Senate

Explanatory Memorandum

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

Chapter 3 - Substituted accounting periods

Outline of chapter

3.1 Part 3 of Schedule 1to this Bill details the amendments to the GST Act to permit entities who use substituted accounting periods to be able to choose either quarterly or monthly tax periods, subject to the existing turnover threshold and election rules.

Detailed explanation of new law

3.2 Currently, where an entity has a substituted accounting period, the Commissioner must determine that it accounts for GST on a monthly basis (paragraph 27-15(1)(d)), unless that entity is a non-profit entity (subsection 27-15(2A)).

3.3 Item 64 of Schedule 1 repeals paragraph 27-15(1)(d)), so that an entity with a substituted accounting period may choose quarterly or monthly tax periods, subject to the existing turnover thresholds and election rules. Due to the above amendment, item 63 makes a minor consequential amendment to paragraph 27-15(1)(c) of the GST Act.

3.4 Item65 repeals subsection 27-15(2A) of the GST Act as it is no longer required given the repeal of paragraph 27-15(1)(d).

Example 3.1

Lee and John have run an eco-farm for 10 years and have always accounted for all their taxation obligations in an income year that is not the financial year (i.e. they adopted a substituted accounting period) as it better suited the seasonal nature of their business. Their annual turnover is $5 million. Under the existing law, Lee and John would have to account for GST on a monthly basis. From 1 July 2001, their tax periods will be 3-month periods, however they may elect to account for GST on a monthly basis.

Application and transitional provisions

3.5 These amendments apply from 1 July 2001 [Schedule 1, Part 3, subitem 66(1)] . Under section 27-25, the Commissioner is unable to revoke a determination of a monthly tax period until it has had effect for 12 months. However, the Commissioners determination for entities with a substituted accounting period end on 1 July 2001, even if that date is less than 12 months after the date on which the determination was made [Schedule 1, Part 3, subitem 66(2)] .