House of Representatives

Explanatory Memorandum

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

Chapter 4 - Commonwealth-State financial arrangements

Outline of Chapter

4.1 This Chapter explains the amendments contained in Schedule 3 to this Bill.

4.2 The amendments ensure that the calculation of GST revenue to be distributed to the States and Territories will include any GIC relating to GST and will ensure that any effect the WET and LCT laws may have on GST revenue will not be included in the calculation.

Date of effect

4.3 The amendments will be taken to commence immediately after the commencement of the CSFA Act. [Subclause 2(6)]

Background to the legislation

4.4 The CSFA Act provides for GST revenue to be distributed to the States and Territories and prescribes how the Commissioner will determine GST revenue.

4.5 The Commonwealth and the States have agreed that GST revenue will be distributed on a tax collected basis; that is, the States and Territories will bear the cost of non-payment of GST and receive the GIC collected by the ATO in respect of taxpayers defaulting on their GST liabilities to the extent that it is attributable to GST. However, the CSFA Act, as currently drafted, does not include any GIC that is attributable to GST in the calculation of GST revenue.

4.6 Further, due to the interaction of the GST Act with the WET Act and the LCT Act, the calculation of GST revenue as currently set out in the CSFA Act may include amounts that are referrable to WET and LCT. The distribution of GST revenue to the States and Territories should not include any amounts in respect of WET or LCT.

Detailed explanation of the amendments

4.7 New paragraph 5(3)(aa) will ensure that the GIC attributable to GST will be included in the calculation of GST revenue for distribution to the States and Territories. The GIC that is included in the calculation will be any GIC collected that is attributable to unpaid GST, or any GIC collected on unpaid GIC that is attributable to unpaid GST. [Item 4]

4.8 Item 1 of Schedule 3 inserts a definition of GIC for this purpose.

4.9 Item 5 of Schedule 3 amends subsection 5(4) to ensure that refund amounts that are taken into consideration when calculating GST revenue include only those amounts that are attributable to GST. This will ensure that GST revenue calculation is not reduced by refund amounts in respect of WET or LCT.

4.10 Similarly, this Bill will insert new subsection 5(4A) , which will allow the Commissioner to adjust the GST revenue calculated under subsection 5(2) to remove any effect that the WET and the LCT might have on the calculation. [Item 6]

4.11 Items 2 and 3 of Schedule 3 provide definitions of WET and LCT for the purposes of the CSFA Act.