WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer and Copyright Details
A New Tax System (Indirect Tax and Consequential
Amendments) Bill 1999
Date
Introduced: 30
September 1999
House: House of Representatives
Portfolio: Treasury
Commencement: The measures contained in the
Bill amend a number of Acts dealing with the new tax system and
generally will commence at the same time that the Act being amended
commenced to operate. In most cases this will be from 1 July
2000.
The main amendments relate to:
-
- increasing the threshold below which an entity will have the
option of using the cash accounting method
-
- increasing the value of accommodation provided by charitable
institutions which will be Goods and Services Tax (GST) exempt
-
- allowing the Commissioner of taxation to determine alternative
accounting methods in certain circumstances, including where a
retailer sells exempt food and non-exempt goods
-
- clarifying the definition of wine for purposes of the wine
equalisation tax
-
- clarifying the amounts of certain adjustments to be included in
assessable income or allowed as a deduction, and
-
- exempting certain on-going warranties and rights from the
GST.
The Bill also contains a large number of
technical and non-contentious amendments relating to the
introduction of the GST.
Since the enactment
of the main A New Tax System (ANTS) legislation in July 1999, which
will introduce a GST, abolish existing sales tax, provide
compensation for certain groups and reduce personal income tax
rates, a number of unintended consequences and other deficiencies
with the legislation as enacted have been recognised by the
Government. Many of the amendments result from various interest
groups' comments on how the legislation, as enacted, will operate
and how such an operation would differ from announced policy. A
smaller number of the amendments result from relatively minor
changes in policy. The Bill will also amend some existing
legislation to insert references to the ANTS legislation.
In the Second Reading Speech for this Bill the
Minister for Financial Services and Regulation stated:
I can inform parliament that, barring unforeseen
events, it is the government's intention to have further finetuning
completed and legislated by the end of the year. This will provide
business with a clear six-month period before implementation of the
GST on 1 July 2000.(1)
This Bill, together with A New Tax System
(Indirect and Consequential Amendments) Bill (No. 2) 1999, contain
approximately 1 000 amendments to legislation implementing the GST
and it can be expected that additional amendments will be necessary
once the GST comes into force and further unintended consequences
are discovered. In addition to the substantive legislation changes,
it will be necessary to prepare and issue a range of regulations,
determinations and rulings before the GST commences. An example of
the possible difficulties with the implementation of the GST is
recent concern regarding the liability of charities, with the
release of an ATO ruling prompting calls for further amendments
which may be included as an amendment to this Bill. Calls for
further amendments can be expected between the end of 1999 and the
implementation of the GST on 1 July 2000.
An assistance program for small and medium
enterprises, charities and education bodies has been established to
allocate $500 million to help in preparation for the implementation
of the GST. The assistance comprises:
-
- Direct assistance to individual enterprises: $200 certificates
are available for small and medium enterprises to help with costs
for the implementation of the GST where the business registers for
an Australian Business Number before 31 May 2000. The certificates
may be used to purchase a range of goods and services, some of
which are available at a discount. This is estimated to cost $320
million.(2)
-
- Assistance to industry and professional organisations: Of the
$95 million allocated to this program $62 million has been made
available to small and medium business organisations, $20 million
to community bodies and $12.5 million to the education
sector.(3)
-
- Training assistance: $7 million has been used to retain a
training company to provide courses to conduct training programs
for people who will subsequently train individuals in these
sectors.(4)
-
- An education and information program: This is being conducted
largely through services provided by the Australian Taxation Office
(ATO). These include seminars, a helpline and a range of assistance
through their Web site, including information updates, questions
and answers and fact sheets.
In addition, small and medium enterprises with
an annual turnover of $10 million or less will be able to claim a
full year deduction for expenditure on new plant or software
associated with the introduction of the GST.(5)
The assistance measures have been criticised,
largely on the basis that they will compensate businesses for only
a small part of their total expenditure of money and time to
prepare for the introduction of the GST. The National Tax &
Accountants' Association (NTAA) has stated that:
Small business owners are disgusted and insulted
with the governments meagre $200 GST vouchers, which apparently
will be given to small business owners to endeavour to minimise the
fallout from the GST, which is currently costing business billions
of dollars.
They are insulted as the GST set-up compliance
cost to each small business is estimated to be more like $7 000,
not $200.(6)
On the issue of the cost of implementation to
businesses, the Victorian Employers' Chamber of Commerce and
Industry (VECCI) is reported to have estimated from a survey of 326
businesses that total cost of preparing for the GST would be
approximately $3.5 billion. The average cost for enterprises with
fewer than 20 staff was estimated to be $3 500 and 80 working
hours, while for enterprises with between 20 and 100 staff the cost
was estimated to be approximately $9 000 and 100 working
hours.(7)
Cash Accounting
Businesses that have a turnover of less than
$500 000 per year or which satisfy certain other requirements and
satisfy the Commissioner of certain matters may use a cash, rather
than accrual, basis for accounting in GST calculations [sections
29-40 and 29-45 of the A New Tax System (Goods and Services
Tax) Act 1999 (GST Act)]. Generally, the cash basis is less
complex and involves lower costs. Item 37 of Schedule
1 will amend section 29-40 to allow cash accounting to
also be used where the business uses cash accounting for income tax
purposes (this is currently a matter the Commissioner may have
regard to in determining if a business may use the cash accounting
method) and to allow the Commissioner to determine that businesses
of a certain kind may use cash accounting. The turnover threshold
of $500 000 will be increased to $1 million by item
39 which will also amend section 29-40.
Private
Health Insurance
Section 38-55 of the GST Act provides that the
supply of private health insurance is GST free. Item
59 will amend this section to provide that the exemption
contained in section 38-55 will not apply to re-insurance of
private health insurance.
Export
Exemption
Goods exported from Australia are generally
exempt from GST so long as they are supplied to an entity
registered for the purposes of the GST. Item 65
will amend section 38-185 to make it clear that the exemption will
also apply where the goods are supplied to an entity that is not
registered for purposes of the GST so long as that entity exports
the goods, the goods have been entered for export and they have not
been altered.
The exemption will also apply to goods supplied
through a lease or hire where the goods are used outside Australia
(item 66).
Charities
Supplies by charitable institutions are GST free
where the consideration received is less than 50% of the market
value of the supply (section 38-250 of the GST Act). Items
67 and 68 provide that supplies of accommodation by such
groups will be GST free so long as the consideration received is
less than 75% of the market value.
Drainage
The supply of water or a sewage service are
currently GST exempt under subdivision 38-I of the GST Act.
Item 70 will extend the exemption to storm water
drainage.
Simplified
Accounting for Certain Retailers
Proposed Division 123, which
will be inserted into the GST Act by item 111,
applies to retailers who sell food and the non-commercial
activities of charitable institutions. Concern have been raised
that entities engaged in such activities may not be in a position
to implement the technological change necessary to easily calculate
the GST payable on dealings involving taxable and exempt items. An
example is a shop in a rural area that sells not only exempt food
but also a range of goods subject to the GST. Without a machine
that records the goods sold and calculates any GST payable it would
be necessary for this information to be recorded manually, imposing
massive compliance costs in terms of the hours involved. (The
practical example would be a shop that uses a standard cash
register rather than one which reads bar codes.)
Proposed section 123-5 will
allow the Commissioner to determine alternative arrangements that
are to specify the type of entity to which the alternative method
applies and how the net amount of GST payable is to be calculated.
Entities covered by a determination may elect that it is to apply
to them (proposed section 123-10).
Luxury
Cars
Luxury car tax is payable where the value of a
motor vehicle exceeds the depreciation limit (($55 134 for
1998-99). Part 2 of Schedule 1 will amend the
A New Tax System (Luxury Car Tax) Act 1999.
Proposed Division 16 deals with the payment of the
GST or luxury car adjustment where the liability arises for a
member of a GST group or joint venture, and provides for the
payment of the GST and luxury car tax by a member of the
group/joint venture other than the liable member.
Wine
Equalisation Tax
The A New Tax System (Wine Equalisation Tax)
Act 1999 contains a definition of wine which includes any
fruit wine or vegetable wine, with only the definition of grape
wine expanded upon. The current definition also relies on certain
beverages, such as beer and spirits, being excluded from the
definition. The current definition will be replaced by Part 3 of
Schedule 1 which defines the wines subject to the tax as grape
wine, grape wine products, fruit or vegetable wines, cider or
perry, mead and sake. Each of these terms is subsequently defined
and there is no reference to products that are not wine in the new
definition. The result is a clearer definition of the products
subject to the tax and the removal of the need to determine if a
product is included in the tax as it is not excluded (eg. there is
no need to determine if a product falls within the definition of
beer to determine that it is not wine).
Assessable
Income
Amendments to the Income Tax Assessment Act
1997 contained in Schedule 3 will clarify the
tax position of GST receipts and input credits and make minor
amendments in cases where adjustments are allowed for different
usage of products from that intended when a claim was made. The
amendments will make it clear that amounts collected as GST will
not be included in assessable income.
The GST Act provides for adjustments where a
proportion of input tax credits only is claimed as the intended use
of property is less than 100% for taxable supplies and the actual
usage differs from the intended usage. If the actual usage is
higher than the intended usage an adjustment to allow a higher
proportion of input credit is made and a refund of GST paid on
goods supplied will be allowed. To ensure that this amount is not
tax free, proposed section 17-10 will include such
adjustments, known as decreasing adjustments, in assessable
income.
Similarly, no deduction will be allowed for
input tax credits and a deduction will be allowed for an increasing
adjustment, which is the reverse of a decreasing adjustment.
Consumer
Protection
Part VB of the Trade Practices Act 1974
gives the Australian Consumer and Competition Commission (ACCC)
power to monitor price exploitation in regard to the introduction
of the GST. The power applies to 'regulated supplies' which are
defined in section 75AT to cover a limited range of supplies prior
to the commencement of the GST. Schedule 4 of the
Bill will amend section 75AT to extend the range of supplies
covered to include all supplies that will be subject to the GST
made by entities required to be registered for GST purposes where
the supply is made prior to the commencement of the GST.
Warranties,
Hire Purchase and Software
Section 11 of the A New Tax System (Goods
and Services Tax Transition) Act 1999 (GSTT Act) provides that
where a right is granted between 2 December 1998 and 1 July 2000,
the right is taken to be supplied (and so subject to GST) if it
could be exercised on or after 1 July 2000. Item 3 of
Schedule 6 will insert a new subsection 11(1) which
provides that section 11 will not apply to:
-
- A warranty if the value of the warranty is included in the
price of the relevant goods or services
-
- A right to purchase provided under a hire purchase agreement
for goods hired under the agreement, and
-
- A right to use software if the value of the right is included
in the price of the software and the right of use is ongoing.
Leased Motor
Vehicles
Where a vehicle is held under a lease since 2
December 1998 and is disposed of after 30 June 2000, the disposal
will be subject to GST even though this amount cannot be recovered
from a lessee (eg. the vehicle is disposed of to the lessee for a
fixed amount under the terms of the lease). Proposed
section 19A of the GSTT Act, which will be inserted by
item 10 of Schedule 6, provides
that where:
-
- the disposal is the first sale of the vehicle and occurs on or
after 1 July 2000
-
- the supplier was, immediately before the sale, the lessor of
the vehicle
-
- the supplier purchased the vehicle before 2 December 1998 for
the purpose of leasing it, and
-
- the vehicle was subject to sales tax.
A special credit of 1/11th of the
price of the supply of the vehicle will be allowed. The special
credit will be an input credit that may be attributed to a period
of the taxpayers choice.
Tradex
The Tradex scheme allows for the importation of
goods, without payment of duty or tax, provided the goods are
subsequently exported or incorporated in goods that are exported
Part 2 of Schedule 7 will insert a new Division
141 into the GST Act to provide that if the conditions relating to
the Tradex scheme are broken (ie the goods are not exported) then,
in relation to importations that otherwise would be taxable, GST
equal to the difference between the GST payable and any allowable
input credits will be payable.
-
- House of Representatives, Parliamentary Debates
(Hansard), 30 September 1999, p. 11031.
- The New Tax System Advisory Board, 25 November 1999.
- ibid., 26 October 1999.
- ibid, 10 November 1999.
- Treasurer, Press Release, 19 August 1999.
- NTAA, Media Release, 16 November 1999.
- The Australian Financial Review, 15 November
1999.
Chris Field
8 December 1999
Bills Digest Service
Information and Research Services
This paper has been prepared for general distribution to
Senators and Members of the Australian Parliament. While great care
is taken to ensure that the paper is accurate and balanced, the
paper is written using information publicly available at the time
of production. The views expressed are those of the author and
should not be attributed to the Information and Research Services
(IRS). Advice on legislation or legal policy issues contained in
this paper is provided for use in parliamentary debate and for
related parliamentary purposes. This paper is not professional
legal opinion. Readers are reminded that the paper is not an
official parliamentary or Australian government document.
IRS staff are available to discuss the paper's contents with
Senators and Members
and their staff but not with members of the public.
ISSN 1328-8091
© Commonwealth of Australia 1999
Except to the extent of the uses permitted under the
Copyright Act 1968, no part of this publication may be
reproduced or transmitted in any form or by any means, including
information storage and retrieval systems, without the prior
written consent of the Parliamentary Library, other than by Members
of the Australian Parliament in the course of their official
duties.
Published by the Department of the Parliamentary Library,
1999.
Back to top