Bills Digest No. 97  1998-99 A New Tax System (Goods and Services Tax) Bill 1998

Numerical Index | Alphabetical Index

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.


Passage History
Main Provisions
Concluding Comments
Contact Officer and Copyright Details

Passage History

A New Tax System (Goods and Services Tax) Bill 1998

Date Introduced: 2 December 1998

House: House of Representatives

Portfolio: Treasury

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: Defined

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 consumption.(2)

Goods and Services Tax: A brief recent history

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 GST.'

However, the GST debate has a much longer history in Australia and it long pre-dates the 1998 election campaign.

This Bills Digest briefly overviews the GST debate in Australia from 1975 until the introduction of the Bill.

The Asprey Report

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 work.'(4)

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 recommendations, including:

  • the taxation of fringe benefits be strengthened(7)
  • the introduction of an optional family unit basis of taxation(8)
  • the introduction of a partial imputation company taxation system(9)
  • 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 reference.(13)

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 to deduction.(15)

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 Government.

Fraser Coalition Government Proposals

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 some services
  • 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 services.'(25)

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 said:

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 1983.

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 of 1985.'

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 tax rates.(30)

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 reasons:

  • 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 sale'
  • 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 areas.(32)

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 Summit:

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 Australia

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 lotteries.(37)

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 March 1993.

In April 1994 Dr Hewson announced that 'the dead, and in that sense Fightback! is dead and buried.'(38)

Mr Howard became Opposition Leader in January 1995 and in May 1995 he said that a GST was no longer Coalition policy.

The Howard Coalition Government was elected in March 1996.

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 rates
  • 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 tax'.

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 Costello continued:

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 it.(39)

Advantages and Disadvantages of a GST

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 income.'(40)
  • 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 industries.

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 measures.(42)


  • 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)

Main Provisions

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 [subclause 9-20(2)].

Clause 9-40 imposes liability for payment of the GST on the person who supplies the taxable supply.

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.

Tax Periods

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 [subclause 27-15(3)].

Returns, payments and refunds

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 [subclause 31-25(4)].

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 17-5].


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 supply.

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 38-50].

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 free.

Child Care

Child care supplied by a supplier registered under the Childcare Rebate Act 1993 is GST free [clause 38-140].

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 38-185(2)].

Religious Services

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 institutions

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 38-255].

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.

Precious metals

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 38-385].

Supplies through inward duty free shops

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 goods.

Grants of freehold and long term leases by governments

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 supplier.

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 personal transport.

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.

Input Taxed Supplies

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.

Second Hand Goods

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 66-5].

Diesel Fuel Credits

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.

Tourist refund scheme

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.

Concluding Comments

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 system.

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 and health.

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 accommodation.

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. xvii.

4. Ibid., p. xix.

5. Ibid., p. xvii.

6. Ibid., p. 530.

7. Ibid. p. 531.

8. Ibid.

9. Ibid.

10. Ibid.

11. Ibid., p. 532.

12. Ibid.

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. 7.

19. Hansard, House of Representatives, 26 November 1980, p. 63.

20. Ibid.

21. Ibid., p.64.

22. Hansard, House of Representatives, 12 March 1981, p. 758.

23. Ibid., p.765-66.

24. Ibid., p.766.

25. Ibid.

26. Ibid.

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.

32. Ibid.

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. 6.

38. L. Tingle and C. Stewart 'Hewson announces Fightback manifesto "dead and buried"' Australian, 16 April 1994.

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. 83.

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.

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