House of Representatives

Explanatory Memorandum

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

General outline and financial impact

Long-term non-reviewable contracts

Schedule 1 to this bill amends the A New Tax System (Goods and Services Tax Transition) Act 1999 (GST Transition Act). These amendments provide suppliers with certain pre-existing contracts, that will not have had a review opportunity by 1 July 2005, a mechanism to negotiate with the recipient of their supplies to take into account the impact of the New Tax System changes.

In addition, three new Imposition Bills are also being introduced to impose the goods and services tax (GST) on the recipients of these supplies. The GST will be payable by the recipient where they notify the supplier that they elect to pay the GST or where the recipient has not accepted an arbitrated offer of a price change from the supplier. The three new Imposition Bills are:

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A New Tax System (Goods and Services Tax Imposition (Recipients) - General) Bill 2004;

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A New Tax System (Goods and Services Tax Imposition (Recipients) - Customs) Bill 2004; and

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A New Tax System (Goods and Services Tax Imposition (Recipients) - Excise) Bill 2004.

Date of effect: These amendments to the GST Transition Act apply from the date of Royal Assent. The Imposition Bills apply from 1 July 2005.

Proposal announced: This measure was announced in the former Minister for Revenue and Assistant Treasurer's Press Release No. C109/03 of 21 November 2003.

Financial impact: There will be a negligible gain in GST revenue, however all GST revenue is paid to the States and Territories.

Compliance cost impact: Parties may incur once-off costs in negotiating an appropriate price change. Recipients will need to report and pay the GST if they do not accept an offer of an appropriate change made by the supplier.

Summary of regulation impact statement

Regulation impact on business

Impact: The main impact will be deciding whether to negotiate an appropriate price change, and incurring the costs of the negotiations. These costs will depend on the decisions taken by the parties to the contract.

Main points:

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Suppliers may incur once-off costs in negotiating an appropriate price change with the recipient. However, these compliance costs are only incurred if the supplier seeks to take into account the impact of the New Tax System changes on the supplies and the recipient does not voluntarily elect to pay the GST.

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Recipients will need to report and pay the GST if they do not accept an offer of an appropriate price change made by the supplier. There should be no significant compliance costs for registered recipients. Unregistered recipients will be subject to the same reporting and payment obligations as registered recipients. However, these obligations can be avoided by accepting an offer of an appropriate price change which will place the contract under the general GST rules.

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There should be no disproportionate impact on small business.