Peter Costello

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Amendments to the Goods and Services Tax Act and Related Legislation


Amendments to the Goods and Services Tax Act and Related Legislation

Today I announce several measures which will be incorporated into the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) and related legislation to provide certainty in relation to policy already announced and to improve the technical operation of some provisions.

These measures arise from the extensive information and community education program embarked upon by the Government, comments from the New Tax System Advisory Board, and detailed examination of the law through the Australian Taxation Office’s rulings process.

The measures ensure that the legislation is consistent with the Government's original intentions.

There are no revenue consequences of these measures.

The Government will bring forward an amending Bill for passage in the Winter Sittings to enact these and other more minor changes to the GST Act.

An outline of the amendments is attached to this document.

3 May 2000

Contact: David Alexander (Tax Reform Legislative Unit) 02 6277 6390
Rob Heferen (Treasury) 02 6263 4351

Amendments to the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)

Charities – more flexibility for fund-raising activities

The GST Act will provide the Commissioner of Taxation the power to issue guidelines to specify fundraising events of charities which can be treated as input taxed. These fundraising events may include a fete, ball, gala show, dinner performance or similar event. The event must be separate from and not forming any part of a series, or regular run, of like, or similar events. It may also include an event that involves the sale of small fundraising items such as flowers, confectionery and chocolates (not alcoholic beverages or tobacco products), provided the charitable entity is not in the business of making such supplies. It will include events such as ‘Daffodil Day’, to make clear such activities are not to be subject to GST.

Where the fundraising event does not meet this description, a charitable entity may make a request to the Commissioner to apply his discretion to treat an activity as input taxed. In applying his discretion, the Commissioner would need to have broad regard to whether the charitable entity is in the business of making such supplies. Establishing whether a particular activity or series of activities constitutes a business is a factual matter and the Commissioner will have power to decide on a case by case basis. In addition, the Commissioner must be satisfied that the fundraising is genuine and the proceeds are for the direct benefit of the charity.

Education-related goods

The Government will ensure that the education provisions of the GST Act make the lease or hire of goods by pre-schools, primary schools and secondary schools to students GST-free, provided the school retains property of those goods. To qualify for this treatment, there cannot be any transfer, or agreement to transfer ownership of the goods to any student at any stage and the supply must be directly and principally for use by that student in a GST-free education course supplied by the school.

Insurance – notification requirement

Insured entities are required to notify the insurer of the extent to which they are entitled to an input tax credit on insurance premiums when the policy is taken out. At the request of the Insurance Council of Australia, the Government will amend the GST Act to ensure that the notification requirement is more flexible to allow notification at any time at or before a claim is first notified to the insurer.

Application of GST to Livestock Sales

The Government will amend the GST Act to make the delivery of livestock to a processor a taxable supply. This confirms the Government’s policy in respect of food to ensure that, as far as practicable, farmers should be in a position to sell their produce subject to GST.

Exported Services and supplies connected with Australia made by non-residents

The Government’s intention is that services provided to businesses overseas should not be subject to GST. Consultations have identified some circumstances where the service provided to the overseas business is directly related to goods that are located in Australia. In the absence of an amendment, the result would be that the service would be subject to GST. For example, if a business in Australia provides a service to a non-resident client by testing the client’s products for the purposes of certifying that the products meet certain standards, then the service is currently taxable because it is directly related to goods situated in Australia.

To remedy this situation, the Government will amend the GST Act to ensure that such services are either GST-free or the overseas buyer can register for the GST and thereby be eligible for input tax credits.

Grouping for certain financial institutions

The Government will allow certain financial institutions to group under the GST grouping provisions by removing the requirement of joint and several liability for cases where the entity is statutorily barred from meeting this requirement.

Joint ventures

The Government will amend the GST Act to enable entities other than companies to join a GST joint venture, thereby reducing their compliance costs. Furthermore, the GST Act will also be amended to allow the operating company or entity to prepare a single GST return on behalf of all the joint ventures for which it is responsible.

Business Activity Statement

The Government will be amending the GST Act to support the Commissioner of Taxation’s recent statement on calculating GST liability. This will ensure that there are clear rules for the calculation,while providing flexibility to businesses to determine their GST liability in a manner that their systems will permit.

In addition, the Government will insert a generic provision to remove any doubt about legislative support for the Commissioner’s practice of not having cents returned by taxpayers in returns and the Business Activity Statement. The Government proposes to allow taxpayers to round down to the nearest dollar any amount in an approved form that is required by the form to be expressed in whole dollars.

Adjustment notes

Where a supplier of a taxable supply has issued a tax invoice in relation to a taxable supply, the supplier must, within 28 days of becoming aware of an adjustment, issue the recipient with an adjustment note. The Government is aware that some suppliers are unable to comply with the 28 days requirement for adjustment notes such as electricity and gas suppliers. To minimise compliance costs, the Government will amend the GST Act to give the Commissioner a discretion to extend the time within which an adjustment note should be issued.

Extending GST-free treatment to a wider range of sewerage-like services

The Government intended that all sewerage and similar services that consumers might use be GST free. The Government has been made aware of alternative waste removal systems that are not covered by the current GST free provision. Accordingly the Government will amend the GST Act to make these services GST-free.

'Borrowing' related expenditure

The Government will amend the GST Act to provide that input tax credits for expenses related to borrowing are not denied to registered businesses except where:-

  • the borrowing is undertaken by a financial institution or
  • where the borrowing is undertaken by the corporate treasury of a large business for the purposes of making other financial supplies.

For most businesses this will be achieved by excluding borrowing related expenses from the GST de minimis provision. The previously announced de minimis rule will provide that a registered entity can still obtain credits relating to input taxed financial supplies if the total amount of the credits:-

  • does not exceed $50,000, and
  • is less than 10 percent of the total input tax credits of the business.

(That is, if the input tax credits of an entity that relate to making financial supplies exceed $50,000 the input tax credits are denied. If they are $50,000 or less they are denied if they exceed 10 percent of the entity’s total input tax credits.)

An amendment will also be made to allow businesses that exceed the de minimis, input tax credits for borrowing expenses where the borrowing is directly related to making a taxable or GST-free supply. For example, where a large sum is borrowed to make a physical investment.

Agency arrangements

The Government has been informed by a number of industries that their agency arrangements provide compliance and administrative difficulties under a GST. The Government will examine more flexible arrangements in consultation with industry whilst maintaining the integrity of the system.

GST Act thresholds for clubs and hotels

Division 126 of the A New Tax System (Goods and Services Act) 1999 currently provides that gambling suppliers calculate their turnover based on the amount wagered, rather than on the gambling margin. This has unintended implications for a wide range of small to medium sized businesses such as clubs and hotels that provide gambling services, often through poker machines.

The Australian Hotels Association (AHA) considers that the gambling margin (i.e. the difference between the amount wagered and cash prizes paid out) is more closely related to the value of supplies used to measure the total turnover of other suppliers.

The AHA has sought an amendment to the GST Act so that the existing thresholds of $1 million for cash accounting and $20 million for quarterly remitting businesses are calculated by clubs and hotels with poker machines using the gambling margin, rather than gross amount wagered.

Importantly, the amendment has no impact on the GST liability of affected entities.

Amendments to the Transitional Arrangements

Stockpiling of alcoholic beverages

Two situations have been identified where wholesalers of alcoholic beverages will be able to avoid taxation in the transition to the new tax environment. Both situations result from the ability of wholesalers to hold WST free stock by quoting their sales tax number when purchasing from manufacturers.

Accordingly, the Government will amend the sales tax legislation to remove incentives to stockpile alcoholic beverages. This amendment will impose a sales tax liability on alcoholic products that will not be covered by the wine equalisation tax and that are held sales tax free (and in some cases, excise paid) for the purpose of sale or exchange at 30 June 2000. However, this amendment will not affect products that are still under Excise/Customs control.

Affected taxpayers will be able to claim, after 1 July 2000, part of the sales tax paid as a special GST credit under the GST transitional provisions.

Hierarchy between sections 11 and 12 of the GST Transition Act

Section 11 of the GST Transition Act deals with supplies of rights exercisable on or after 1 July 2000 and section 12 deals with periodic or progressive supplies (including rights). To clarify the application of the Transition Act where rights are provided on a periodic or progressive basis, the Government will ensure that in these cases section 12 has precedence over section 11.

3 May 2000

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