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.
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Indirect Tax Legislation Amendment Bill 2000
Date Introduced: 11 May 2000
House: House of Representatives
Commencement: The Bill will commence at the same time as the A New Tax System (Indirect Tax and Consequential Amendments) Act (No. 2) 1999 (22 December 1999). However, the measures will generally apply from 1 July 2000.
The Bill contains a number of miscellaneous measures with relatively minor consequences. Areas addressed include:
- changes to the activities conducted by charities which are to be input taxed
- the treatment of certain leased goods used in education
- the taxable status of certain supplies made by non-residents, and
- the input taxing of minor credit supplies.
As there is no central theme to the Bill the background to the various measures will be dealt with below.
The application of the GST to charitable institutions and similar bodies has been subject to considerable negotiation and change since the broad outlines for the GST were announced.
Under the GST, charitable institutions will have the option of becoming part of the GST system and so pay GST and claim input credits if their income is less than $100 000. For incomes above this amount GST will apply. As part of concessions to charitable groups their $100 000 threshold is double the normal business requirement to participate in the GST system where their income is $50 000 or more. A further concession is that a charity composed of a number of sub-groups, such as State or local branches, may treat the income earned by those units as if it was earned by a separate entity, so that each the various smaller entities will be exempt from the GST system if they choose to.
However, remaining exempt from the GST system has disadvantages associated with the ability to not pay the 10% GST on goods and services supplied. Principally, charities accepting this option will be input taxed, ie they cannot claim a credit or refund for GST on goods and services incorporated in their final product. The main advantage to charities under this option is that they will not have to incur the administrative costs associated with the GST if they opt out of the system.
Under the wholesale tax system, which operated until 1 July 2000, goods supplied to a charitable institution were exempt from sales tax so that there was little or no administrative cost to the bodies. The cost of goods and commercial services supplied to charitable bodies will increase with the GST as, while there may be possible savings in respect of some goods supplied to the organisation due to the abolition of the wholesale sales tax, charities will be required to pay GST on both the goods and services they use.
The concept of an institution, such as charitable institution, being exempt from a tax on goods is not relevant to the GST which imposes tax on the final supply of goods and services beyond which no further tax will be paid (ie, generally the GST will be imposed on the final, retail sale of a good and the supplier will be able to claim the GST claimed up to that point as an input credit.) Where there will not be further disposal subject to GST, such as by a charitable institution which may opt out of the system (see above), the body making the final disposal will end up paying the GST on the good or service. This part of the system is known as the good or service being input taxed. Charitable institutions will be input taxed under the GST if they decide to opt out of the system.
Further minor concessions were announced in the Treasurer's Press Release of 3 May 2000, to introduce a 'more flexibility for fund-raising activities'. Under the proposals, the Commissioner of Taxation (the Commissioner) would be able to issue guidelines that certain activities would be input taxed so long as they did not form part of a series of events. The activity could involve the sale of small fundraising items. For other types events the Commissioner would be granted a discretion to, on application, declare the activity to be input taxed.
Schedule 1 will insert a new Subdivision 40-F into the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Proposed section 40-160 provides that a supply will be input taxed if:
- the supplier is a charity, charitable fund or a gift deductible entity (which will include a political party)
- the event is part of a 'fund-raising event', and
- all supplies in the event are input taxed.
A fund raising event will be one that is not conducted as part of o series or run of like events that include:
- a fete, dinner, gala performance, ball or similar event
- an event where each good is sold for less than $20, or such amount as specified by regulation, and is not sold as part of a business (sales cannot include alcohol or tobacco), or
- an event approved by the Commissioner. Approval is not to be given unless the Commissioner is satisfied that the proceeds from the event are for the charities purposes (proposed section 140-165).
Division 111 of the GST Act provides that input credits are allowed for reimbursements for certain employee expenses. Proposed section 111-18 provides that the reimbursement of volunteers by charitable bodies will be able to be claimed as an input credit where the expense reimbursed is directly related to their activities as a volunteer (item 7).
Education - Certain Leased Goods
Subdivision 38-C of the GST Act deals with the treatment of goods and services supplied in the course of education. Most education supplies are GST free, including education courses, non-recreational excursions, accommodation at boarding schools and course materials. However, supply by sale, lease or hire of goods other than course materials are currently not GST free (section 38-100).
It was announced in the Treasurer's Press Release dated 3 May 2000 that goods principally for use in a GST free education course and leased or hired from a pre-school, primary school or secondary school would be GST free so long as there was no change in ownership.
Item 1 of Schedule 2 will insert new section 38-97 into the GST Act which provides that the supply of goods by lease or hire will be GST free if:
- the goods are for use directly or principally by a student undertaking a pre-school, primary school or secondary school course in which the student is enrolled
- the course supplier provides the goods by lease or hire
- the supplier has the right to decide who uses the goods and the uses to which they are to be put, and
- at no time is there a transfer of ownership or an agreement or obligation to transfer ownership.
Sewage and Like Services
The supply of sewage services and the emptying of septic tanks are currently GST free. However, there are a number of alternatives to septic tanks that are not covered by the current exemptions. Item 4 of Schedule 2 will amend section 38-290, which exempts sewage services, to provide that the removal of waste from residential premises will be exempt where the premises are not serviced by sewers and the waste is of a type normally removed by sewers. As well, the servicing of a domestic self-contained sewage system will be GST free.
The supply of goods and services for consumption by a non-resident is generally GST free, so that, for example, most exports are not subject to the GST. Where the goods or services are provided by a non-resident for consumption in Australia the non-resident is generally required to register for GST and remit the GST collected to Australia. Non-residents will often not have input credits which they can claim. While this system is appropriate for non-residents supplying a large value of goods or services to Australia it can be seen as costly and inconvenient to small scale non-resident suppliers. In the Treasurer's Press Release of 3 May 2000 a scheme was announced under which the suppliers and importer can reach agreement that the importer will be liable to pay the GST.
A new Division 83, dealing with supplies made by non-residents, will be inserted into the GST Act by item 12 of Schedule 3. Proposed section 83-5 provides that the recipient of a supply will be liable to pay the GST where:
- the supplier is a non-resident
- the supply is not made through an enterprise which the supplier operates in Australia
- the recipient is registered for the GST, and
- the supplier and recipient agree that that the recipient will pay the GST.
There are minor exemptions to the ability to enter into such an arrangement, including where the supply is through a resident agent. In addition, where the recipient is a member of a group the GST will continue to be payable by the group representative (proposed section 83-10). For joint ventures, the operator of the joint venture will be liable to pay the GST (proposed section 83-15).
The value of the supply on which GST is paid under the above proposals is not to be included in calculating whether a non-resident must be registered for GST purposes (proposed section 83-25), and is also not to be included in calculating the recipients turnover (proposed section 188-23 which will be inserted by item 13). These provisions alleviate potential additional applications of the above deeming arrangements under which the recipient is liable for the GST.
The supply of financial services is input taxed, so that GST is not payable on the supply and the supplier cannot claim input credits. In recognition of the business practice of often supplying credit when goods are supplied, there is a de minimus rule under which input credits may be claimed where the financial supplies do not exceed $50 000 or 5% of annual turnover (subsections 11-15(4) and 15-10(4) of the GST Act). The Treasurer announced in a Press Release dated 15 March 2000 that a de minimus rule would be amended so that input credits in relation to financial supplies would be claimable where they do not exceed $50 000 or 10% of the entities total input tax credits. It was further announced on 3 May 2000 that these input tax credits relating to borrowings would only be denied where the borrowing is undertaken by a financial institution, or by the corporate treasury of a large business for the purposes of making other financial supplies. This would be achieved by excluding such expenses from the calculation of the de minimus test.(1)
The above measures will be implemented by item 7 of Schedule 5 which will insert new Division 189 into the Income Tax Assessment Act 1997.
Schedule 8 will insert a new paragraph in section 38-355 of the GST Act to ensure that insurance premiums on the transport of goods for export will be GST exempt (such transport is currently exempt). The exemption will include insurance on transport within Australia where that is an integral part of the transport out of Australia and transport between two places outside Australia.
1. Treasurer, Press Release, 3 May 2000.
14 August 2000
Bills Digest Service
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© Commonwealth of Australia 2000
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Published by the Department of the Parliamentary Library, 2000.
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