Senate

Supplementary Explanatory Memorandum

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

Chapter 1 - Funeral agreements

Outline of Chapter

Prepaid funerals and the transition

1.1 Under the current goods and services tax (GST) legislation, prepaid funeral agreements entered into after 2December1998 are subject to section11 of the GST Transition Act 1999 (GST Transition Act). That is, where a funeral agreement has been entered into after 2December1998 and it is reasonably expected that the funeral will take place after 1July2000, GST will be payable.

1.2 The funeral industry has raised a number of practical difficulties in applying GST to prepaid funerals over the transitional period to the commencement of the GST on 1 July 2000.

1.3 Request for amendment 1 replaces section15 to give certainty and ensure practical application of the GST to prepaid funeral agreements.

Section 11 estimates

1.4 Section 11 of the GST Transition Act allows the Commissioner of Taxation (Commissioner) to determine methods to work out the extent to which a right could reasonably be expected to be used after 1 July 2000 where it is not clear.

1.5 This provision has practical application problems for funeral directors as it is inappropriate and unreasonable to ascertain when a funeral is likely to occur. It is similarly difficult for the Commissioner to determine methods to work out such an estimate.

1.6 New paragraph15(1)(a) ensures that section 11 estimates will not apply to prepaid funerals.

Totally GST-free

1.7 Prepaid funeral agreements entered into prior to 1 December 1999 and paid in full prior to 1 December 1999 do not attract GST whenever the service is provided [new subsection 15(2)] .

GST-free to the extent that consideration is paid before certain dates

1.8 If the funeral agreement was entered into prior to 1 December 1999 but was not paid in full before 1 December 1999, the recipient is effectively given until 1 July 2005, or an earlier review date, if one exists, to pay for it.

1.9 Any consideration paid before 1 July 2005, or an earlier review date, if one applies to the agreement, is taken to be for a supply which is GST-free [new subsection 15(2)] .

Not GST-free

1.10 Prepaid funerals entered into after 1 December 1999 will attract GST. However, the funeral service is taken to be a taxable supply only where it is provided on or after 1 July 2000 [new paragraph 15(1)(b)] .