Senate

Revised Explanatory Memorandum

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

General outline and financial impact

Non-profit bodies

Schedule 1 to this Bill makes amendments to the GST Act and the TAA 1953 that relate to non-profit bodies. They include amendments to:

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provide government schools with the same GST concessions as charities, including non-government schools;

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provide charities and government schools with the choice to treat certain fund-raising events as input taxed;

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enable certain non-profit bodies to lodge GST returns quarterly, regardless of the date on which they balance their accounts;

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allow charities and government schools to claim input tax credits when reimbursing volunteers for expenses they incur for their activities;

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ensure that a non-profit sub-entity can be a member of a GST group;

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remove the requirement that all supplies made through a school tuckshop or canteen must be supplies of food, in order for a non-profit body to be able to choose to treat all of its supplies of food as input taxed; and

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provide charitable bodies that belong to the same religious organisation the ability to eliminate internal transactions within their religious organisation for GST purposes.

Date of effect: Various.

Proposal announced: First amendment: Treasurer's Press Release No. 37 of 2000; second amendment: Treasurer's Press Release No. 84 of 1999; remaining amendments not previously announced.

Financial impact: Negligible.

Compliance cost impact: Most amendments will reduce compliance costs, others will have no impact.

GST-free supplies

Schedule 2 to this Bill amends the GST Act to:

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make the lease or hire of education goods GST-free;

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expand sewerage services to include like services;

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ensure that short term leases of farm land are GST-free where they are akin to long term leases;

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ensure that certain medical services such as medical reports are GST-free; and

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clarify the GST treatment of goods sold through inwards duty free shops.

Date of effect: 1 July 2000.

Proposal announced: The amendments to education goods and sewerage services were announced in Treasurer's Press Release No. 37 of 2000. The other measures have not been announced.

Financial impact: Minimal.

Compliance cost impact: Nil.

Supplies involving non-residents

Schedule 3 to this Bill amends the GST Act in relation to certain supplies made by non-residents. It also amends the provisions related to certain services provided to non-residents.

Date of effect: 1 July 2000.

Proposal announced: Some of the issues were announced in Treasurer's Press Release No. 37 of 2000.

Financial impact: Nil.

Compliance cost impact: The amendments are expected to reduce compliance costs of non-residents in complying with the Australian GST laws.

Summary of regulation impact statement

Regulation impact on business

Impact : Low.

Main point: This measure will reduce the compliance costs of affected businesses.

Policy objective: The Government wants to ensure that services provided to businesses overseas should not be subject to GST and that non-residents are not unnecessarily drawn into the GST system.

Agents

Schedule 4 to this Bill makes a number of amendments to the GST Act and one consequential amendment to the TAA 1953. Most of the amendments are of a minor policy and technical nature, and include amendments to:

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allow entities involved in transactions on the basis of principal and agent to enter into arrangements that simplify the way they account for GST on supplies and acquisitions; and

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grant the Commissioner a discretion to apply these arrangements to certain industries subject to an 'opting out' provision.

Date of effect: 1 July 2000.

Proposal announced: Treasurer's Press Release No. 37 of 2000.

Financial impact: Negligible.

Compliance cost impact: Negligible.

Summary of regulation impact statement

Regulation impact on business

Impact: Low.

Main point: This measure will reduce the compliance costs of affected businesses.

Policy objective: The Government's policy objective is to ensure goods and services sold to and sold by entities acting as agents are subject to the correct level of GST and eligible for input tax credits whilst ensuring compliance costs are kept to a minimum.

Financial supplies

Schedule 5 to this Bill amends the GST Act to:

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enable registered businesses to claim input tax credits for borrowing related expenses unless the borrowing relates to making other input taxed supplies;

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change the de minimis test so that a registered entity can obtain input tax credits for acquisitions that relate to making financial supplies if the total amount of the credits that would be denied does not exceed:

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$50,000; or

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10% of the total input tax credits of the entity;

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exclude borrowing related expenses from the de minimis test;

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deny input tax credits for goods and services acquired or imported for the purpose of providing fringe benefits to employees of a financial supplier that is wholly or partially denied input tax credits on its acquisitions; and

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clarify that an entity is not entitled to both a reduced input tax credit and an input tax credit for the same acquisition.

Date of effect: 1 July 2000.

Proposal announced: First and third amendments: Treasurer's Press Release No. 37 of 2000; second amendment: Treasurer's Press Release No. 13 of 2000; remaining amendment not previously announced.

Financial impact: Nil.

Compliance cost impact: Nil.

Summary of regulation impact statement

Regulation impact on business

Impact: Low.

Main point: This measure will reduce the compliance costs of affected businesses.

Policy objective: The Government's objective is to provide input tax credits for expenses related to borrowing except where the borrowing is undertaken by a financial institution or where the borrowing is undertaken by the corporate treasury of a large business, for the purposes of making other financial supplies.

Calculating amounts of GST

Schedule 6 to this Bill amends the GST Act, the GST Transition Act and the TAA 1953 to:

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provide rounding rules for GST liability;

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allow the Commissioner to determine a transitional rounding rule for entities; and

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allow the net amount for a tax period to be worked out from a method provided in a GST return.

Date of effect: Various.

Proposal announced: Treasurer's Press Release No. 37 of 2000. Transitional rounding relief not previously announced.

Financial impact: Negligible.

Compliance cost impact: Minimal.

Joint ventures

Schedule 7 to this Bill makes amendments to the GST Act, the ABN Act, the ITAA 1936, the ITAA 1997 and the TAA 1953 in relation to joint ventures. They include amendments to:

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enable entities other than companies to be part of a GST joint venture;

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provide that the joint venture operator may choose to prepare a single GST return on behalf of all the joint ventures for which it is responsible;

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insert a definition of 'minerals' in the Dictionary in the GST Act; and

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clarify that a joint venture that does not involve the establishment of a joint venture entity is not a company or any other entity for taxation purposes.

Date of effect: 1 July 2000.

Proposal announced: First 2 amendments: Treasurer's Press Release No. 37 of 2000; remaining amendments not previously announced.

Financial impact: Nil.

Compliance cost impact: The amendments will reduce compliance costs.

Insurance

Schedule 8 to this Bill makes amendments to the GST Act and the GST Transition Act that relate to insurance. They include amendments to:

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ensure that the insurance of certain domestic components of international transport if GST-free;

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allow the notification of extent of input tax credit entitlement for a policy to be made at any time at or before the relevant claim is made;

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correct the calculation of decreasing adjustment on settlement;

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ensure that the correct entitlement to input tax credits is taken into account in calculating the decreasing adjustment for claims under statutory compensation schemes where the premium an entity was liable to pay has not been paid; and

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provide that tax invoices do not have to be issued in relation to CTP schemes to which section 23 of the GST Transition Act applies.

Date of effect: 1 July 2000, with the exception of the policy holders' notification requirement under the GST Transition Act, which will take effect from 8 July 1999, the date of commencement of that Act.

Proposal announced: Policy holders' notification requirement: Treasurer's Press Release No. 37 of 2000; remaining amendments not previously announced.

Financial impact: Negligible.

Compliance cost impact: Some amendments are expected to have no impact on compliance costs. Others are expected to reduce compliance costs.

Administration

Schedule 9 to this Bill amends various tax laws to:

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allow credits of representative members of GST groups to be offset against debts of other members of the group;

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clarify that a GST credit entitlement arises upon notification of the credit in the GST return;

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allow interest to be paid to entities where an amendment of an assessment gives rise to a refund of GST; and

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make consequential amendments to GST provisions as a result of the introduction of the new uniform penalty regime in A New Tax System (Tax Administration) Bill (No. 2) 2000.

Date of effect: The amendments will apply from 1 July 2000.

Proposal announced: Not previously announced.

Financial impact: The impact from the crediting and interest measures is unquantifiable.

Compliance cost impact: Nil.

Alcoholic beverages

Schedule 10 to this Bill amends:

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the GST Transition Act to allow an additional GST special credit for certain alcoholic beverages held for resale at the start of 1 July 2000 where the rate of duty on the product will decrease;

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the GST Transition Act to make a technical correction to section 16B of that Act; and

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the STAA 1992 in relation to certain alcoholic beverages not covered by the WET. The measure is primarily designed to remove an opportunity for stockpiling of alcoholic beverages which are held free of sales tax which will not be subject to the higher rates of excise after 1 July 2000. The stockpiling would provide an unintended tax windfall to certain entities while at the same time distorting the normal manufacturing schedules. The amendment will impose a sales tax liability on certain alcoholic beverages which are held sales tax free but excise paid at 30 June 2000.

Date of effect: 1 July 2000 for the GST Transition Act measures. Royal Assent for the sales tax measure.

Proposal announced: GST Transition Act not announced. The third measure was announced in Treasurer's Press Release No. 37 of 2000.

Financial impact: Nil.

Compliance cost impact: Negligible.

Summary of regulation impact statement

Regulation impact on business

Impact: Low.

Main point: The sales tax measure will not impact on the compliance costs of affected businesses, but will ensure the correct amount of tax is paid by all sellers of alcoholic beverages.

Policy objective: The Government's policy objective is to ensure that under the new tax system, alcoholic beverages purchased free of sales tax before 1 July 2000 do not have a tax advantage over stock purchased after 1 July 2000.

Other amendments

Schedule 11 to this Bill makes various amendments to the ABN Act, the GST Act, the GST Transition Act, the LCT Act, the TAA 1953 and the Customs Act. The amendments to the GST Act will:

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ensure that goods that have entered Australia under temporary importation provisions are subject to GST if reimported;

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ensure that an entity that enters goods for home consumption but is not the importer of the goods can claim input tax credits in respect of the taxable importation;

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clarify that supplies of livestock or game for processing into food are taxable supplies;

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clarify the calculation of GST for a mixed supply;

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ensure that complying superannuation funds are carrying on an enterprise for GST purposes;

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ensure that supplies of existing housing stock are not subject to GST as new residential premises;

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permit the Commissioner to relax the requirement to issue adjustment notes within 28 days of becoming aware of the adjustment;

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alter the requirement to issue adjustment notes to limit that requirement in relation to small value adjustments;

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ensure that the requirement to hold a tax invoice for second-hand goods is consistent with the requirement to hold a tax invoice for other goods;

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ensure that the associates provisions operate in relation to GST branches and government related entities;

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provide that the amount to be included in relation to gambling supplies in the calculation of annual turnover is the difference between total amount wagered and total monetary prizes;

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ensure that the rules which provide for an increasing adjustment where things are taken out of the GST system will not disadvantage executors and beneficiaries of deceased estates who continue to carry on an enterprise of the deceased;

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ensure that input tax credits can only be claimed once by a partnership in respect of partner reimbursements; and

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enable employers to claim input tax credits where they pay an expense on behalf of an employee and that expense is related to that person's activities as an employee;

Schedule 11 also amends the GST Act and the ABN Act to:

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provide that partnerships, the members of which are principally individuals, are not carrying on an enterprise if they do not have a reasonable expectation of profit or gain; and

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further clarify the application of GST and ABN to supplies made by entities to their members.

In addition, Schedule 11 also amends:

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the ABN Act to ensure that all superannuation funds are entitled to an ABN;

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the GST Transition Act to clarify the application of that Act to rights, and ensures that consideration received prior to 1 July 2005 is GST-free where a prepaid funeral agreement was entered into before 1 December 1999;

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the GST Transition Act to clarify the application of the phasing in of input tax credits for acquisitions of motor vehicles and where motor vehicles are the subject of an eligible short term lease;

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the LCT Act to ensure that the luxury car tax applies to all campervans and motor homes with a value above the LCT threshold;

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the TAA 1953 to limit the requirement for joint and several liability in the case of certain institutions that are statutorily barred from meeting that requirement; and

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the Customs Act to clarify the position in relation to customs duty on non-commercial low value postal importations and ensure that GST will be payable on the importations. The amendments fix the time when the rate of import duty is calculated for such goods and the time when import duty must be paid.

Date of effect: Various.

Proposal announced: The amendments in relation to supplies of livestock, the 28-day rule for adjustment notes, gambling supplies, application of the GST Transition Act to rights, and joint and several liability were announced in Treasurer's Press Release No. 37 of 2000; remaining amendments not previously announced.

Financial impact: Negligible.

Compliance cost impact: Some amendments will have no impact on compliance costs while others will reduce compliance costs.

Summary of regulation impact statement

Regulation impact on business

Impact: Low.

Main point: This measure will reduce the compliance costs of affected businesses.

Policy objective: The Government considers that turnover from gambling supplies should be based on the gambling margin, which is a better overall measure of the total value of gambling supplies made by a business than the total amount wagered. This will ensure that businesses making gambling supplies are treated comparably with other businesses where turnover is based on the value of supplies.

Trading after midnight on 30 June 2000

Schedule 10A to this Bill amends the GST Transition Act and related Acts to permit businesses which trade over midnight 30 June 2000 and into 1 July 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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close of business; or

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an earlier time that the business chooses.

The amendment ensures that sales tax continues to apply if a business chooses to adopt a transition trading period.

Date of effect: The amendments will apply from 1 July 2000.

Proposal announced: This measure has not been announced.

Financial impact : The measures are expected to have a small but unquantifiable financial impact.

Compliance cost impact: The measure will reduce compliance costs for affected businesses.

Producer rebates under the WET

Schedule 9A to this Bill amends the WET Act to provide for a rebate of WET for certain cellar door and mail order sales made by small wine producers.

Date of effect: 1 July 2000.

Proposal announced: Assistant Treasurer's Press Release No. 17 of 11 April 2000.

Financial impact: $46 million for the 3 years commencing 1 July 2000.

Compliance cost impact: Minimal, claims will be made at the same time and in the same manner in which wine tax is payable.

Summary of regulation impact statement

Regulation impact on business

Impact: Low.

Main point: This measure will have minimal impact on the compliance costs of affected businesses which already claim similar assistance from the states.

Policy objective: The Government's policy objective is to assist winemakers who make retail sales directly to unlicensed people from the cellar door or via mail order and the Internet, and who use their product in application to own use.