House of Representatives

Explanatory Memorandum

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

General outline and financial impact

Annual lodgement and payment

Schedule 1 to this bill amends the A New Tax System (Goods and Services Tax) Act 1999 to provide small businesses and non-profit bodies that are voluntarily registered for the goods and services tax (GST) the option to report and pay their GST on an annual basis.

Date of effect: This amendment will apply from 1 October 2004 for entities with quarterly tax periods and 1 November 2004 for entities with monthly tax periods.

Proposal announced: This measure was announced in the Treasurer's Press Release No. 036 of 11 May 2004.

Financial impact: This measure is expected to result in a cost to revenue of $219 million in 2004-2005, $127 million in 2005-2006, $17 million in 2006-2007 and $18 million in 2007-2008.

Compliance cost impact: This measure is expected to reduce compliance costs.

Summary of regulation impact statement

Regulation impact on business

Impact: Currently, small businesses and non-profit bodies that are voluntarily registered for GST must generally pay and report GST on a quarterly or monthly basis. Under the new law, these entities will be able to elect to lodge their GST returns and pay any GST liability on an annual basis. The reduction in the frequency of reporting and payments will reduce their compliance costs.

Main points:

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Entities are not required to register for the GST unless they have an annual turnover which meets the GST registration threshold ($50,000 for businesses and $100,000 for non-profit bodies). For various reasons, some entities voluntarily register for the GST, and as a result are subject to GST reporting and payment obligations.

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Currently, these entities must generally report and pay their GST on either a monthly or quarterly basis. The annual GST reporting and payment option will simplify the reporting and payment obligations for these entities by allowing the GST to be reported and paid annually.

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Entities that elect to apply the annual GST lodgement and payment option will be required to determine annually their eligibility to continue to apply the election.

Annual apportionment of creditable purpose

Schedule 2 to this bill amends the A New Tax System (Goods and Services Tax) Act 1999 to allow small businesses to elect to undertake annual apportionment of input tax credits for certain acquisitions and importations used for a partly creditable purpose.

Date of effect: This amendment will apply from 1 October 2004 for entities with quarterly tax periods and 1 November 2004 for entities with monthly tax periods.

Proposal announced: This measure was announced in the Treasurer's Press Release No. 036 of 11 May 2004.

Financial impact: This measure is expected to result in a small but unquantifiable cost to revenue.

Compliance cost impact: This measure is expected to reduce compliance costs.

Summary of regulation impact statement

Regulation impact on business

Impact: Currently, small businesses that acquire goods and services that are used partly for non-business purposes are required to calculate the extent of non-business use for completion of the goods and services tax (GST) return in which they claim the relevant input tax credit. Under the new law, small businesses with an annual turnover that does not exceed $2 million will be able to undertake apportionment of input tax credits for acquisitions and importations that are partly creditable on an annual basis.

Main points:

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This measure is expected to reduce compliance costs for small businesses as they will only need to apportion their input tax credits for partly creditable acquisitions and importations on an annual, rather than on a monthly or quarterly basis.

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Businesses will make a single end of year adjustment to take account of the non-business use of the acquisition or importation at the time of completing their income tax returns. This will allow further cost savings by allowing the GST and income tax information to be determined simultaneously.

Payment of goods and services tax by instalments

Schedule 3 to this bill amends the A New Tax System (Goods and Services Tax) Act 1999 to remove the requirement for an entity to make an annual election to continue with the option to pay goods and services tax by instalments.

Date of effect: This amendment will apply from 1 July 2005.

Proposal announced: This measure was announced in the Treasurer's Press Release No. 036 of 11 May 2004.

Financial impact: Nil.

Compliance cost impact: This measure is expected to reduce compliance costs.