Senate

Additional Further Supplementary Explanatory Memorandum

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

Outline and financial impact statement

The amendments requested relate to rights granted before 1 July 2000 and exercised after 1 July 2000 and the phase down of the 32% sales tax rate.

The financial impact is contained in the Regulation Impact Statement for the Introduction of a Goods and Services Tax.

Rights granted before 1 July 2000 for use after 1 July 2000

1.1 Request 1 gives effect to the Governments original intention that a right granted before 1 July 2000 for exercise after 1 July 2000 should be subject to GST as the right is for use and enjoyment, and hence consumption, after 1 July 2000. For example, a train ticket purchased in February 2000 for a train journey after 1 July 2000. However, there should be no GST on a ticket purchased before 2 December 1998 even if the train journey is after 1 July 2000.

1.2 The supply of a right after 2 December 1998 and before 1 July 2000 will be subject to GST if it could be reasonably expected that the right will be exercised after 30 June 2000. With the train ticket example above, the date of the train journey is known to be after 1 July 2000. However, when a book of 10 movie tickets is purchased, the cinema may not know accurately the extent to which tickets have been used before 1 July 2000. [New subsection 10A(1)]

1.3 Therefore, the Commissioner of Taxation can issue rulings about how to determine the extent to which it could be expected that a right will be exercised after 1 July 2000. [New subsection 10A(2)] For example, if it could reasonably be expected that a right granted on 2 April 2000 would be exercised uniformly over the period 1 May 2000 to 30 August 2000, the method could be that GST applies on a pro rata basis based on the proportion of that period that is after 1 July 2000.

1.4 Section 12 will still apply if the supply is made under a written agreement. [New subsection 10A(3)]

Phase down of 32% sales tax rate

1.5 This amendment request adds a new subsection to the Sales Tax (Exemptions and Classifications) Act 1992 (ST(E&C)A). It will make it clear that goods currently covered by items 4 to 14 of Schedule 5 to the ST(E&C)A will only be covered by Schedule 4 to the ST(E&C)A after the amendment takes effect. This technical change gives effect to the Governments original intention with respect to the phase down of the 32% sales tax rate so that goods covered by those items will be taxed at 22% and will not be covered by any other Schedule. [Requests 2 and 3]