Tax Laws Amendment (Small Business Measures) Bill 2004


Index

Bills Digest No. 41,  2004-05

Tax Laws Amendment (Small Business Measures) Bill 2004

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

Tax Laws Amendment (Small Business Measures) Bill 2004

Date Introduced: 18 November 2004

House: House of Representatives

Portfolio: Treasury

Commencement: On Royal Assent.

Purpose

To amend the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) to:

  • provide small businesses and non-profit bodies that are voluntarily registered for the GST the option to report and pay GST on an annual basis,

  • allow small businesses to elect to undertake annual apportionment of input tax credits for certain acquisitions and importations used partly for non-business purposes (rather than being required to apportion credits on a monthly or quarterly basis), and

  • remove the requirement for an eligible entity to make an annual election to pay GST by instalments.

Legislative history

The Tax Laws Amendment (Small Business Measures) Bill 2004 was introduced previously on 24 June 2004 under a different title Indirect Tax Legislation Amendment (Small Business Measures) Bill 2004.(1) However, with the prorogation of the
40th Parliament, the Bill lapsed.

The Government has reintroduced the Bill with some minor drafting changes. However, unlike the provision in the previous Bill, an election to pay GST by instalments will apply from 1 July 2005 and not 1 July 2004.


Background

As part of the 2004-05 Federal Budget, the Treasurer announced changes to small business compliance with the GST, in particular to the GST reporting and payment arrangements:

Assisting small business

Mr Speaker, a big part of our resilient economy is our resilient small business. To reduce the compliance burden on small business, tonight I am announcing measures which will allow small businesses who are below the registration threshold and voluntarily registered for GST to report and pay GST annually, instead of quarterly.

These measures will benefit around 740,000 small businesses and 30,000 non-profit organisations that are voluntarily registered and currently pay on a monthly or quarterly basis. As all GST revenue is paid to the States, their approval of these changes will be required. The Government will offer to compensate the States for the revenue deferred in this measure at a cost of $330 million in 2004-05.(2)

In addition to the above change in GST compliance, small businesses with an annual turnover of $2 million or less would be allowed to apportion their private and business use of assets, such as motor vehicles, on an annual basis for GST purposes rather than on a quarterly or monthly basis.(3) The Treasurer also announced that businesses that elect to pay their GST through quarterly instalments would not be required to re-elect in the following years.(4)

The Bill amends the GST Act to give effect to the GST compliance changes announced by the Treasurer. A summary of the changes is discussed in the Main Provisions section. Other measures to reduce compliance costs include the small business tax simplification changes announced in the 2004-05 Federal Budget and the Committed to Small Business package.(5)

Main Provisions

Schedule 1 ─ GST lodgment and payment

Item 11 of Schedule 1 inserts Division 151 ─ Annual tax periods into the GST Act. This Division allows certain entities to have annual tax periods and to lodge their GST returns and pay their GST on an annual basis.

Entities may elect to report and pay GST on an annual basis

Subdivision 151-A (proposed sections 151-5 to 151-25) sets out the rules and procedures for a small business or non-profit organisation that is voluntarily registered for the GST to make an annual tax period election. Proposed section 151-5 provides that an entity is eligible to make an annual tax period election if it is not required to be registered at the time of its election. If an entity is required to be registered for GST purposes then it cannot make an annual tax period election. Generally, an election must be made on or before 21 August for those entities with monthly tax periods, and on or before 28 October for those with quarterly tax periods under proposed subsection 151-20(1).

Proposed sections 151-10 and 151-20 provide that an election will take effect from the start of a financial year (1 July) or from the start of such other tax period as the Commissioner allows. In the financial year commencing 1 July 2004, the Commissioner has a discretion to treat elections made in that financial year, but after the specified dates, as having effect for tax periods commencing 1 October 2004 for entities with quarterly tax periods and1 November 2004 for entities with monthly tax periods.

Under proposed subsection 151-25(3) an election may be disallowed by the Commissioner if the Commissioner is satisfied that the entity has failed to comply with one or more of their tax obligations. A decision to disallow is a reviewable decision under the Taxation Administration Act 1953 (the Administration Act).

For further details of the proposed measures contained in Schedule 1 refer to Explanatory Memorandum pp.7 to 16.

Application

The amendments apply in relation to net amounts for tax periods starting on or after
1 October 2004 for entities with quarterly tax periods and 1 November 2004 for all other entities under item 16.

Schedule 2 ─ Creditable purposes Input Tax Credits

Item 14 of Schedule 2 inserts Division 131 Annual apportionment of creditable purpose into the GST Act. This Division allows small businesses to elect to determine their non-enterprise or private use of acquisitions on an annual basis when claiming input tax credits, rather than on a quarterly or monthly basis as is currently the case. As stated by the Explanatory Memorandum, the object of this measure is to reduce compliance costs:

The business would initially make a claim for the full input tax credit applicable to the acquisition in the relevant quarterly or monthly GST return. The business will then be required to make a later single adjustment of its input tax credits to take account of the actual use. Businesses will be able to make the relevant increasing adjustment at any time up to the end of the tax period in which it is required to lodge its income tax return. This will allow those businesses that are required to lodge an income tax return to simultaneously establish the extent of business use for both income tax and GST purposes and thereby assist businesses to lower their compliance costs.(6)

Election to have annual apportionment

New subdivision 131-A (proposed sections 131-5 to 131-20) sets out the rules and procedures to enable an entity to make an annual apportionment election. An entity will be eligible to make an election if its annual turnover does not exceed the annual apportionment threshold of $2 million (or such higher amount as specified in the regulations) and the entity is not subject to either the GST instalment or annual tax period options.

Once an annual apportionment election has been made, it will continue to apply unless the entity revokes the election (proposed section 131-20).

Proposed section 131-20 provides that an annual apportionment election may be disallowed by the Commissioner if the Commissioner is satisfied that the entity has failed to comply with one or more of their tax obligations. A decision to disallow is a reviewable decision under the Administration Act.

New subdivision 131-B (proposed sections 131-40 to 131-60) deals with the consequences of an annual apportionment election.

An entity cannot claim an input tax credit under the annual apportionment option to the extent that it relates to the making of input taxed supplies under proposed section 131-40.

Proposed section 131-45 makes a corresponding provision in relation to importations.

Proposed sections 131-55 and 131-60 provide that an entity will have an increasing adjustment where the amount of input tax credit is determined under new subdivision 131-B and is different to what it would have been had that subdivision not applied.

For further details of the proposed measures contained in Schedule 2 refer to Explanatory Memorandum pp.17 to 26.

Application

The amendments apply to net amounts for the tax periods starting on or after 1 October 2004 for entities with quarterly tax periods and 1 November 2004 for all other entities under item 23.

Schedule 3 ─ Payment of GST by instalments

Entities that have an annual turnover of $2 million or less, and meet certain other criteria can elect to pay their GST in quarterly instalments with an annual reconciliation. These entities are currently required to make a new election each financial year in order to continue paying GST by instalments. Schedule 3 of the Bill removes this requirement to make a new election for each financial year.

Instalment election

Proposed subsection 162-30(1) provides that once a GST instalment election has been made, it will continue to apply unless the entity revokes the election, the Commissioner disallows the election, the entity s annual turnover exceeds the instalment turnover threshold or the entity is in a net refund position. A decision to disallow an election is a reviewable decision under the Administration Act (proposed subsection 162-30(3)).

For further details of the proposed measures contained Schedule 3 refer to Explanatory Memorandum pp.27 to 30.

Application

The instalment election will apply from 1 July 2005 (item 10).

Endnotes

  1. See Indirect Tax Legislation Amendment (Small Business Measures) Bill 2004, Bills Digest, No. 15, 2004-05. The Bills Digest discusses the various initiatives and reform proposals to reduce small business compliance costs, and refers to recent surveys by the State Chamber of Commerce (NSW) and the Victorian Automobile Chamber of Commerce on the regulation burden faced by small business.

  2. According to the Budget, this change will result in a deferral of GST revenue to the States and Territories, including $330 million in 2004-05 and between $16 million to $18 million in subsequent years. However, the Explanatory Memorandum to the Bill revises the amount of GST that will be deferred from one year to the next. It is expected that the measure will result in the deferral in GST revenue of $219 million in 2004-05 and $127 million in 2005-06 and between $17 million and $18 million in later financial years. See Tax Laws Amendment (Small Business Measures) Bill 2004 Explanatory Memorandum, p. 15.

  3. Budget Paper No 3, Appendix A: GST Revenue Measures.

  4. See Joint Press Release, Small Business Tax Simplification , Treasurer and Minister for Small Business and Tourism, 11 May 2004.

  5. See Joint Press Release, Small Business Tax Simplification , Treasurer and Minister for Small Business and Tourism, 11 May 2004; and Media Release, Reduced Paperwork for Small Business , Minister for Small Business and Tourism, 6 July 2004.

  6. Tax Laws Amendment (Small Business Measures) Bill 2004 Explanatory Memorandum,
    p. 18.


 

Contact Officer and Copyright Details

Bernard Pulle and Michael Priestley
26 November 2004
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 2004

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Published by the Parliamentary Library, 2004.

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