item 2 of the table in subsection 62(3) because it no longer has any effect.

Joint and several liability for non-profit sub-entities

5.15 Division 5 of Part VI of the TAA 1953 imposes joint and several liability on partners of partnerships, participants in GST joint ventures, members of GST groups and representatives of incapacitated entities in respect of their indirect tax law responsibilities.

5.16 This Division also refers to the liability related to non-profit sub-entities and unincorporated associations. These provisions do not impose joint and several liability on each person responsible for the management of the sub-entity or association. Although state legislation gives recovery rights against unincorporated associations, it does not give any recovery rights in respect of non-profit sub-entities. Thus, it is necessary to insert a provision to impose joint and several liability in relation to non-profit sub-entities.

5.17 Item 6 inserts new subsection 52A(1A) of the TAA 1953, which imposes joint and several liability for amounts payable under the GST law by a non-profit sub-entity on those persons responsible for the management of the sub-entity.

Records for transitional credits

5.18 Under the current legislation there is no express requirement for entities to keep records explaining their entitlement to special GST credits claimed under sections 16, 16A, 16B, 16C and 19A of the GST Transition Act and section 3 of the WET and LCT Transition Act . An indirect requirement to keep records in respect of these credits exists under the income tax legislation as these credits form part of the taxpayers assessable income.

5.19 New paragraph 70(1)(c) expressly requires records to be maintained in respect of special credits claimed under the GST Transition Act or the WET and LCT Transition Act . [Item 12]

5.20 Item 14 inserts new subsections 70(1AAA) and 70(1AAB) . New subsection 70(1AAA) is similar to paragraph 262A(2)(b) of the ITAA 1936. It makes the record-keeping obligations for transactions under GST legislation similar to those under the income tax legislation. Since the special credits are calculated by entities with reference to other information, new subsection 70(1AAA) ensures that the entity must keep all documents relating to that calculation for at least 5 years after it was made. Where the GST law specifies circumstances in which a choice, election, etc. ceases to have effect, records must be kept for at least 5 years from the date the choice, election, etc. ceased to have effect.

5.21 Items 13 and 15 to 17 make consequential amendments to section 70 because of the amendments set out in paragraphs 50 to 5.20.

Delaying a claim for an input tax credit

5.22 New subsection 70(1AAB) is inserted to ensure that where an entity delays its claim for an input tax credit it must keep records relating to that claim for 5 years from the date it claimed the credit in its GST return (see Chapter 6).

Application of an RBA surplus or a credit to a tax debt

5.23 Section 8AAZL in Division 3 of Part IIB of the TAA 1953 requires the Commissioner to apply any payment, credit or RBA surplus to either an RBA or a non RBA tax debt. Any amount remaining after its application is the reduced balance of the payment, credit or RBA surplus which is also required to be treated in the same manner. That is, there is a diminishing circular process of applying payments, credits or RBA surpluses against tax debts until there are no tax debts remaining. This application process is mandatory. The Commissioner does not have a discretion to treat the amounts in another manner.

5.24 The Commissioner can refund an amount of a payment, credit or RBA surplus but only after the allocation process is completed and all tax debts are extinguished. Section 8AAZA defines a tax debt to include an amount due to the Commonwealth under a taxation law, including an amount that is not yet payable.

5.25 Some entities may lodge income tax returns and have assessments made early in the lodgment cycle. As most companies and individuals have a due date for payment of income tax of 1 December or later, this results in there being several months between the establishment of the tax debt and the date when the tax is due for payment. If these entities are registered for GST and lodge a BAS claiming a net credit, the expected refund cannot be issued because the Commissioner is required to offset the amount against the assessed income tax debt, even though it may not be payable for several months.

5.26 The design of the new tax system requires the Commissioner to retain any BAS credits, which can be claimed as early as the 1st of the month, to be offset against BAS debts that are due for payment on the 21st of the month. While offsetting a refund against a debt that is either outstanding or payable within a short period of time is necessary for the efficient collection of the revenue, offsetting as outlined in the above paragraph may cause cash flow problems for a business.

5.27 There are also other cases where it is inappropriate to be offsetting a credit or an RBA surplus against a tax debt. For example, the Commissioner may not want to offset where the ATO has given an undertaking to defer recovery because there is a genuine dispute about the tax debt.

5.28 Section 8AAZL of the TAA 1953 will be amended to give the Commissioner the discretion not to treat a payment, credit or RBA surplus in accordance with Division 3. That discretion will apply in relation to 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.

[Schedule 5, item 4, subsection 8AAZL(3)]

5.29 BAS amounts (defined in section 995-1 of the ITAA 1997) are all the credits and debts relating to GST, LCT, WET, PAYG(W), PAYG(I), FBTI, deferred COIN and special GST credit for sales tax paid on stock. These are excluded so that the Commissioner can refund a net BAS credit claimed prior to 21st of the month, as explained in paragraph 5.26.

5.30 This amendment will enable the Commissioner to refund any net BAS credit if another non-BAS tax debt is due but not yet payable. It will also allow the Commissioner, in appropriate cases, to refund amounts where a tax debt is in dispute and finalisation of the mater is dependent on a decision of the Administrative Appeals Tribunal or a court.

Application and transitional provisions

5.31 The amendments in relation to records for transitional credits and delaying a claim for an input tax credit apply, and are taken to have applied, in relation to net amounts for tax periods starting on or after 1 July 2000 [item 18] . All other amendments in Schedule 5 commence on Royal Assent.