Bills Digest No. 97  1999-2000 A New Tax System (Indirect Tax and Consequential Amendments) Bill 1999


Numerical Index | Alphabetical Index

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

Passage History

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.

Purpose

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.

Background

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)

Main Provisions

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.

Endnotes

  1. House of Representatives, Parliamentary Debates (Hansard), 30 September 1999, p. 11031.

  2. The New Tax System Advisory Board, 25 November 1999.

  3. ibid., 26 October 1999.

  4. ibid, 10 November 1999.

  5. Treasurer, Press Release, 19 August 1999.

  6. NTAA, Media Release, 16 November 1999.

  7. The Australian Financial Review, 15 November 1999.

Contact Officer and Copyright Details

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.

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