House of Representatives

Tax Laws Amendment (2011 Measures No. 2) Bill 2011

Explanatory Memorandum

Circulated By the Authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP

Chapter 4

Exempting Australian taxes, fees and charges from the goods and services tax

Outline of chapter

4.1 Schedule 4 to this Bill amends:

·
the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to replace the current mechanism for ensuring Australian taxes, and certain Australian fees and charges are not subject to the goods and services tax (GST) with specific legislative exemptions;
·
the GST Act to allow for the making of regulations to treat an Australian tax, or an Australian fee or charge to be treated in a particular way; and
·
the A New Tax System (Luxury Car Tax) Act 1999 to account for changes being made to the GST Act.

Context of amendments

4.2 This Schedule implements the Government's decision to replace the current mechanism for ensuring Australian taxes, fees and charges are not subject to GST with a 'self assessment' mechanism, announced in the 2010-11 Budget on 11 May 2010.

4.3 The GST Act operates by treating a payment, or the discharging of a liability to make such a payment, of any Australian tax, fee or charge (other than GST) to be consideration for a supply that the Australian government agency makes to the payer in return for that payment (subsection 81-5(1) of the GST Act). This ensures that all Australian taxes, fees and charges are potentially subject to GST regardless of whether they are connected with a supply under the GST basic rules.

4.4 However, the GST Act then allows the Commonwealth Treasurer to specify by legislative instrument (a Determination), that the payment, or discharging of the liability to make such a payment, of any Australian tax, fee or charge is not the provision of consideration (subsection 81-5(2) of the GST Act). The effect of this is that taxes, fees and charges included in the Determination are not consideration for a taxable supply and therefore not subject to GST.

4.5 The Determination is updated twice a year in accordance with an administrative process that involves the agreement of the GST Administration Sub-Committee of the Ministerial Council for Federal Financial Relations and the formal agreement of the state and territory Treasurers. The Determination is registered as a legislative instrument and is subject to scrutiny by the Senate Regulations and Ordinances Committee.

4.6 When the GST was introduced, the Commonwealth, states and territories agreed that the GST would apply to the commercial activities of government at all levels and that the non-commercial activities of government would be outside the scope of the GST.

4.7 Accordingly, under the Intergovernmental Agreement on Federal Financial Relations the parties agreed that Division 81 of the GST Act will exempt Australian taxes, fees and charges from GST in accordance with the following principles:

·
taxes that are in the nature of a compulsory impost for general purposes and compulsory charges by the way of fines or penalties will be exempt from GST; and
·
regulatory charges that do not relate to particular goods or services will be exempt from GST, including:

-
fees and charges levied on specific industries and used to finance particular regulatory or other activities in the government sector; and
-
licences, permits and certifications that are required by government prior to undertaking a general activity.

4.8 The current Determination is the A New Tax System (Goods and Services Tax) (Exempt taxes, fees and charges) Determination 2011 (No. 1).

4.9 The Determination has grown to over 680 pages and its making involves a lengthy process that places an administrative burden on all levels of government. This amendment will reduce administrative costs by removing the need to list items in a Determination and undertake a twice yearly exhaustive process of updating the Determination. It will also provide increased certainty by allowing government entities to treat eligible items as exempt from the time that they are introduced rather than some later time when they are listed in a Determination.

Summary of new law

Exempting Australian taxes or Australian fees and charges from the GST

4.10 Schedule 4 repeals and replaces Division 81 of the GST Act to allow entities to self assess the GST treatment of a payment of an Australian tax or an Australian fee or charge in accordance with certain principles. Under these amendments, government agencies will no longer need to have an Australian tax or certain categories of Australian fees or charges listed on the Determination in order for those taxes, fees or charges to not be subject to GST.

4.11 In addition, the amendments allow for regulations to be made to treat an Australian tax, or any Australian fee or charge in a particular way that will determine if the amount paid, or the discharging of a liability to make such payment, is subject to GST.

4.12 Those Australian taxes, fees and charges currently not subject to GST under the A New Tax System (Goods and Services Tax ) ( Exempt taxes, fees and charges) Determination 2011 (No. 1 ) will remain not subject to GST until 1 July 2012 and thereafter will be assessed under the changes made in this Schedule.

4.13 The GST treatment of all new Australian taxes or Australian fees or charges that are not currently entered on the A New Tax System (Goods and Services Tax ) ( Exempt taxes, fees and charges) Determination 2011 (No. 1 ) will be self assessed under the changes made by this Schedule with effect from 1 July 2011. Those Australian taxes or Australian fees and charges that are not covered by the changes made by this Schedule and meet the requirements of section 9-5 of the GST Act will be taxable supplies, unless excluded by regulation.

Comparison of key features of new law and current law

New law Current law
The payment, or the discharging of a liability to make such a payment, of an Australian tax is not treated as the provision of consideration. Such a payment will not be subject to GST. However, regulations can be made to treat the payment of a tax, or of a kind of tax, as consideration for a supply made by the entity to which the tax is payable, in which case it will be subject to GST.

A payment, or the discharging of a liability to make such a payment, of certain categories of Australian fees or charges is not treated as the provision of consideration. Such a payment will not be subject to GST. However, regulations can be made to treat the payment of any Australian fee or charge, or of a kind of payment, as consideration for a supply made by the entity to which the fee or charge is payable, in which case it may be subject to GST.

The payment, or the discharging of a liability to make such a payment, of an Australian tax or an Australian fee or charge that is not exempted by a specific provision within Division 81, including by regulation made under that Division, may be consideration for a taxable supply if the requirements of section 9-5 of the GST Act are met.

Regulations that are made under Division 81 can be expressed to take effect from a date before the regulations are registered under the Legislative Instruments Act 2003 .

The payment of any Australian tax, fee or charge is treated in the first instance as the provision of consideration for a supply, which may be a taxable supply.

However, an Australian tax, fee or charge is not treated as consideration for a supply if it is included in a legislative instrument made by the Commonwealth Treasurer, in which case it is not subject to GST.

The fact that a supply is not connected with Australia does not stop the supply being a taxable supply in connection with the payment of an Australian tax, fee or charge.

Detailed explanation of new law

4.14 Schedule 4 repeals and replaces Division 81 of the GST Act to allow government agencies to self assess the GST treatment of any Australian tax or any Australian fee or charge imposed under an Australian law and payable to the agency, in accordance with certain principles.

4.15 Under these amendments, an 'Australian tax' or an 'Australian fee or charge' (as defined in the GST Act) will no longer be treated as the provision of consideration for a supply at first instance. Government agencies will no longer need to have an Australian tax, fee or charge listed on a Determination made by the Commonwealth Treasurer as a prerequisite for it not to be subject to GST.

4.16 Under these amendments, the payment of an Australian tax will not be treated as the provision of consideration and therefore any supply to which it relates will not attract GST. Furthermore, an Australian fee or charge of a kind to which subsections 81-10(4) and (5) apply will not be treated as the provision of consideration (for a supply) and also will not attract GST.

4.17 However, a regulation can be made with the effect of treating payments, or the discharging of a liability to make such payments, of an Australian tax or of an Australian fee or charge, as the provision of consideration for a supply. The GST treatment of the supply to which the tax, fee or charge relates may be a taxable supply.

4.18 The changes also provide for the making of regulations, where necessary, that will allow for the payment of an Australian fee or charge, or the discharging of a liability to make such a payment, to not be the provision of consideration and therefore any supply to which it relates will not be subject to GST.

4.19 It is not intended that the payment of a fine or penalty imposed under an Australian law and payable to an Australian government agency be subject to GST. Application of the GST basic rules should ensure that such payments are not subject to GST, therefore they are not addressed by these amendments.

Australian taxes

4.20 Taxes are imposed as part of the general revenue raising activities of government and should not be subject to GST. Generally, taxes are not considered to be associated with a supply and are not subject to GST under the GST basic rules. However, given the expansive definition of 'supply' and 'consideration' contained within the GST Act, these amendments ensure all payments of taxes imposed under an Australian law will not be subject to GST at first instance.

4.21 The payment of an Australian tax, or the discharging of a liability to make such a payment, will not be treated as the provision of consideration (for any supply). Therefore, a supply (if any) will not be a taxable supply as the supply has not been made for consideration in accordance with paragraph 9-5(a) of the GST Act. Consequently, an Australian tax, imposed under an Australian law, will not attract GST. [ Schedule 4, item 2, subsection 81 - 5(1 )]

4.22 Examples of Australian taxes imposed under an Australian law include: income tax, stamp duty, fringe benefits tax, payroll tax, the Medicare Levy, local government 'ordinary rates' and various industry levies.

4.23 These amendments allow for a payment, or the discharging of a liability to make such a payment, of an Australian tax, or of a kind, that is not treated as the provision of consideration under subsection 81-5(1) of the GST Act, to be treated, by way of regulation, as the provision of consideration to the entity to which the tax is payable for a supply made by that entity to the payer. Therefore, the supply will be a taxable supply if all of the requirements of section 9-5 of the GST Act are satisfied. [ Schedule 4, item 2, subsections 81 - 5(2 ) and ( 3 )]

4.24 The abovementioned regulation-making power allows for circumstances where, for policy reasons, the Government considers that GST should apply to a payment that falls within the definition of an 'Australian tax'.

4.25 Any regulations would be made through procedures agreed to by the Commonwealth and the states and territories, in accordance with the A New Tax System (Managing the GST Rate and Base) Act 1999 . The agreed procedures involve consultation and agreement between the Commonwealth and the states and territories on changes made to the GST base, through the GST Administration Sub-Committee of the Ministerial Council for Federal Financial Relations. Following consultation, any proposed regulation would require the unanimous agreement of the members of the Ministerial Council for Federal Financial Relations.

Australian fees and charges

4.26 These amendments ensure that a payment or the discharging of a liability to make such a payment, for certain categories of Australian fees or charges will not be treated as the provision of consideration and therefore, any supply to which the payment relates will not be subject to GST. A supply to which a payment, or the discharging of a liability to make such a payment, relates will not be subject to GST to the extent the payment is for a fee or charge covered by subsection 81-10(1) of the GST Act. For a supply to which a fee or charge relates not to be subject to GST, the fee or charge must be imposed under an Australian law and be payable to an Australian government agency. [ Schedule 4, item 2, subsection 81 - 10(1 )]

4.27 To the extent a payment, or the discharging of a liability to make such a payment, is a payment or discharge of an Australian fee or charge that relates to, or relates to the application for, the provision, amendment or retention under an Australian law, of a permission, exemption, authority or licence, it will not be treated as the provision of consideration. Therefore, any supply to which the fee or charge relates will not be subject to GST. A fee or charge in relation to the provision, amendment or retention of a permission, exemption, authority or licence (however described) includes but is not limited to:

·
application fees, licences, permits and certifications that are required by government prior to undertaking an occupation (for example, medical and legal professionals' right of practice licences, pilots' licences, heavy vehicle drivers' licences and adjustments to such licences); and
·
regulatory charges imposed to undertake an activity (for example, compulsory testing fees for regulatory purposes, compulsory inspection fees for regulatory purposes, a permit for restaurants to occupy the footpath, and a licence for an event to close roads).

4.28 As noted, this exemption applies to an Australian fee or charge imposed in relation to, or to the application for, the retention of a permission, exemption, authority or licence. An example of such a fee would be a periodic compulsory inspection fee, made under an Australian law and payable to an Australian government agency, for the retention of a permit. In such cases, the inspection fee is directly related to the retention of the permission (the permit) and would not be subject to GST. In cases where the inspection fee is payable to a private entity (not an Australian government agency) then subsection 81-10(4) of the GST Act will not apply and the supply will be taxable provided it meets the requirements of section 9-5 of the GST Act. [ Schedule 4, item 2, subsection 81 - 10(4 )]

4.29 The payment of an Australian fee or charge, to an Australian government agency, in relation to the lodgment of, or access to, documents provided under an Australian law will not be treated as the provision of consideration. Therefore, the supply to which the fee or charge relates will not be subject to GST. Examples of such fees and charges, payable to Australian government agencies, are those that are paid in order to obtain information from a government agency under relevant freedom of information legislation, searches and extracts from registers, copies of official documents, registration fees and lodgment fees for property transfers, deeds, plans and instruments.

4.30 It is intended that consideration that is provided for commercial sales of information supplied by Australian government agencies, including supplies of books by a government bookshop, be subject to GST at first instance. It is also intended that consideration that is provided for supplies made under commercial arrangements, including the hire of government assets (such as recreation halls, office space, conference centres and equipment), be subject to GST at first instance. [ Schedule 4, item 2, subsection 81 - 10(5 )]

4.31 These amendments allow for a payment, or discharging of a liability to make such a payment, of any Australian fee or charge, or a fee or charge of a specified kind, (including fees and charges that have not been treated as the provision of consideration due to the application of subsection 81-10(1)) to be treated, by way of regulation, as the provision of consideration for a supply made by the entity to which the fee or charge is payable. This supply will be a taxable supply if the requirements of section 9-5 of the GST Act are met. [ Schedule 4, item 2, subsections 81 - 10(2 ) and ( 3 )]

4.32 The abovementioned regulation-making power allows for circumstances where, for policy reasons, the Government considers that GST should apply to the payment, or discharging of a liability to make such a payment, of an Australian fee or charge.

4.33 These amendments allow for the payment of any Australian fee or charge, or the discharging of a liability to make such a payment, to be treated as not the provision of consideration and therefore, any supply to which the fee or charge relates will not be subject to GST. This power is to apply in circumstances where an Australian fee or charge is not otherwise covered by subsections 81-10(4) and (5) of the GST Act, and for policy reasons, the Government considers that GST should not apply. This will also assist with the correcting of unintended consequences that may arise as a result of the operation of the new provisions inserted by these amendments. [ Schedule 4, item 2, section 81 - 15 ]

4.34 These amendments have effect despite the operation of section 9-15 which otherwise defines, for GST purposes, what constitutes consideration. [ Schedule 4, item 2, section 81 - 20 ]

4.35 Any regulations would be made through procedures agreed to by the Commonwealth and the states and territories, in accordance with the A New Tax System (Managing the GST Rate and Base) Act 1999 . The agreed procedures involve consultation and agreement between the Commonwealth and the states and territories on all changes made to the GST base, through the GST Administration Sub-Committee of the Ministerial Council for Federal Financial Relations. Following consultation, any proposed regulation would require the unanimous agreement of the members of the Ministerial Council for Federal Financial Relations.

4.36 The changes also allow for a regulation that is made under these amendments to be expressed as taking effect from a date before the regulations are registered under the Legislative Instruments Act 2003 . This is despite the operation of subsection 12(2) of that Act which otherwise limits the commencement date of regulations in certain circumstances. This would for instance, allow for the desired GST treatment for a payment, or discharging of the liability to make such a payment, to be achieved where a new Australian tax or Australian fee or charge is imposed under an Australian law before regulations can be made to provide for the desired treatment. [ Schedule 4, item 2, section 81 - 25 ]

Application and transitional provisions

4.37 These amendments will apply in relation to Australian taxes or Australian fees or charges that are imposed under an Australian law on or after 1 July 2011.

4.38 However, under these amendments, the A New Tax System (Goods and Services Tax )( Exempt taxes, fees and charges) Determination 2011 (No. 1 ) which lists all Australian taxes, fees and charges that are not treated as consideration, and thus supplies to which they relate are not subject to GST, is to be grandfathered for one year. Thus, taxes, fees and charges that are imposed prior to 1 July 2012 and are currently listed in the Determination will not 'be subject to GST' for the transitional period (until 1 July 2012), after which any supplies to which they relate will be assessed against the provisions set out in these amendments. [ Schedule 4, item 16 ]

4.39 This transitional arrangement will allow for Australian government agencies to reconcile the current taxes, fees and charges listed in the A New Tax System (Goods and Services Tax )( Exempt taxes, fees and charges) Determination 2011 (No. 1 ) with these amendments.

4.40 Any taxes, fees or charges that are currently listed in the A New Tax System (Goods and Services Tax )( Exempt taxes, fees and charges) Determination 2011 (No. 1 ) that become subject to GST (in relation to a supply) under these amendments will attract GST if they are imposed under an Australian law on or after 1 July 2012 (provided they satisfy the requirements of section 9-5 of the GST Act and are not otherwise treated, by way of regulation, as not being subject to GST).

Consequential amendments

4.41 As a consequence of the amendments under this Schedule 4:

·
Subsection 82-10(3) of the GST Act, which refers to the previous subsection 81-5(1), is amended to refer to the new provisions inserted by this Schedule [ Schedule 4, item 3, subsection 82 - 10(3 )].
·
Subparagraph 117-5(1)(ba)(i) of the GST Act, which refers to the previous subsection 81-5(2), is amended to refer to the new provisions inserted by this Schedule [ Schedule 4, item 4, subparagraph 117 - 5(1 )( ba )( i )].
·
The definition of 'Australian tax, fee or charge' has been repealed from section 195-1 of the GST Act. Definitions for 'Australian tax' and for 'Australian fee and charge' have been inserted into section 195-1 of the GST Act and references to the previous definition have been amended to refer to the new definitions. Consequentially, previous references to the former definition have been amended to make reference to the new definitions in section 27-1, paragraph 5-20(1)(b) and paragraph 5-20(6)(b) of the A New Tax System (Luxury Car Tax) Act 1999 [ Schedule 4, items 5 to 8, section 195 - 1, GST Act ; items 11 to 13, section 27 - 1, paragraphs 5 - 20(1 )( b ) and 5 - 20(6 )( b ) of the A New Tax System ( Luxury Car Tax ) Act 1999 ].
·
A reference to the previous provisions repealed by this Schedule in section 195-1 (note at the end of the definition of 'taxable supply') and in section 195-1 (note at the end of the definition of 'connected with Australia') has been removed [ Schedule 4, item 10, section 195 - 1 ].
·
A reference to the previous provisions repealed by this Schedule in section 195-1 (note at the end of the definition of 'consideration') has been amended to refer to the new provisions inserted by this Schedule [ Schedule 4, item 9, section 195 - 1 ].
·
A reference to the previous provisions repealed by this Schedule in subparagraph 13-20(2)(ba)(i) was amended to refer to the new provisions inserted by this Schedule [ Schedule 4, item 1, subparagraph 13 - 20(2 )( ba )( i )].
·
The note in the previous section 81-1 has been amended to reflect the new provisions inserted by this Schedule [ Schedule 4, item 2, section 81 - 1 ].


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