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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: Treasury
Commencement: 1 July 2000
Purpose
To impose the tax
that is payable under the GST law, within the meaning of the A
New Tax System (Goods and Services Tax) Act 1998.
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.
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. 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 Constitutional Restrictions on
Federal Income Tax Law Create Necessity for Separate Taxation
Acts
The Commonwealth Parliament derives its powers
from the Commonwealth of Australia Constitution Act. Its
power with respect to taxation is found in section 51, Placitum
(ii), which states that the 'Parliament shall, subject to this
constitution, have power to make laws for the peace, order, and
good government of the Commonwealth with respect to: - (ii)
Taxation; but so as not to discriminate between States or parts of
States.'
Other provisions in the Constitution affect the
power to tax, including section 55. Section 55 reads 'Laws imposing
taxation shall deal only with the imposition of taxation, and any
provision therein dealing with any other material shall be of no
effect.'
Accordingly the convention of separate Acts for
those dealing with the subject of tax, its assessment and
collection and those imposing the tax, is actually a legislative
requirement pursuant to section 55 of the
Constitution.
Section 55 continues to state that 'Laws
imposing taxation, except laws imposing duties of customs or of
excise, shall deal with the subject of taxation only; but laws
imposing duties of customs shall deal with duties of customs only,
and laws imposing duties of excise shall deal with duties of excise
only.'
Thus it is necessary for laws imposing the GST
to be separated into three Acts. One Act imposing taxation, a
second Act imposing duties of customs and a third Act imposing
duties of excise.
The following bills will impose the GST if
enacted: -
-
- 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
Main
Provisions
1.0 Imposition
Subclause 3(1) states that the
tax that is payable under the GST law(1) (within the meaning of the
A New Tax System (Goods and Services Tax) Act 1998) is imposed by
this section under the name of goods and services tax (GST).(2)
Subclause 3 (2) imposes the GST
only so far as it is neither a duty of customs nor a duty of excise
within the meaning of section 55 of the Constitution.
Please refer to the discussion above at paragraph 3.0 for further
information in relation to this issue.
2.0 Rate
Clause 4 imposes the rate of
the goods and services tax payable under the A New Tax System
(Goods and Services Tax) Act 1998 at 10 per cent.
3.0 State Property
Clause 5 ensures that the
legislation imposing the GST does not apply to property of any kind
belonging to a State.(3) The Territories are not included within
the ambit of this section. Please refer to 'Concluding Comments'
for further discussion on this topic.
Concluding Comments
1.0 The Constitution does not protect the States from a
GST on transactions which affect its property unless the tax can
truly be characterised as a tax on the ownership or holding of
property
Section 114 of the Constitution (4) is
one of the few sections in the Constitution defining the
nature of intergovernmental immunities. It prevents the
Commonwealth Parliament from legislating so as to tax property of
any kind belonging to a State. The definition of a 'State' does not
include a Territory.(5)
Judicial decisions appear to have adopted a
narrow interpretation of section 114 so as only to protect the
States against a tax imposed by reason of the ownership or holding
of property. (6)
This approach has led the High Court to decide,
for example, that section 114 did not prevent the Commonwealth from
taxing car and housing fringe benefits provided by the State to its
employees. This is because section 114 'protects the property of a
State from a tax on the ownership or holding of property but it
does not protect the State from a tax on transactions which affect
its property, unless the tax can truly be characterised as a tax on
the ownership or holding of property.'(7)
Thus section 114 does not afford the States with
protection from a GST in relation to every form of transaction to
which a State is a party. It is restricted to prohibiting the
imposition of a goods and services tax where such a tax is
characterised as one on the ownership or holding of property.
2.0 Naming of GST bills
From a practical perspective, the titles of all
GST Bills 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. Presumably, the title has been used to make
it easier for the Parliament to identify those Bills which form
part of the GST package. The use of lengthy titles may, however,
cause some problems for practitioners who will be referring to the
legislation in later years.
Endnotes
- A New Tax System (Goods and Services Tax) Act
1998
GST law means:
(a) this Act; and
(b) any Act that imposes GST; and
(c) the A New Tax System (Goods and Services Tax Transition)
Act 1998; and
(d) the Taxation Administration Act 1953, so far as it
relates to any Act covered by paragraphs (a) to (c); and
(e) any other Act, so far as it relates to any Act covered by
paragraphs (a) to (d) (or so much of that Act as is covered);
and
(f) regulations under any Act, so far as they relate to any Act
covered by paragraphs (a) to (e) (or so much of that Act as is
covered).
- A New Tax System (Goods and Services Tax) Act
1998
GST means tax that is payable under the GST law and imposed as
goods and services tax by any of these:
(a) the A New Tax System (Goods and Services Tax
Imposition-General) Act 1998; or
(b) the A New Tax System (Goods and Services Tax
Imposition-Customs) Act 1998; or
(c) the A New Tax System (Goods and Services Tax
Imposition-Excise) Act 1998.
- Property of any kind belonging to a State has the same
meaning as attributed to it by judicial interpretation in respect
of section 114 of the Constitution. It is not actually
defined in section 114.
- Section 114: A State shall not, without the consent of
the Parliament of the Commonwealth, raise or maintain any naval or
military force, or impose any tax on property of any kind belonging
to the Commonwealth, nor shall the Commonwealth impose any tax on
property of any kind belonging to a State.
- The Constitution, section 6
- South Australia v Commonwealth (1992) 174 CLR235,
248.
- Queensland v Commonwealth (1987) 162 74, 98.
Lesley Lang and Simon Lang
21 January 1999
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