House of Representatives

Explanatory Memorandum

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

Chapter 2 GST car and pharmaceutical concessions

Outline of chapter

2.1 Schedule 2 to this Bill makes two amendments to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) following the establishment of the military specific compensation scheme under the Military Rehabilitation and Compensation Act 2004 .

2.2 The first amendment makes supplies of drugs, medicines and other pharmaceutical items GST-free when supplied as pharmaceutical benefits under the compensation scheme.

2.3 The second amendment extends the GST-free car concession to people who have served in the Defence Force or in any other armed force of Her Majesty and as a result of that service, receive, or are eligible to receive, a Special Rate Disability Pension under Part 6 of Chapter 4 of the Military Rehabilitation and Compensation Act 2004 .

Context of amendments

2.4 The Military Rehabilitation and Compensation Act 2004 established a military specific compensation scheme to meet the special circumstances of service in the Australian Defence Force. The scheme represents the Government's response to the findings of the inquiry into the Black Hawk disaster of June 1996 and the recommendations of The Review of the Military Compensation Scheme (Tanzer Report) of March 1999.

2.5 This Schedule makes amendments to the GST Act that flow from the establishment of the scheme. They seek to provide similar goods and services tax (GST) concessions to those that currently exist in the GST Act for certain claimants under the Veterans' Entitlements Act 1986 .

Summary of new law

2.6 The first amendment in this Schedule amends section 38-50 of the GST Act to make the supply of a drug, medicine or other pharmaceutical item GST-free when supplied on prescription and as a pharmaceutical benefit under the Military Rehabilitation and Compensation Act 2004 .

2.7 The second amendment in this Schedule amends section 38-505 of the GST Act to make the supply of a car GST-free when supplied to an individual who has served in the Defence Force or in any other armed force of Her Majesty and as a result of that service, receives, or is eligible to receive, a Special Rate Disability Pension under the Military Rehabilitation and Compensation Act 2004 .

Comparison of key features of new law and current law

Detailed explanation of new law

Drugs, medicines and other pharmaceutical items

2.8 Under section 38-50 of the GST Act, supplies of certain drugs, medicines, medicinal preparations and other pharmaceutical items are GST-free when supplied in certain circumstances. Subsection 38-50(4) makes supplies of drugs, medicines and other pharmaceutical items GST-free when supplied:

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on prescription;

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as a pharmaceutical benefit within the meaning of section 91 of the Veterans' Entitlements Act 1986 ; and

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under an approved scheme within the meaning of section 91 of the Veterans' Entitlements Act 1986 .

2.9 Most supplies of drugs, medicines and other pharmaceutical items will be GST-free because of other provisions within the GST Act. However, some drugs, medicines and other pharmaceutical items supplied as pharmaceutical benefits under the Veterans' Entitlements Act 1986 or the Military Rehabilitation and Compensation Act 2004 will not fall within these provisions and thus not otherwise qualify for GST-free treatment.

2.10 The Government intends that supplies of drugs, medicines and other pharmaceutical items supplied as pharmaceutical benefits under the Military Rehabilitation and Compensation Act 2004 qualify for the same GST-free treatment as supplies of drugs, medicines and other pharmaceutical items supplied as pharmaceutical benefits under the Veterans' Entitlements Act 1986 .

2.11 The amendment to section 38-50 of the GST Act will make supplies of drugs, medicines and other pharmaceutical items GST-free when supplied:

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on prescription;

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as a pharmaceutical benefit within the meaning of section 5 of the Military Rehabilitation and Compensation Act 2004 ; and

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in accordance with a determination made under paragraph 286(1)(c) of the Military Rehabilitation and Compensation Act 2004 .

[ Schedule 2, item 1, subsection 38-50(4A )]

Cars

2.12 Under section 38-505 of the GST Act, the supply of a car is GST-free when supplied to an individual who has served in the Defence Force or in any other armed force of Her Majesty, and as a result of that service:

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has lost a leg or both arms; or

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has had a leg, or both arms, rendered permanently and completely useless; or

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is a veteran to whom section 24 of the Veterans' Entitlements Act 1986 applies and receives a pension under Part II of that Act; and

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intends to use the car in his or her personal transportation during all of the 'Subdivision 38-P period'.

2.13 The GST Act defines the Subdivision 38-P period as the period starting when the person acquires the car and ending at the earliest of:

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the end of two years after the acquisition;

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the time when the car is no longer reasonably capable of being used for the purpose for which cars of that kind are ordinarily used; or

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a time that the Commissioner of Taxation considers to be appropriate in special circumstances.

2.14 The amendment to section 38-505 will extend the criteria under paragraph 38-505(1)(b) to include individuals who are receiving the Special Rate Disability Pension under Part 6 of Chapter 4 of the Military Rehabilitation and Compensation Act 2004 , or who satisfy the eligibility criteria under section 199 of that Act. [ Schedule 2, items 2 and 3, subparagraph 38-505(1)(b)(iv )]

2.15 Not all people who receive, or are eligible to receive, the Special Rate Disability Pension under the Military Rehabilitation and Compensation Act 2004 will be eligible to acquire cars GST-free. The Government intends that only those people who meet the other requirements of section 38-50 qualify. That is, the individual must have served in the Defence Force or in any other armed force of Her Majesty and as a result of that service, receive, or is eligible to receive, the Special Rate Disability Pension. These amendments are not intended to alter the meaning given to the phrase 'served in the Defence Force or in any other armed force of Her Majesty' that appears in paragraph 38-505(1)(a) of the GST Act.

2.16 Similarly, such people will also be subject to the requirement that they intend to use the car in their personal transportation during all of the Subdivision 38-P period.

Application and transitional provisions

2.17 The amendments made by this Schedule apply to net amounts for tax periods starting, or that started, on or after 1 July 2004.

2.18 The amendments are retrospective to ensure they align with the commencement of the military compensation scheme established by the Military Rehabilitation and Compensation Act 2004 .