Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Chapter 3 - indirect Tax Transition
3.1 This Chapter explains the amendments made to the GST Transition Act in relation to:
- long-term leases;
- rights granted for life;
- transitional credits for alcoholic beverages;
- transitional credits for petroleum products; and
- second-hand goods.
3.2 Items 1 and 2 amend sections 11 and 12 of the GST Transition Act to make it clear that those sections do not apply to a supply of a long-term lease made before 1July 2000. A long-term lease is defined in the GST Act to be a lease for at least 50 years.
3.3 Section 11 applies to a supply of rights exercisable on or after 1July 2000. This section, if applied to long-term leases entered into between 2 December 1998 and 1 July 2000, would subject to GST that portion of the lease that relates to post 1 July 2000 rights. This would be inconsistent with the treatment of long-term leases in the GST Act which treats them in the same manner as a sale of property.
3.4 Section 12 applies to progressive or periodic supplies made over the GST transition period. As with the application of section 11 it would be inappropriate to apply section 12 to long-term leases entered into between 2 December 1998 and 1 July 2000.
3.5 Item 3 replaces subsection 14(2) of the GST Transition Act. Section 14 of that Act operates to subject to GST all of the consideration paid for the grant of a right for life that is entered into after 2 December 1998. This would include any supplies made from the date of the agreement to 1 July 2000. There may be some situations where other services are provided along with the life membership (e.g. counselling services or food). Under the current provisions these goods or services provided prior to 1 July 2000 and included in the supply of the right granted for life would be subject to GST. This amendment will ensure that it is only the extent to which a supply relates to the right granted for life that will be taken to be made after 1 July 2000 and subject to GST.
3.6 Section 16 of the GST Transition Act provides a special GST credit for sales tax paid on certain stock held at the start of 1 July 2000. The section currently excludes a credit being claimed in respect of alcoholic beverages. These amendments including the addition of new sections 16A and 16B will be added to allow a credit to be claimed for certain alcoholic beverages.
3.7 Items 5 and 6 amend paragraph 16(2)(b) and add paragraph 16(2)(c) so that the exclusion in section 16 only applies to stocks of alcoholic beverages that have been opened and alcoholic beverages covered by the WET. Products covered by the WET have a special credit entitlement contained in section 3 of the WET and LCT Transition Act.
3.8 The above changes mean that if you hold unopened stocks of alcoholic beverages that are not covered by the WET and satisfy the other conditions of section 16, you will be entitled to claim a special credit for the sales tax included in the price of the goods. However, the amount of the special credit may be reduced by the operation of new sections 16A or16B .
3.9 Item 8 inserts new section 16A which will apply to certain alcoholic beverages where the rate of duty will increase from 1 July 2000. As an example, spirits are likely to fall into this category with their rate of duty likely to increase with the removal of sales tax and the introduction of GST on 1 July 2000.
3.10 New section 16A operates to reduce the section 16 credit by an amount equal to the difference between the new duty amount and the old duty amount. If this amount equals or exceeds the amount of the section 16 credit, no credit is available. [New subsection 16A(3)]
3.11 If the new duty amount is less than the old duty amount there will be no reduction in the section 16 special credit and a full credit will be available.
3.12 In some cases beverages will not currently be subject to duty but will be subject to duty after 1 July 2000 (e.g. certain designer drinks). Item 8 also inserts new section 16B which will operate to ensure that the section 16 special credit for these products is reduced by the amount of the new duty amount. If the new duty amount equals or exceeds the amount of the section 16 special credit, no section 16 credit is allowed. [Newsubsection 16B(3)]
3.13 The following examples explain the operation of these provisions:
Example 3.1 John is a retailer and holds stocks of spirits for resale at the start of 1July 2000. The amount of excise that was included in the price of the spirit was $125.03 and the amount of sales tax was $80.88. The amount of excise that would have been paid if the stock was subject to excise after 1 July 2000 is $178.75. John satisfies the conditions set out in section 16 and would be entitled to claim a special credit of $80.88 if section 16A did not apply. However, section 16A will operate to reduce the special credit by $53.72 (i.e. $178.75 $125.03). John will be able to claim a section 16 special credit of $27.16 (i.e. $80.88 $53.72).
Example 3.2 Dianne is a retailer and holds stocks of spirit based pre-mix beverages for resale at the start of 1 July 2000. The amount of excise that was included in the price of the beverages was $16.74 and the amount of sales tax was $15.70. The amount of excise that would have been paid if the stock was subject to excise after 1 July 2000 is $14.80. Dianne satisfies the conditions set out in section 16 and would be entitled to claim a special credit of $15.70 if section 16A did not apply. In Diannes situation section 16A will operate but there will be no reduction to the special credit as the new excise amount is less than the old excise amount. Dianne will be able to claim a section 16 special credit of $15.70. (Note: the special credit cannot be increased by the difference between the old excise amount and the new excise amount as the special credit is limited to the amount of sales tax borne in respect of the goods).
Example 3.3 Margaret is a retailer and holds stocks of designer drinks for resale at the start of 1 July 2000. These drinks were not subject to excise prior to 1 July 2000 and the amount of sales tax included in the purchase price was $12.30. The amount of excise that would have been paid if the stock was subject to excise after 1 July 2000 is $14.33. Margaret satisfies the conditions set out in section 16 and would be entitled to claim a special credit of $14.33 if section 16B did not apply. However, section 16B will operate to deny a special credit as the new excise amount exceeds the amount of the special credit [new subsection 16B(3)] . Margaret will not be able to claim a section 16 special credit in respect of these goods.
3.14 Item 8 also inserts new section 16C which provides a special credit for petroleum products of a kind specified in the regulations for this section. An entity will be entitled to a special petroleum credit if:
- it is registered at 1 July 2000;
- it has on hand at the start of 1 July 2000 petroleum products that are specified in the regulations, that an entity acquired or imported and hold for the purpose of sale or exchange (but not manufacture) in the ordinary course of business;
- before 1 July 2000 an amount of excise duty or customs duty was paid in respect of the goods; and
- the new excise duty or new customs duty on the goods applying on or after 1 July 2000 would be less than the old duty amount.
3.15 The amount of the special credit will be equal to the difference between the old duty amount and the new duty amount [new subsection 16C(2)] . The manner in which this credit can be claimed and paid will be set out in the regulations for this section [new subsection 16C(3)] .
3.16 The amendment made by item 9 to section 18 of the GST Transition Act (relating to second-hand goods) is explained at paragraph 1.36 of this Explanatory Memorandum.