Bills Digest No. 74   A New Tax System (Goods and Services Tax Transition) Bill 1998


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

Date Introduced: 2 December 1998

House: House of Representatives

Portfolio: Treasurer

Commencement: The day after the day that the last of the following Bills

receives Royal Assent:

  • A New Tax System (Goods and Services Tax) Bill 1998
  • A New Tax System (Goods and Services Tax Administration) Bill 1998
  • A New Tax System (Goods and Services Tax Imposition - General) Bill 1998
  • A New Tax System (Goods and Services Tax Imposition - Customs) Bill 1998
  • A New Tax System (Goods and Services Tax Imposition - Excise) Bill 1998.

Purpose

This Bill will provide for the transition from a Wholesale Sales Tax (WST) regime to a Goods and Services Tax (GST) regime.

The transitional measures will perform the following primary functions:

  1. Provide rules for determining whether WST or GST will apply, particularly for those situations where transactions or events span the GST implementation date of 1 July 2000.

  2. Mitigate some of the effects of anticipated market distortions that will or might otherwise have occurred during the transition period leading up to the implementation of a GST.

  3. Provide provisions of an administrative nature to facilitate the implementation of the GST system and the changeover from the WST system.

  4. Allow a special credit against subsequent GST liability for WST embedded in stock on hand at the date of implementation of the GST system.

Background

1.0 Recent History

On 13 August 1998 the Government released details of its long awaited tax reform plan, embodied in the publication entitled Tax Reform: not a new tax, a new tax system (Tax Reform Plan).

A key aspect of the Tax Reform Plan is the introduction of a Goods and Services Tax to replace the current Wholesale Sales Tax, as well as a number of State indirect taxes. The Tax Reform Plan as a whole formed a major component of the Government's policy platform leading up to the Federal election held on 3 October 1998.

The Tax Reform Plan foreshadowed a targeted consultation process to assist in determining the final design of five key matters relating to the proposed GST, they being the GST-free areas of health, education, religious services and the non-commercial activities of charities, and the special transitional arrangements for motor vehicles.

That consultation process was undertaken by the Tax Consultative Committee, chaired by Mr David Vos, a tax partner at PricewaterhouseCoopers, which was appointed by the Treasurer on 26 October 1998. The Committee's report was presented to the Treasurer on 13 November 1998 and the recommendations therein taken into account in drafting the legislation now before the Parliament.

Following the Governments re-election, a package of 16 Bills were introduced on 2 December 1998 to implement a GST as well as some of the other tax reform measures contained in its Tax Reform Plan. Six of those Bills introduce the GST, namely:

  • A New Tax System (Goods and Services Tax) Bill 1998
  • A New Tax System (Goods and Services Tax Administration) Bill 1998
  • A New Tax System (Goods and Services Tax Transition) Bill 1998
  • A New Tax System (Goods and Services Tax Imposition - General) Bill 1998
  • A New Tax System (Goods and Services Tax Imposition - Customs) Bill 1998, and
  • A New Tax System (Goods and Services Tax Imposition - Excise) Bill 1998.

2.0 GST Overview

The GST proposed is a broad-based indirect tax on final private consumption in Australia. It will tax the consumption of most goods, services and any other things, including things imported into Australia, but not to consumption outside Australia. The GST rate proposed is 10%.

The GST is based on the Value Added Tax (VAT) system, which has been adopted by nearly all OECD countries and more than 80 others around the world. The GST concept of taxing final private consumption is achieved by:

  • imposing tax on supplies made by entities registered for GST purposes, and
  • allowing those entities to claim a full credit for any GST they have paid on business purchases (or inputs). Such credits will be known as input tax credits.

Consistent with other GST and VAT regimes, there will be two types of non-taxable supplies, 'GST-free' and 'input taxed', known in most other countries with a GST or VAT as 'zero rated' and 'exempt' respectively.

GST-free supplies will not be taxed and input tax credits will be allowed on things acquired to make the supply. The main activities that will be GST-free include exports, certain expenditure by tourists, health and medical care, education, childcare, charitable activities and religious services.

Input taxed supplies will similarly not be taxed, however no input tax credits will be allowed on things acquired to make the supply. The main activities that will be input taxed are financial services and residential rents.

The main Bill implementing the GST is the A New Tax System (Goods and Services Tax) Bill 1998 (GST Bill). The Bills Digest for that Bill will contain a more detailed history of events leading up to the introduction of the GST and, naturally, a detailed account of how the proposed GST will operate.

3.0 Transition to a GST

In order to provide certainty of taxpayers' obligations and to avoid the possibility of double taxation, or even no taxation, transitional measures enabling the determination of the tax system applying to any given transaction or event are absolutely necessary and the Bill attempts to address this issue.

Of equal importance is the provision made in the Bill for the allowance of a special GST credit for WST embedded in the price of stock on hand at the start of 1 July 2000, without which, inappropriate double taxation would result.

In addition to the above measures, the Bill contains provisions designed to alleviate some of the potential market distortions, resulting from changes in buyer behaviour, that will or might otherwise have occurred during the transition from a WST system to a GST system.

The two main product areas targeted are:

  • those goods currently subject to 32% WST, such as televisions, video recorders, radios, watches and cameras, which will be taxed at 22% from the date the GST Bill receives Royal Assent, and
  • motor vehicles, the GST input tax credits for which will be phased in over the two years following the GST implementation date of 1 July 2000.

The Government's rationale in the case of goods currently taxed at 32% is to lessen the likelihood of consumers delaying the purchase of such goods until after 30 June 2000. Similarly in the case of motor vehicles, which are currently subject to 22% WST, businesses may also have otherwise been more likely to delay vehicle purchases.(1)

Of necessity, the Bill provides various administrative provisions to facilitate taxpayer preparedness for the GST implementation date of 1 July 2000, essentially being those enabling entity registration for GST purposes and the cessation of WST obligations.

Main Provisions

1.0 Introduction

1.1 Commencement

Clause 2 provides for the commencement of the Bill, which has been dealt with at the beginning of this Digest.

1.2 Time of Supply

Clause 6 provides rules for determining the time of supply or acquisition of goods, real property, services and any other thing. These rules will provide the basis upon which a determination of the applicable tax system, GST or WST, can be made.

1.1.2 Supply of Goods

Sub-clause 6(2) provides that a supply or acquisition of goods will be made:

  1. when the goods are removed; or

  2. if the goods are not to be removed-when the goods are made available to the recipient; or

  3. if the goods are removed before it is certain that a supply will be made (for example, if the goods are given or taken on approval, sale or return, or similar terms)-when it becomes certain that a supply has been made.

1.1.2.1 Potential Anomalies

One possible concern relates to paragraph 6(2)(b). The inference to be drawn is that the provision will only apply if goods cannot be removed, either physically, by their very nature, or legally. What would happen where goods may be removed, but are not, and are made available to the recipient is uncertain. Deleting the words 'to be' in paragraph 6(2)(b) may therefore warrant consideration.

A second concern relates to paragraph 6(2)(c), which will cover situations where some event needs to occur before a supply crystallises. The examples given in the provision itself tend to indicate that it will extend to situations where some condition relating to the supply needs to be satisfied in order for a supply to crystallise.

The Explanatory Memorandum (EM) provides examples of the application of clause 6 at paragraph 1.10, which appear in part to contradict the above interpretation. The last three lines of example 1 seem to say that the rule in paragraph 6(2)(a) will apply regardless of the terms of trade, which may include a Romalpa clause, and/or delivery being on a free-into-store basis.

Many contractual arrangements for the supply of goods contain conditions that would render it uncertain as to whether those goods, at the time they are given over to a purchaser, will ultimately be transferred to that purchaser.

A 'Romalpa clause' is a case in point. Under a Romalpa clause, the seller reserves title or legal ownership over the goods until final payment has been made, and provides that if the goods are sold to a sub-purchaser, the purchaser is to account to the original seller for amounts outstanding.(2)

It would appear then that Paragraph 6(2)(c) could create a degree of uncertainty, contrary to the main purpose of the Bill, which is exacerbated by the apparent contradiction in the EM.

A third concern is that there appears to be an inherent conflict between paragraph 6(2)(a) and 6(2)(c). Paragraph 6(2)(a) states clearly and without exception that a supply is made when goods are removed. Paragraph 6(2)(c) however, by necessary implication, presupposes that goods can be removed without a supply having been or ever being made. Making paragraph 6(2)(a) subject to paragraph 6(2)(c) would avoid this apparent conflict.

1.2.2 Supply of Real Property

Sub-clause 6(3) provides that a supply or acquisition of real property will be made when the property is made available to the recipient.

1.2.3 Supply of Services

Sub-clause 6(4) provides that a supply or acquisition of services will be made when the services are performed. This rule is modified by clause 11, which provides a different rule for progressive and periodic supplies.

1.2.4 Supply of Any Other Thing

Sub-clause 6(5) provides that a supply or acquisition of any other thing will be made when the thing is performed or done. This rule is modified by clause 11, which provides a different rule for progressive and periodic supplies.

2.0 Start of GST

2.1 Start of GST

Clause 7 provides that GST will only be payable on a supply or importation to the extent that it is made on or after 1 July 2000.

Furthermore, entitlements to input tax credits or diesel fuel credits will only arise on an acquisition or importation to the extent that it is made on or after 1 July 2000.

2.2 Effect on WST

Sub-clause 8(1) provides that no sales tax will be payable on an assessable dealing to the extent that a supply or importation in respect of the dealing is made on or after 1 July 2000. This is because the supply will be subject to the GST system in accordance with clause 7.

As an assessable dealing for WST purposes may be subsequent to a supply or importation for GST purposes, sub-clause 8(2) provides, in effect, that where all or part of a supply or importation in respect of an assessable dealing is made before 1 July 2000, but the assessable dealing is on or after 1 July 2000, the time of the dealing will be taken to be 30 June 2000 for the purposes of determining any WST payable. This will be so despite the A New Tax System (End of Sales Tax) Bill 1998.

2.3 GST Registration Before 1 July 2000

Clause 9 provides that the GST registration procedures set out in the GST Bill will apply on and after a day determined by the Commissioner of Taxation, which should desirably be well before 1 July 2000 so as to provide sufficient opportunity to prepare for the implementation of the GST system.

However, registration will not be required in any event before 1 July 2000, although an application for registration may need to be made immediately before that date.

2.4 Invoice or Consideration Before 1 July 2000

Just as clause 8 will facilitate the accounting of WST for assessable dealings made on or after 1 July 2000 for supplies made before that date, clause 10 provides for the accounting of GST for invoices issued or consideration received before 1 July 2000 in respect of supplies made on or after that date.

Accordingly, for the purposes of determining the tax period to which GST or input tax credits are attributable, the consideration will be taken to have been received or provided, or the invoice taken to have been issued, during the first tax period after that day.

The first possible tax period in which a GST liability could arise is therefore that commencing on 1 July 2000.

3.0 Agreements Spanning 1 July 2000

3.1 Progressive or Periodic Supplies

Clause 11 in effect refines the general rules for determining which tax system applies to transactions or events relating to the supply of services or other things, excluding supplies of goods or real property, which are to be supplied over a period spanning 1 July 2000.

Clause 11 provides that where services or any other things (other than goods or real property) are:

  • supplied under an agreement or an enactment; and
  • to be supplied, expressly or impliedly, progressively or otherwise on a periodic basis, and
  • over a period spanning 1 July 2000,

then those services or things will be taken to be performed or done continuously and uniformly throughout that period.

The practical effect is that the time-based proportion of the total supplies under the contract made before 1 July 2000 will not be subject to GST. Furthermore, the proportion of supplies made on or after 1 July 2000, which will be subject to GST, will be accounted for on a similar time-based proportion basis in determining the relevant tax periods for those supplies.

3.1.1 Explanatory Memorandum Potentially Misleading

Paragraph 2.67 of the EM states that clause 11 'only' applies where the agreement 'specifically' provides that the supplies are to be made progressively or periodically. However, paragraph 11(1)(a) of the Bill states that the agreement may provide '(expressly or impliedly)' for the supplies to be made progressively or periodically.

3.2 Existing Agreements: No Opportunity For Review

3.2.1 Recipient of Supply Entitled to a Full Input Tax Credit And Agreement Made Before this Bill Receives Royal Assent

Clause 12 is a further refinement of the transitional rules discussed above. It provides for situations where written agreements have been made prior to the day on which this Bill receives Royal Assent.

Such agreements must be in writing and specifically identify a supply as well as the consideration in money, or a way of ascertaining the consideration in money, for the supply.

3.2.1.1 All Consideration NOT Paid Before 2 December 1998

Sub-clause 12(2) provides that a supply made with respect to an agreement covered by clause 12 will be GST-free to the extent that it is made before the earlier of 1 July 2005 or a 'review opportunity' occurring on or after the day this Bill receives Royal Assent.

3.2.1.2 All Consideration Paid Before 2 December 1998

Where all of the consideration with respect to an agreement covered by clause 12 was paid before 2 December 1998, the day the first six Bills introducing the GST were introduced into Parliament, sub-clause 12(3) provides that a supply made in respect thereof will be GST-free to the extent it is made on or after 1 July 2005 but before a 'review opportunity' occurring on or after the day this Bill receives Royal Assent.

Sub-clause 12(3) will effectively extend the GST-free status of supplies made beyond 30 June 2005, which are covered by sub-clause 12(2), where all the consideration for the agreement pursuant to which such supplies are made was paid before 2 December 1998.

3.2.2 Recipient of Supply NOT Entitled to a Full Input Tax Credit And Agreement Made Before 2 December 1998

Sub-clause 12(4) attempts to modify the earlier provisions of clause 12 to the following effect in situations where the recipient of a supply will not be entitled to a full input tax credit in respect of that supply.

In such situations, clause 12 will only apply where a written agreement has been made prior to 2 December 1998, as opposed to prior to the date this Bill receives Royal Assent.

Again, such agreements must be in writing and specifically identify a supply as well as the consideration in money, or a way of ascertaining the consideration in money, for the supply.

3.2.2.1 All Consideration NOT Paid Before 2 December 1998

Sub-clause 12(2) is modified in that a supply made with respect to an agreement covered by clause 12 will be GST-free to the extent that it is made before the earlier of 1 July 2005 or a 'review opportunity' occurring on or after 2 December 1998, as opposed to on or after the day this Bill receives Royal Assent.

3.2.2.2 All Consideration Paid Before 2 December 1998

Sub-clause 12(3) is modified in that where all the consideration with respect to an agreement covered by clause 12 is paid before 2 December 1998, a supply made in respect thereof will be GST-free to the extent it is made on or after 1 July 2005 but before a 'review opportunity' occurring on or after 2 December 1998, as opposed to on or after the day this Bill receives Royal Assent.

3.2.3 Interpretation Concerns with Sub-clause 12(4)

This provision raises a number of concerns. One of these is the possibility of its validity being called into question for the reasons discussed in paragraph 3.2.3.1 below, and possibly for those in paragraph 3.2.3.2. Other potential shortcomings are noted in paragraph 3.2.6 below.

3.2.3.1 Reconstruction of Legislation Required by an Affected Entity

Sub-clause 12(4) states in part '..., treat the references in paragraphs (1)(b) and (2)(b) to the day of Royal Assent as references instead to 2 December 1998.'

Although the provision might be said to adequately convey its meaning and purported effect, it nevertheless remains unclear exactly what wording is to be substituted in each of the provisions referred to therein. An entity potentially affected by clause 12 will be left, therefore, to self-construct the wording of sub-clauses 12(1)(b) and 12(2)(b), resulting in doubt as to what the law actually says.

3.2.3.2 Onus on Supplier to Assess Recipient's Entitlement to Input Tax Credits

Sub-clause 12(4) states in part '..., if the recipient of the supply would not be entitled to a full input tax credit for it, ...'.

By necessity, this provision would place the onus on a supplier to self-assess the entitlements or otherwise of a recipient to an input tax credit. Rather than provide certainty of tax obligations, the provision may well prove to create uncertainty, and added complexity to commercial arrangements resulting from attempts to counter its effect.

3.2.4 'Review Opportunity'

Sub-clause 12(5) defines 'review opportunity' for the purposes of clause 12 as follows:

review opportunity, for an agreement to which this section applies, means an opportunity that arises under the agreement to change the consideration directly or indirectly because of the imposition of GST or to conduct a general review, renegotiation or alteration of the consideration.

3.2.5 Rationale for Clause 12

The Rationale for clause 12 can be gleaned from the Treasurer's second reading speech for the A New Tax System (Goods and Services Tax) Bill 1998.

The Treasurer states that:

Many businesses will need to consider the GST implications of contracts that they enter into after today. The government recognises legitimate concerns that businesses will need some time to consider the precise impact on their operations. Businesses that enter into contracts with other businesses (which will be entitled to input tax credits) for the supply of goods and services, will provide those goods and services GST-free until the first opportunity for review, provided the contract is made before the date the GST legislation gets the Royal Assent.

However, and as indicated in the second reading speech, Sub-clause 12(4) will have the effect that GST will apply to goods and services supplied to recipients (for example, consumers) after 1 July 2000 under any contract entered into from 2 December 1998 where the recipient is not entitled to input tax credits.

3.2.6 Other Potential Concerns with Clause 12

As Mr Michel Evans, a tax partner at KPMG, is reported to have said, the Government appears to have failed to take into account the fact that many commercial leases are of up to 30 years in duration. Commercial landlords could be liable to 10% GST even for contracts entered into before 2 December 1998.(3)

3.3 Rights Granted for Life

Clause 13 is effectively a modification of clauses 11 and 12, for this particular situation. It provides that where:

  • services or any other things (other than goods or real property) are supplied under an agreement or an enactment; and
  • the agreement provides, expressly or impliedly, that a right is to be granted or exercisable for the rest of an individuals life; and
  • the right is granted or first exercisable before 1 July 2000,

then so much of the supply as is made before 1 July 2000 will be taken to be made on 1 July 2000.

In other words, such supplies, although made before 1 July 2000, will be subject to GST and accountable in the first tax period commencing on 1 July 2000.

Sub-clause 13(3) provides, however, that where such an agreement is one to which clause 12 also applies, then:

  • sub-clauses 12(2) and (3) will not apply; and
  • the supply will be GST-free to the extent that the consideration for the supply is paid before the earlier of:
  • 1 July 2005; or
  • a 'review opportunity' occurring on or after the day this Bill receives Royal Assent or 2 December 1998, depending on whether or not the recipient of the supply will be entitled to a full input tax credit for the supply.

3.4 Funeral Arrangements Made Before 2 December 1998

Clause 14 essentially replicates sub-clause 13(3), appropriately modified. It provides that where, before 2 December 1998, an agreement was made for the supply of a funeral and the agreement is covered by clause 12, then:

  • sub-clauses 12(2) and (3) will not apply; and
  • the supply will be GST-free to the extent that the consideration for the supply is paid before the earlier of:
  • 1 July 2005; or
  • a 'review opportunity' occurring on or after the day this Bill receives Royal Assent or 2 December 1998, depending on whether or not the recipient of the supply will be entitled to a full input tax credit for the supply.

3.4.1 Minor Error in Explanatory Memorandum

A minor but inappropriate paragraph reference appears in the EM as it refers to a non-existent provision at paragraph 2.61.

4.0 Stock on Hand on 1 July 2000

4.1 Special GST Credit for Sales Tax Paid on Stock

The provisions of clause 15 are relatively self-explanatory and are adequately explained in the EM at paragraphs 3.1 to 3.18.

Briefly though, clause 15 will provide a special credit for GST purposes for goods on hand at the start of 1 July 2000, which are held for the purposes of sale or exchange (but not for manufacture) in the course of business.

The amount of the special credit will be equal to the amount of tax paid.

Clause 15 will not apply to second-hand goods or alcoholic beverages, which are to be subject to a different approach so as to effectively maintain their retail price, as announced in the Government's Tax Reform Plan.

4.2 Stock Later Applied for Private or Domestic Purposes

The provisions of clause 16 are relatively self-explanatory and are adequately explained in the EM at paragraphs 3.19 to 3.22.

Clause 16 provides that should assessable goods, within the meaning of the Sales Tax Assessment Act 1992, be applied for private or domestic purposes, they will become subject to GST.

4.3 Goods on Hand on Cessation of Registration

Clause 16 also provides that any assessable goods, within the meaning of the Sales Tax Assessment Act 1992, on hand on cessation of registration will be taxable supplies and accordingly be subject to GST.

4.3.1 Drafting Comment

Whilst there is probably no ambiguity, sub-clauses 16(3) and (4) may best be separated from sub-clauses 16(1) and (2) into a separate clause for the sake of clarity.

4.4 Second-hand Goods

Clause 17 will extend the operation of Division 66 of the GST Bill to second-hand goods acquired before 1 July 2000 provided they are held at the start of that day for the purposes of sale or exchange (but not for manufacture) in the ordinary course of business.

Division 66 of the GST Bill will allow input tax credits to be claimed for acquisitions of second-hand goods, even though GST will not be payable on the supply to the claimant, subject to certain limitations.

5.0 Special Transitional Rules

5.1 Construction Agreements Made Before 1 July 2000

As stated at paragraph 2.74 of the EM, clause 18 provides:

...a special rule for attributing the value of certain construction agreements which span implementation. The rule ensures that the value of the project is attributed across the term of the agreement on the basis of the value of the work and materials permanently incorporated in or affixed to the building or site. This effectively breaks the supply of the completed project into two portions - that which is not subject to GST and that which is.

The provision will apply to the extent that a supply of goods or real property is the construction, major reconstruction, manufacture or extension of a building or of a civil engineering work by the supplier, and the goods or real property are:

  • supplied in accordance with a written agreement made before 1 July 2000, and
  • made available to the recipient on or after 1 July 2000.

Sub-clause 18(5) provides for a valuation date later than 1 July 2000, which will effectively extend the GST-free period beyond that date where clause 12 applies to the agreement. This will ensure that the value of supplies made up to the review date or 1 July 2005, whichever first occurs, are treated as being GST-free.

However, a potential conflict would seem to arise between the provisions of clause 18 and sub-clause 12(3) where all of the consideration was paid before 2 December 1998. Sub-clause 12(3) will potentially extend the GST-free period beyond 30 June 2005 whilst clause 18 would seem to extend the period to a maximum of 30 June 2005.

5.1.1 Potential Problems

5.1.1.1 Major Reconstruction

No definition or explanation as to what constitutes 'major reconstruction' referred to in sub-clause 18(1) is provided.

5.1.1.2 Civil Engineering Work

No definition or explanation as to what constitutes 'civil engineering work' referred to in sub-clause 18(1) is provided.

5.1.1.3 Purported Application to Head Contractor Only

The EM at paragraph 2.76 states that clause 18 will only apply to the head contractor's agreement. However, the statutory construction required for this interpretation would seem to necessitate a substantial amount of emphasis being placed upon the second appearance of the word 'the' in sub-clause 18(1), which may well be beyond reasonable argument.

5.1.1.4 Potential Conflict Between Clauses 12 and 18

Refer to the discussion of sub-clause 18(5) at paragraph 5.1 above.

5.2 Phasing in of Input Tax Credits for Motor Vehicles

The provisions of clause 19 are relatively self-explanatory and are adequately explained in chapter 4 of the EM.

Clause 19 provides that input tax credits for sales of motor vehicles, detachable trailers for heavy prime movers, and specialised bodies for motor vehicles will be limited over a two year phase-in period, for certain businesses. No input tax credits will be available in the first year of the GST and only 50% will be available in the second.

Clause 19 will not apply to:

  • trading stock, unless held for hire
  • second-hand motor vehicles, trailers or bodies
  • a dealing in respect of which an exemption from WST would have been available had the WST system continued, or
  • a new motor vehicle, trailer or body provided by an insurance company in the settlement of a claim.

5.3 Insured Events Occurring Before 1 July 2000

Clause 20 provides that the settlement of an insurance claim will not be a taxable supply and no input tax credit will be available, to the extent that the event giving rise to the claim happened before 1 July 2000.

5.4 Gambling

Division 126 of the GST Bill will provide for the treatment of gambling under the GST system. It provides for a global accounting approach, and involves the identification of gambling supplies and gambling events.

Sub-clause 21(1) provides that where the 'gambling event', as defined in the GST Bill, occurs on or after 1 July 2000, all the gambling supplies associated with that gambling event will fall under the GST system. Any gambling supplies made before 1 July 2000, for example tickets purchased, wagers made or bets placed, will be taken to have been made on 1 July 2000 and subject to GST.

Sub-clause 21(2) provides that where the 'gambling event' occurs before 1 July 2000, the gambling supplies will not be subject to GST, and any prizes paid out in respect of that event will not be included in the calculation of the global gambling GST amount under clause 126-10 of the GST Bill.

6.0 Schedule 1 - Amendment of the Sales Tax Law

Goods currently subject to the 32% rate of WST, which are detailed in Schedule 5 to the Sales Tax (Exemptions and Classifications) Act 1992, are anticipated to fall considerably in price following the introduction of the GST.

To avoid consumers delaying purchases until after the introduction of the GST, the amendments proposed by Schedule 1 will spread the impact of reduced prices by effectively reducing the WST rate on such goods (excluding furs and jewellery) to 22% effective from the date the GST Bill receives Royal Assent.

The goods affected will include televisions, video recorders, radios, watches and cameras.

Analogous to the stock on hand provisions in clause 15, item 2 of Schedule 1 provides for a credit for stock available for sale on the day the GST Bill receives Royal Assent for which WST has been paid. The amount of the credit will be the difference resulting had the rate of WST been 22%.

6.1 Drafting Error

The note item 1 proposes to include at the end of sub-section 16(2) of the Sales Tax Assessment Act 1992 is incorrect in one minor respect. It is submitted that the words 'on or' should be inserted immediately before the word 'after' appearing in the proposed notation.

Concluding Comments

1.0 Removal of 2 December 1998 as a Critical Date

The date of 2 December 1998 will have significance for determining the outcomes of particular transactions and events affected by clauses 12, 13, 14 and 18, as discussed earlier.

Given electoral commitments and the composition of the Senate, the enactment of any GST legislation cannot be taken for granted.

Many businesses and individuals may take a similar view and as a result, not be addressing the issue of a GST and the potential impact on them arising from the measures in this Bill. This point was made by the Australian Society of Certified Practising Accountants' senior tax counsel, Mr Paul Drum, in a Media Release dated 15 December 1998.

The principle concern relates to the operation of sub-clause 12(4). Where the recipient of a supply is not entitled to a full input tax credit in respect of that supply, the concessions afforded by clause 12 will only apply where the agreement was made before 2 December 1998.

Agreements made on or after 2 December 1998 may therefore need to take into account the possibility of a GST being payable by allowing for such a charge to be made if and when any supply made pursuant to the agreement becomes taxable.

Furthermore, those businesses and individuals that are investigating the potential impact of this and the other GST Bills on their affairs may expend substantial amounts of money, possibly for no ultimate purpose.

Accordingly, it may be more appropriate to dispense with the critical date of 2 December 1998 in favour of the date this Bill receives Royal Assent, or alternatively and at the earliest, the date this Bill is passed by the Senate.

2.0 Explanatory Memorandum Headers

The headers on the pages of the EM to this Bill appear to be those relating, at least in part, to the A New Tax System (Goods and Services Tax Administration) Bill 1998 and are therefore inappropriate.

3.0 Naming of GST Bills

Presumably, the titles of the GST Bills have been used to make it easier for the Parliament to identify those which form part of the Tax Reform Plan package. From a practical perspective however, the titles appear to be unnecessarily lengthy and indeed cumbersome. The words 'A New Tax System' could be deleted from each title without affecting the relevance of the title to the particular piece of legislation.

Endnotes

  1. Costello, P., MP, 1998, Tax Reform: not a new tax, a new tax system, at p. 99.

  2. Romalpa clauses are so named due to the case of Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd (1976) 1 WLR 676; (1976) 2 All ER 552, which considered the validity of such contractual provisions.

  3. Lewis, S., and Dodson, L., 1998 Howard tax plan draws heavy fire, Australian Financial Review, 4 December 1998, at p. 5.

Contact Officer and Copyright Details

Simon Lang
25 January 1999
Bills Digest Service
Information and Research Services

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ISSN 1328-8091
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