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
Contact Officer and Copyright Details
A New Tax System (Goods and Services
Tax) Bill 1998
Date Introduced: 2 December 1998
House: House of Representatives
Commencement: 1 July 2000
The purpose of
the A New Tax System (Goods and Services Tax) Bill 1998 (the Bill)
is to introduce a 10% tax on goods and services.
A Goods and Services Tax:
A Goods and Services Tax (GST) is simply a tax
imposed on goods and services at the point of consumption. In other
words the final consumer of the goods or services pays a tax which
is calculated by reference to the value of the goods or services.
Dr Neil Warren, Associate Professor of Economics at the University
of New South Wales, offers a useful definition of a GST:
A GST is a tax which is levied on goods and
services consumed by domestic households. While the tax is
collected at each stage in the production and distribution process,
a credit is given for the GST on inputs and refunds are given for
GST on exports. As a result, only households bear the tax.
A GST is another name for the VAT (or value
added tax) and this tax is now levied in over 100 countries.(1)
Similarly, in Understanding Consumption
Taxes: Everyone's Guide, a VAT is defined as:
a multi-stage tax because it is levied at all
stages of production or sales, with rebates for tax paid on inputs.
Each business in the chain of production, from farmer and miner in
the primary sector, to manufacturer and processor in the secondary
sector, and wholesaler and retailer in the distribution sector,
charges tax at the appropriate rate on taxable sales. At the same
time, they receive tax rebates at the appropriate rate of tax on
inputs earlier in the production chain.
The net effect is that the final consumer (who
can claim no tax rebate) pays tax at the appropriate rate on final
Goods and Services Tax: A brief
Tax reform, and in particular the introduction
of a Goods and Services Tax (GST), was one of the key issues of the
1998 federal election campaign. On 20 September 1998, Prime
Minister Howard announced in the Policy Launch Statement: A
Stronger Australia that if returned to office in the
forthcoming elections, the Coalition government would abolish the
'hidden wholesale sales tax' and replace it with a 10% Goods and
Services Tax which is rebateable to businesses'. In cooperation
with the States and Territories nine other indirect taxes would be
abolished including, for example, Financial Institutions Duty and
stamp duty on leases and mortgages.
In launching 'A Fairer Tax System, with NO GST',
Labor's tax reform package on 27 August 1998, Opposition
Leader, Mr Beazley said that Labor's package did not 'have at its
heart a risky GST from an era when we thought jobs would grow
forever'. Mr Beazley stated further that the GST was now subject of
concern in the United Kingdom and Europe, where it originated,
'because of the ease with which it is evaded now, and the
increasing problems it will experience with the impact of
electronic commerce in the future.' Mr Beazley also said Labor's
tax package did not 'have at its heart the unfairness of a
However, the GST debate has a much longer
history in Australia and it long pre-dates the 1998 election
This Bills Digest briefly overviews the GST
debate in Australia from 1975 until the introduction of the
On 11 April 1972 the McMahon Coalition
Government announced a Committee would be established to undertake
a 'full-scale public inquiry ... into the operation of the tax
system'(3), and on 14 August 1972 Justice K Asprey, an Appeal Judge
on the New South Wales Supreme Court, was appointed to Chair the
Committee. The Coalition Government lost office and the Whitlam
Labor Government was elected on 2 December 1972. However, the Labor
Government 'confirmed the continuation of the Committee's
In preparing its report the Committee was to
have regard to, amongst other things, the impact of the then
existing tax system and any recommendations the Committee might
make on the social, economic and business organisation of the
community. Further, the Committee was to be mindful of the
desirability of the taxation system being 'so far as practicable'
fair, not unduly complex and administratively efficient.(5)
The Committee submitted its report, the Asprey
Report, on 31 January 1975. The Committee observed 'that in the
final evaluation of alternatives, appeal must be made to moral,
social and political judgments about which well-meaning and serious
men and women will always differ.'(6) It then made a number of
- the taxation of fringe benefits be strengthened(7)
- the introduction of an optional family unit basis of
- the introduction of a partial imputation company taxation
- the inclusion of foreign-source income in the taxable income of
a resident with the allowance of a credit for foreign tax(10)
- the introduction of a Capital Gains Tax,(11) and
- the introduction of 'a broad-based value-added tax and the
abolition of the wholesale sales tax.(12)
The introduction of GST was at the centre of the
Asprey Report recommendations. The Committee:
believes that the weight of taxation should be
shifted towards the taxation of goods and services and away from
the taxation of income. The Committee judges that, in combination
with the reforms it proposes in the taxation of capital and capital
gains, a strategy of change in this direction would in time go far
towards achieving the principal aims set for it in its terms of
In its discussion of the type of tax on goods
and services that ought to be adopted in Australia, the Committee
recommended that food and clothing should be taxed at the uniform
rate.(14) The Committee noted that exemptions should be kept to a
minimum as 'once they are allowed, a precedent is set and pressures
will develop to apply them on a wider scale.'
After considering a number of different types of
tax on goods and services available, the Committee recommended the
adoption of a value-added tax (VAT). The Committee briefly
summarised the key elements of such a tax:
It is a way of levying an ad valorem
[ie a proportion of the value of the goods] tax on final consumer
spending. The whole of the sales value of consumption goods and
services, less those that are specifically exempt, is taxed by
stages as the goods pass from one supplier to the next in the chain
of production and distribution. Each supplier pays the tax,
calculated at the VAT rate, on his sales during a period, claiming
as a deduction VAT invoiced to him during the period. The final
consumer, not being a supplier, bears the whole tax and can claim
The Committee noted that some countries exempt
government services but said that where competition exists between
a government supplier and a private supplier, the government
supplier should be liable for the VAT. The Committee also noted
that financial institutions are often exempt because of the
difficulties in applying the VAT to them. Further, while noting
that 'services rendered by schools, doctors, and hospitals are
often exempt,' the Committee said 'it could be argued that where
charges are made they should bear the VAT.'(16)
The Committee used a figure of 10% as an example
of a VAT rate, and noted that the introduction of a VAT should be
preceded by 'a lengthy government information campaign.'(17)
Following the re-election of a Labor Government
on 18 May 1974, the Governor-General in his Speech of 9 July 1974
had said that the Asprey Report recommendations 'will be taken into
account in this year's Budget when my Government will give urgent
consideration to the restructuring of the taxation system.'(18) In
the event, a GST was not introduced by the then Labor
Fraser Coalition Government
The debate over the introduction of a GST again
gathered momentum in the early 1980s. In a speech critical of the
Fraser Government's inquiry into the tax base mix the then
Opposition Leader, Mr Hayden said that the Government was
determined 'to introduce a broadly based indirect tax and it seeks
to masquerade that squalid little deal as a tax reform.' Mr Hayden
then described the Government's concept of tax reform 'as
comfortingly diverting and as entertaining as the prospect of a
weekend on a medieval rack.'(19) Mr Hayden said a broad based
indirect tax was a 'callously unfair form of taxation' that would
'tax the wealthy less and the rest of the community much more.'(20)
Further such a tax is 'horribly regressive' and people on 'more
modest incomes are going to contribute more relatively than people
on higher incomes.'(21) Reliance on indirect taxes would, Mr Hayden
continued, weaken the position of the States. Further, indirect
taxes are inflationary.
In a Ministerial Statement addressing taxation
reform on 12 March 1981, the then Treasurer, Mr Howard, explained
'why the Government decided a short while ago not to introduce a
broad-based indirect tax.'(22) He referred to his announcement in
November 1980 that a review of the tax system was to be undertaken
and in particular whether greater reliance should be placed on
general consumption taxes away from personal income tax. Three
options were considered:
- extending the existing wholesale tax to additional goods and
- a general retail sales tax, and
- a value-added tax imposed at all stages of production and
distribution of goods and services.(23)
Mr Howard said that 'a multi-stage VAT was
rejected fairly quickly because it would have imposed an enormous
paper work burden on both taxpayers and collecting
authorities.'(24) A general retail sales tax was also rejected as
it would have involved 'a very extensive licensing system, and the
necessity for a significant increase in the number of taxpaying
units', as well as increased administrative staff. Mr Howard said
that if the indirect tax base was to be broadened then 'the
simplest method would be to extend the existing wholesale sales tax
to some goods now exempt and to impose a tax on selected
However, Mr Howard continued stating that there
some difficulties with adopting that option. Should, for example,
'basic foodstuffs', 'prescribed medicines' and 'clothing' be
exempt? Should there be a different rate of tax depending on the
various goods and services taxed? Further, Mr Howard said 'it would
have been undesirable to tax public services such as those provided
by educational institutions and hospitals.'(26) Mr Howard also
noted that the Government was of the view that any move to a
greater emphasis on indirect taxes should be accompanied by a
reduction in personal income tax.
The fundamental reason underlying the
Government's decision not to proceed with a greater reliance on
indirect taxes 'was its concern at the impact on inflation and
inflationary expectations of any significant shift towards reliance
on indirect taxation.'(27)
In responding to Mr Howard's Statement, Mr
Willis noted that a indirect tax would be inflationary and
A move to greater indirect taxation would have
meant a less equitable tax system. The low and middle income
earners would have borne the brunt of an even higher proportion of
tax than they already bear.(28)
The Hawke Labor Government and
Reform of the Australian Tax System
The Hawke Labor Government was elected in March
In his Policy Speech on 13 November 1984, then
Prime Minister, Mr Hawke, stated that Labor would undertake a
'thoroughgoing review and reform of the entire tax system.' He said
that if the reform package includes a change in indirect taxes 'it
must be acceptable to the various groups in the Australian
community whose response will determine whether we can maintain
moderation in wage movements.' He proposed therefore 'to convene a
widely representative National Tax Summit during the third quarter
A draft White Paper, 'Reform of the Australian
Tax System' (RATS) was published in June 1985. The draft White
Paper states that it, along with the Taxation Summit, is the most
important step towards comprehensive tax reform since the Asprey
Report.(29) The draft White Paper made a number of recommendations
including, for example, the introduction of a capital gains tax, an
effective fringe benefits tax, and the introduction of a foreign
tax credit system for foreign source income.
The paper also discussed options for broadening
the indirect tax base. The paper noted:
There is a strong case for reforming the present
indirect tax system and changing the tax mix in favour of indirect
taxes, thereby enabling a substantial reduction in personal income
In replacing the wholesale sales tax with a
broad based tax the paper stated that the main choice was between a
Broadly Based Consumption Tax (BBCT) and a Value Added Tax (VAT).
The report favoured a BBCT over a VAT for the following
- all producers and distributors at each step in the chain of
production or distribution must be involved in tax collection while
a 'BBCT requires tax collections only at the point of final
- it is a moot point whether a VAT provides for fewer tax evasion
opportunities than a BBCT and experience overseas suggests that a
VAT is not free of tax avoidance problems, and
- the lead time for a VAT is longer than a BBCT.(31)
In relation to equity considerations the paper
noted 'a consumption tax cannot differentiate directly among
individuals on the basis of their income' and hence it is
'difficult to make such a tax consistently progressive in terms of
income.' However, the report did not consider that this need be a
major concern so long as adjustments were made in other
The report opposed the exclusion of necessities
such as food and clothing from the BBCT or for the imposition of
various different rates on different goods and services. The report
also stated that the 'BBCT would be introduced as part of an
overall approach to tax reform which would include, as its central
element, reductions in personal income tax, together with
compensation for people outside the income tax system.'(33)
'In principle the BBCT should apply to all goods
and services sold, with the proviso that any purchase for business
use (excluding for export) should be tax free.'(34) In short, the
BBCT would apply to goods for private use. Goods for business use
would not be taxed.(35) The report also stated that some goods and
services, for example, exports and education, would not be subject
to the BBCT, and that government entities carrying out non-business
activities could purchase goods and services free of tax.
The Government's preferred option - 'Approach C'
- was for the abolition of the wholesale sales tax, its replacement
being a single stage broad based consumption tax on goods and
services at the rate of 121/2 per cent.
The Taxation Summit held in 1985, however,
rejected 'Approach C', the Government's preferred approach.
In his Statement, 'Reform of the Australian
Taxation System', on 19 September 1985, the then Treasurer, Mr
Keating, said that although the reforms he was announcing did not
'include a broad based consumption tax of the kind proposed by the
Government at the July Tax Summit, they do represent the most far
reaching reform of the Australian taxation system to be undertaken
by a Government in living history.' Reforms to the tax system
included, for example, the introduction of a Capital Gains Tax and
a Fringe Benefits Tax, as well as changes to the wholesale sales
tax. In addition the reforms included cuts to income taxes.
In his Memoirs, former Prime Minister
Hawke noted that the issue of timing was an important consideration
in his Government's preference for 'Approach C' at the National Tax
Tax changes had to be considered, implemented,
and bedded down, all in the space of a three year Parliament. It
was, for example, a timing problem that prevented the Government
from opting in the White Paper prepared for the Taxation Summit of
1st July for the most efficient consumption tax. The
Government ended up preferring a retail sales tax and not the more
efficient value-added tax.(36)
Fightback!: It's your
On 21 November 1991 the then Opposition Leader,
Dr Hewson, released Fightback!: It's your Australia.
Fightback contained a 20 point plan to 'rebuild and reward
Australia'. Point 3, 'lower, fairer taxes' included, amongst other
things, a proposed 30% reduction in income tax, the abolition of,
payroll tax and petroleum product excise, a reduction in tax on
business, and the abolition of wholesale sales tax and its
replacement by a goods and services tax.
Fightback! proposed a 'single rate 15 per cent
Goods and Services Tax.' Fightback! also stated that the
rate would not be increased beyond 15% and that that guarantee
would be embodied in legislation. Further:
Some items will be 'zero-rated' as far as the
Goods and Services Tax is concerned. These items are health and
education services, government provision of non-commercial
activities (including local government rates), sale of a business
as a 'going concern', welfare, religious and charitable
institutions, and exports. Other items will be exempt from the tax
but input taxed. They are residential rents and construction, other
building construction, financial services, gambling and
Fightback! also stated that a
compensation package would accompany the introduction of a GST. For
example, all pensions would be increased by 8% and other social
security payments by 6%. Retirees over the age of 60 whose annual
income is less than $30,000 would receive a lump sum payment of up
to $2,500. In addition, Fightback! promised 'substantial
income tax cuts' and an increase in the tax-free threshold from
$5,400 to $7,000.
The Keating Labor Government was re-elected in
In April 1994 Dr Hewson announced that 'the
GST...is dead, and in that sense Fightback! is dead and
Mr Howard became Opposition Leader in January
1995 and in May 1995 he said that a GST was no longer Coalition
The Howard Coalition Government was elected in
In a press release issued on 13 August 1997,
Prime Minister Howard announced that his Government had directed
its Taxation Task Force to prepare options for tax reform. In
preparing options the Task Force was to ensure no overall increase
in the tax burden, that there should be significant decreases in
income taxes, that 'consideration should be given to a broad based,
indirect tax to replace some or all of the existing indirect taxes'
that there should be appropriate compensation for those 'deserving
of special consideration', and Commonwealth/State financial
relations should be addressed.
On 13 August 1998 the Howard Government released
its plan for tax reform: Tax Reform: Not a New Tax - A New Tax
System (ANTS). The key proposals in ANTS include:
- personal income tax cuts with reductions in marginal tax
- the tax free threshold increased from $5,400 to $6,000, with
greater increases for families
- a 4% increase in maximum rate of all income support payments
for pensioners and other social security recipients, and
- the imposition of a GST.
ANTS announced that the wholesale sales tax
would be abolished as well as nine State taxes, including for
example, Financial Institutions Duty, stamp duty and leases and
mortgages and 'bed taxes'. These taxes would be replaced with a 10%
broad based GST.
The Howard Government was re-elected for a
second term on 3 October 1998.
In the second reading speech to the A New Tax
System (End of Sales Tax) Bill 1998 on 2 December 1998, the
Treasurer, Mr Costello, stated that the 'bill abolishes the
wholesale sales tax.' Further the Treasurer said it was the
Government's approach to replace the complex and unfair wholesale
sales tax with 'a simpler and fairer broad based low rate indirect
The A New Tax System (Goods and Services Tax)
Bill 1998 was introduced into the House of Representatives on 2
December 1998. In the second reading speech to the Bill on 2
December 1998, Mr Costello said that the package of Bills
introduced on 2 December 1998 constituted 'the most comprehensive
reform of taxation in the history of Federation.' The Bills, Mr
will enact a broad based goods and services tax
that will be levied at 10 per cent and will start in July 2000.
Mr Costello stated:
This is a new tax system for a new century.
Today's legislation sweeps away an outdated, inefficient tax system
that does not serve the needs of the modern nation. The new tax
system re-writes Commonwealth-State financial relations. The new
tax system will lighten the burden of income tax for families and
average wage earners.
At the last election the government put this
plan to the people. And the people of Australia endorsed it. The
government asked for a mandate. And the people of Australia gave
Advantages and Disadvantages of
As the above overview demonstrates the
advantages and disadvantages of a GST have long been discussed in
Australia. An outline of what some consider the advantages and
disadvantages of a GST will therefore suffice.
- Allows considerable revenue to be raised. Cedric Sandford,
Emeritus Professor at the University of Bath states a VAT's 'wide
base means that a small rise in the tax rate generates considerable
- Adds to the stability of the Government's revenue base. For
example, if an employee loses his or her job, he or she stops
paying taxes. However that same employee must still spend (savings
or borrowings) in order to continue to live and hence the employee
continues to pay tax.(41)
- Reduces tax evasion and avoidance. For example, the GST
requires a substantial audit trail.
- Reduces the size of the 'black economy'. For example, more
enterprises need to be registered to obtain the benefit of a refund
or credit of the GST already paid by them.
- A GST is fairer than the wholesale sales tax, and
- Increases the competitiveness of Australia's export
Sandford concludes that a 'VAT is the most
efficient form of general consumption tax. Whilst it undoubtedly
has disadvantages, notably high compliance costs and
regressiveness, these can be minimised by appropriate policy
- A broad based single rate GST is regressive. Neil Brooks,
Professor of Law, Osgoode Hall Law School, Toronto, also notes that
'increasing consumption taxes has the perverse effect of increasing
the taxes that people pay at the stages in their lives when they
can least afford to pay, namely, when they are likely consuming
most of their income as opposed to saving it.' Therefore, Professor
Brooks continues people pay more tax when they are establishing
their families and when they are retired.(43)
- Short term inflationary pressures
- Experience overseas suggests that once introduced the GST rate
tends to rise
- High compliance and administrative costs, particularly for
small business. Damien Walsh, National Practice Leader, Indirect
Taxes, Arthur Andersen, notes that a GST 'has very high compliance
costs and those costs are borne exclusively by the business
community (and ultimately passed on to consumers).'(44) Walsh cites
as an example the production and sale of a loaf of bread from
grower to ultimate consumer, and observes:
[E]ven though the entire amount of GST that the
government ultimately receives is paid in a single transaction
between the consumer and the supermarket, the farmer, the transport
company, the bread baker will all have to introduce systems to
track and claim input credits and to pay output tax notwithstanding
that, at the end of the day, they have contributed absolutely
nothing to the revenue.(45)
Neil Brooks concludes:
The advantages of such a tax (a GST)-the
economic efficiency gains and the effect on international
competitiveness-would appear to be dubious or trivial at best. By
contrast, the adverse macroeconomic implications, the deadweight
loss such a tax imposes on the economy in the form of
administrative and compliance costs, the potential to increase the
size of the underground economy, and most importantly, its effects
in redistributing the payment of taxes from the rich to the
middle-class and the poor have been well documented.(46)
Clause 7-1 provides that GST is
payable on taxable supplies and taxable importations. Leaving aside
supplies that are exempt, either because they are GST free or input
taxed, a taxable supply is any supply made by a registered
supplier, or a supplier required to be registered, for
consideration (ie payment), in the course of an enterprise (eg. a
business, trade or profession) and the supply is connected with
Australia [clause 9-5]. A supply is, for example,
a supply of any good, or service, or the provision of advice
[clause 9-10]. An employee is not an enterprise
Clause 9-40 imposes liability
for payment of the GST on the person who supplies the taxable
Clause 9-70 provides that the
rate of GST on taxable supplies is 10% of the value of the taxable
supply. In other words, the purchaser of the supply is required to
pay an amount equivalent to the price of the supply plus an
additional 10% of that price to the supplier.
Division 11 provides that a registered
enterprise may claim a tax credit for the GST paid on those goods
and services acquired by the enterprise in the course of producing
or providing its goods or services.
Division 13 provides that GST is paid on
'taxable importations'. The Bill defines a taxable importation as
'an importation of goods into Australia, but only to the extent
that it is not a non-taxable importation' [clause
13-5]. Non-taxable importations are those imports that had
they been a supply, they would be GST exempt or input taxed or if
the goods are covered in Schedule 4 of the Customs Tariff Act
1995 [clauses 13-10 and 42-5].
Clauses 23-5 and
23-15, when read together, provide that
enterprises whose annual turnover is $50,000 or more (or $100,000
or more for non-profit bodies) must be registered under the Act.
Enterprises with an annual turnover of less than $50,000 may elect
to be registered [clause 23-10].
However, clause 144-5 provides
that enterprises which supply taxi travel are required to be
registered regardless of turnover.
Clause 27-5 provides that tax
periods are 3 monthly ending on 31 March, 30 June,
30 September or 31 December in any year. The amount of GST
payable is calculated by reference to a particular tax period.
Enterprises may elect to operate on one month tax periods
[clause 27-10] and the Commissioner may specify
tax periods of less than 3 months [clause 27-30].
The Commissioner may, however, determine that a tax period of one
month will apply for certain enterprises [clause
27-15]. For example, for enterprises with an annual
turnover in excess of $20 million, the tax period will be one month
Returns, payments and
Enterprises that are registered or required to
be registered must provide the Commissioner with a GST return for
each tax period, regardless of whether any GST is payable in that
period [clause 31-5].
GST returns may be lodged electronically
[clause 31-25] and must be lodged before the 21st
day of the month following the end of the tax period
[clause 31-10]. Enterprises whose annual return is
$20 million or greater must lodge returns electronically
Payment of GST
Clause 33-5 provides that where
the net amount for a tax period is greater than zero, the net
amount must be paid to the Commissioner on or before the 21st day
of the month following the end of the tax period. The net amount is
calculated by subtracting from the GST (all the GST the enterprise
is liable for the taxable supplies attributable to that tax period)
the input tax credits for that tax period [clause
Chapter 3 lists a number of supplies that are
GST free. No GST is paid on a GST free supply. However, the
provider of a GST free supply is entitled to claim an input credit
for any GST paid on any goods and services in the provision of that
Generally these supplies are health, education,
child care, export and other supplies for consumption outside
Australia, religious services, non-commercial activities of
charitable institutions, water and sewerage, supplies of going
concerns, transport (where an international element is involved),
precious metals, supplies through inwards duty free shops, grants
of freehold or long-term lease by governments, subdivided farm land
and cars by use for disabled people.
Medical services, with some exceptions such as
medical services rendered for cosmetic reasons, are GST free
[clause 38-5]. Further, other services, such as
nursing, physiotherapy and dental services are GST free
[clause 38-10]. A supply of a drug or medical
preparation is GST free if supplied on prescription and supply of
such drug or medical preparation is prohibited unless on
prescription or it is a pharmaceutical benefit for the purposes of
Part VII of the National Health Act 1953 [clause
Clause 38-55 provides that the
supply of private health insurance is GST free.
Clause 38-85 provides that the
supply of an education course (for example, a pre-school, primary
school, high school or university course) is GST free. Excursions
are also GST free if they directly relate to the curriculum and are
not predominantly recreational. The supply of food on an excursion
is not, however, GST free. In relation to tertiary courses, or a
Masters or a Doctoral course, the supply of accommodation as part
of the excursion is not GST free.
Clause 38-95 provides that
course materials are GST free.
Clause 38-100 provides that
supply of a membership of a student organisation is not GST
Child care supplied by a supplier registered
under the Childcare Rebate Act 1993 is GST free
Exports of goods
Subdivision 38-D provides for
the export of goods to be consumed outside Australia to be GST
free. However the goods are not GST free if the supplier re-imports
the goods into Australia [subclause
Religious services provided by a religious
institution, that are integral to the practice of that religion are
GST free [clause 38-220].
Non-commercial activities of charitable
Clause 38-250 provides that
where the supplier is a charity and it supplies the goods or
services for less than 50% of the market value (including GST) of
the supply then the supply is GST free.
Clause 38-255 provides that
second-hand goods, donated to a charity, and then supplied by that
charity are GST free. However the supply of such goods by the
charity are not GST free if the charity deals with the goods so
that they loose their original character [clause
Presumably if a person donates second hand
timber to a charity that assists the physically or mentally
impaired and those impaired persons use the timber to make
bookcases to be sold, the supply of those bookcases would, all
things being equal, attract the GST.
Clause 38-285 provides that the
supply of water is GST free providing it is not supplied in
containers of less than 100 litres.
Clause 38-290 provides that a
supply of sewerage services is GST free.
Supplies of going concerns
Clause 38-325 provides that the
sale of an enterprise as a going concern is GST free.
The supply of transport services that have some
connection or relationship external to Australia is GST free
[clause 38-355]. For example, the transport of a
passenger on the domestic leg of an international flight is GST
free as is transport of a passenger to or from Australia.
The first supply of a precious metal (eg. gold,
silver, platinum) after refining by the refiner is GST free where
the supplier is the refiner and the recipient deals in precious
metals for investment purposes [clause
Supplies through inward duty free
Clause 38-415 exempts from GST
supplies of airport shop goods at an inwards duty free shop to a
relevant traveller and where the goods are imported or excisable
Grants of freehold and long term leases
Clause 38-445 provides that a
supply of unimproved land by the Commonwealth, a State or a
Territory is GST free if the supply is of a freehold interest in
the land or by was of a long term (50 years) lease.
Subdivision of farm land
Clause 38-475 exempts from GST
the supply of farm land for residential sub-division where the land
is supplied to an associate without consideration or for
consideration that is less the market value of the supply. An
associate has the same meaning as in section 318 of the Income
Tax Assessment Act 1936 and includes for example a relative of
The reasons underlying the granting of an
exemption in circumstances where clause 38-475
apply are not clear.
Cars for disabled people
Subdivision 38-N distinguishes
between persons who were disabled as a result of service in the
'Defence Force or in any other armed force of Her Majesty', and
other disabled persons.
Clause 38-505 exempts the
supply of a car to a disabled veteran from GST where the veteran
intends to use the car for a two-year period for his or her
Clause 38-510 exempts from GST
the supply of a car to an individual who as a current disability
certificate certifying that he or she has lost the use of one or
more limbs to such an extent that he or she cannot use public
transport, and he or she intends to use the car for a period of two
years to travel to and from gainful employment.
The Explanatory Memorandum does not set out why
disabled persons are treated differently depending on when or how
the disabling injury was sustained.
Division 40 provides that certain goods and
services, although not GST free, are input taxed. Financial
supplies, residential rent, sale of residential premises and
precious metals (other than those precious metals GST free under
Subdivision 38-J) are input taxed.
This means that GST is not payable on the supply
of the above goods and services. However, goods and services
acquired by, for example, the supplier of financial services in the
course of supplying those financial services, are subject to GST.
Further, the supplier of financial services is not entitled to
obtain an input tax credit for the goods and services acquired to
supply the financial services.
Presumably the supplier of goods and services
that are input taxed either absorbs the GST paid on the inputs
itself, or passes the GST on to the final consumer by increasing
the cost on such goods and services.
Division 66 provides that an input tax credit
may be claimed by a registered entity when second hand goods are
obtained even though no GST was paid on those second hand goods.
However, an input tax credit cannot be obtained for second hand
goods where, for example, the goods were imported, or the goods
were supplied before 1 July 2000 [clause
Division 123 provides that a diesel fuel credit
is available where diesel fuel is acquired for 'creditable fuel
consumption' and the enterprise is required to be registered.
'Creditable fuel consumption' is defined as any consumption of
diesel or like fuel in carrying on an enterprise, excluding
consumption by a transport vehicle on a public road or consumption
in transport by rail [clause 123-15].
Division 165 provides that where the
Commissioner decides an entity has entered into a scheme with the
dominant purpose or principal effect of reducing GST or obtaining
some other similar benefit, the Commissioner may negate the benefit
and impose a penalty of the entity.
Clause 168-5 provides that if
you acquire goods in Australia and you pay GST on those goods and
you take those goods out of Australia with you as accompanied
baggage then the Commissioner must refund to you the GST.
The Bill imposes a tax at the rate of 10% on the
supply of goods and services by a registered entity. Taxable
importations are also subject to a GST of 10%.
Generally speaking an entity is required to be
registered if it is an enterprise with an annual turnover of
$50,000 or more. If an individual sells his or her second hand
exercise bike through the Saturday trading post, the bike is not
subject to GST as the individual is not required to be registered.
However, GST is payable on second hand exercise bikes sold by a
business selling second hand exercise bikes where that business has
a turnover in excess of $50,000.
An input tax credit is available to registered
suppliers who in the course of the supply a good or service must
themselves first acquire goods and services. For example, a plumber
is engaged to install a hot water system in domestic premises. The
cost to the owner of the premises of the installation of the hot
water system is $5,500 including GST. In order to install the hot
water system the plumber had to first purchase various pipes,
washers, water tanks, fuel to travel to the premises and so on. The
plumber would have paid GST on these purchases. However, the
plumber is able to obtain a tax credit for the GST on these inputs
acquired in order to enable the installation of the hot water
There are two types of exemption to the GST:
- Goods and services that are GST free, and
- Goods and Services that are input taxed.
Some goods and services are GST free. These
include, for example, the provision of education courses, water
(excluding water in containers of less than 100 litres), child care
Further, the provision of some goods and
services, for example, financial supplies, residential rent and the
sale of residential premises are input taxed. That is GST is paid
on the goods and services that go into the provision of the final
service which itself is not subject to the GST. For example, a
landlord rents a residential property to tenants (ie the landlord
supplies residential accommodation). During the course of the lease
there is a rupture in the plumbing. The landlord has the plumbing
repaired. The cost of the materials and the supply of the plumber's
services are subject to GST payable by the landlord. However the
landlord cannot claim a tax credit for these inputs which were
required in order for the landlord to supply the residential
The advantages and disadvantages of a GST have
been debated in Australia for at least 30 years. Leaving aside the
issues associated by the regressivity of a GST and the options
available to government to compensate those financially
disadvantaged by the tax, one of the important considerations in
the success of the GST will be the reception given by small
business to the increased compliance and administrative costs
associated with the tax. Further, only time will determine whether
the GST will in fact prove to be inflationary.
1. N. Warren, GST: The long, winding
road, Institute for Chartered Accountants, 1996, p. 7.
2. D. Collins and N. Warren, Understanding
Consumption Taxes: Everyone's Guide, Australian Tax Research
Foundation, Sydney, 1998, p. 23.
3. Taxation Review Committee, Full Report, 31
January 1975 (the Asprey Report), AGPS, Canberra, 1975, p.
4. Ibid., p. xix.
5. Ibid., p. xvii.
6. Ibid., p. 530.
7. Ibid. p. 531.
11. Ibid., p. 532.
13. Ibid., p. 530
14. Ibid., p. 515.
15. Ibid., p. 518.
16. Ibid., pp. 519-520.
17. Ibid. p. 520.
18. Hansard, Senate, 9 July 1974, p.
19. Hansard, House of Representatives,
26 November 1980, p. 63.
21. Ibid., p.64.
22. Hansard, House of Representatives,
12 March 1981, p. 758.
23. Ibid., p.765-66.
24. Ibid., p.766.
27. Ibid. p. 767.
28. Ibid. p. 770.
29. Reform of the Australian Tax System:
Draft White Paper, AGPS, Canberra, June 1985, p. 1.
30. Ibid., p. 126.
31. Ibid., p. 119.
33. Ibid., pp. 20-21.
34. Ibid., p. 21.
35. Ibid., p. 21.
36. B. Hawke, The Hawke Memoirs,
Heinemann, Melbourne, 1994, p. 300.
37. Fightback! Its your Australia, p.
38. L. Tingle and C. Stewart 'Hewson announces
Fightback manifesto "dead and buried"' Australian, 16
39. Hansard, House of Representatives,
2 December 1998, pp. 1087-1088.
40. C. Samford 'Why have so many countries
adopted a VAT?' in Binh Tran Nam (ed) Tax Reform and the GST:
An International Perspective, Sydney, 1998, p. 79.
41. D. Walsh 'Comment on "why have so many
countries adopted a VAT?"' in in Binh Tran Nam (ed) Tax Reform
and the GST: An International Perspective, Sydney, 1998, p.
42. C. Samford, op. cit., p. 79.
43. N. Brooks, 'Lessons for Australia from the
Canadian experience with the GST: Don't do it!' in Binh Tran Nam
(ed) Tax Reform and the GST: An International Perspective
Sydney 1998, p. 126
44. D. Walsh, op. cit., p. 82.
45. Ibid., p. 83.
46. N. Brooks, op. cit., p. 136.
Max Spry, Consultant
28 January 1999
Bills Digest Service
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