Bills Digest No. 167  1999-2000Financial Management and Accountability Amendment Bill 2000


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
Concluding Comments
Endnotes
Contact Officer & Copyright Details

Passage History

Financial Management and Accountability Amendment Bill 2000

Date Introduced: 10 May 2000

House: House of Representatives

Portfolio: Finance and Administration

Commencement: On Royal Assent

Purpose

This Bill amends the Financial Management and Accountability Act 1997 to provide for a standing appropriation of money for GST notionally paid by Commonwealth agencies and authorities where an input tax credit or decreasing adjustment arises.

Background

A New Tax System (Goods and Services Tax) Act 1999 (the GST law) provides(1) that the Commonwealth and Commonwealth entities (that is, Commonwealth agencies and authorities) are not subject to the goods and services tax (GST). However, GST notionally applies to the Commonwealth and Commonwealth entities.

The effect of this is that Commonwealth agencies and authorities that supply goods or services will notionally pay GST on the inputs required to supply those goods or services (such as office paper, computer equipment, and consultant's fees). However, they will be entitled to notional input tax credits from the Australian Taxation Office for any GST paid, or other adjustments made under the GST law. Therefore, the net effect of being notionally subject to GST will in most cases be zero. However, in some cases, Commonwealth agencies and authorities will not be entitled to input tax credits, for example if they provide financial supplies, which are input taxed(2) without a credit being available. In those circumstances, the Commonwealth will be liable to pay GST.

Although the Commonwealth and Commonwealth entities will notionally be subject to the GST, no amount for GST has been or will be included in the annual and special appropriations bills. Appropriations made for Commonwealth agencies and authorities specify the net amount that has been allocated by Parliament. This is consistent with Australian accounting practice, which is to record expenses and assets net of GST. (3)

Although the Commonwealth's practice of not including GST in appropriations is in accordance with current accounting practice, it is a constitutional requirement that all payments by the Commonwealth be made under appropriation made by law.(4) Accordingly, this Bill amends the Financial Management and Accountability Act 1997 to provide for a standing appropriation for GST. GST notionally paid on taxable supplies or taxable importations and recoverable from the Australian Taxation Office as an input tax credit or decreasing adjustment will be covered by the standing appropriation, and the value of the supplies or importations, net of GST, will be covered by annual or special appropriations.

The Parliamentary Secretary to the Minister for Finance and Administration claims that:(5)

'Parliamentary control over, and scrutiny of, expenditure will not be diminished as a result of the additional appropriation. The additional appropriation will not have any budgetary impact, as the part of the payment it represents will be covered by the Commonwealth agency or department as an input tax credit.'

Main Provisions

Proposed section 30A appropriates money to pay GST on an acquisition or importation made by a Commonwealth agency or authority where that body will be entitled to an input tax credit(6) or decreasing adjustment(7) in respect of the GST paid.

The GST is appropriated immediately before the payment for the acquisition or importation is made (proposed subsections 30A(1) and (4)). If the GST liability arises later than the payment for the acquisition or importation, the GST is appropriated at the time the input tax credit or decreasing adjustment arises (proposed subsections 30A(2) and (5)). This situation may arise either because the payment is made before 1 July 2000 and GST is only payable after that date, or because at the time of payment it was not envisaged that an input tax credit or decreasing adjustment for the GST would exist.

The standing appropriation will not cover GST payable on input taxed activities, such as financial supplies. This is because no input tax credit is available on input taxed activities. Accordingly, the Commonwealth agency or authority will need to include the amount of GST in the annual appropriation sought in respect of goods and services to be used in input taxed activities.

The appropriation is limited to the total amount of GST payable as either an input tax credit or decreasing adjustment (proposed subsections 30A(3) and (6)). This means that if the acquisition or importation is paid in instalments, the full amount of GST is not appropriated each time an instalment is made.

The definitions of 'acquisition', 'importation', 'input tax credit' and 'decreasing adjustment' are those used in the GST law (proposed subsections 30A(7)).

Concluding Comments

The Bill combines the requirements of the Constitution and Australian accounting practice. It provides for a standing appropriation of money for GST notionally paid by Commonwealth agencies and authorities, as required by section 83 of the Constitution. However, by placing the appropriation in the Financial Management and Accountability Act 1997, separate from the annual and special appropriation bills, it reflects accounting practice that the budgets of Commonwealth agencies and authorities should not include GST.

The appropriation does not cover all payments of GST made by Commonwealth agencies and authorities, only those GST payments on an acquisition or importation of goods and services where that body which would be entitled to an input tax credit or decreasing adjustment. Significantly, the appropriation will not cover GST payable on input taxed activities, such as financial supplies, provided by a Commonwealth agency or authority.

Endnotes

  1. Section 177.1 of the A New Tax System (Goods and Services Tax) Act 1999.

  2. 'Input taxed activities' are activities where no GST is payable on the end-product supplied, but the supplier must pay GST on goods or services he or she acquires or uses in supplying the end-product. The supplier does not get an input tax credit for this GST. Examples of input-taxed activities are financial services, residential rent and the sale of residential premises.

  3. The Australian Accounting and Research Foundation's Urgent Issues Group Abstract 31 (January 2000) states that revenues, expenses and assets must be recorded net of GST. The accounting records show the actual (ultimate) cost, so amounts of GST paid on supplies which will later be recovered as an input tax credit are not included in estimates of expenditure. An exception is where the amount of GST incurred by a purchaser is not recoverable from the taxation authority (for example, purchases for use in input taxed activities, or where the purchaser is the ultimate consumer of the goods or services). In this case, the amount including GST should be recorded for accounting purposes. Additionally, accounting entries record GST paid and credited in the receivables and payables journals. A summary of Urgent Issues Group Abstract 31 can be obtained from the Department of Finance and Administration's website:

  4. http://www.dofa.gov.au/gst/contents/account/acc1.htm.

  5. Section 83 of the Constitution.

  6. Peter Slipper, MP, Parliamentary Secretary to the Minister for Finance and Administration, Second Reading Speech, House of Representatives, Hansard, p. 15342, 10 May 2000.

  7. An 'input tax credit' arises where an entity imports or acquires goods or services, which are then used in carrying on its business or government activities. The ultimate consumer of the goods or services supplied by that entity will pay GST. The entity must also pay GST on the goods or services, but will be entitled to tax credit for that amount, as GST should be paid only once, by the consumer.

  8. A 'decreasing adjustment' arises when an event occurs which affects the supply or acquisition, or amount of consideration paid for the supply or acquisition, of a good or service so that a greater input tax credit is payable than was earlier calculated. The decreasing adjustment is the difference between the amount of input tax credit initially calculated and the corrected, larger, amount.

Contact Officer and Copyright Details

Katrine Del Villar
24 May 2000
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 2000

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, 2000.

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