Supplementary Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 6 - Trading after midnight on 30 June 2000
Outline of Chapter
6.1 This Chapter explains the amendments in new schedule 10A which is inserted by amendment 40 . These amendments are tothe A New Tax System (End of Sales Tax) Act 1999 , the A New Tax System (Goods and Services Tax Transition) Act 1999 and the A New Tax System (Wine Equalisation Tax and Luxury Car Tax Transition) Act 1999. They will permit a business which is still trading at midnight on 30 June 2000 to choose to continue to trade on a pre-GST basis until the earlier of:
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- 6.00 am on 1 July 2000;
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- its close of business; or
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- an earlier time that the business chooses.
6.2 Some businesses, such as taxis, restaurants, supermarkets and hotels, will be open for trade at midnight on 30 June 2000 when the new tax system commences, and when they would commence to be liable to pay GST on supplies that they make. In some cases the changeover to the new tax system at midnight would unavoidably interrupt or impede their ordinary trade at that time.
6.3 For example, a taxi operator cannot impose GST on taxi hirings before GST commences without infringing the Australian Competition and Consumer Commission pricing guidelines. However, that taxi operator would, under the existing rules, be liable to GST on the first hiring it makes on 1 July 2001, even if it is made at 12.01 am. If the operator is obliged to impose the metered fare, it cannot pass on the GST on that service and the tax effectively becomes a tax on business until the operator can have the meter adjusted.
Explanation of amendments
6.4 The amendments in new Schedule 10A allow businesses to adopt a transition trading period in which businesses can choose not to pay GST on supplies made immediately after midnight on 30 June 2000. In certain circumstances this will permit a part of an enterprise, such as a supermarket, to choose to continue to trade on a pre-GST basis, and adjust its systems and processes to implement GST at a more convenient time such as a shift change or after the business closes for the night.
6.5 New section 6A of the GST Transition Act, inserted by item 2 ,modifies the operation of the GST Transition Act for businesses that choose to make the changeover to GST at a time other than midnight. It provides that certain supplies which would be made after 30 June 2000 will be taken to be made immediately before 1 July 2000.
6.6 Section 7 of the GST Transition Act applies GST to supplies that are made on or after 1 July 2000. However, the supplies made during the transition trading period to which new section 6A applies will not be subject to GST because they are taken to be made before that date. Item 3 inserts a note to subsection 7(1) to that effect.
Which enterprises can adopt a transition trading period?
6.7 An entity may choose to adopt a transitional trading period [paragraph 6A(1)(a)] . Alternatively, the entity may continue to apply the existing rules in the GST Transition Act.
6.8 New section 6A only applies to supplies that are made by a part of an entity's enterprise that was open for business before and after midnight on 30 June 2000 [paragraph 6A(1)] . For example, where a fast food chain adopts a transition trading period, the rules in new Schedule 10A would apply to an outlet that was trading at midnight on 30 June 2000 and continued trading afterward. However, those rules would not apply to another outlet which was not trading at midnight on 30 June 2000 but which opened at 4.00 am the next day.
When does the transition trading period end?
6.9 Generally, the period ends at the earlier of:
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- the outlet's first close of business after 30 June 2000;
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- 6.00 am on 1 July 2000; or
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- an earlier time that the business chooses.
Example 6.1
Roarer taxis operates a fleet of 3 taxi cabs in a country town, driven by bailee drivers Brabham, Fittipaldi, Hill and Schumacker.
Brabham's shift, using car 1, commences at 6.00 pm on 30 June 2000 and continues until 3.00 am on 1 July 2000. Brabham may adopt a transition trading period and complete the shift without being liable for GST on taxi fares earned during that shift.
Fittipaldi commences a shift in car 2 at 10.00 pm on 30 June 2000 and continues the shift until 8.00 am on 1 July 2000. Brabham may choose to adopt a transition trading period, but that period will end at 6.00 am on 1 July 2000, after which Brabham will be liable for GST on hirings.
Hill completed a shift in car 3 at 12.30 am on 1 July 2000, and Schumacker commences a shift in that car at that time. Hill may choose not to pay GST on hirings made during the hour after midnight. However, although car 3 is on the road at midnight, at the time of the shift change it ceases to be open for business, and Schumacker is liable for GST on all hirings during the shift.
What transactions are not subject to GST during the transition trading period?
6.10 Subsection 6A(1) is the general rule which treats any supply which was made during the transition trading period, but before 6.00 am, as having been made immediately before the commencement of GST on 1 July 2000. Such supplies will not be subject to GST.
6.11 The transition trading rules apply only to supplies which are made, or cease to be made, before the end of the transition trading period selected by the entity. The main application of the transition trading rule is to goods and services which are supplied during the transition trading period, such as supplies of public transport, entertainment and retail sales.
6.12 Because the rules apply only to supplies, they do not apply to any importations made during the transition trading period. Nor do they apply to supplies which are continuing to be made after the end of that period.
6.13 In addition, the rules do not apply to supplies that would be input taxed, such as input taxed financial supplies made after midnight by an entity which has adopted a transition trading period. [Subsection 6A(3)]
6.14 Where a choice is made to adopt a transition trading period, subsection 6A(2) modifies the operation of some of the rules in the GST Transition Act in respect of supplies that are made during the transition trading period.
6.15 Section 12 of the GST Transition Act deals with supplies made on a periodic or progressive basis and the period spans midnight 30 June 2000. For supplies that are subject to new section 6A, section 12 will only apply where the period of the supply spans the end of the transition trading period, so that supplies which cease to be made during that period will not be subject to apportionment under section 12 [paragraph 6A(2)(a)] . Where the period of the supply ends after the end of the transition trading period, the supply is not one to which new section 6A applies because the supply is not made before the end of that period. Consequently the apportionment under section 12 continues to be made on a day to day basis.
6.16 Section 24 of the GST Transition Act deals with gambling supplies made before midnight that relate to gambling events after midnight. New paragraph 6A(2)(f) alters its application in relation to supplies to which new subsection 6A(1) applies to supplies made before the end of the transition trading period that relate to a gambling event after the end of that period. [Paragraph 6A(2)(f)]
6.17 Section 24A of the GST Transition Act provides that unredeemed vouchers supplied before 1 July 2000 are subject to Subdivision 100 of the GST Act in the same way as vouchers supplied on or after that date. That provision will apply as if the reference to 1 July 2000 was a reference to the end of the transition trading period. This amendment will ensure that a voucher that is redeemed during the transition trading period will not be made subject to Division 100. [Paragraph 6A(2)(g)]
What happens to sales tax during the transition trading period?
6.18 Sales tax will continue to apply to supplies made during the transition trading period. The general rule in A New Tax System (End of Sales Tax) Act 1999 provides that sales tax is not payable on assessable dealings if the time of the dealing is on or after 1 July 2000. Item 1 inserts new subsection 3(1A) in that Act, which provides that this general rule does not apply to dealings made during the transition trading period, which will continue to be subject to sales tax.
6.19 While sales tax is generally applied at the wholesale level, and it would be unusual for assessable dealings to be made during the period from midnight to 6.00 am, this rule will ensure that there is no hiatus during which neither sales tax nor GST would be payable on supplies that are assessable dealings.
6.20 Subsection 8(1) of the GST Act is a non-operative provision which explains the relationship between the end of sales tax and the start of GST. Item 4 inserts a note to that provision to draw the reader's attention to the fact that supplies to which new subsection 3(1A) of the A New Tax System (End of Sales Tax) Act 1999 appliesare still subject to sales tax.
What happens to the special credit for sales tax on stock?
6.21 Part 4 of the GST Transition Act provides for a special GST credit, similar to an input tax credit, in respect of sales tax that has been borne on goods. The special credit is available for goods, certain alcoholic beverages and certain petroleum products on hand at midnight on 1 July 2000. Where you adopt a transition trading period the special credit is available for stock on hand at the end of the transition trading period. [Paragraph 6A(2)(c)]
6.22 New paragraphs 6A(2)(d) to (f ) make changes that are consequential on this amendment. Subsection 16A of the GST Transition Act provides that if the sales tax borne on goods changes after 1 July 2000 the special credit changes accordingly. Section 17 provides that you have made a taxable supply of certain assessable goods where they are applied to your own use after 1 July 2000, or where you cease to be registered after 1 July 2000. These references change to the end of the transition trading period in respect of goods supplied during that period.
6.23 Section 3 of the A New Tax System (Wine Equalisation Tax and Luxury Car Tax Transition) Act 1999 provides for a special GST credit in respect of sales tax that has been borne on certain stocks of wine that are on hand at midnight on 30 June 2000. Item 5 inserts new subsection 3(2A) , which provides that where you adopt a transition trading period, the special credit will be available for wine that is on hand at the end of the transition trading period, rather than at midnight.