House of Representatives

Supplementary Explanatory Memorandum

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

General outline and financial impact

Input tax credits for motor vehicles

Amendments 1 and 2 amend the Bill to allow GST registered businesses that are entitled to claim input tax credits, to claim full input tax credits for motor vehicles, trailers and vehicle bodies acquired or imported by them on or after 23 May 2001.

Date of effect : The amendments apply to acquisitions or importations of motor vehicles, trailers and vehicle bodies made on or after 23 May 2001.

Proposal announced : 2001-2002 Federal Budget announcement and Treasurers Press Release No. 34 of 22 May 2001.

Financial impact : $20 million in 2000-2001, $570 million in 2001-2002 and $80 million in 2002-2003.

Compliance cost impact : Minimal.

PAYG instalments

Amendments 3, 4 and 9amend Schedule 1 to the TAA 1953 and the ITAA 1936 to:

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provide the basis of calculation of the GIC payable when there is a shortfall in instalments following a variation by a taxpayer who pays 2 PAYG instalments annually using the GDP-adjusted notional tax method (a 2-instalment payer2 instalment payer);

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allow Part IIIAA, Franking of Dividends, to have its intended operation consequential upon the PAYG instalments measures in this Bill; and

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make technical corrections to ensure that PAYG instalment variation credits are correctly taken into account on assessment.

Date of effect :Amendments to the TAA 1953 and ITAA 1936 made by amendments 3 and 4 will apply for the 2001-2002 income year and later income years. Amendments to the ITAA 1936 made by amendment 4 will also apply for transitional quarters for the 2000-2001 income year. Amendments to the TAA 1953 made by amendment 9 apply for the 2000-2001 income year and later income years.

Proposal announced : Not previously announced.

Financial impact :Nil.

Compliance cost impact : Nil.

PAYG monthly withholding for non-standard quarters

Amendments 5 to 7 amend the Bill to allow PAYYG medium withholders to paywithholding amounts withheld during a month on the 28th of the nexta month (or 28 February for amounts withheld in December) if another BAS amount is due on that day.

Underthe original amendments to the Bill as introduced, the deferral for PAYG medium withholders is limited to March, June, September and December, the end of standard quarters. Taxpayers with substituted accounting periods for income tax may have quarterly obligations for quarters that end in other months. This results in PAYG withholding being due on the 21st of a month, and PAYG instalments or deferred COIN being due on the 28th of a month. These amendments will allow all amounts due in a particular month to be paid on the same day, the 28th.

Date of effect : The amendments will apply to amounts that are due and notifications required on or after 1 April 2001.

Proposal announced : The original deferral proposal was announced in Treasurers Press Release No. 7 of 22 February 2001.

Financial impact : The financial impact of the deferral of due dates is outlined in the eexplanatory mmemorandum to the Bill. These amendments will have no additional financial impact.

Compliance cost impact : The compliance cost impact of the deferral of due dates is outlined in the explanatory memorandum to the Bill. These amendments will have no additional compliance cost impact.

Changes to the GIC and the benchmark interest rate

Amendment 8 amends the Bill to replace the benchmark rate applied in the calculation of the GIC and some interest amounts paid by the Commissioner. The amendment also reduces the margin that is added to the benchmark rate in order to determine the GIC rate, from 8 percentage points to 7 percentage points.

It is necessary to replace the current benchmark rate, the average yield of 13-week Treasury Notes tenders, because those notes are no longer issued. The replacement benchmark rate is the monthly average yield of 90-day Bank Accepted Bills published by the RBA.

The margin that is added to this benchmark rate, in calculating the GIC rate, is being reduced in response to concerns that the GIC rate is excessive.

Date of effect : The amendments will apply from the first full quarter following Royal Assent.

Proposal announced : Not previously announced.

Financial impact : The amendment to the benchmark rate will cost the revenue approximately $1 million per annum. The amendment to the loading for determining the GIC rate will cost the revenue $14 million in the 2001-2002 income year (assuming Royal Assent is granted on or before 1 July 2001) and $10 million per annum thereafter.

Compliance cost impact : Nil.