Senate

Further Supplementary Explanatory Memorandum

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

General outline and financial impact

Food Subdivision 38-AA

The amendments to the A New Tax System (Goods and Services Tax) Bill 1998 will make food for human consumption GST-free, except for:

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savoury snacks, confectionery, ice-cream goods, biscuits and certain beverages that are currently subject to wholesale sales tax (WST);

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bakery products other than bread; and

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prepared meals, takeaway foods and food supplied by restaurants.

The definition of food excludes live animals (except crustaceans and molluscs), unprocessed grains, cereal or sugar cane and plants under cultivation. This means that most supplies by the primary producer will be subject to GST. However, supplies of fresh fruit and vegetables by a primary producer will be GST-free.

Date of effect: 1 July 2000.

Proposal announced: The proposal was announced by the Government on 28May1999.

Financial impact: The financial impact is $3,090million in 2000-01; $3,640million in 2001-02; and $3,860million in 2002-03.

Compliance cost impact: Businesses involved in the supply of food for human consumption will have increased compliance and administrative costs associated with these amendments. Entities will have to classify food as GST-free or taxable, however, this should be a once off exercise (except for new product lines).

In addition, there will be some administrative costs for a business that has to account for GST on only some of its supplies.

Changes to the GST treatment of health

The amendments to the A New Tax System (Goods and Services Tax) Bill 1998 will:

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expand the list of health services that are currently GST-free to include certain complementary health services. The health services to be included are acupuncture, herbal medicine (including traditional Chinese herbal medicine) and naturopathy;

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provide that certain goods are GST-free if they are of a kind determined by the Health Minister;

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extend GST-free treatment to cover Schedule 2 (S2) pharmaceutical drugs and medicinal preparations;

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provide that certain analgesic drugs and medicinal preparations supplied in small quantities are GST-free. These drugs and medicinal preparations must be determined by the Health Minister as being GST-free; and

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extend the GST-free treatment of certain disability services.

Date of effect: 1 July 2000.

Proposal announced: The proposal was announced by the Government on 28May1999.

Financial impact: The financial impact of the measure relating to complementary health services is $40 million in 2000-01; $40million in 2001-02; and $50 million in 2002-03. The financial impact of the measure to extend GST-free treatment to S2 pharmaceuticals is $43million in 2000-01; $46million in 2001-02; and $48million in 2002-03. The remaining measures are unable to be reliably estimated at this stage since they are subject to ministerial determination.

Compliance cost impact: Compliance costs for these measures are expected to be negligible. The businesses that will be affected by these amendments will already face certain compliance costs associated with the introduction of the GST.

Changes to the GST treatment of education

The amendments to the A New Tax System (Goods and Services Tax) Bill 1998 will:

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provide that certain adult and community education courses determined by the Education Minister will be GST-free; and

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provide that first aid and life saving courses run by non-profit bodies will be GST-free.

Date of effect: 1 July 2000.

Proposal announced: The proposal was announced by the Government on 28May1999.

Financial impact: The financial impact of the measure to extend GST-free treatment to adult and community education courses is $10million in 2000-01; $10million in 2001-02; and $10million in 2002-03. The remaining measure is unable to be reliably estimated at this stage.

Compliance cost impact: The additional compliance costs for these measures are expected to be negligible. The businesses that will be affected by these amendments will already face certain compliance costs associated with the introduction of the GST.

Input taxing of school tuckshops and canteens

The amendments to the A New Tax System (Goods and Services Tax) Bill 1998 allow tuckshops and canteens run by a non-profit body, such as a Parents and Citizens association or Parents and Friends association, at a primary or secondary school to choose to be input taxed if they satisfy certain conditions.

Date of effect: 1 July 2000.

Proposal announced: The proposal was announced by the Government on 28May1999.

Financial impact: The financial impact of the amendment is negligible.

Compliance cost impact: The amendments will lessen the compliance costs and make accounting for GST easier for the bodies running school tuckshops and canteens. The amendments will relieve these bodies from the paperwork of having to charge GST or claim input tax credits.

Partial input tax credits

The amendments to the A New Tax System (Goods and Services Tax) Bill 1998 allow a partial input tax credit for acquisitions that relate to making financial supplies. The acquisitions must be directly necessary for making financial supplies. The amount of the partial input tax credit will ensure neutrality between out-sourced and in-sourced activities used for making financial supplies.

Date of effect: 1 July 2000.

Proposal announced: The proposal was announced by the Government on 28May1999.

Financial impact: The financial impact of this measure is expected to be $50 million in 2000-01, $60 million in 2001-02 and $70 million in 2002-03.

Compliance cost impact: Minimal.

Diesel fuel credit scheme

The amendments to the A New Tax System (Goods and Services Tax) Bill 1998 repeal the Diesel Fuel Credit Scheme.

Date of effect: 1 July 2000.

Proposal announced: The proposal was announced by the Government on 28May1999.

Financial impact and compliance cost impact: None.

Date of effect of the A New Tax System (Goods and Services Tax) Bill 1998

Further Amendment 1 to the Bill provides that the Bill shall not take effect until Parliament makes the appropriations as listed in the further amendment.