Revised Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Chapter 11 - Other amendments
11.1 This Chapter explains the amendments contained in Schedule 11 to this Bill. Schedule 11 contains a number of GST related minor policy and technical amendments to various Acts. The amendments are summarised in Table 11.1.
|Act amended||Amendment in relation to|
|ABN Act||Application to superannuation funds.
Supplies made by entities to members.
The treatment of certain partnerships.
|Customs Act||Low value postal importations.|
|GST Act||Supplies of livestock or game.
New residential premises.
Individuals and GST groups.
Associates of GST branches and government related entities.
Turnover of gambling supplies.
Reimbursement of partners.
Expenses paid on behalf of employees.
Supplies made by entities to members.
The treatment of certain partnerships.
Calculation of GST for mixed supplies.
Goods purchased in bond.
Complying superannuation funds.
|GST Transition Act||Application to rights.
Phasing in of input tax credits for motor vehicles.
|LCT Act||Campervans and motor homes.|
|TAA 1953||Joint and several liability.|
Amendment to the ABN Act
Application to superannuation funds
11.2 An amendment to section 5 of the ABN Act is required to insert a reference to superannuation funds. When the GST and ABN Acts were originally enacted, all super funds were thought to be entitled to an ABN and GST registration through the operation of the 'entity' and 'enterprise' definitions in both Acts, that is, ... a superannuation fund operating in the form of a business . As part of the ABN's purpose of replacing as many as possible other government registrations, superannuation fund numbers were also intended to be replaced. However, since the ABN and GST Acts' commencement a view has emerged that not all superannuation funds' operations could be considered to be in the form of a business .
11.3 Items 1 and 2 insert 'superannuation fund' in section 5 of the ABN Act to put beyond doubt the registration of superannuation funds for ABNs.
Amendments to both the ABN Act and the GST Act
11.4 The definition of 'enterprise' in section 9-20 of the GST Act and section 38 of the ABN Act was amended by A New Tax System (Indirect Tax and Consequential Amendments) Act (No. 2) 1999 to remove any doubt that mutual organisations were considered to be carrying on an enterprise even if they only made supplies to their members.
11.5 Item 2B amends section 38 of the ABN Act by removing subsection 38(3) and inserting new subsection 38(2B) . This amendment changes the term body to entity and also includes a reference to the activities being in the form of a business [new subsection 38(2B)] . The new subsection corrects incorrect numbering in relation to subsection 38(3). A similar amendment is made to subsection 9-20(3) of the GST Act [Item 3D] .
11.6 Item 3A also makes a consequential amendment to subsection 9-15(2B) of the GST Act using the wider term entity rather than body . This subsection makes it clear that payment made by members of an entity to that entity can be consideration.
Clarifying the treatment of partnerships
11.7 Individuals who are undertaking a hobby or private recreational pursuit are not carrying on an enterprise for ABN or GST purposes. They are not able to register for ABN or GST in relation to those activities. This means that they are not entitled to input tax credits and therefore bear the GST in relation to those activities.
11.8 For ABN and GST purposes, partnerships of individuals are separate and distinct entities from the individual members. An entity other than an individual cannot have a private recreational pursuit or hobby. Therefore, to prevent individuals from being able to register, and obtain input tax credits, in relation to hobbies or private recreational pursuits, the definition of enterprise for GST and ABN purposes provides that partnerships where all the members are individuals are not carrying on an enterprise if they do not have a reasonable expectation of profit or gain.
11.9 This exclusion can be avoided by including an entity other than an individual as a member of the partnership, such as a shelf company. This would allow individuals to avoid GST by obtaining input tax credits on a hobby or private recreational pursuit.
11.10 Item 2A amends paragraph 38(2)(c) of the ABN Act and item 3C amends paragraph 9-20(2)(c) of the GST Act to provide that partnerships, the members of which are principally individuals, are not carrying on an enterprise if they do not have a reasonable expectation of profit or gain.
Amendments to the GST Act
Complying superannuation funds
11.11 In formulating the GST, it was intended that superannuation funds would satisfy the definition of carrying on an enterprise and be able to register for GST. However, whether or not a superannuation fund is carrying on an enterprise will depend on the facts of each individual case. This could mean that there will be superannuation funds which cannot register for the GST.
11.12 Item 3B ensures that all 'complying superannuation funds' are carrying on an enterprise for GST purposes, thus making it clear that such funds can be registered for GST. Providers of financial services are entitled to register and claim reduced input tax credits for certain specified acquisitions. It was intended that all superannuation funds should be eligible for reduced input tax credits.
11.13 Item 12A inserts a definition of 'complying superannuation fund' into the GST Act.
Delivery of livestock or game
11.14 Livestock or game is not food, as defined by Subdivision 38-A, and its supply is not GST-free. Therefore, under the basic rules, the supply of livestock or game is a taxable supply.
11.15 Some arrangements for the delivery of livestock or game (for slaughtering or processing into food) state that title does not pass until after food has been produced. The purported effect of these arrangements is that the supply is postponed until it is a supply of food and GST-free under Subdivision 38-A. These arrangements are contrary to the Government's intention that, as far as practicable, farmers should be in a position to sell their produce subject to GST.
11.16 Item 3 inserts new subsection 9-10(3A) to make it clear that under these arrangements, the delivery of livestock is a supply under the GST Act. The supply takes place when delivery is made and not when title passes. It does not matter that the delivery is of livestock but the passing of title may relate to a carcass and by-products.
11.17 Therefore, any arrangement for the delivery of livestock or game for slaughtering or processing into food is a supply of livestock or game. It does not matter when title is relinquished under contract. This supply of livestock or game is a taxable supply. This will cover arrangements where, for example, livestock is either delivered to a processor directly or to another party who then has it processed.
Valuing mixed supplies
11.18 Section 9-80 of the GST Act provides the method for working out the value of the taxable part of a supply that is partly a taxable supply and partly a GST-free or input taxed supply. Items 4A and 4B correct this method to ensure that the value is correctly calculated. The value of the total supply is calculated as:
(Price * 10) / (10 + taxable proportion)
where taxable proportion is expressed as a decimal (e.g. 40% is 0.4). [New subsection 9-80(2)]
11.19 The value of the taxable part is calculated as the proportion of the value of the total supply that the taxable part represents (i.e. the taxable proportion).
Andrea makes a supply for a $104. The taxable proportion represents 40% of the total value of the supply. The value of the total supply is worked out as:
($104 * 10) / (10 + 0.40) = $100
New residential premises
11.20 Under the definition of new residential premises (residential premises that have not previously been sold), a property can be classified as new regardless of its age. Subsections 40-65(2) and 40-70(2) of the GST Act exclude a supply of new residential premises from being input taxed under subsections 40-65(1) or 40-70(1) respectively. However, the supply may nevertheless be input taxed under subsection 9-30(4), or alternatively, may be a taxable supply or a non taxable supply.
11.21 It was not intended that supplies of existing housing stock which may have been used for many years by the original owners for residential accommodation (either rental income production or for owner occupation) would be subject to GST as new residential premises when first supplied after 1 July 2000.
11.22 For example, when a State Housing Authority decides to sell a house that it has held for public housing for say, forty years, and which has not been previously sold, this supply will not be input taxed under subsection 40-65(1), and may not be input taxed under subsection 9-30(4). Such a supply, if not input taxed, would probably be a taxable supply. This was not intended.
11.23 Conversely, when a property developer constructs a new dwelling, and lets it prior to sale (it may only be rented for a period as brief as the period between exchange of contracts and settlement). Subsection 9-30(4) may apply to make the supply input taxed rather than taxable. This was not intended.
11.24 Items 7 and 8 replace the existing subsections 40-65(2) and 40-70(2) with new provisions which will restrict the operation of those subsections to new residential premises, but only if those premises were not used for residential accommodation before 2 December 1998. Under the new subsections, the sale of a house that had been rented or used as residential premises by the owner prior to 2 December 1998 will be input taxed.
11.25 Item 4 amends subsection 9-30(4) to ensure that that provision does not affect supplies of new residential premises. A supply will continue to be taken to be input taxed only if it is a supply that is used solely in connection with supplies that are input taxed but not financial supplies.
11.26 Subsequent events to a taxable supply or creditable acquisition may mean that an entity has paid too much or too little GST. In these cases an adjustment event may occur, and an adjustment may need to be made. Adjustments will either increase or decrease an entity's net amount for a tax period. Where the adjustment decreases the net amount, the entity will usually need to hold an adjustment note before attributing a decreasing adjustment to a tax period.
28 day rule
11.27 Subsection 29-75(2) of the GST Act sets out circumstances in which an adjustment note must be issued. If an entity has issued a tax invoice, or a recipient created tax invoice, in respect of a supply, it must issue an adjustment note within 28 days of becoming aware of the adjustment event (paragraph 29-75(2)(b)).
11.28 In some circumstances, such as where an electricity supplier reads a meter every 3 months, suppliers normal business practices may not comply with the requirement to issue an adjustment note within the required 28 days. New subsection 29-75(3) will allow the Commissioner to relax the 28 day time limit specified in paragraph 29-75(2)(b) in circumstances that the Commissioner determines.
11.29 However, where a recipient of a supply requests from a supplier an adjustment note for an adjustment relating to the supply, the supplier is obliged to give the recipient an adjustment note within 28 days of the request. The Commissioner will not be given a discretion to relax this rule.
11.30 New subsection 29-75(4) clarifies the circumstances in which the Commissioner may vary the 28 day rule in paragraph 29-75(2)(b). These circumstances may relate to a particular kind of taxable supply, such as a supply of utilities. However, subsection 29-75(4) does not limit the circumstances to supplies of a particular kind, as it may be appropriate to relax the requirement in other circumstances. [Item 5]
Example 11.2 Pham Energy is a gas supplier which issues its bills, that are also its tax invoices and adjustment notes, every 3 months. For this reason the Commissioner has permitted Pham Energy to issue adjustment notes on a 92 day cycle. Therese's Treasures, a client of Pham Energy, had its meter read soon after the last billing cycle, and does not wish to wait for 92 days for its adjustment note. If Therese's Treasures requests Pham Energy to issue an adjustment note, Pham Energy must do so within 28 days of their request.
Adjustment notes for small adjustments
11.31 A supplier does not have to issue an adjustment note if the value of the taxable supply to which the decreasing adjustment relates was $50 or less (subsection 29-80(2) of the GST Act). Because this de minimis rule is based on the value of the taxable supply, rather than the amount of the adjustment, entities may be required by this rule to issue adjustment notes for very small adjustments, or may not be required to issue adjustment notes for large adjustments.
11.32 For example, where the value of a taxable supply is $500, but the adjustment is only $2, an adjustment note is required for that adjustment because the value of the original supply is greater than $50. On the other hand, where the value of the taxable supply is $2, but the adjustment is $500, the supplier is not required to issue an adjustment note.
11.33 Item 6 amends subsection 29-80(2) so that the $50 rule in that subsection relates to the amount of the adjustment instead of the value of the original taxable supply. Under the new rule, an entity will not need to issue an adjustment note where the amount of the adjustment is $50 or less. In the examples above, an adjustment note is not required for the $2 adjustment to the $500 supply, but is required for the $500 adjustment to the $2 supply.
11.34 Under the current terms of subsection 42-5(1B) an importation of goods is a non-taxable importation if the goods are covered by item 17 of Schedule 4 to the Customs Tariff Act 1995 (Customs Tariff item 17), and the importer:
- is the manufacturer of the goods;
- has previously acquired the goods by means of a taxable supply; or
- previously imported the goods and the previous importation was a taxable importation.
11.35 Customs Tariff item 17 provides duty free importation to goods that have been exported from Australia and are reimported in an unaltered condition where there is no outstanding duty liability attaching to the goods.
11.36 To clarify the application of the GST exemption to these goods item 8A repeals subsection 42-5(1B). Item 8B replaces that subsection with new section 42-10 which remakes subsection 42-5(1B) with 3 new elements as follows:
- the link to Customs Tariff item 17 is removed and the elements of Customs Tariff item 17 that must be satisfied if an importation is to be treated as a non-taxable importation are included on the face of proposed section 42-10. That is, the provision now includes the requirement that the goods were exported from Australia and are returned to Australia without having been subject to any treatment, industrial processing, repair, renovation, alteration or any other process since their export. This change removes anomalies that are created by other elements of Customs Tariff item 17 that are necessary for customs duty purposes;
- to be regarded as a non-taxable importation under proposed section 42-10, the importer must also not be entitled to, nor have claimed, a refund of GST under the tourist refund scheme when the goods were exported; and
- any previous importation of goods by the importer must have been a taxable importation on which GST has been paid.
Individuals and GST groups
11.37 One of the principal objectives of the GST grouping arrangements in Division 48 of the GST Act is to eliminate the administrative and cash-flow costs associated with transactions between related entities. Currently, an entity will only meet the membership requirements for a GST group if that entity is a company, partnership or trust - paragraph 48-10(1)(a) of the GST Act.
11.38 However, many small businesses involving sole traders use company or trust structures to facilitate their business operations, in the same way as a partnership might use these structures. Sole trader entities are commonly used in many business sectors including primary production, legal and accounting firms and medical practices. Often, there will be transactions of considerable magnitude between the sole trader and the other operating entity (or entities). Allowing sole traders to become members of a GST group will enable these individuals to substantially reduce administrative and cash-flow problems associated with accounting for these transactions.
11.39 Item 9 amends subparagraph 48-10(1)(a)(ii) to include an individual as an entity that can be a member of a GST group. Further requirements in relation to individuals will be specified in regulations.
11.40 Division 66 contains special rules about acquisitions of second-hand goods from unregistered persons for the purposes of sale or exchange.
11.41 Section 66-17 requires records for creditable acquisitions of second-hand goods. The record must include the name and address of the supplier, the goods acquired and the date and consideration for the acquisition. This record must be prepared by the second-hand goods trader. If the trader does not have this record, then subsection 29-10(3) provides that the trader cannot claim the input tax credit.
11.42 Item 10 provides that for acquisitions of second-hand goods, where the value does not exceed $50, then subsection 29-10(3) does not apply. This is consistent with the treatment of other creditable acquisitions for under $50.
11.43 Item 10 also provides a similar provision for decreasing adjustments relating to a creditable acquisition of second-hand goods.
11.44 Consequently, if a second-hand trader acquires second-hand goods from an unregistered supplier and the value of the supply does not exceed $50, the trader may claim the input tax credit provided that the other conditions of Division 66 are met. Note that some other records, similar to income tax (e.g. a diary entry), will be necessary to substantiate the acquisition.
Associates of GST branches and government entities
11.45 Division 72 provides special rules that apply to certain supplies between associates (the associates rules). Essentially, these rules ensure that supplies to an entity's associates without consideration are brought within the GST system and that supplies to an entity's associates for inadequate consideration are properly valued for GST purposes.
11.46 The GST Act provides that certain types of entities may separately seek registration of independent parts of that entity. An entity may register branches of the entity under Division 54, and the consequence is that each branch lodges a separate return and pays GST separately to the parent entity. Similarly, 'government entities' as defined in section 47 of the ABN Act, may apply for separate registration from the government which they form part. A government entity which so registers is a government related entity, as defined in section 195-1 of the GST Act.
11.47 The term 'associate', as used by the GST Act, is defined in section 318 of the ITAA 1936. The term is defined widely to include entities with specified relationships to the primary entity for natural persons, companies, certain trusts and partnerships. For example, relatives and partners of a natural person are associates of that person.
11.48 However, because the current definition of associate in section 195-1 of the GST Act adopts the definition in Section 318 of the ITAA 1997, the term associate, as used in Division 72 of the GST Act, does not acknowledge the separate existence of separately registered GST branches or government related entities. GST branches, government entities and government related entities are not recognised entities in the income tax regime.
11.49 The amendmentsalter the operation of Division 72 so that the division applies to entities which obtain separate registrations for branches, and government related entities which separately register. [Item 11, new sections 72-90 to 72-100]
11.50 New section 72-90 treats GST branches of an entity as associates of the parent entity and other GST branches of the parent entity. A GST branch will also be an associate of any entity of which the parent entity is an associate.
Example 11.3 Branch A makes a supply for no consideration to Branch B, which is a GST branch of the same entity. If there was consideration for the supply it would be taxable. Branch B did not acquire the thing solely for a creditable purpose.Subdivision 72-A treats the supply by Branch A to Branch B as a taxable supply, because section 72-10 makes the value of that supply its GST-exclusive market value, rather than nil.Subdivision 72-B treats this acquisition by Branch B as a creditable acquisition but only to the extent to which it was for a creditable purpose. The input tax credit is a proportion of the GST amount, which is based on the market value.
11.51 New sections 72-95 and 72-100 deal with government related entities, which are entities that are separately registered on behalf of an Australian government. New section 72-95 applies the associates rules to supplies between each government related entity for which the Commonwealth obtains separate registration. Similarly, new section 72-100 applies the associates rules to supplies between each separately registered government related entity for which a State or a Territory obtains separate registration. Government related entities will also be associates of any entity which the relevant government is an associate of. However, the associates rules do not apply to supplies between an entity registered by one government to an entity registered for another.
Example 11.4 Supplies between each of the State of Victoria's separate registrants are subject to Division 72 where made without consideration and otherwise for a creditable purpose. The same situation applies to supplies among Queensland's registrants. However, the associates rules do not apply to supplies between a Victorian registrant and a Queensland registrant.
Input tax credits for goods purchased in bond
11.52 Section 15-15 of the GST Act provides that a person who makes a creditable importation can claim an input tax credit. Under the current legislation creditable importations can only be made by a person who imports goods into Australia. An entity that purchases goods in bond from an importer can not claim the input tax credit for the amount of GST paid in taking the goods out of bond because the entity does not import goods into Australia.
11.53 New section 114-25 has been added to allow a purchaser of goods in bond to claim an input tax credit for the amount of GST paid by them in taking goods out of bond. [Items 4C, 11C and 11D]
Reimbursement of partners
11.54 An acquisition or importation made by a partner in their capacity as a partner is treated as though the partnership made that acquisition or importation and not the partner - subsection 184-5(1) of the GST Act. This means that the partnership will be entitled to any input tax credits for acquisitions or importations made by a partner in their capacity as a partner of that partnership.
11.55 However, Division 111 of the GST Act also allows GST registered partnerships to claim input tax credits when they reimburse partners for expenses that they incur in connection with their activities as a partner. Thus, if a partnership reimburses a partner for partnership expenses, it could be argued that the partnership is entitled to double input tax credits in respect of that acquisition or importation.
11.56 Item 11A inserts new subsection 111-5(3A) , which provides that when a partnership is entitled to an input tax credit in relation to an expense, a further input tax credit will not be allowable when reimbursing a partner for that expense.
Payments made by employers on behalf of employees
11.57 It is common for employers to directly pay for work related expenses of employees. For example, an employer may pay for the membership of the professional associations of an employee.
11.58 Currently, the GST Act does not allow an employer to claim an input tax credit in relation to these payments. To be entitled to input tax credits under general principles, the payment must have been in respect of a taxable supply to the employer - subsection 11-5(b) of the GST Act. Since the relevant supply is to the employee, the employer cannot claim an input tax credit under this provision.
11.59 However, if an employee pays for a work related expense and their employer reimburses them for that expense, the employer will be entitled to an input tax credit - paragraph 111-5(1)(a). Thus, when an employer directly pays for a work related expense of an employee, they are at a disadvantage when compared to an employer who reimburses their employee for the same expense.
11.60 Item 11B inserts new section 111-25 , which provides that an employer that makes a direct payment of a work related expense of an employee will be entitled to the same GST treatment as an employer that reimburses an employee for the same expense. Therefore, an employer may claim input tax credits where payments are made on behalf of employees for employment related expenses.
11.61 Where an individual who is registered for GST dies, the Commissioner must cancel the deceased entity's registration, and the entity's concluding tax period will end on the day before the individual's death. The enterprise will be liable to an increasing adjustment under Division 138.
11.62 If goods or services are being taken out of the GST system, this is analogous to final consumption, and input tax credits should not be available. Where an entity ceases to be registered, the assets of the entity immediately before it ceases to be registered have effectively been taken out of the GST system. In these situations the entity will have an increasing adjustment to their net amount in relation to these assets pursuant to Division 138 of the GST Act.
11.63 There may be circumstances where the executor of a deceased estate passes assets to the beneficiaries to carry on the enterprise of the deceased. As the executor has not acquired the assets as a taxable supply (as there is no consideration and it was not transferred in the course of furtherance of an enterprise) the executor and beneficiary will effectively be denied input tax credits even though it will be making taxable supplies.
11.64 The effect of the increasing adjustment is that the assets which continue to be used in an enterprise would have been be taxed twice. Similar inequities exist for beneficiaries that continue to carry on the enterprise of a GST registered deceased individual.
11.65 Item 11F inserts new section 138-17 into the GST Act to ensure that Division 138 does not apply where:
- the executor of a deceased estate continues to carry on the enterprise of a deceased individual who was registered for GST [new paragraph 138-17(1)(a)] ; or
- a beneficiary of a deceased estate continues to carry on the enterprise that was carried on by an executor or trustee who was registered for GST and that enterprise was the enterprise of the deceased individual [new paragraph 138-17(1)(b)] .
11.66 New section 138-17 does not affect adjustments that may occur due to changes in creditable purpose under Division 129 [new subsection 138-17(2)] . Where an asset that has a GST exclusive value of more than $1,000 is acquired, the acquiring entity must continue to track its use so that any changes in creditable purpose continue to give the entity an adjustment under Division 129. The tracking period continues as long as it would have continued for the deceased individual.
11.67 An executor or beneficiary that continues to carry on the enterprise of the deceased must continue to track the creditable purpose of acquisitions or importations with a GST exclusive value of over $1,000. The executor or beneficiary is taken to have made the acquisition or importation to the same extent and with the same application as the GST registered deceased individual. [New subsection 138-17(3)]
Example 11.5 Owen, a beneficiary of a deceased estate, continues to carry on the enterprise of the deceased and registers for GST. Included in the distribution of the estate to him is a computer that was previously acquired for $2,500. The computer had previously been used by the deceased for both business and private use. The deceased had used the computer for 80% business use and claimed input tax credits accordingly.Owen is taken to have acquired the computer for a creditable purpose at an application rate of 80%. As he already has a computer at home which he uses for private purposes, he intends to use the other computer wholly for business purposes. At the end of the adjustment period he has worked out that his actual application of the computer is 100%. Owen is entitled to a decreasing adjustment since the former application of the computer was 80%.
11.68 Section 129-25 provides that where a thing is disposed of, the last adjustment period is the tax period immediately after the disposal. Item 11E inserts subsection 129-25(3) to ensure that where a person who is registered for GST dies and the GST registered executor or beneficiary of the deceased's estate continues to carry on the enterprise, the adjustment periods for any acquisitions or importations will continue.
11.69 Section 138-20 provides that Division 138 does not affect the operation of Division 129. As subsections 138-17(2) and (3) modify the operation of Division 129 in relation to enterprises continued to be carried on by an executor or beneficiary, item 11G ensures that section 138-20 does not apply to those sections.
11.70 Item 11H inserts new Division 139 . Under this Division, where the trustee or executor of a deceased estate distributes an asset to the beneficiary that does not relate to an enterprise of the deceased that the beneficiary intends to continue carrying on, the estate will be subject to an increasing adjustment similar to that which would have occurred under Division 138. The new Division restores the intended application of Division 138 in that where an asset is no longer used for a creditable purpose the asset has been removed from the GST system and the input tax credits previously claimed by the entity should be paid back.
11.71 New section 139-5 cancels the input tax credits that a deceased person who was registered for GST had previously claimed in respect of assets that are now going to be used for other than creditable purposes. The reason for the adjustment is that the assets are being taken out of the GST system, which is like going into final consumption. No input tax credits are available in respect of things outside of, or taken out of, the GST system.
11.72 Some of the assets used in the enterprise of the GST registered deceased individual may have lost value. This is the value used in the enterprise while the thing was in the GST system. The entity should be entitled to an input tax credit in relation to value used in the enterprise for a creditable purpose. New subsection 139-5(2) ensures that the adjustment takes account of this value and so only relates to value that the entity has not used while in the GST system.
11.73 The amount of the adjustment under subsection 139-5(2) is 1/11 of the applicable value , which is the lesser of the consideration for the acquisition or importation of the asset and its GST-inclusive market value, multiplied by the actual application of the thing , which is the extent to which the thing has been applied for a creditable purpose.
11.74 Any adjustments arising out of the operation of new Division 139 are attributable to the tax period in which they occur. [New section 139-10]
11.75 Where the asset is supplied to a beneficiary and relates to the enterprise the beneficiary intends to continue to carry on, an increasing adjustment will not arise under Division 139 [new subsection 139-5(3)] . The reason for this is that the asset is not being taken out of the GST system, as it will still be used in the enterprise previously carried on by the GST registered deceased individual, and as such, input tax credits should still be available for the asset.
11.76 New section 139-15 ensures that new Division 139 does not affect the operation of Division 129.
Example 11.6 Robert is an executor of the estate of Stefan, who carried on a farming business and was registered for GST. Stefan's will provides that the farming business should pass to Stephanie, but that some assets that were used in that business will pass to Amanda and Uma. Robert carries on the deceased's estate until the estate is distributed to the beneficiaries.Robert is required to register for GST as he will continue to carry on the enterprise of the deceased. As Robert is required to be registered and continues to carry on the enterprise of the deceased, new paragraph 138-17(1)(a) ensures that the deceased estate will not be subject to a Division 138 increasing adjustment.Stephanie decides that she will continue to carry on Stefan's farming business. While Robert is still administering the estate he starts to distribute the assets to the beneficiaries. The business assets Robert distributes to Amanda and Uma will be subject to a new Division 139 increasing adjustment since they are now going to be used for private purposes.Robert distributes a truck to Stephanie. Stephanie intends to continue to use the truck in the farming business. Therefore Robert will not have an increasing adjustment in respect of the truck (new subsection 139-5(3)).Robert distributes a horse float to Uma. Stefan had acquired the float for $5,500. The horse float was used solely for a creditable purpose, and Stefan had no adjustments in relation to it. The total input tax credit in respect of the horse float is $500. The GST inclusive market value of the horse float when Uma receives it is $3,300. While it was part of the GST system, $2,200 of the value of the horse float was used for creditable purposes. The amount of the adjustment is 1/11 of the actual application (100%) multiplied by the applicable value ($3,300), which equals $300. The remaining input tax credit of $200 represents the GST applicable to the value that was used up while the horse float was used for creditable purposes, being 1/11 of $2,200.11.77 Item 12B makes a consequential amendment to the table in the definition of 'increasing adjustment' in section 195-1 to include reference to the increasing adjustment in new section 139-5.
GST turnover for clubs and similar premises
11.78 An entity's annual turnover is relevant for several turnover tests. Division 188 sets out how to calculate annual turnover. The calculation takes into account the value of all the supplies an entity makes, excluding certain supplies (see sections 188-15 and 188-20).
11.79 Under section 9-70, GST is generally calculated as 1/11 of the total consideration for a taxable supply. However, for gambling supplies, GST is not calculated this way. Under Division 126, GST on gambling supplies is calculated as 1/11 of the difference between the total amount wagered and the total monetary prizes in a tax period. This is because of the high volume of gambling supplies that can occur in a tax period and the administrative difficulty in accounting for each supply. For example, with a poker machine, a $1 coin can be placed in the machine as a bet placed and if $10 is won, that amount can remain in the machine and continue to be played. A total of eleven $1 bets can be placed in a matter of minutes. Under the current provisions, $11 would be included in the determination of annual turnover. However, under Division 126, GST is not 1/11 of $11, but 1/11 of the difference between the bets and the prizes: $11 less $10, which equals $1.
11.80 Items 12 and 13 amend Division 188 and section 195-1 to, in effect, provide that the amount to be included for gambling supplies in the calculation of annual turnover is the difference between the total amount wagered and total monetary prizes paid out.
Amendments to the GST Transition Act
Supplies of rights
11.81 Both sections 11 and 12 of the GST Transition Act may apply to rights. At present, the legislation does not make clear which provision has precedence where both sections 11 and 12 apply to a right which is supplied on a periodic or progressive basis. Section 11 provides that the supply of a right that was granted on or after 2 December 1998 is supplied on or after 1 July 2000 to the extent that the right could reasonably be expected to be exercised after 1 July 2000. However, where a right is supplied over a period, or progressively over a period, section 12 of the GST Transition Act may also apply. The latter provision apportions the supply of a right on the basis that the supply was made continuously and uniformly throughout that period.
11.82 New paragraph 11(1A)(a) will make it clear that section 11 does not apply to a right to which section 12 applies. To the extent that both provisions may apply, then section 12 applies rather than section 11. [Items 14 and 15]
11.83 Under the current GST legislation, a prepaid funeral agreement entered into prior to 1 December 1999 is GST-free if paid in full before 1 July 2000. Any consideration received prior to 1 July 2005, or an earlier review date (if one exists) will be GST-free.
11.84 There are a number of difficulties in applying GST to prepaid funerals over the transitional period.
11.85 Item 16 amends section 15 of the GST Transition Act to ensure practical application of the GST to prepaid funeral agreements.
11.86 The amendment ensures that all consideration received in respect of a prepaid funeral agreement entered into prior to 1 December 1999 should be GST-free until 1 July 2005, irrespective of whether the agreement has been subject to a review opportunity.
Phasing in of input tax credits on motor vehicles
11.87 The phasing in of input tax credits for motor vehicles is intended to cover situations where vehicles are purchased including by way of hire purchase. However, section 20 of the GST Transition Act refers to the acquisition of a motor vehicle, which could include the lease of a vehicle.
11.88 Item 16A ensures that the term acquisition specifically refers to the purchase of a motor vehicle only. This means that the lessee in respect of lease payments for motor vehicles will not be subject to the phasing in rules because they have not purchased the vehicle.
Eligible short term leases
11.89 Paragraph 20(4)(c) of the GST Transition Act provides broadly that where a sales tax exemption would have applied, the phasing in rules will not apply. Effectively, partial sales tax exemptions are permitted under sales tax for eligible short term leases. These partial sales tax exemptions operate by agreement under subsection 15A(2) of the Sales Tax Assessment Act 1992 . This same pro rata treatment should also apply to the phasing in rules.
11.90 Item 16C inserts a formula to clarify how the reduction in input tax credits applies to partial sales tax exemptions [new subsection 20(4B)] . It also allows further agreements to be made in respect of eligible short term leases until 1 July 2002 [new subsection 20(4C)] .
Amanda Pty Ltd leases motor vehicles on a short term basis and has entered into an eligible short term lease agreement with the Commissioner to establish an exempt percentage. Under this agreement, Amanda Pty Ltd has an exempt percentage of 20%. Amanda Pty Ltd purchases a number of motor vehicles covered by this agreement for $220,000 which include GST of $20,000. The normal entitlement to input tax credits is $20,000.If these purchases are made on or after 1 July 2000 but before 1 July 2001 (the
original input tax credit
is $20,000), the entitlement to input tax credits is reduced by:
Original input tax credit * (100% - exempt percentage)
= $20,000 * (100% - 20%)
Original input tax credit * (100% - exempt percentage)
= $10,000 * (100% - 20%)
Amendment to the LCT Act
LCT on motor homes and campervans
11.91 The LCT is intended to apply to taxable supplies and taxable importations of luxury cars. Under the current legislation larger models of campervans and motor homes escape the LCT because the definition of car in section 27-1 of the LCT Act restricts the application of the tax to motor vehicles designed to carry a load of less than 2 tonnes and fewer than 9 passengers. Motor homes and campervans with load capacity of greater than 2 tonnes therefore escape the tax.
11.92 New paragraph 27-1(c) added to the definition of car in section 27(1) of the LCT Act ensures that all motor homes and campervans above the LCT threshold are subject to the luxury car tax irrespective of their load capacity. [Item 16F]
Amendment to the TAA 1953
Grouping - joint and several liability
11.93 Item 17 allows certain financial institutions to group by removing the requirement of joint and several liability for cases where the entity is statutorily barred from meeting this requirement.
11.94 The purpose of the amendment is to allow entities to form a GST group where they otherwise meet the requirements for a GST group but are unable to be jointly and severally liable due to the operation of a state or commonwealth law.
11.95 The GST grouping provisions allow closely related entities to form a GST group. Under subsection 53(1) of the TAA 1953 the members of such a GST group are jointly and severally liable to pay any amount that is payable by the representative member under an indirect tax law.
11.96 Some entities are statutorily barred from meeting such a requirement. Under the Life Insurance Act 1995 , for example, the assets of a statutory fund are only available for expenditure related to the conduct of the business of the fund. This means that these entities are unable to be jointly and severally liable as required under subsection 53(1) of the TAA 1953 and therefore are unable to be members of a GST group.
11.97 Item 17 inserts new subsections 53(1A) and 53(IB) . Under new subsection 53(1A) joint and several liability does not apply to a member of a GST group if an Australian law has the effect of prohibiting that member from entering into any arrangement under which they become liable for another entity's debts. However, under new subsection 53(1B) , that member will remain liable for any amount payable under an indirect tax law that arises from its own acts or omissions.
Amendment to the Customs Act 1901
11.98 The amendments ensure that non-commercial low value postal importations are explicitly subject to customs duty. They also fix the time when the rate of import duty is calculated for such goods and the time when import duty must be paid.
11.99 Customs duty (and therefore GST) is payable on non-commercial low value postal importations whether or not Customs requires the owner to give Customs further information about the goods. Item 16G amends subsection 71(2) to put this beyond doubt.
11.100 Item 16H amends section 132 of the Customs Act to specify the time when the rate of import duty payable on the goods is worked out. Item 16I amends the table in subsection 132AA(1) to make it clear that any customs duty that is payable on such goods must be paid before the goods are delivered into home consumption.
11.101 Division 126 of the GST Act currently provides that gambling suppliers calculate their turnover based on the total amount wagered, rather than on the gambling margin (i.e. the total amounts wagered less the value of monetary prizes paid out). This has unintended consequences for a wide range of small to medium sized businesses such as clubs and hotels that provide gambling services, often through poker machines which may see them treated as if they were larger businesses when they are assessed against the turnover thresholds in the GSTAct. These turnover thresholds are:
- the $1 million cash accounting turnover threshold (section 29-40) that determines at what point a business must account for GST on an accruals basis; and
- the $20 million tax period turnover threshold (section 27-15) used to determine at what point a business must remit GST on a monthly basis.
11.102 The Government considers that turnover from gambling supplies should be based on the gambling margin, which is a better overall measure of the total value of gambling supplies made by a business than the total amount wagered. This will ensure that businesses, especially small businesses, making gambling supplies are treated comparably with other businesses where turnover is based on the value of supplies.
11.103 Turnover, in respect of a gambling supply, would be defined as follows:
total amount wagered - total monetary prizes
Assessment of impacts
11.104 This measure would affect small and medium sized businesses, such as clubs and hotels, that provide gambling services, often through poker machines and smaller bookmakers. It will have no effect on larger gambling operators, which will generally have turnover well in excess of the turnover thresholds, even under the proposed definition.
11.105 The measure will have no impact on GST liabilities or on GST revenue.
11.106 The measure will, however, result in some reduction in the compliance costs of small businesses that provide gambling services by ensuring that they do not prematurely lose the choice of remitting GST on a quarterly basis, which would provide reduced transaction costs.
Conclusion and recommended option
11.107 Only one option is recommended, that gambling turnover be measured as the value of the gambling margin. This will ensure that small businesses that provide gambling services are assessed against the GST turnover thresholds on the basis of total value of the gambling services they provide, in the same manner as turnover for other businesses reflects the total value of the goods or services they supply.