House of Representatives

Supplementary Explanatory Memorandum

Amendments to be moved on behalf of the Government (Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

A New Tax System (Good and Services Tax) Act 1999

Amendments to the ITCAB 2 will amend the GST Act to make various minor policy changes and technical amendments. These include amendments to:

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insert interpretative rules that will give certain terms used in Commonwealth Acts the same meaning as those defined in the GST Act;

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ensure that an adjustment for a bad debt is calculated correctly when the debt is in respect of a mixed-purpose supply or acquisition;

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ensure that an adjustment for a bad debt will be made 12months after a debt becomes overdue for payment rather than 12 months after it becomes owing;

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ensure that adjustments are calculated correctly when a change in creditable purpose or a bad debt occurs before an adjustment event;

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ensure that an entity that ceases to be a participant in a GST joint venture will become responsible for adjustments relating to supplies or acquisitions that the joint venture operator made on its behalf during the time the entity was a participant of the joint venture;

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ensure that payment of compensation and damages are subject to GST if the payment relates to an initial supply that is taxable;

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ensure that payments made from a government related entity to another government related entity are not subject to GST if the payment is specifically covered by an appropriation under an Australian law;

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ensure that supplies of all authorised pre-school courses are GST-free;

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ensure that supplies of HIV detection tests are GST-free;

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provide that the delivery of foreign postal articles in Australia on behalf of foreign postal administrations will be GST-free;

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make it clear that unincorporated bodies are carrying on the enterprise and not the members;

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make it clear that contributions to mutual organisations by members are taxable where the organisation is registered or required to be registered;

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ensure that goods returning to Australia are only non-taxable in appropriate circumstances;

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allow a newly registered entity to obtain a credit for GST included in the purchase price of stock held for sale or manufacture at the date they become registered;

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ensure that an adjustment is made when taxable goods are taken from stock and applied to a private or domestic purpose;

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provide that GST is payable on a voucher with a face value at the time it is redeemed for goods or services rather than at the time the voucher is purchased;

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clarify that the supply of a right to a non-resident that will be exercised in Australia is not GST-free; and

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clarify that the supply of a right to receive a supply that would be GST-free or input taxed will be GST-free or input taxed.

Date of effect: Various.

Proposal announced: Not announced.

Financial impact: Negligible.

Compliance cost impact: Compliance costs for these measures are expected to be negligible.

Visiting forces and other international obligations

Amendments will also amend the GST Act, WET Act, LCT Act and TAA 1953 to:

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ensure that following the introduction of the GST, WET and LCT, Australia meets its obligations in relation to visiting forces and other agreements.

Date of effect: 1 July 2000.

Proposal announced: Not announced.

Financial impact: Minimal. The amendments give effect to the measures as originally intended.

Compliance cost impact: Negligible.

Non-profit sub-entities

Amendments to the GST Act, ABN Act and TAA 1953 will allow certain non-profit entities to treat separately identifiable units of their organisations as though they are separate entities for GST purposes.

Date of effect: 1 July 2000.

Proposal announced: Treasurer's Press Release No. 73 of 29 October 1999.

Financial impact: Negligible.

Compliance cost impact: Negligible.

Insurance

Amendments to the ITCAB 2 in relation to the treatment of general insurance for GST purposes, include amendments that:

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remove the insured's GST liability on settlements;

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remove the insurer's input tax credit entitlement on settlements;

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provide for insurers to have an adjustment on settlements. That adjustment being equivalent to the difference between what would have been their input tax credits and what would have been the insured's GST liability; and

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remove the requirement that insureds notify the Commissioner if they wish to claim input tax credits on the acquisition of insurance policies in the first 3 years of GST.

Date of effect: 1 July 2000.

Proposal announced: Not announced.

Financial impact: Insignificant it is expected that the amendments will have little revenue impact.

Compliance cost impact: The amendments reduce compliance costs for all registered entities that have insurance policies and also for insurers.

Wine equalisation tax

Amendments are made to the WET Act to allow refunds of WET to persons who are taking wine with them out of Australia as accompanied baggage.

Date of effect: 1 July 2000.

Proposal announced: Not announced.

Financial impact: Nil. The amendments give effect to the measures as originally intended.

Compliance cost impact: Negligible.

Indirect tax transition

Amendments are made to the GST Transition Act to:

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provide that the grant of a right under a voucher with a stated monetary value will not be taken to be supplied after 1 July 2000;

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ensure that the time limit for claiming the special credit for sales tax on goods held at 1 July 2000 is covered by the Commissioner's announced extension of time to lodge certain GST returns; and

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clarify the situation for adjustments to the special credit claim resulting from later events which affect the amount of the claim.

Date of effect: 1 July 2000.

Proposal announced: Not announced.

Financial impact: Nil.

Compliance cost impact: Negligible.

Income tax deductions for GST-related expenditure

Amendments will amend the ITAA 1997 to allow small and medium sized businesses an immediate income tax deduction for the cost of acquiring or upgrading plant or software to assist in:

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meeting existing or future obligations under the GST law; or

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exercising entitlements under the GST law.

To qualify for the immediate deduction the business must have an annual turnover of not more than $10 million and acquire or upgrade the plant or software during the period 1 July 1999 to 30 June 2000. The business must also be registered for GST purposes immediately before 1 July 2000.

Date of effect: The amendments will apply to plant or software that a business acquires or upgrades during the period 1July1999 to 30June2000.

Proposal announced: Treasurer's Press Release No. 51 of 19August1999.

Financial impact: The cost to the revenue of this measure has been estimated as $175 million for 2000-2001.

Compliance cost impact: The compliance cost of this measure is expected to be negligible.

Income tax consequences of GST

The ITAA 1997 is to be amended to:

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apply transitional rules to exclude GST liabilities that relate to amounts derived as income before 1 July 2000 and to exclude an amount equal to input tax credits that relate to deductions incurred before 1 July 2000; and

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include amounts equal to special credits conferred by the GST Transition Act in assessable income.

Date of effect: Royal assent.

Proposal announced: Not announced.

Financial impact: Nil. The amendments reflect the intended benchmark for the income tax treatment of the relevant amounts.

Compliance cost impact: Minimal, as input tax credits will be ascertainable from documents provided by suppliers.

Reliance on the Commissioner's interpretation of the law

An amendment is made to the TAA 1953 to extend the scope of rulings issued by the Commissioner on which taxpayers may rely.

Date of effect: 1 July 2000.

Proposal announced: Not announced.

Financial impact: Nil.

Compliance cost impact: Nil.

Wool tax amendment

An amendment is made to the WTAA 1964 to exclude GST from the tax base for calculating wool tax.

Date of effect: 1 July 2000.

Proposal announced: Not announced.

Financial impact: Nil. The amendment prevents a distortion that would otherwise occur.

Compliance cost impact: Negligible. Suppliers will be aware of the GST component of sale prices as a consequence of meeting their GST obligations.

Diesel Fuel Rebate Scheme

Amendments to the Customs Act, DFRS Act and Excise Act will change the reference from marine use to marine transport and set a diesel fuel rebate rate for marine and rail transport.

Date of effect: The amendments will commence immediately after the commencement of the DFRS Act, which is taken to commence immediately after the commencement of the GST Act.

Proposal announced: The expansion of the Diesel Fuel Rebate Scheme was announced by the Government on 28 May 1999.

Financial impact: The continuation of the current averaging provisions will provide savings of $60 million for 2000-2001.

Compliance cost impact: Negligible.