House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP and the Minister for Home Affairs, the Hon Brendan O'Connor MP)

Chapter 1 - Deferred settlement of excise and excise-equivalent customs duties

Outline of chapter

1.1 This chapter explains amendments to the Excise Act 1901 (Excise Act) and the Customs Act 1901 (Customs Act) that clarify administrative arrangements relating to periodic settlement permissions (permissions). These amendments establish a standard seven-day permission cycle but allow eligible 'small business entities', prescribed persons and producers of prescribed goods to defer the settlement of excise and excise-equivalent customs duties from the weekly cycle to a monthly cycle. If a business's permission relates to gaseous fuel on a seven-day permission, the amendments will allow that business to give an authorised officer (Collector) a return, on or before the sixth business day following the end of each seven-day period. Additionally, entities with no duty liabilities may have the terms of their seven-day or monthly permission amended to a different reporting cycle at the discretion of the Collector.

Context of amendments

1.2 Excise is a tax on certain goods produced in Australia including alcohol (other than wine), tobacco, fuel, crude oil, condensate and lubricants. Where such goods are imported into Australia they are subject to excise-equivalent customs duty.

1.3 Under excise and customs law, taxpayers are required to lodge an entry and pay the applicable excise or excise-equivalent customs duty prior to the goods being entered for home consumption. This is generally when the goods are moved from the excise place or customs warehouse and entered onto the Australian market.

1.4 However, under section 61C of the Excise Act and section 69 of the Customs Act the Collector is able to grant a permission to a person to allow them to deliver goods into home consumption for a specified period without entering the goods for that purpose. At the end of the period the person is required to lodge a return and pay duty on the goods.

1.5 Currently, permissions are administered in accordance with a long standing practice that the accounting period is weekly. A standard period of an accounting week, beginning on a Monday and ending on a Sunday is applied to most permissions. The payment of duty on the goods that have been delivered is usually made by 4.00 pm on the next business day (Monday) after the permission cycle ends. However, certain taxpayers have been granted permissions longer than seven days.

1.6 The current practice of allowing a seven-day permission unless special circumstances exist to allow for a longer timeframe, has generally been accepted by taxpayers. However, given the discretion that exists in both the Excise and Customs Acts, taxpayers face a degree of uncertainty as to what period is available for the permission and how the Collector will determine such an outcome. The Government considers it would be beneficial to provide certainty to taxpayers on settlement periods by specifying the policy on the permission periods in both Acts. Most small business entities currently have a permission based on a weekly settlement period.

Summary of new law

1.7 These Bills amend the Excise Act and Customs Act to allow a person to apply for a permission in respect of a recurring seven-day period. Any seven-day reporting period can be requested as it will not be necessary for such a period to begin on a Monday and end on a Sunday.

1.8 These Bills also allow 'small business entities', persons in a class prescribed by the regulations and producers of goods prescribed by the regulations, to apply for a monthly settlement permission.

1.9 Following the lodgement of an application, the Collector will determine whether to grant the permission after considering various issues relating to compliance and revenue protection.

1.10 If the permission is granted in respect of a seven-day period, the person would be required to give a return and pay duty, on the first business day following the end of the period, setting out the particulars about the goods delivered into home consumption during the period. However, if the person's permission relates to gaseous fuel, the person may give the Collector a return, on or before the sixth business day following the end of each seven-day period.

1.11 If the permission is granted in respect of a month to a small business entity, the giving of a return and the paying of duty must be made on or before the 21st day of the following month. The regulations will establish the date of lodging and paying of duty for a prescribed person or producer of a prescribed good.

1.12 In cases where an entity with a seven-day or monthly permission does not have a duty liability, the excise legislation gives the Collector authority to set a longer reporting period so that the entity is relieved from the necessity to make weekly or monthly nil reports.

1.13 Once given, the permission would continue to apply until it is revoked by the Collector. In all cases, the Collector would need to provide, in writing to the person, the reasons for the revocation and establish the date of revocation. The revocation would also be subject to a right of review under Part IVC of the Taxation Administration Act 1953 and section 273GA of the Customs Act.

1.14 Transitional provisions will allow all existing permissions to continue to operate as if they have been granted under the new provisions. However, the Collector will review all permissions to ensure each conforms to the new law. For permissions given under the Excise Act, where the permission does not conform, the existing provisions will be valid for a three-month transitionary period, during or after which the Collector may inform the person and ask them to apply for a new permission and revoke their existing permission. After the transition period for Excise Act permissions and generally for Customs Act permissions, if the holder of an existing permission does not comply with the requirements of new provisions, the Collector can revoke the permission or could inform the person they have failed to comply with the new provisions and ask them to apply for a new permission before revoking the existing permission.

Comparison of key features of new law and current law

Detailed explanation of new law

1.15 The new law continues to permit taxpayers to be able to apply for permissions that will allow them to deliver goods into home consumption without entering them for that purpose for a specified period, and lodge a return and pay duty on those goods at the end of the period.

1.16 All taxpayers can apply for a permission that covers any recurring seven-day reporting period. This may be advantageous to taxpayers that have a preferred business day during the week to lodge a return and pay duty. [Schedule 1, item 8, paragraph 61C(1)(a) of the Excise Amendment (Reducing Business Compliance Burden) Bill 2011; Schedule 1, item 4, paragraph 69(1)(c) of the Customs Amendment (Reducing Business Compliance Burden) Bill 2011]

1.17 'Small business entities' may apply for a monthly permission. Where applicable, persons in a class prescribed by the regulations and producers of goods prescribed by the regulations will also be able to apply for a monthly permission. [Schedule 1, item 8, paragraph 61C(1)(b) of the Excise Amendment (Reducing Business Compliance Burden) Bill 2011; Schedule 1, item 4, paragraph 69(1)(d) of the Customs Amendment (Reducing Business Compliance Burden) Bill 2011]

1.18 All applications must be in an approved form. However, a person will not automatically qualify for the permission simply by applying in an approved form. The Collector will take into account various issues before deciding the application including compliance with the law and the protection of revenue. The Collector is likely to examine, where applicable, whether the person has complied with requirements of previous permissions before making a decision. [Schedule 1, item 8, subsections 61C(1B) and (1C) of the Excise Amendment (Reducing Business Compliance Burden) Bill 2011; Schedule 1, item 4, subsection 69(4) of the Customs Amendment (Reducing Business Compliance Burden) Bill 2011]

1.19 Where the Collector refuses to give a permission, the Collector must set out in the notice to the person the reasons for the refusal. [Schedule 1, item 8, paragraph 61C(1C)(b) of the Excise Amendment (Reducing Business Compliance Burden) Bill 2011; Schedule 1, item 4, paragraph 69(5)(b) of the Customs Amendment (Reducing Business Compliance Burden) Bill 2011]

1.20 Where a permission is given the Collector must, by notice in writing, explain clearly what is permitted under the permission, including identifying the person to whom the permission has been given, the nature of the goods to which the permission applies, the place from which those goods may be delivered, the starting date for the permission and whether the permission is a seven-day or monthly permission. The Collector must also detail any requirements associated with the permission. [Schedule 1, item 8, subsections 61C(1C), (1D) and (1E) of the Excise Amendment (Reducing Business Compliance Burden) Bill 2011; Schedule 1, item 4, subsections 69(5) to (7) of the Customs Amendment (Reducing Business Compliance Burden) Bill 2011]

1.21 Permissions in respect of a seven-day period for goods other than gaseous fuels will be subject to the requirement that the person give the Collector a return, in an approved form setting out the particulars of the goods that have been delivered into home consumption during the period under the permission and pay any excise duty or customs duty owing on the first 'business day' following the end of the seven-day period. A business day is a day that is not a Saturday or Sunday or a public holiday in the place concerned. [Schedule 1, item 10, paragraph 61C(3)(a) of the Excise Amendment (Reducing Business Compliance Burden) Bill 2011; Schedule 1, item 4, paragraph 69(8)(a) of the Customs Amendment (Reducing Business Compliance Burden) Bill 2011]

1.22 Permissions in respect of a seven-day period for gaseous fuels will be subject to the same requirements as other seven-day permissions however the person may give the Collector the return on or before the sixth 'business day' following the end of the seven-day period. [Schedule 1, item 10, paragraph 61C(3)(b) of the Excise Amendment (Reducing Business Compliance Burden) Bill 2011; Schedule 1, item 4, paragraph 69(8)(b) of the Customs Amendment (Reducing Business Compliance Burden) Bill 2011]

1.23 Monthly permissions provided to small business entities will be subject to the requirement that the person give a return, in an approved form, setting out the particulars of the goods that have been delivered into home consumption and pay any excise duty or customs duty owing on or before the 21st day of each month in relation to goods that have been delivered during the previous month. [Schedule 1, item 10, paragraph 61C(3)(c) of the Excise Amendment (Reducing Business Compliance Burden) Bill 2011; Schedule 1, item 4, paragraph 69(8)(c) of the Customs Amendment (Reducing Business Compliance Burden) Bill 2011]

1.24 In the Customs context, the permission will also be subject to the condition that the goods to which the permission relates must also have been entered for warehousing before the goods can be delivered into home consumption. [Schedule 1, item 4, paragraph 69(8)(g) of the Customs Amendment (Reducing Business Compliance Burden) Bill 2011]

1.25 A 'small business entity' has the meaning given by section 328-110 (other than subsection 328-110(4)) of the Income Tax Assessment Act 1997 . Under that section a small business entity is defined as an entity that carries on a business in the current year and has aggregated turnover for the previous year of less than $2 million or is likely to have aggregated turnover for the current year of less than $2 million.

1.26 Where applicable, persons in a class prescribed by the regulations and producers of goods prescribed by the regulations will be able to apply for a monthly permission. In this context, the regulations would also prescribe the administrative arrangements for the lodging of a return and the payment of duty for prescribed persons and producers of prescribed goods. [Schedule 1, item 8, paragraph 61C(1)(b) and item 10, paragraph 61C(3)(d) of the Excise Amendment (Reducing Business Compliance Burden) Bill 2011; Schedule 1, item 4, paragraphs 69(1)(d) and (8)(d) of the Customs Amendment (Reducing Business Compliance Burden) Bill 2011]

1.27 Under the Excise Act amendments, a date for lodging a return greater than a standard cycle can be determined by the Collector in the case of a permission holder who does not have any duty liability. This will allow what would otherwise be a seven-day or one-month permission holder to report on a cycle longer than a week or month in duration which will reduce compliance costs for such persons. [Schedule 1, item 10, paragraph 61C(3A)(a) of the Excise Amendment (Reducing Business Compliance Burden) Bill 2011]

1.28 Once any monthly permission is granted, the holder, whether a small business entity, a prescribed person or producer of a prescribed good will be expected to self-assess entitlement on an ongoing basis. The holder must advise the Collector in writing once they cease to be included in a class eligible for such a permission. If this occurs, the Collector must revoke their monthly permission and give another permission in respect of a seven-day period. A person may also advise the Collector that they wish to change their seven-day period. In the circumstance, the Collector may revoke their permission and give another permission in respect of another seven-day period. [Schedule 1, item 10, paragraph 61C(3)(f) and item 12, subsections 61C(8) and (9) of the Excise Amendment (Reducing Business Compliance Burden) Bill 2011; Schedule 1, item 4, paragraph 69(8)(f), subsections 69(13) and (14) of the Customs Amendment (Reducing Business Compliance Burden) Bill 2011]

1.29 The Collector may revoke a permission. Such revocation could occur for various reasons, for example, because the person is no longer eligible for the permission or because the person has not complied with the requirements to which the permission is subject. The notice of revocation must be provided, in writing to the person, stating the reasons for the revocation and the date of revocation. The person would have a right of review of the decision to revoke the permission. [Schedule 1, item 12, subsections 61C(7) to (9) and item 16, paragraph 162C(1)(e) of the Excise Amendment (Reducing Business Compliance Burden) Bill 2011; Schedule 1, item 4, subsections 69(12) to (14) of the Customs Amendment (Reducing Business Compliance Burden) Bill 2011; section 273GA of the Customs Act]

1.30 A person must comply with any conditions to which the permission is subject. It is an offence to fail to comply with such conditions. The strict liability offence in subsection 69(10) of the Customs Act amendments, replicates an existing strict liability offence in current subsection 69(5). Strict liability is considered appropriate in this circumstance because the purpose of the conditions to which a permission is subject is to ensure the proper accounting of goods that are dutiable at a high rate of customs duty and the timely payment of this duty to the government. These conditions will ensure that the integrity of this regime is maintained and that the revenue is protected. The offence is punishable by a penalty of 50 penalty units. [Schedule 1, item 4, subsection 69(10) of the Customs Amendment (Reducing Business Compliance Burden) Bill 2011]

Application and transitional provisions

1.31 Transitional provisions will apply to allow all existing permissions to continue to operate as if they had been granted under the new provisions. This may avoid the need, where the person is satisfied with the existing permission, for a new application. However, eligible persons may apply for a new permission at any time after Royal Assent. Some persons, such as small business entities, may find it advantageous to do so. [Schedule 1, subitems 28(1) and (2) of the Excise Amendment (Reducing Business Compliance Burden) Bill 2011; Schedule 1, subitems 14(1) and (2) of the Customs Amendment (Reducing Business Compliance Burden) Bill 2011]

1.32 While existing permissions will continue to operate, the holder of the permission will need to comply with the requirements of the new provisions. However, for permissions given under the Excise Act where existing provisions differ from the new provisions, the existing provisions will continue to be in force for a three-month transitionary period. [Schedule 1, subitem 28(3) of the Excise Amendment (Reducing Business Compliance Burden) Bill 2011; Schedule 1, subitem 15(3) of the Customs Amendment (Reducing Business Compliance Burden) Bill 2011]

1.33 Where the holder of an existing permission does not comply with the new provisions, the Collector can revoke the permission or can inform the person they have failed to comply with the new provisions and ask them to apply for a new permission before revoking the existing permission. [Schedule 1, item 12, subsection 61C(7), subitem 28(3) of the Excise Amendment (Reducing Business Compliance Burden) Bill 2011; Schedule 1, item 3, subsection 69(12), subitems 15(1) and (2) of the Customs Amendment (Reducing Business Compliance Burden) Bill 2011]