Bank Account Transaction Taxes: 'FID' and 'BAD'
David Kehl
Economics, Commerce and Industrial Relations Group
18 September 2001
The purpose of this Research Note is to summarise recent changes in the application of two bank account transaction taxes levied by State and Territory governments.
Bank account debits (BAD) tax is levied on the value of debits to accounts with cheque drawing facilities.
Prior to its abolition on 1 July 2001, financial institutions duty (FID) was levied on the value of receipts on financial institutions, and on the average daily liabilities of short-term money market dealers.
Abolition of FID & BAD
In August 1998, as part of its tax reform package, the Government announced its desire for the FID and BAD taxes to be abolished.(1) The plan was for these taxes to be repealed as a condition for the States and Territories to receive all of the revenue from the Goods and Services Tax (GST).
The Inter-governmental Agreement on the Reform of Commonwealth-State Financial Relations of 13 November 1998 provided for the FID and BAD taxes to cease to apply from 1 January 2001.
The Government's agreement of 28 May 1999 with the Australian Democrats ensured the passage of the GST and related Bills through the Senate on the condition that food was not subject to GST. This exclusion reduced the revenue raised by the GST. To make up for the loss of GST revenue, the Government agreed that the repeal of certain State and Territory taxes be deferred.
The revised Inter-governmental Agreement was signed in June 1999 and took effect from 1 July 1999. As a consequence, FID was abolished on 1 July 2001 and BAD tax was scheduled for repeal from 1 July 2005, subject to review by the Ministerial Council.
On 29 May 2001, the NSW Government announced it intention to abolish BAD tax in NSW from 1 January 2002, provided that it obtains an assurance from the Federal Government that it will not be financially disadvantaged by the early abolition. No assurances have been given to date.
FID
FID was imposed in all states and Territories, except Queensland, under the following Acts:
- Stamp Duties Act 1920 (NSW)
- Financial Institutions Duty Act 1982 (Vic)
- Financial Institutions Duty Act 1983 (WA)
- Financial Institutions Duty Act 1983 (SA)
- Financial Institutions Duty Act 1986 (Tas)
- Financial Institutions Duty Determination 1992 (ACT)
- Financial Institutions Duty Act 1989 (NT).
The basic rate per receipt was 0.0006 per cent, except in South Australia where it was 0.00065 per cent.(2) The maximum FID per receipt was $1200 except in the Northern Territory where it was $1500.(3)
BAD Tax
The Commonwealth levied the BAD tax under the Debits Tax Act 1982 and the Debits Tax Administration Act 1982 until 1 January 1991. From that date, the Commonwealth transferred BAD tax to the States and Territories under the Debits Tax Termination Act 1990. BAD tax is imposed under the following Acts.
- Debits Tax Act 1990 (NSW)
-
Debits Tax Act 1990 (Vic)
-
Debits Tax Act 1990 (Qld)
- Debits Tax Act 1990 (WA)
- Debits Tax Act 1990 (SA)
- Debits Tax Act 1990 (Tas)
-
Debits Tax Act 1997 (ACT)
- Debits Tax Act 1990 (NT)
BAD tax is imposed at uniform rates by each State and Territory with the exception of Tasmania (whose rates are half the other States) and the Northern Territory (where the lowest rate is half the other States'). The rates and their thresholds are provided at Table 1.
Revenue from FID & BAD
Revenue raised by FID and BAD tax increased from $468 million in 1984-85 to $2.24 billion in 1999-00. Graph 1 shows this growth.
The growth in revenue since the early 1990s is due, in part, to the increased rates of FID that applied in NSW, Victoria, WA and Tasmania from late 1990.
Table 1: Debits Tax
|
Amount of withdrawal ($) |
NSW, Vic, Qld, SA, WA, ACT, NT
Amount of tax ($) |
Tasmania,
Amount of tax ($) |
|
0-99 |
Nil |
Nil |
|
1-99.99 |
0.30 (0.15 - NT) |
0.15 |
|
100-499.99 |
0.70 |
0.35 |
|
500-4999.99 |
1.50 |
0.75 |
|
5000-9999.99 |
3.00 |
1.50 |
|
10000 and above |
4.00 |
2.00 |
Source: Australian Tax Practice, Australian Tax Handbook 2001, p. 2096.
Source: Australian Bureau of Statistics, Taxation Revenue Australia, Catalogue No. 5506.0, various issues
1. The Hon. Peter Costello, MP, Treasurer of the Commonwealth of Australia, Tax reform: not a new tax, a new tax system, Canberra, 1998, p. 74.
2. Australian Tax Practice, Australian Tax Handbook, Sydney, 2001, p. 2096.
3. ibid.
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