Bills Digest no. 188 2009–10
Tax Laws Amendment (2010 GST Administration Measures No.
3) Bill 2010
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
Background and purpose
Schedule 1 – GST and cross-border
transport supplies
Schedule 2 – GST relief for
telecommunications supplies for global roaming in
Australia
Schedule 3 – Adjustments for third
party payments
Concluding comments
Contact officer & copyright details
Passage history
Tax Laws Amendment (2010 GST Administration
Measures No. 3) Bill 2010
Date introduced: 26 May 2010
House: House
of Representatives
Portfolio: Treasury
Commencement: On the day of Royal Assent
Links: The
links to the Bill, its Explanatory Memorandum and second
reading speech can be found on the Bills page, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The Bill contains three schedules, each amending aspects of the
A New Tax System (Goods and Services) Tax Act 1999 (the
GST Act). The amendments are broadly intended to improve
administration of the Goods and Services Tax (GST) and reduce
compliance costs. [1]
As each schedule of the Bill deals has a different purpose and
policy basis, further background discussion is included under
discussion of each schedule.
On 1 June 2010 the Senate Economics
Legislation Committee reported that the Bill contained no
substantive matters that require examination.[2]
Schedule 1 – GST and cross-border
transport supplies
The purpose of the provisions in schedule 1 is
to provide that the transport of goods by subcontractors within
Australia that forms part of the international transport of those
goods by another entity from or to Australia is taxable, unless the
supply is made to a non-resident that is not in Australia.[3]
Specifically, the schedule:
- shifts liability for GST on the Australian transport leg of
imports of goods from the transport service suppliers to importers
in some circumstances
- makes the GST treatment of postal and containerised exports
more consistent, and reduces GST compliance costs for
transporters
- makes subcontracted Australian transport supplies forming part
of the Australian leg of import or export GST-free when made to a
non-resident who is not in Australia, but not when made to a
non-resident who is in Australia[4]
- makes services related to transport supplies made to
non-residents in Australia subject to GST.
The amendments contained in the schedule apply on
and from 1 July 2010.
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The Explanatory Memorandum states that this measure was
announced by the then Assistant Treasurer and Minister for
Competition Policy and Consumer Affairs on 12 May 2009.[5]
On 12 May 2009 the then Assistant Treasurer asked the Board of
Taxation to review the application of GST to cross-border
transactions (the Review).[6] The Review followed the Board’s earlier,
broader review of administration of the GST.[7]
The four broad issues recognised by the Board of Taxation in the
Review were:
- application of the ‘connected with Australia’
provisions of the GST Act
- registration requirements for non-residents and access to GST
refunds
- the scope of the GST-free rules
- consumption in Australia on which GST is not currently
captured.[8]
On 11 May 2010 the Assistant Treasurer announced
the release of both the report of the Review and the
Government’s response.[9] The Assistant Treasurer’s media release
stated that the design of the GST cross-border rules would be
simplified by, and that no reduction in GST revenue would result
from, implementing the recommendations of the Review. The
media release did not discuss the quantum of extra revenue which
could result from implementing the Board of Taxation’s
recommendations.[10]
Two of the Board’s key findings and
recommendations were:
- ‘the collection of GST on cross-border transactions can
be inefficient due to the difficulties associated with enforcing
GST compliance on a non-resident outside Australia’s
jurisdiction’[11]
- ‘the Board’s recommendations will broadly remove
non-residents that do not have a business presence in Australia
from Australia’s GST system’.[12]
Division 38 of the GST Act sets out a list of supplies that are
GST-free. A supply other than goods or real property made to
a non-resident who is not in Australia when the thing supplied is
done is generally GST-free. A supply in the same circumstances
which is provided to another entity[13] in Australia is generally not
GST-free.[14]
Domestic elements of a cross-border transaction
can attract GST provided the supply is ‘connected with
Australia’[15], the supplier is registered (or required to be
registered) for GST, and the supply is not GST-free or
input-taxed.
For example, where an offshore entity contracts with an
Australian freight company to transport something in Australia for
eventual export, the supply is generally GST-free.
The proposed subsection 38-190(5) under
item 4 modifies the operation of subsection
38-190(4) of section 38-190 by excluding certain supplies from the
current GST-free rules.
Section 38-190 contains a table which lists supplies (of things
other than goods or real property, for example, services) which are
GST-free.
Subsection 380-190(4) defines a supply which is made to a
recipient who is ‘not in Australia.’ A supply is
taken to be made to a recipient who is not in Australia if:
- it is a supply under an agreement entered into, whether
directly or indirectly, with an Australian resident (paragraph
38-190(4)(a)); and
- the supply is provided, or the agreement requires it to be
provided, to another entity outside Australia (paragraph
38-190(4)(b)).
- Under the proposed subsection 38-190(5),
subsection 38-190(4) does not apply to:
- a transport of goods within Australia that is part of, or is
connected with, the international transport of the goods
(proposed paragraph 38-190(5)(a))
- a loading or handling of goods within Australia that is part
of, or is connected with, the international transport of the goods;
(proposed paragraph 38-190(5)(b))
- a service, done within Australia, in relation to the goods that
facilitates the international transport of the goods
(proposed paragraph 38-190(5)(c))
- insuring transport covered by paragraph (a)
(proposed paragraph 38-190(5)(d))
- arranging transport covered by paragraph (a), or insurance
covered by paragraph (d) (proposed paragraph
38-190(5)(e))
The effect
is that the supplies listed above will be subject to GST.
The proposed subsection 38-190(5) includes
customs broking services in relation to clearance of imported goods
as an example of a service done ‘in relation to the goods
that facilitates the international transport of the
goods’. The proposed subsection will also apply to such
services provided to facilitate export of goods.
A note to the proposed subsection refers to the possibility that
a supply might still be GST free under item 5, 5A, 6 or 7 in the
table in paragraph 38-555(1) (see discussion below).
Items 5 to 9 of Schedule 1
amend section 38-355, which is the main provision of subdivision
38-K. Items 8 and 9 contain
the main amendments to subdivision 38-K. The subdivision
operates generally to make certain otherwise taxable supplies
GST-free.
Item 8 inserts proposed table item
5A into the table in section 38-355. The effect of
the new table item is to specify firstly that loading and handling
of goods, and secondly, supply of services during the course of
international transport of goods, are GST-free.
Item 9 inserts proposed subsection
38-555(2) into the section 38-555. The effect of the
proposed subsection (2) is to apply GST to supplies listed in item
5 and the proposed table item 5A where either the
recipient of the supply is a non-resident who is ‘not in
Australia’, or where the supply is done by the supplier of
the transport of the goods from or to Australia.
Items 12, 13 and
14 amend Division 295 of the GST Act (the
Dictionary).
Item 12 repeals the existing definition of
‘international transport’ and substitutes a new
definition. The phrases ‘including loading and handling
within Australia’ (in relation to export of goods) and
‘excluding loading and handling within Australia’ (in
relation to import of goods) are absent from the proposed
definition. The effect of the item is to narrow the
application of existing sections 38-355 and 38-190.
Item 13 inserts proposed paragraphs
195-1(1)(aa) and 195(1)(ab) into the GST
Act. The effect of the item is to broaden the definition of
‘place of consignment’. ‘Place of
consignment’ is currently defined as the place in Australia
to which the goods are addressed (in the case of posted goods) or
the port or airport of final destination (in any other case).
Under the proposed definition, the place of consignment is the
place in Australia to which the goods are to be delivered under the
contract of supply. ‘Entity’ is defined broadly
in section 184(1) of the GST Act.
Item 14 concerns export by freight
container. The item repeals one element of the existing
definition of ‘place of export’ and substitutes a new
element. The existing definition of ‘place of
export’ in the Dictionary defines place of export for goods
packed in freight containers[16] as the place where the goods were packed.
The new definition of ‘place of export’ will be the
place from which the goods were collected, or to which they were
delivered, prior to being packed in a freight
container.
Items 1, 2 and
3 repeal paragraph 13-20 of the GST Act, which
contains the rules for determining how much GST is payable on
taxable importations.
Items 1 and 2 insert a
proposed paragraph 13-20(ba) which specifies that
the value of a taxable importation includes the amount paid for a
supply to which the proposed table item 5A of
subsection 388-355(1) applies. The effect of this item
is to include the value of transport supplies covered by the
proposed table item 5A in the value of taxable
importations[17],
thus including these supplies within the GST tax base.
Item 3 repeals paragraph 13-20(3)(b) and
inserts proposed paragraphs 13-20(3)(b) and
13-20(3)(c). Under the new paragraphs, the
Commissioner may in writing determine how the amount of GST payable
for a specified kind of supply is to be worked out, and determine
that the amount of GST payable for a specified kind of supply is
zero. The effect of this provision is that the Commissioner
will have the power to make determinations in relation to the
transport-related supplies which are covered by the
proposed table item 5A.
Items 10 and 11 amend
subsection 117-5. Subsection 117-5 provides for valuation of
goods which have been imported to Australia following export for
repair or renovation. The effect of items 10
and 11 is to include those supplies to which the
proposed table item 5A; that is, where the supply
is made to a non-resident not in Australia.
Item 15 makes provisions for determinations
made by the Commissioner under paragraph 13-20(3)(b) continue in
force as if they are determinations under the proposed
paragraph 13-20(30)(b) inserted by items
2 and 3 of the schedule.
The Explanatory Memorandum states that the impact of the
schedule on GST revenue will be less than -$2m per year over the
next four years.[18] As the schedule both broadens the application of the
GST and exempts otherwise taxable supplies from GST, the measure is
included as both a revenue and expense measure in the 2010-11
Federal Budget papers.[19]
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The purpose of the amendments in schedule 2 is
to ensure the GST treatment of telecommunications supplies for
global roaming in Australia is consistent with Australia’s
treaty obligations under the International Telecommunications
Regulations[20] administered by the International Telecommunication
Union, to which Australia is a party.[21] The schedule provides that
telecommunications supplies provided to customers of non-resident
telecommunications suppliers (global roaming supplies) are
GST-free.
The term ‘global roaming’ describes a commercial
arrangement whereby telecommunication service supplies (for
example, phone calls, short messaging service (SMS) text messages,
email, and web browsing) are provided to a visitor to a foreign
country by a local service provider in that country. The
local service provider makes a supply to the
visitor’s service provider, and provides the supply
to the visitor. Under normal global roaming arrangements the
local service provider charges the visitor’s service provider
for the supply, who then charges the visitor. There is
normally no contractual relationship, or even any direct contact,
between the visitor to Australia and the Australian service
provider.
In December 2005 the Australian Taxation Office released GSTR
2005/6[22], which
effectively ruled, amongst other things, that international
telecommunications supplies were taxable under subsection 38-190(3)
of the GST Act.[23] Up until the release of GSTR 2005/6 these
supplies were considered to be GST-free.
On 13 May 2008 the Government announced[24] that it would amend the GST Act to
ensure that global roaming supplies provided to visitors to
Australia would remain GST free, in line with Australia’s
obligations under the Melbourne Agreement.
Following two Treasury consultations on successive exposure
drafts of proposed bills and Explanatory Memoranda, on 23 March
2010 the Assistant Treasurer released amended a further exposure
bill and Explanatory Memorandum.[25] Schedule 2 in the Bill as
presented embodies minor changes in response to stakeholder views
expressed during the course of these consultations.[26]
The amendments contained in the schedule apply retrospectively
from 1 July 2000, reflecting the fact that telecommunications
suppliers have been treating global roaming supplies as GST-free
since the GST law commenced.[27]
The broad subject of global roaming, and in particular instances
of excessive charging for the global roaming services by
telecommunications suppliers, has attracted press commentary,
although the specific issue of GST treatment of global roaming
supplies has not.
The House of Representatives Standing Committee on
Communications considered the issue of global roaming in a recent
inquiry. [28]
The terms of reference of the inquiry did not include examining
taxation of global roaming supplies.
Item 1 inserts proposed subdivision
38-R (Telecommunication supplies made under
arrangements for global roaming in Australia) into
division 38 of the GST Act, which sets out a list of supplies which
are GST-free by operation of the division.
Currently, table item 2 in subsection 38-190(1) makes the supply
of global roaming services by the Australian service GST-free as a
supply made to a non-resident (the visitor’s service
provider) who is not in Australia when the supply occurs.
However, the GST-free status of the supply is negated by the
operation of subsection 38-190(3) because it is provided
to an entity in Australia (the visitor).[29] This treatment of the supply is
inconsistent with Australia’s obligations under the Melbourne
Agreement.
The proposed section 38-570 defines the
circumstances in which that a telecommunication supply[30] is GST-free. In
relation to the supply made to the visitor’s service provider
by the Australian service provider, if:
- the supply is made by an Australian carrier, carriage service
provider or internet service provider as defined in the
Telecommunications Act 1997 and the Broadcasting
Services Act 1992 (proposed subsection
38-570(3)(a)) (i.e. the Australian service provider)
- the supply is provided to a user of the device in
Australia (proposed subsection 38-570(3)(b)) (i.e.
the visitor)
- the supply is made to a non-resident carrying on business
outside Australia (proposed subsection
38-570(3)(c)) (i.e. the visitor’s service
provider),
- and, in relation to the supply by the visitor’s service
provider to the visitor:
- the supply is to enable the use in Australia of a portable
device (defined broadly to include any portable device which is
linked to an international subscriber account) (proposed
subsection 38-570(1)(a))
- the billing address is outside Australia
(proposed subsection
38-570(2)(a))
- the supply is made by a non-resident carrying on business
outside Australia (proposed subsection
38-570(2)(c)) (i.e. the visitor’s service
provider),
the supply is GST-free.
The proposed section applies only to transmission services, not
to charges levied for content, such as charges for a pay-per-view
sporting event delivered to a global roaming customer.[31]
Item 2 of the schedule applies the new measure
retrospectively from 1 July 2000, the effective commencement date
of the provisions of the GST Act.[32]
The Explanatory Memorandum includes four examples of the
application of the provisions in the schedule.
The Explanatory Memorandum states that the financial impact of
the schedule is nil.[33]
The purpose of the provisions in schedule 3 is
to ensure that the recent amendments[34] to the GST concerning payments to
third parties to a taxable supply (third party payments)[35] result in appropriate
outcomes for GST groups, GST religious groups and GST joint
ventures.
The measure was announced with the Bill and had not been
previously announced.
Division 134, which commences operation on 1 July 2010,
implements recommendations of the Board of Taxation review in
relation to GST adjustments for payments made to and received by
third parties to a taxable supply.[36] The division provides for
either an increasing or a decreasing adjustment for third-party
payments in order to account for incorrect amounts of GST collected
on such transactions.
Schedule 3 of the Bill contains amendments
which will operate to ensure that Division 134 operates
appropriately in the case of third-party payments between entities
belonging to GST groups GST religious groups and GST joint
ventures.
The key items in the schedule are items 5
though 10, which amend section 134-5 (for
decreasing adjustments) and section 134-10 (for increasing
adjustments). The three parties to a third party payment are
the payee, the payer, and the intermediary (the third party).
Whether the adjustment applied is an increasing or a decreasing
adjustment depends upon which of the parties occupies which
role.
The Explanatory Memorandum includes an example of the effect of
the schedule.[37]Back to top
Schedules 2 and 3 of the Bill
are uncontroversial, the first being necessary to fulfil
obligations under an international agreement, the second being
necessary to avoid unintended consequences arising from another
GST-related measure.
Schedule 1, by contrast, contains changes which
will affect a significant cross-section of Australian businesses,
particularly transport subcontractors, and will broaden the GST
base by making transport and transport-related supplies to
non-resident firms in Australia subject to GST.
The Bill embodies the basic inclusionary principle of the GST,
which is to levy GST upon taxable supplies within and taxable
importations to Australia.[38]
Schedule 1 revises the current GST rules
related to import and export-related transport supplies and
ancillary services related to such supplies. The key specific
effects of schedule 1 are:
- GST is applied to the Australian leg of cross-border transport
supplies to non-resident entities which are in Australia
- GST is applied to loading or handling of goods in Australia
that is connected to such supplies
- GST is applied to services done in facilitating such
supplies
- GST is applied to insurance of such supplies
- GST is applied to services to arrange such supplies
- GST is applied more broadly to import-related transport within
Australia because of the redefining of ‘place of
consignment’ as the place goods are delivered, rather than
the port or airport of final destination
- GST is applied more broadly to freight container transport
because of the redefining of ‘place of export’ as the
place where export goods are collected from or delivered to prior
to being packed in freight containers, rather than the place where
the goods are actually packed into containers.
The Bill would appear to simplify GST-related compliance
activities of transport subcontractors who supply services such as
road, rail, air, pipeline and container transport by broadening the
categories of supply for which GST must be remitted and reducing
the number of GST-free supplies.
Table of cross-references to items in Schedule 1 of the Bill and
paragraphs of the Explanatory Memorandum, with description of the
nature of each amendment
|
Schedule 1
item
|
Explanatory
Memorandum paragraphs
|
Nature of
amendment
|
|
1
|
1.16
|
Inserts a new paragraph
after 13-20(2)(ba) after paragraph 13-20(2)(b)
|
|
2
|
1.35
|
Modifies subsection
13(20)(2A) in consequence of item 1
|
|
3
|
1.30
|
Repeals paragraph
13-20(3)(b) and substitutes new paragraphs (b) and (c)
|
|
4
|
1.22
|
Inserts new subsection (5)
at the end of section 38-190
|
|
5
|
1.21
|
Modifies section 38-355 in
consequence of item 9
|
|
6
|
1.21
|
Modifies table item 5 at
section 38-355 in consequence of item 9
|
|
7
|
1.21
|
Omits paragraph in table
item 5 at section 38-355 to give effect to provisions of the
schedule
|
|
8
|
1.27
|
Inserts new subsection 5A
into table at section 38-355
|
|
9
|
1.15; 1.21; 1.22; 1.23
|
Inserts new subsection (2)
at the end of section 38-355
|
|
10
|
1.36
|
Inserts new subsection
117-5(1)(ba) after section 117-5(1)(b)
|
|
11
|
-
|
Modifies subsection
117-5(1A) in consequence of item 10
|
|
12
|
1.29
|
Repeals definition of
‘international transport’ at section 195-1 and
substitutes new definition
|
|
13
|
1.16; 1.19; 1.34
|
Amends definition of
‘place of consignment’ in section 195-1
|
|
14
|
1.25; 1.26; example 1.1;
example 1.2; example 1.3; example 1.4; 1.34
|
Repeals definition of
‘place of export’ in section 195-1
|
|
15
|
-
|
Provides for continuity of
Commissioner’s determinations under paragraph 13-20(3)(b)
|
|
16
|
1.31; 1.32; 1.33
|
Applies the provisions of
the schedule from 1 July 2010
|
Members, Senators and
Parliamentary staff can obtain further information from the
Parliamentary Library on (02) 6277 2413.
This measure was
previously announced in both the 2007-8 and 2008-9 budgets but not
introduced to Parliament.
[35]. The classic
example of a third party payment is a rebate from a manufacturer of
goods to the eventual consumer of a supply of those goods who bears
liability for the GST on the supply.
John Murray
23 June 2010
Bills Digest Service
Parliamentary Library
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