House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan MP

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

General outline and financial impact

GST and cross-border transport supplies

Schedule 1 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 to:

•

shift the liability to pay goods and services tax (GST) on the Australian transport leg of the international transport of imported goods from transport service suppliers to the importer of the goods in some situations. This reduces compliance costs for Australian transporters and non-residents;

•

make the GST treatment of exports of postal and containerised non-postal goods more consistent and reduce GST compliance costs for transporters; and

•

make subcontracted Australian transport services that form part of the Australian leg of an outbound or inbound international transport service GST-free when made to a non-resident not in Australia. This reduces compliance costs for Australian transporters and non-residents.

Date of effect: These amendments apply on and from 1 July 2010.

Proposal announced: This measure was announced in the then Assistant Treasurer and Minister for Competition Policy and Consumer Affairs' Media Release No. 048 of 12 May 2009.

Financial impact: This measure will have the following revenue implications:

Compliance cost impact: Low.

GST relief for telecommunications supplies for global roaming in Australia

Schedule 2 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 to ensure telecommunication supplies provided under global roaming arrangements provided to visitors to Australia remain not subject to goods and services tax (GST), consistent with Australia's treaty obligations under the International Telecommunication Regulations (Melbourne Agreement).

Date of effect: This measure applies retrospectively from 1 July 2000, the commencement date of the GST. This measure does not adversely affect taxpayers. Retrospectivity benefits suppliers as the amendment is consistent with the existing industry practice of not applying GST to these supplies.

Proposal announced: This measure was announced in the Treasurer and the then Assistant Treasurer and Minister for Competition Policy and Consumer Affairs' Joint Media Release No. 053 of 13 May 2008.

Financial impact: Nil.

Compliance cost impact: Low.

GST amendments to third party payment adjustment provisions

Schedule 3 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 to ensure the third party payment adjustment provisions operate appropriately irrespective of whether relevant parties in the supply chain are members of the same goods and services tax (GST) group, GST religious group or GST joint venture.

Date of effect: 1 July 2010.

Proposal announced: This measure has not been previously announced.

Financial impact: Nil.

Compliance cost impact: Low.

Chapter 1 - GST and cross-border transport supplies

Outline of chapter

1.1 Schedule 1 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to:

•

shift the liability to pay goods and services tax (GST) on the Australian transport leg of the international transport of imported goods from transport service suppliers to the importer of the goods in some situations. This reduces compliance costs for Australian transporters and non-residents;

•

make the GST treatment of exports of postal and containerised non-postal goods more consistent and reduce GST compliance costs for transporters; and

•

make subcontracted Australian transport services that form part of the Australian leg of an outbound or inbound international transport service GST-free when made to a

non-resident not in Australia. This reduces compliance costs for Australian transporters and non-residents.

Context of amendments

GST treatment of the inbound transportation of goods

1.2 Under the current law, the supply of transport services for goods transported from overseas to Australia by transport providers is GST-free up to the 'place of consignment' (the port or airport of final destination). However, the Australian leg of the inbound transport of goods from the 'place of consignment' is taxable for both prime transport providers and subcontractors.

1.3 The inbound international transport of goods is generally supplied by a prime contractor that contracts to provide the whole of the international transport to the 'place of consignment', including, where supplied, the Australian leg. If the prime contractor is a non-resident, the Australian leg of the transport services would in most cases be subcontracted to an Australian transporter.

1.4 The GST law currently has a different meaning for the place of consignment for postal and non-postal goods. As a result, for postal goods, GST-free treatment applies for international transport services up to the place where the goods are addressed in Australia. In contrast, for non-postal goods, GST-free treatment for such transport services only applies up to the port or airport of final destination in Australia (item 5 in the table in section 38-355 of the GST Act).

1.5 The different treatment for postal and non-postal items results in distortions between the two forms of supplies. In addition, non-resident transporters without a presence in Australia that transport non-postal goods within Australia using resident subcontractors need to register for GST to obtain input tax credits. As a consequence they become liable for GST on their supplies that are done in Australia. If such non-residents do not register for GST then any GST included in the price of their subcontracted services will be embedded in the cost of services they provide, resulting in the cascading of the GST.

GST treatment of the outbound transportation of goods

1.6 Under the current law the international and Australian legs of an outbound international transport service provided by the prime transport supplier is generally GST-free from the place of containerisation (see below) of the goods, where the supplier undertakes both legs of the transport service (item 5 in the table in section 38-355 of the GST Act). In contrast, that part of the transport service from the exporter's address to the point where the goods are packed in a shipping container (containerisation) is taxable, except in specific circumstances. For example, the pre-containerised leg can be GST-free for the prime contractor, as well as another transport supplier if the supplier of the transport knows that the Australian leg of transport is being provided to another entity outside of Australia, such as the recipient of the goods under an export sales contract. In these circumstances, the Commissioner of Taxation currently treats the Australian leg of the transport of the goods from their place of origin in Australia to their last place in Australia before export as GST-free. This reflects the operation of item 3 of subsection 38-190(1) and the application of subsection 38-190(4) of the GST Act.

1.7 The current law causes difficulties for Australian transport subcontractors in establishing the correct GST treatment and imposes compliance costs when they transport mixed loads, with some goods qualifying for GST-free treatment and some being subject to GST. The current law also does not always allow the Australian leg of transport services supplied to non-residents for the export of goods from Australia to be GST-free, with the result that embedded GST is incurred by non-residents that do not register for GST.

1.8 In the 2009-10 Budget, the Government announced that it would amend the GST law to reduce GST compliance costs for businesses involved in the Australian leg of international transport of exported and imported goods, with effect from 1 July 2010.

1.9 The purpose of these amendments is to provide certainty for industry and reduce the number of non-resident entities without a presence in Australia being liable for GST or incurring GST on their acquisitions that is likely to cascade through the supply of any goods or services they make.

Summary of new law

1.10 These amendments to the GST law make the transport of goods by transport subcontractors within Australia, that forms part of the international transport of those goods by another entity to Australia, GST-free in specific circumstances. Supplies of international transport services are treated as GST-free where they are made to a non-resident that is not in Australia. However, the supply is subject to GST if it is made to a resident or a non-resident that is in Australia. This reduces compliance costs for Australian transporters and affected non-residents.

1.11 These amendments also make the transport of goods by subcontractors within Australia, that forms part of the international transport of those goods by another entity from Australia, GST-free where the supply is made to a non-resident that is not in Australia. However, the supply is subject to GST if it is made to a resident or a non-resident that is in Australia. This reduces compliance costs for Australian transporters and affected non-residents.

1.12 The amendments to the GST law also expand the scope of GST-free supplies of international transport made under an agreement that brings the goods to or from Australia. This is done by:

•

for exported non-postal goods, extending GST-free treatment to the last point of collection of goods prior to containerisation ('place of export') under the agreement that takes the goods out of Australia; and

•

for imported non-postal goods, extending GST-free treatment to the place of delivery of those goods as determined under the primary agreement (see paragraphs 1.18 and 1.19) for the international transport of the goods to Australia ('place of consignment'). For the international transport of goods to Australia that are not under a transport or supply of goods agreement, the 'place of consignment' is unchanged, for example, self transport.

1.13 In certain circumstances, the liability for GST on the Australian leg of the international transport of imported goods is shifted from transport service suppliers to the importer of the goods. This is achieved by adding the importer's cost from the primary agreement for the Australian leg of the international transport of those goods to the 'value of the taxable importation' used to calculate the GST liability on importation.

1.14 The amendments also provide GST-free treatment for loading, handling and other services (including customs clearance services) in certain circumstances that facilitate the international transport of goods. However, these other services will not be GST-free if they are done to facilitate the transport of goods that is performed after the place of consignment or prior to the 'place of export'.

Comparison of key features of the new law and current law

Detailed explanation of new law

Australian transport supply leg of an importation

1.15 The transport of goods within Australia that forms part of the international transport of those goods by another entity to Australia is GST-free where the supply is made to a non-resident that is not in Australia. The supply remains taxable if it is made to a resident or non-resident that is in Australia^[1]. The supply of the international transport from outside of Australia to the port or airport of final destination in Australia continues to be GST-free but GST-free treatment may extend beyond this point if the place of consignment includes any further leg of Australian transport . [Schedule 1, item 9, subsection 38-355(2)]

1.16 The cost of the Australian leg of international transport made by the primary transport supplier and other relevant services are included in the value of taxable importations by the following means:

•

the services that facilitate the international transport of goods and loading and handling, that are not already reflected in the cost of international transport or the customs value of the goods, are included in the value of taxable importations [Schedule 1, item 1, paragraph 13-20(2)(ba)]; and

•

the value of taxable importations includes the amount paid or payable for the international transport of goods to their place of consignment in Australia under the primary agreement (see paragraphs 1.18 to 1.19). The 'place of consignment' for non-postal items is extended to the place to which the goods are delivered under the primary agreement for the international transport of the goods [Schedule 1, item 13, definition of 'place of consignment' in section 195-1].

1.17 The inclusion of the amount paid or payable for certain Australian legs of international transport in the value of taxable importations results in GST on the Australian transport of imported goods being collected at a single point at the border. This approach avoids the need to impose the GST potentially at multiple points in a chain of supplies which involve both resident and non-resident entities. Removing the liability for some non-residents to pay GST will help to prevent embedded tax for prime transport providers who are not registered for GST.

1.18 The primary agreement for the importation of goods refers to the agreement under which goods are delivered into Australia under the contract for the supply of the goods or where a local entity brings the goods to Australia, the primary agreement is the agreement for the transport of the goods to Australia.

1.19 If goods from outside Australia are supplied to a local purchaser on 'delivered duty paid', 'delivered duty unpaid' or under 'cost, insurance and freight' terms, the primary agreement will be the supply agreement for the sale of the goods to the local purchaser. In contrast, the primary agreement under terms of trade involving 'free on board' will generally be the agreement between a transport company and a local importer in which the goods are transported from a foreign port or airport to the local importer . [Schedule 1, item 13, definition of 'place of consignment' in section 195-1]

1.20 The place where an Australian transport supplier delivers goods in Australia is the place of consignment for inbound goods from overseas if they can show that this is the final place in Australia to which the goods are required to be transported under the contract or arrangement for the international transport of the goods.

Example 1.1: A non-resident seller agrees to deliver goods to Australia

A Swiss bicycle store sells and agrees to deliver several bicycle frames to a buyer in Horsham, Victoria. Global Transporters, a non-resident that has no presence in Australia, is contracted by the Swiss seller to transport the frames to Horsham, which is the place of consignment. The services that are performed within Australia are subcontracted by Global Transporters to Freight Forwarder.

Under the new definition of place of consignment in section 195-1 of the GST Act, the supply by Global Transporters of transport of the frames from Melbourne to Horsham is GST-free as:

•

Horsham is the place of consignment for the purposes of the international transport of the frames; and

•

Global Transporters contracts with the Swiss seller to provide both the international and the Australian leg of the transport to Horsham.

The transport supply by Freight Forwarder to Global Transporters is GST-free as the supply forms part of the international transport of the frames and is made to a non-resident who is not in Australia when the supply of the transport is done.

Example 1.2: A resident buyer takes delivery of goods outside Australia

An Australian market store holder, Susan, purchases a shipment of imitation jewellery from Indonesia on free on board terms. Under these terms the non-resident seller has agreed to deliver the jewellery on board a vessel at a named port in Indonesia. Susan must provide the seller with details of the name of the ship, and when to deliver the jewellery to that ship. Susan assumes all risk of loss or damage from the time the goods have passed the ship's rail at the port of shipment in Indonesia.

Susan contracts with a non-resident shipping company through its agent in Australia to deliver the goods to Port Botany in Sydney. Susan also has a separate contract with an Australian freight forwarder to collect the jewellery at Port Botany, and deliver the jewellery to her house at Temora, New South Wales.

Susan's contract with the non-resident shipping company to deliver the goods to Port Botany in Sydney is the relevant international transport agreement (primary agreement) under which the jewellery is brought to Australia and therefore it is this agreement that determines the place of consignment. The place of consignment is Port Botany, the place that Susan, the importer, has agreed to take delivery of the goods, as this is the place to which the goods are delivered under the contract for the delivery of goods to Australia (primary agreement).

The supply of international transport by the shipping company to Susan is GST-free.

The freight forwarder's supply of transport services is subject to GST. This reflects that the transport services occur after the place of consignment at Port Botany.

Australian transport leg of an export transport supply

1.21 The transport of goods by transport subcontractors within Australia that forms part of the international transport of those goods by another entity from Australia is GST-free if made to a non-resident that is not in Australia. However, the supply is subject to GST where it is made to a resident or a non-resident that is in Australia at the time the supply is made . [Schedule 1, item 5, subsection 38-355(1); items 6 and 7, item 5 in the table in subsection 38-355(1); item 9, subsection 38-355(2)]

1.22 These amendments also ensure that section 38-355 of the GST Act is the primary provision that makes supplies of international transport GST-free. Item 3 of subsection 38-190(1) of the GST Act will not apply to the transport of goods to or from Australia and other supplies that are related to that transport supply. The amendments achieve this by ensuring that subsection 38-190(4) of the GST Act has no application to supplies of transport of goods within Australia that are part of, or are connected with, the international transport of the goods. This includes all transport from the point of origin in Australia to the point at which goods depart from Australia as well as the costs of insuring, loading, handing and arranging transport of those goods . [Schedule 1, item 4, subsection 38-190(5)]

1.23 Where transport suppliers provide both the Australian and international legs of international transport then the transport supply is GST-free . [Schedule 1, item 9, paragraph 38-355(2)(b)]

1.24 Treating the Australian leg of international transport as taxable for transport subcontractors in all circumstances when supplied to an Australian entity or a non-resident entity with a presence in Australia reduces compliance costs for GST-registered subcontractor transport entities. This is achieved by allowing them to apply the same GST treatment to all transported goods, regardless of whether the goods are for Australian delivery or export or whether the entity to which the goods are ultimately being provided to is outside of Australia. This is important because transport subcontractors may carry a range of goods that are for final delivery both in Australia and overseas and they may not be aware of the final destination of some goods.

1.25 The amendments broadly align the tax treatment of the pre-containerisation leg of a non-postal export supply with the treatment of a postal export supply. This ensures consistent tax treatment of the pre-and post-containerisation legs of a non-postal supply of containerised goods as both are GST-free where they form part of a single international transport supply . [Schedule 1, item 14, definition of 'place of export' in section 195-1; item 4, subsection 38-190(5)]

1.26 For non-postal goods the 'place of export' definition is amended to ensure that the last leg in which the goods are collected from a location prior to being packed in a freight container is GST-free for certain suppliers [Schedule 1, item 14, definition of 'place of export' in section 195-1]. This reflects that goods will usually be collected from an earlier location for packing in a freight container. If the goods have been manufactured at the place of packing (that is, at a factory), then international transport from this location continues to be GST-free for certain suppliers.

Example 1.3: Outbound removalist

Stan is registered for GST and operates an international removalist company which undertakes both the Australian and international legs of international removals.

Stan has been engaged by Jessica, who is moving overseas, to transport her household items to London and to supply insurance for the transport of the goods. Stan collects Jessica's goods and moves the goods in a truck to his depot where they are placed in a container.

The place of export is now the place the goods are collected by Stan (Jessica's residence) as opposed to where the goods are placed in a container. Stan's entire international transport supply is now GST-free.

Example 1.4: Outbound sale of goods

A buyer in India orders goods from an Australian-based manufacturer (manufacturer). The goods are transported by Local Transporters under a contract with the manufacturer to a place where they will be collected by the transport supplier who will transport the goods from Australia. The manufacturer contracts with a separate transport supplier, Global Transporter, to move the goods from the place the goods were delivered to by Local Transporters, and then to transport the goods to India in a container.

Under the definition of 'place of export', the place of export is the place Global Transporter collects the goods as determined under the agreement that takes the goods from Australia.

The supply by Local Transporters which occurs prior to the place of export does not form part of international transport and therefore cannot be GST-free under item 5 of subsection 38-355(1). Additionally this supply is not GST-free under item 3 in the table in subsection 38-190(1) because of the effect of subsection 38-190(5).

The supply by Global Transporter, is GST-free under item 5 in the table in subsection 38-355(1) of the GST Act as subsection 38-355(2) does not restrict the application of this item under these circumstances.

Loading, handling and other services

1.27 These amendments also ensure that other services that facilitate the international transport of goods, such as loading, handling and other services, can qualify for GST-free treatment [Schedule 1, item 8, item 5A in the table in subsection 38-355(1)]. For example, supplies of fumigation services that are carried out to facilitate the international transport of goods are

1.28 GST-free for inbound and outbound movement of goods when:

•

supplied by the transporter that brings the goods to or from Australia; or

•

supplied by another party to a non-resident that is not in Australia.

1.29 The GST treatment of loading, handing and other services reflects the intention that GST-free treatment should extend to not only international transport but also necessary related services to prevent embedded tax arising for non-residents.

1.30 As a result of the inclusion of specific provisions to address the GST treatment of loading, handling and other services, there is a consequential amendment to remove references to loading and handling from the definition of 'international transport' . [Schedule 1, item 12, definition of 'international transport' in section 195-1]

1.31 The amendments ensure that any existing determinations that set out the amount paid or payable for certain transport or insurance continue to apply despite the extension of the determination-making power to include loading, handling and similar services . [Schedule 1, item 3, paragraphs 13-20(3)(b) and (c); item 15]

Application and transitional provisions

1.32 These amendments apply on and from 1 July 2010. In particular, the amendments apply to:

•

supplies made on or after 1 July 2010; and

•

taxable importations made on or after 1 July 2010.

[Schedule 1, subitem 16(1)]

1.33 The amendments also apply to relevant services performed after 1 July 2010 concerning imported goods that have not given rise to a taxable importation prior to 1 July 2010. This will include imported goods held in Australia immediately prior to 1 July 2010 that have not yet given rise to a taxable importation because, for example, they have not yet been entered for home consumption . [Schedule 1, subitem 16(1)]

1.34 However, the transitional provision ensures the amendments do not apply to a supply of services that occurs on or after 1 July 2010 to the extent the services relate to a taxable importation of goods made prior to 1 July 2010. This transitional provision ensures symmetry of treatment between importations and supplies made in relation to those importations . [Schedule 1, subitem 16(2)]

Consequential amendments

1.35 The changes to the place of export and place of consignment made by the amendments have a consequential impact on the GST treatment that applies to:

•

insuring the international transport of goods to and from Australia; and

•

arranging the international transport of goods to and from Australia.

[Schedule 1, item 13, definition of 'place of consignment' in section 195-1 and item 14, definition of 'place of export' in section 195-1]

1.36 There is a consequential amendment to ensure that the amount paid or payable for loading, handling and related services that is included in the value of taxable importations can be converted to Australian currency . [Schedule 1, item 2, subsection 13-20(2A)

1.37 The amendments also make a consequential amendment to ensure that the amount paid or payable for loading, handling and related services is included in the value of taxable importations for goods that were exported for repair or renovation and that the amount can be converted to Australian currency . [Schedule 1, item 10, paragraph 117-5(1)(ba), and item 11, subsection 117-5(1A)]

Chapter 2 - GST relief for telecommunication supplies for global roaming in Australia

Outline of chapter

2.1 Schedule 2 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to ensure telecommunication supplies under global roaming arrangements provided to subscribers of non-resident telecommunication suppliers while 'roaming' in Australia remain not subject to goods and services tax (GST). The global roaming telecommunication supplies covered by the amendment are mobile telephone global roaming and mobile Internet roaming.

2.2 This is consistent with an obligation imposed on Australia under the International Telecommunication Regulations (Melbourne, 9 December 1988) known as the 'Melbourne Agreement'.

Context of amendments

2.3 Australia is a party to the Melbourne Agreement. Article 6.1.3 of the Melbourne Agreement provides that tax levied in accordance with the national law of a country on 'collection charges for international telecommunication services' can only be collected 'in respect of international services billed to customers in that country'.

2.4 This means that international telecommunication supplies made under arrangements for global roaming in Australia and provided to subscribers of non-resident telecommunication suppliers while those subscribers are 'roaming' in Australia, should not be subject to GST.

2.5 Up until 14 December 2005 these international telecommunication supplies were considered not to be taxable under the Australia GST law. However, the Commissioner of Taxation then determined that these supplies were taxable under the provisions of the GST Act.

2.6 Therefore it is necessary to amend the GST Act to ensure that the treatment of these supplies remains consistent with the Melbourne Agreement.

Operation of the existing law

2.7 Under section 9-5 of the GST Act an entity makes a taxable supply if:

•

it makes the supply for consideration;

•

the supply is made in the course or furtherance of an enterprise that the entity carries on;

•

the supply is connected with Australia; and

•

the entity is registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

2.8 Division 38 sets out supplies that are GST-free. Subdivision 38-E sets out when exports and other supplies for consumption outside Australia are GST-free. Section 38-190 covers supplies of things, other than goods or real property, that are for consumption outside Australia.

2.9 The table in subsection 38-190(1) lists five items which set out supplies of things, other than goods or real property, that are GST-free.

2.10 Item 2 in the table treats as GST-free a supply made to a non-resident who is not in Australia when the thing supplied is done if:

•

the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property situated in Australia; or

•

the non-resident acquires the thing in carrying on the non-resident's enterprise but is not registered or required to be registered.

2.11 However, a supply covered by item 2 in the table in subsection 38-190(1) is not GST-free if it is a supply under an agreement entered into, whether directly or indirectly, with a non-resident and the supply is provided (or the agreement requires it to be provided) to another entity in Australia (subsection 38-190(3)).

Application of the existing law to international telecommunication supplies for global roaming in Australia

2.12 Global roaming occurs when a subscriber to an overseas telecommunication supplier is visiting Australia and uses a mobile phone or other portable device to connect to an Australian telecommunication supplier's network. The visiting subscriber is able, by connecting to the network, to obtain telephony services such as making and receiving phone calls and short messaging service (SMS) text messages, accessing emails and browsing the Internet.

2.13 The visiting subscriber has an agreement with their home country telecommunication supplier (the non-resident telecommunication supplier) for the provision of global roaming in Australia. This allows them to use a portable device whilst in Australia, to access telecommunication services through their home network subscription.

2.14 The non-resident telecommunication supplier enters into a wholesale roaming agreement with an Australian telecommunication supplier that allows their subscribers visiting Australia to 'roam' on the Australian telecommunication supplier's network for accessing telecommunication services. (The Australian telecommunication supplier may be supplying only part of the service, which may travel over networks owned by other telecommunication suppliers including the home country telecommunication supplier.) The Australian telecommunication supplier has no contract with the visiting subscriber and the Australian telecommunication supplier bills the subscriber's home country telecommunication supplier for access to Australian network services (the supply by the Australian resident telecommunication supplier).

2.15 The subscriber's home country telecommunication supplier bills the subscriber for global roaming provided in Australia through their billing arrangements in the home country (the supply by the non-resident telecommunication supplier).

2.16 The supply by the Australian resident telecommunication supplier to the non-resident telecommunication supplier is GST-free under item 2 in the table in subsection 38-190(1). However, the GST-free status of that supply is negated by subsection 38-190(3) because it is provided to another entity (the visiting subscriber) in Australia.

2.17 The supply by the non-resident telecommunication supplier to the subscriber while visiting Australia is performed, in part, in Australia and therefore the supply is, to that extent, 'connected with Australia' pursuant to paragraph 9-25(5)(a). If the other requirements of section 9-5 are met, the supply by the non-resident telecommunication supplier is (wholly or partly) a taxable supply.

The impact of the Melbourne Agreement

2.18 The imposition of GST on the supply by the Australian resident telecommunication supplier and the supply by the non-resident telecommunication supplier is considered to be inconsistent with Australia's treaty obligations under the Melbourne Agreement.

2.19 This amendment ensures that these global roaming telecommunication supplies are GST-free with effect from 1 July 2000.

Summary of new law

2.20 The amendment makes GST-free the following telecommunication supplies for global roaming in Australia, which are provided to subscribers of a non-resident telecommunication supplier while the subscribers are visiting Australia:

•

the supply made by an Australian resident telecommunication supplier to a non-resident telecommunication supplier of use of its network in Australia and provided to subscribers of the non-resident telecommunication supplier when visiting Australia (the supply by an Australian resident telecommunication supplier); and

•

the supply by the non-resident telecommunication supplier of global roaming in Australia made to its subscribers visiting Australia (the supply by the non-resident telecommunication supplier).

Comparison of key features of new law and current law

Detailed explanation of new law

Amendments relating to telecommunication supplies made under arrangements for global roaming in Australia

2.21 Subdivision 38-R is inserted into the GST Act to ensure that telecommunication supplies made under arrangements for global roaming in Australia are GST-free.

2.22 New section 38-570 means that telecommunication supplies made under arrangements for global roaming in Australia are GST-free. Specifically, the supply by an Australian resident telecommunication supplier (a carrier or carriage service provider as defined in the Telecommunications Act 1997 or an Internet service provider as defined in Schedule 5 to the Broadcasting Services Act 1992) made to a non-resident telecommunication supplier and provided to a subscriber of the non-resident telecommunication supplier while roaming in Australia, is GST-free. Further, the supply by the non-resident telecommunication supplier of global roaming in Australia, made to its subscriber visiting Australia, is also GST-free.

2.23 Subsection 38-570(1) describes a telecommunication supply under a global roaming arrangement that will be GST-free. Such a supply is to enable the use of a portable device (such as a mobile phone or laptop computer) in Australia while the device is linked to an International Mobile Subscriber Identity number (in the case of phone roaming), an Internet Protocol address (in the case of Internet roaming), or another internationally recognised identifier containing a home network identity which indicates that the subscription is to a telecommunication network outside Australia. The supply is made by either a non-resident telecommunication supplier or an Australian resident telecommunication supplier . [Schedule 2, item 1, subsection 38-570(1)]

2.24 Subsection 38-570(2) describes the supply by the non-resident telecommunication supplier under a global roaming arrangement. This supply is made to the subscriber (the visitor to Australia) in connection with their subscription to a telecommunication network outside Australia, the supply is billed to the subscriber's address outside Australia and the supply is made by a non-resident telecommunication supplier that carries on the enterprise of making telecommunication supplies outside Australia and not in Australia . [Schedule 2, item 1, subsection 38-570(2)]

2.25 Subsection 38-570(3) describes supply by an Australian resident telecommunication supplier under a global roaming arrangement. This supply is made by an Australian resident carrier, carriage service provider or Internet service provider to the non-resident telecommunication supplier and is provided to the user in Australia of the device described in subsection 38-570(1) . [Schedule 2, item 1, subsection 38-570(3)]

2.26 This amendment applies to supplies made on or after 1 July 2000 (the commencement of the GST). The retrospective application benefits suppliers as it is consistent with the existing industry practice of not applying GST to these supplies . [Schedule 2, item 2]

Examples of the application of new section 38-570 to telecommunication supplies made under arrangements for global roaming in Australia

Example 2.1

UK Phone Ltd, a telecommunication supplier in the United Kingdom carries on outside Australia an enterprise of making telecommunication supplies and does not carry on in Australia such an enterprise (a non-resident telecommunication supplier). Charlie (a subscriber) resides in the United Kingdom and has a contract with UK Phone Ltd (a subscription). Under that contract, UK Phone Ltd supplies Charlie with telecommunication services including mobile phone and Internet services in the United Kingdom and global roaming in Australia. Charlie is billed to his address in the United Kingdom.

To supply Charlie (and its other customers) with global roaming in Australia, UK Phone Ltd enters into a wholesale agreement with an Australian telecommunication supplier, Aus Phones Plus, to provide access to its Australian network to subscribers of UK Phone Ltd roaming in Australia.

While in Australia and global roaming on an Australian network, Charlie uses his smart phone under contract with UK Phone Ltd to make and receive phone calls and emails, use SMS, access the Internet and picture messaging etc.

Despite Charlie being physically located in Australia and global roaming on an Australian telecommunication network, the supply of global roaming is GST-free (both the supply by the non-resident telecommunication supplier and the supply by the Australian resident telecommunication supplier). This is because:

•

Charlie is using a portable device in Australia for sending and receiving signals, writing, images, sound and information and the device is linked to an international mobile subscriber number containing a home network identity that indicates a subscription to a telecommunication network in the United Kingdom (that is, outside Australia) - paragraph 38-570(1)(a);

•

The supply is made to Charlie in connection with his subscription to UK Phone Ltd - paragraph 38-570(2)(a);

•

Charlie is billed for the supply to his address in the United Kingdom - paragraph 38-570(2)(b);

•

UK Phone Ltd carries on outside Australia an enterprise of making telecommunication supplies and does not carry on in Australia such an enterprise - paragraph 38-570(2)(c);

•

Aus Phones Plus is an Australian resident carriage service provider and provides Charlie, the user in Australia of the device, with telecommunication supplies - subparagraph 38-570(3)(a)(i) and paragraph 38-570(3)(b); and

•

Aus Phones Plus makes the supply to UK Phone Ltd, a non-resident telecommunication supplier - paragraph 38-570(3)(c).

While in Australia, Charlie's smart phone is damaged and he acquires a replacement. Charlie inserts his Subscriber Identity Module (SIM) card into that phone so that he is able to continue to access his subscription to UK Phone Ltd. The supply of global roaming is still GST-free (both the supply by the non-resident telecommunication supplier and the supply by the Australian resident telecommunication supplier). This is because:

•

Charlie is using a portable device in Australia for sending and receiving signals, writing, images, sound and information and the device is linked to an international mobile subscriber number containing a home network identity that indicates a subscription to a telecommunication network in the United Kingdom (and so on).

Example 2.2

NZ Telco carries on outside Australia an enterprise of making telecommunication supplies and does not carry on in Australia such an enterprise. A New Zealand resident company, NZ Co, has a mobile phone agreement with NZ Telco that enables employees of NZ Co to utilise mobile services in New Zealand and global roam in Australia (the supply by the non-resident telecommunication supplier).

Hayley, an employee of NZ Co, uses her mobile phone in Australia to call an Australian business contact, make calls to New Zealand and receive calls from Australia and New Zealand. The calls made and received involve usage of Aus Telco's Australian network as permitted under the international roaming agreement between NZ Telco and Aus Telco (the supply by the Australian resident telecommunication supplier).

The supply by the non-resident telecommunication supplier made by NZ Telco to NZ Co and the supply by the Australian resident telecommunication supplier made by Aus Telco to NZ Telco and provided to Hayley in Australia are both GST-free. This is because:

•

Hayley is using a portable device in Australia for sending and receiving signals, writing, images, sound or information and the device is linked to an international mobile subscriber number containing a home network identity that indicates a subscription to a telecommunication network in New Zealand (that is, outside Australia) - paragraph 38-570(1)(a);

•

The supply is made to NZ Co in connection with its subscription to NZ Telco - paragraph 38-570(2)(a);

•

NZ Co is billed for the supply to its address in New Zealand - paragraph 38-570(2)(b);

•

NZ Telco carries on outside Australia an enterprise of making telecommunication supplies and does not carry on in Australia such an enterprise - paragraph 38-570(2)(c);

•

Aus Telco is an Australian resident carrier and provides Hayley with telecommunication supplies in Australia - subparagraph 38-570(3)(a)(i) and paragraph 38-570(3)(b); and

•

Aus Telco makes the supply to NZ Telco, a non-resident telecommunication supplier - paragraph 38-570(3)(c).

Example 2.3

UKinternet Ltd (a United Kingdom Internet service provider) carries on outside Australia an enterprise of making telecommunication supplies and does not carry on in Australia such an enterprise. Julia resides in the United Kingdom and has a subscription with UKinternet Ltd. UKinternet Ltd provides Julia with broadband internet within the United Kingdom. She operates a voice over Internet protocol (VOIP) account and an email account through her broadband subscription. Prior to visiting Australia, Julia arranges with UKinternet Ltd to activate global roaming, which allows her to access her UKinternet Ltd service whilst in Australia (a supply by a non-resident telecommunication supplier) via her laptop.

UKinternet Ltd enters into a wholesale relationship with Austinternet Ltd, an Australian internet service provider, to provide UKinternet Ltd's global roaming customers with access to Austinternet Ltd's network. While in Australia, Julia enters her UKinternet Ltd username and password. She is then connected to her UKinternet Ltd account via Austinternet Ltd's network. UKinternet Ltd imposes a user charge on this service which appears on Julia's UKinternet Ltd account in the United Kingdom.

The supply by the non-resident telecommunication supplier, made by UKinternet Ltd to Julia and the supply by the Australian resident telecommunication supplier, made by Austinternet Ltd to UKinternet Ltd and provided to Julia in Australia, are both GST-free. This is because:

•

Julia is using a portable device in Australia for sending and receiving signals, writing, images, sound or information and the device is linked to an Internet Protocol address containing a home network identity that indicates a subscription to a telecommunication network in the United Kingdom (that is, outside Australia) - paragraph 38-570(1)(a);

•

The supply is made to Julia in connection with her subscription to UKinternet Ltd - paragraph 38-570(2)(a);

•

Julia is billed for the supply to her address in the United Kingdom - paragraph 38-570(2)(b);

•

UKinternet Ltd carries on outside Australia an enterprise of making telecommunication supplies and does not carry on in Australia such an enterprise - paragraph 38-570(2)(c);

•

Austinternet Ltd is an Australian resident Internet service provider and provides Julia with telecommunication supplies in Australia - subparagraph 38-570(3)(a)(ii), paragraph 38-570(3)(b); and

•

Austinternet Ltd makes the supply to UKinternet Ltd, a non-resident telecommunication supplier - paragraph 38-570(3)(c).

Example 2.4

Cheap Fones Pty Ltd carries on in Australia an enterprise of making telecommunication supplies. Edwin, a United Kingdom resident who is currently in Australia, enters into a telecommunication contract with Cheap Fones Pty Ltd (an Australian resident telecommunication supplier) to provide him with mobile telephone services, including global roaming, while he is in Australia. The supply of telecommunication services by Cheap Fones Pty Ltd to Edwin is not covered by new section 38-570 and is subject to GST.

Although Edwin is a non-resident, he is a subscriber of an Australian resident telecommunication supplier. There is no supply between a non-resident telecommunication supplier and its subscriber and consequently no supply made by an Australian resident telecommunication supplier to a non-resident telecommunication supplier to provide a subscriber of the non-resident telecommunication supplier with access to the Australian resident telecommunication supplier's network in Australia. The supply made by Cheap Fones Pty Ltd is a taxable supply (assuming the requirements of section 9-5 are satisfied).

If Edwin were to visit an Internet café in Australia to access Internet services, the supply of Internet access to Edwin by the Internet café would also be a taxable supply as it is not a supply between a non-resident telecommunication supplier and its subscriber.

Global roaming telecommunication supplies

2.27 The type of telecommunication supply provided to the user of a portable device under a global roaming arrangement is not limited by this amendment. Those supplies include transmission of voice, pictures and text messages, email and Internet access. A variety of information and entertainment services may be delivered by telecommunication suppliers to roaming customers. A charge that is for the content delivered to a portable device as distinct from the transmission service to deliver that content is not covered by this amendment. For example, a separate charge for a pay-per-view sporting event that is delivered to a portable device is not for a telecommunication supply.

Portable devices for the purposes of section 38-570

2.28 Due to the convergence of telecommunication device capabilities in recent years, there are many portable devices which subscribers of non-resident telecommunication suppliers may use to access global roaming in Australia. These include mobile phones, smart phones, personal digital assistants, laptop computers and Universal Serial Bus (USB) modems. However, portable devices do not include devices that do not use telecommunication networks, for example, walkie talkies and radio communications devices.

Application and transitional provisions

2.29 This amendment applies to supplies made on or after 1 July 2000, the commencement date of the GST.

Chapter 3 - GST amendments to third party payment adjustment provisions

Outline of chapter

3.1 Schedule 3 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to ensure the third party payment adjustment provisions operate appropriately, irrespective of whether relevant parties in the supply chain are members of the same goods and services (GST) group, GST religious group or GST joint venture.

Context of amendments

3.2 Where a registered entity supplies a thing to another entity (intermediary) and that intermediary on sells that thing to a third party, the original supplier (the payer) of the thing sometimes makes a payment (a third party payment) to the third party (the payee). Under Division 134, the third party payment adjustment provisions, which come into effect on 1 July 2010, the payer remits GST based on the price for which it sells the thing to the intermediary but can also claim a decreasing adjustment for the third party payment. If the payee is a registered entity it is required to make an increasing adjustment to reflect the effective decrease in the consideration paid for the thing. No increasing adjustment arises if the payee is not registered for GST. The net outcome should be that the appropriate amount of GST is collected throughout the supply chain - that is, in the case of taxable supplies, one-eleventh of the final (GST-inclusive) purchase price.

3.3 Due to their interaction with existing GST grouping, GST religious grouping and GST joint venture rules, the third party payment adjustment provisions can have unintended consequences for third party payments involving members of the same GST group or GST religious group and operators and participants in a GST joint venture.

Payer and intermediary grouped

3.4 Paragraph 134-5(1)(b) states that, for a decreasing adjustment to arise for a payment to a third party, the supply to the intermediary must be a taxable supply. However, sections 48-40 and 49-30 of the GST Act provide that a supply made between members of the same GST group, or GST religious group, will be treated as if it were not a taxable supply. This results in payers who are members of the same GST group, or GST religious group, as the intermediary to which the supply is made, being unable to claim a decreasing third party payment adjustment where they would otherwise be entitled to do so if the supply had been taxable under the general rules. Further, an increasing adjustment will arise in respect of the third party payment (unless the payee is also a member of the same group). As a result, too much GST is collected through the supply chain.

Intermediary and payee grouped

3.5 Conversely, paragraph 134-10(1)(b) states that, for an increasing adjustment to arise for a payment to a third party, the payee's acquisition from the intermediary must be a creditable acquisition. However, sections 48-45 and 49-35 of the GST Act provide that an acquisition from a member of the same GST group, or GST religious group, is not a creditable acquisition. This results in payees who are members of the same GST group, or GST religious group, as the intermediary from which the acquisition is made, not being required to make an increasing adjustment where they would otherwise be required to do so if the acquisition would have been a creditable acquisition under the general rules. Further, a decreasing adjustment will arise in respect of the third party payment (unless the payer is also a member of the same group). As a result, too little GST is collected through the supply chain.

GST joint ventures

3.6 Similar unintended consequences arise for third party payments involving participants in a GST joint venture. Subsection 51-30(2) of the GST Act provides that a supply that a joint venture operator makes to a participant in the GST joint venture is treated as if it were not a taxable supply in certain circumstances. If the GST joint venture operator subsequently makes a third party payment to another entity then it will be unable to claim a decreasing adjustment where it would otherwise be entitled to do so if the supply had been taxable under the general rules. However, an increasing adjustment may still arise in respect of the third party payment resulting in too much GST being collected through the supply chain.

3.7 Conversely, a participant in a GST joint venture may acquire a thing from its GST joint venture operator. As the acquisition is not a creditable acquisition (because the supply to it is treated as if it were not a taxable supply as a result of subsection 51-30(2) of the GST Act) it is not required to make an increasing adjustment where it would have otherwise been required to if the acquisition would have been a creditable acquisition under the general rules. However, a decreasing adjustment may still arise in respect of the third party payment resulting in too little GST being collected through the supply chain.

3.8 An example of where the overall GST collected would exceed one-eleventh of the price of the final supply is illustrated in Example 3.1.

Example 3.1 : GST groups: Payer and intermediary grouped - no decreasing adjustment available

In this example the manufacturer (the payer) is in a GST group with the wholesaler. The manufacturer makes a supply of goods to the wholesaler for $660 and pays a rebate of $110 to the retailer of the goods. The supply from the manufacturer to the wholesaler is not treated as a taxable supply as they are members of the same GST group. Consequently the manufacturer is not required to remit GST on the supply and cannot claim a decreasing adjustment in respect of the rebate.

When the wholesaler makes a supply of the goods to the retailer for $880 the wholesaler has a GST liability of $80. Because the acquisition from the manufacturer was an acquisition from a member of the same GST group the acquisition was not a creditable acquisition and no input tax credit entitlement arises. The wholesaler must therefore remit GST of $80.

The retailer sells the goods to a customer for $1,100 and therefore has a GST liability of $100 and an entitlement to input tax credits of $80. However, under Division 134 of the GST Act, the retailer is required to make an increasing adjustment of $10 in respect of the rebate and must therefore remit net GST of $30.

In total, $110 of GST has been remitted in relation to the supply of the goods. However, the GST normally payable on supplies with a retail value of $1,100 is $100.

Summary of new law

3.9 From 1 July 2010 third party payment adjustments will arise where there are payments which would normally give rise to such adjustments but the relevant parties in the supply chain are members of the same GST group, GST religious group or GST joint venture.

Comparison of key features of new law and current law

Detailed explanation of new law

3.10 Paragraph 134-5(1)(b) contains a provision that modifies the requirement for supplies by the payer to be a taxable supply in order to give rise to a decreasing adjustment, to include a supply that would have been a taxable supply but for a reason which is listed in subsection 134-5(3).

3.11 Paragraphs 134-5(2)(a) and (b) and subparagraph 134-5(2)(b)(ii) contain provisions that modify the method for calculating a decreasing adjustment arising under subsection 134-5(1), to take account of the GST which would have been payable on a supply that would have been a taxable supply, but for a reason which is listed in subsection 134-5(3).

3.12 Subsection 134-5(3) lists the reasons why a supply may not be a taxable supply but will still give rise to a decreasing adjustment under subsection 134-5(1). The reasons are that the payer and the other entity to which the supply is made are members of the same GST group or GST religious group or that the payer is the joint venture operator for a GST joint venture in which the other entity is a participant.

3.13 Subsection 134-5(4) provides that subsection 134-5(3) does not apply if the payer and the payee are both members of the same GST group or GST religious group at the time the third party payment is made.

3.14 Paragraph 134-10(1)(b) contains a provision that modifies the requirement for an acquisition by the payee to be a creditable acquisition in order to give rise to an increasing adjustment, to include an acquisition that would have been a creditable acquisition, but for a reason which is listed in subsection 134-10(3).

3.15 Paragraphs 134-10(2)(a) and (b) and subparagraph 134-10(2)(b)(ii) contain provisions that modify the calculation of an increasing adjustment arising under subsection 134-10(1), to take account of the input tax credit which would have been available had the acquisition, been a creditable acquisition, but for a reason which is listed in subsection 134-10(3).

3.16 Subsection 134-10(3) lists the reasons why an acquisition may not be a creditable acquisition, but still give rise to an increasing adjustment under subsection 134-10(1). The reasons are that the payee and the other entity from which the acquisition is made are members of the same GST group or GST religious group or the payee is the joint venture operator for a GST joint venture in which the other entity is a participant.

3.17 Subsection 134-10(4) provides that subsection 134-10(3) does not apply if the payer and the payee are both members of the same GST group or GST religious group at the time the third party payment is made.

3.18 Section 134-30 ensures that the single entity rules in sections 48-55 and 49-50 are not interpreted as overriding Division 134 and preventing the relevant adjustments from arising. However, sections 48-55 and 49-50 are taken into account in determining the amount of increasing adjustment under subsection 134-10(2). This means that, in determining the creditable purpose of the payee, the payee's enterprise is not considered in isolation, but rather on the basis that the GST group, or GST religious group, is a single entity.

3.19 Under the existing sections 48-50 and 51-40, the relevant adjustments will be made by the representative member of the GST group, or in some circumstances the joint venture operator, as appropriate.

Application and transitional provisions

3.20 These amendments apply to third party payments made on or after 1 July 2010.

Index

Schedule 1: GST and cross-border transport supplies

Schedule 2: GST relief for telecommunication supplies for global roaming in Australia