House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

Indirect Tax Acts

Schedule 1 to this Bill makes a number of amendments to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act) and the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act). Most are minor policy and technical amendments and include amendments to:

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ensure that exports are GST-free when ownership of goods passes to an overseas purchaser, who is not registered or required to be registered, before the goods are removed from Australia;

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provide special rules to reduce compliance costs for retailers who sell both taxable and GST-free goods (known as simplified accounting methods);

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confine the GST-free treatment of cows milk to processed cows milk;

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increase the 50% market value and cost of supply tests for the non-commercial supplies of charities to 75% for supplies of supported accommodation/community housing;

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double the existing cash accounting threshold to $1 million, and to allow the Commissioner of Taxation to make a cash accounting threshold determination for a class of entities so as to reduce the need for entities to apply individually;

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ensure that a return of a luxury car for repair purposes is not an adjustment event;

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align the grouping and joint venture provisions for the LCT with the GST;

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clarify the rules regarding liability for LCT on taxable importations;

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correct minor technical issues to LCT value;

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the wine definition to provide greater certainty as to the types of products covered by the WET;

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to ensure that private importations of wine are subject to WET;

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align the grouping and joint venture provisions for the WET with the GST; and

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remove wine tax credit related to intended export sales and clarify credit for sales to overseas travellers.

Date of effect: 1 July 2000

Proposal announced: Not announced

Financial impact: Negligible

Compliance cost impact: Compliance costs for these measures are expected to be negligible.

Customs Act 1901

Schedule 2 to this Bill makes a number of minor policy and technical amendments to the Customs Act 1901 (Customs Act). These include amendments to:

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allow Customs to remove from the COMPILE computer system an import entry that has been lodged, but not acted upon, where the entry covers goods that attract any duty, fee, charge or tax;

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ensure that the regulations will allow a security or an undertaking to be given in relation to goods that are imported on a temporary basis, and which would otherwise be subject to GST or LCT;

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ensure that an import entry is deemed to have been withdrawn if, in relation to the goods covered by the import entry, a fee, charge or tax that is payable remains unpaid; and

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make consequential amendments to the Customs Act.

Date of effect: Various

Proposal announced: Not announced

Financial impact: Negligible

Compliance cost impact: The compliance costs for these measures are expected to be negligible.

Income Tax Assessment Act 1997

This Bill makes a number of consequential amendments to the Income Tax Assessment Act 1997. These include amendments to:

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exclude GST from income derived and, to the extent of an entitys input tax credit entitlement, from deductible amounts;

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exclude GST from amounts taken into account in calculating assessable income or deductions, such as disposal proceeds and cost-base elements for capital gains tax (CGT) purposes; and

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change certain terms used in income tax provisions to ensure consistency of meaning with the GST law.

Date of effect: 1 July 2000

Proposal announced: Not announced

Financial impact: Negligible. The amendments ensure that the net GST liabilities of entities are not subject to income tax.

Compliance cost impact: Minimal, as the GST component of transaction amounts will be readily ascertainable through tax invoices or as 1/11 of the relevant amount.

Trade Practices Act 1974, Tax Administration Acts and Indirect Tax Transition Acts

Schedules 4, 5 and 6 to this Bill make a number of minor policy and technical amendments to Commonwealth legislation. These include amendments to:

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bring forward the date of effect of the Australian Competition and Consumer Commissioners (ACCCs) enforcement powers under the Trade Practices Act 1974 so that the ACCC can exercise those powers immediately with respect to unreasonable price rises made before the GST is introduced;

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section 11 of the A New Tax System (Goods and Services Tax Transition) Act 1999 (GST Transition Act) to ensure that certain rights associated with warranties, software and options to purchase under hire-purchase agreements are not subject to GST where they relate to payments made prior to 1 July 2000;

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ensure that the grouping provisions cannot be used to circumvent the phasing in of credits for motor vehicles; and

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to provide a concession for vehicles purchased before 2 December 1998 and used in operating leases.

Date of effect: Various

Proposal announced: Not announced

Financial impact: Negligible

Compliance cost impact: Expected to decrease for GST registrants.

Amendments relating to the Tradex scheme

The Tradex scheme provides relief to businesses that currently pay customs duty and wholesale sales tax (WST) on imported goods that are subsequently re-exported or used as inputs to exports.

The Tradex scheme will assist importers who bring goods into Australia temporarily for activities such as processing, packaging or warehousing prior to export. The measures contained in these amendments, will enable goods imported into Australia under the Tradex scheme, to be entered free of WST, GST and WET. The amendments also ensure that if goods imported under the Tradex scheme are not exported or are used contrary to the Tradex rules, the relevant tax will be payable.

Date of effect: If the Tradex Scheme Act 1999 (Tradex Act) commences before 1 July 2000, the amendments affecting the WST commence on the day that Act commences and the amendments affecting GST and WET will commence immediately after the commencement of the GST on 1July 2000.

If the Tradex Act commences on 1 July 2000, the amendments affecting the WST will never commence, and the amendments affecting GST and WET will commence immediately after the commencement of the GST on 1 July 2000. If the Tradex Act commences after 1 July 2000, the amendments affecting WST will never commence, and the amendments affecting GST and WET will commence on the day that Act commences.

Proposal announced: The Tradex scheme was announced by the Prime Minister on 7 December 1997 as a key element of the Governments Investing for Growth industry statement.

Financial impact: Forward estimates make provision for an additional $30 million a year revenue cost as a result of the introduction of the Tradex scheme.

Compliance cost impact: The compliance impact of this measure will be negligible.

Other Acts

Schedule 8 to this Bill makes a number of consequential amendments to Commonwealth legislation, including the:

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Administrative Decisions (Judicial Review) Act 1977;

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Crimes (Taxation Offences) Act 1980;

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Freedom of Information Act 1982;

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Income Tax Assessment Act 1936; and

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Taxation (Interest on Overpayments and Early Payments) Act 1983.

Date of effect: 1 July 2000

Proposal announced: Not announced

Financial impact: Nil

Compliance cost impact: Nil

Chapter 1 - Indirect Tax Acts

Outline of Chapter

1.1 This Chapter explains the amendments contained in Schedule 1 to the A New Tax System (Indirect Tax and Consequential Amendments) Bill 1999 (this Bill). Schedule 1 contains a number of minor policy and technical amendments and is divided into the following Parts:

Part 1 Amendments to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act);

Part 2 Amendments to the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act); and

Part 3 Amendments to the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act).

1.2 The remainder of this Chapter explains these amendments in more detail.

Part 1 Amendment of the A New Tax System (Goods and Services Tax) Act 1999

Ensuring the States and Territories are bound by the GST law

1.3 Item 1 amends Division 1 of the GST Act to provide for the States and Territories to have similar obligations under the goods and services tax (GST) law as other GST registrants (e.g. in relation to keeping records and providing invoices). [New section 1-4]

1.4 This measure is a technical amendment to ensure that the GST law binds the States and Territories. However, non-compliance by the States and Territories under the GST law cannot be prosecuted.

1.5 Section 1-3 of the LCT Act and section 1-4 of the WET Act already give effect to this measure in respect of those taxes.

Basic terms not identified with an asterisk

1.6 Item 2 corrects a drafting error that did not list the term individual in the table of Common definitions that are not asterisked (subsection 3-5(3)). The term is used without an asterisk throughout the legislation, even though it is a defined term in section 195-1.

Supplies and acquisitions

1.7 The meaning of supply in section 9-10 does not include a supply of money unless the money is provided as consideration for a supply of money. However, this exclusion has been drafted as part of subsection 9-10(2). This does not fulfil the Governments original intention of applying the exclusion to any form of supply, rather than to those forms of supply listed in subsection 9-10(2).

1.8 Items 3 and 4 amend section 9-10 to correct this error.

1.9 Items 12 and 13 correct a similar technical anomaly in section11-10 in relation to the term acquisition. Item 13 applies the exclusion to any form of acquisition.

Consideration

1.10 The current wording of section9-15 only excludes monetary gifts from the definition of consideration (paragraph 9-15(3)(b)).

1.11 Item 5 amends the paragraph to exclude from the definition of consideration, all gifts to non-profit bodies. This will bring the provision into line with the Governments original intention.

Clarify place of supply rule for real property

1.12 Item 6 clarifies the place of supply rule for real property in subsection 9-25(4) of the GST Act. If the real property, or the land to which the real property relates is in Australia, then the supply of the real property is connected with Australia.

Exclude luxury car tax from the value of a supply

1.13 Section 9-75 of the GST Act contains the formula for calculating the value of a taxable supply.

1.14 Item 8 contains a technical amendment to section 9-75, to ensure that the luxury car tax (LCT) is not included when calculating the value of a taxable supply [new subsection9-75(2)] . This brings the legislation into line with the Governments original intention.

1.15 Item 150 makes a corresponding change to the Dictionary (section 195-1), inserting a definition of luxury car tax .

Expression of amounts in Australian currency

1.16 The value of taxable supplies, which is the basis for calculating the amount of GST, is to be expressed in Australian currency. [Item 9, newsubsection 9-85(1)]

1.17 If any consideration you receive for a taxable supply is expressed in a foreign currency it is to be converted into Australian currency to determine the value of the supply. The Commissioner of Taxation (the Commissioner) will provide guidelines on the exchange rates to be used for converting amounts of foreign currency. [Item 9, newsubsection 9-85(2)] Item 49 is a technical amendment to Division 35 (Refunds) and requires your financial institution account to which refunds are paid, to be an account maintained in Australia.

Checklist of special rules relating to the amount of GST on taxable supplies

1.18 Section 9-99 lists Divisions of the GST Act that contain special rules relating to the amount of GST on taxable supplies. However, a drafting error has resulted in a reference to second-hand goods and Division 66.

1.19 Division 66 concerns the claiming of input tax credits with respect to second-hand goods and not rules as to the amount of GST payable.

1.20 Item 11 repeals this reference to second-hand goods and Division 66 in section9-99.

Partly creditable rule

1.21 Acquisitions that are used to make input taxed supplies are not acquired for a creditable purpose. Subsection 11-30(4) of the GST Act has a financial supplies threshold if your acquisition relates partly to making input taxed financial supplies. The acquisition can be taken to be acquired fully for a creditable purpose, where the threshold is satisfied and your annual value of financial supplies does not exceed the lesser of:

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$50,000; or

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5% of annual turnover (including input taxed supplies).

1.22 Currently, this threshold for financial supplies only applies if the acquisition is for a partly creditable purpose. If acquisitions are used solely (i.e. fully) in making input taxed supplies they are not for a partly creditable purpose, and the threshold will not apply even though it may be met.

1.23 Items 14 and 15 move the threshold to section11-15 so that the threshold will apply if the acquisition is used either solely or partly for making input taxed financial supplies.

1.24 Similarly, the financial supplies threshold contained in Division15 of the GST Act (relating to creditable importations) is moved so that the threshold will apply if the importation is used either solely or partly for making input taxed financial supplies. [Items 23 and 24]

Remove redundant words in section 13-20(2)(a)

1.25 Customs value is contained within the Dictionary at section 195-1 of the GST Act. It is defined as the customs value of the goods for the purposes of Division 2 of Part VIII of the Customs Act 1901. Item 18 amends paragraph 13-20(2)(a) to refer to the defined term and to remove an unnecessary repetition.

Value of importations to include wine equalisation tax

1.26 Subsection 13-20(1) provides that the amount of GST payable on a taxable importation is 10% of the value of that importation. Subsection 13(2) sets out that value is the sum of the customs value of the goods, freight, insurance and customs duty payable. Wine tax payable for the goods is not currently included in the calculation.

1.27 Item 20 amends subsection 13-20(2) so that the value of importations will include any wine tax payable for goods imported into Australia (local entry of goods). Items 149 and 166 add definitions for local entry and wine tax to section 195-1.

Move Division 69 references from sections 13-99 to 15-99

1.28 Division 69 modifies the rules relating to creditable importations. There is currently an incorrect reference to Division 69 in section 13-99, table item 4, (special rules relating to importations). Items 22 and 25 move this reference from section 13-99 to section 15-99 (special rules relating to creditable importations).

Explanation of the effect of adjustment events

1.29 Item 27 amends section 19-5 to include a note explaining that the section is an explanatory section.

1.30 Explanatory sections form part of the GST Act but are not operative provisions. In interpreting an operative provision, explanatory sections may only be considered for limited purposes as set out in subsection 182-10(2).

Return for a repair not an adjustment event

1.31 Section 19-10 of the GST Act outlines adjustment events and sets out the circumstances under which an adjustment event can arise. It is not envisaged that the return of a thing for repair or maintenance would be considered to be an adjustment event. Item 28 will amend the GST Act to insert new subsection 19-10(4) , which specifically excludes as an adjustment event a thing returned for repairs and maintenance. [New subsection 19-10(4)]

Previously attributed input tax credit amounts

1.32 Items 29 and 30 correct a drafting error in the formula for calculating the previously attributed input tax credit amount in section 19-75.

GST registration recorded on Australian Business Register

1.33 The date of effect of an entitys registration and the date of effect of cancellation of registration for GST purposes are to be recorded in the Australian Business Register. [Items 31 and 32, new subsections 25-10(2) and 25-60(2)]

1.34 The terms Australian Business Register and Australian Business Registrar , referring to corresponding terms in the A New Tax System (Australian Business Number) Act 1999, will be added to the Dictionary in the GST Act. [Items 134 and 135]

Determining a start date when an entity registers for GST

1.35 Where tax periods have changed, section 27-30 allows the Commissioner to determine that any specified period is a tax period.

1.36 Item 33 amends subsection 27-30(1) to allow the Commissioner to determine a start up tax period at the time that an entity registers, in addition to when the tax period changes.

Concluding tax periods

1.37 Under section 27-40, if an individual or other entity ceases to carry on any enterprise, the individuals or entitys tax period is taken to have ceased at the end of the day before the cessation.

1.38 Item 34 clarifies this position, by specifying that the tax period ceases at the end of the day on which the cessation occurred. [New subsections27-40(1) and 27-40(1A)]

Creditable importations to be attributed to tax period in which GST liability arose

1.39 Item 36 adds new subsection 29-15(2) so that if section 33-15 applies to payment of the GST on the importation, the input tax credit is attributable to the tax period in which the liability for the GST arose. Section 33-15 enables regulations to be made which could allow for the deferral of GST payments in respect of imports.

Cash basis accounting option for taxpayers accounting for income tax on a cash basis

1.40 Item 37 repeals subsection 29-40(1) (choosing to account on a cash basis) and inserts a new subsection. The amendment provides that you may choose to account on a cash basis if:

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your annual turnover does not exceed the cash accounting turnover threshold;

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you account for income tax purposes on a cash basis; or

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you carry on an enterprise of a kind the Commissioner has determined in writing may choose to account for GST on a cash basis.

Your choice will have effect from the first day of the tax period that you choose. [New subsection 29-40(1)] As a result of this amendment, subparagraph 29-45(1)(b)(iii) is repealed and a minor amendment is made to subparagraph 29-45(1)(b)(ii). [Items 40 and 41]

Cash basis accounting

1.41 Item 38 makes a consequential amendment to subsection 29-40(2) to reflect the amendments to subsection 29-40(1).

Cash accounting turnover threshold to be $1 million

1.42 The cash accounting turnover threshold in subsection 29-40(3) as currently drafted is $0.5million. Item 39 increases the threshold to $1million (or such higher amount as the regulations specify).

Documents treated as tax invoices and adjustment notes

1.43 For an acquisition where the price of the taxable supply is more than $55, an input tax credit is attributed to the tax period in which you first hold a tax invoice for the acquisition. Ordinarily, an adjustment note must also be held to attribute a decreasing adjustment to a tax period. The GST Act provides for exceptions to these requirements if the Commissioner determines the circumstances in which the holding of a tax invoice or adjustment note is not necessary (sections 29-10 and 29-20). Apart from these circumstances your entitlement to an input tax credit (or decreasing adjustment) depends on you having a document that satisfies the information requirements for tax invoices (or adjustment notes).

1.44 There may be situations where you hold a document that strictly does not meet the information requirements for tax invoices or adjustment notes as prescribed by the GST Act, the regulations and the applicable form (if any) approved by the Commissioner. In those situations the requirement to hold a tax invoice or adjustment note may impose a disproportionate burden on you, particularly if you hold a document that substantially complies with the requirements and the entitlement to the input tax credit or decreasing adjustment is otherwise verified.

1.45 The Commissioner is to be given the discretion to treat, as a tax invoice or adjustment note, a document held in such situations. [Items42 and 43]

When GST returns must be given

1.46 Generally, a GST return for a tax period must be provided to the Commissioner on or before the 21st day of the month following the end of that tax period (section 31-10). An entity may change the day on which its tax period ends if this is consistent with its commercial accounting periods (section 27-35). The day must not be more than 7 days earlier or 7days later than the day on which the tax period would otherwise end.

1.47 Item 44 amends section 31-10, to ensure that if an entity adopts a different day, the due date for submitting a GST return will not be deferred by a month. For example, if the new end date for the tax period is during the first 7 days of a month, the due date for the return will still be the 21st day of that month, and not the month following.

1.48 This brings the due dates under section 31-10 into line with the due dates for payment of net amounts (section 33-5). This amendment brings the provision into line with the Governments original intention.

Provision of GST return information

1.49 The authority for the Commissioner to direct that further or fuller GST returns be given is to be modified so that the Commissioner can require GST return information to be provided in the approved form. Sucha return need not require the net amount (as stated in the original GST return for the tax period) to be repeated. [Item 45, new subsection 31-20(2)]

Exception for mandatory electronic GST returns

1.50 The requirement that an entity with an annual turnover that exceeds the electronic lodgment turnover threshold ($20 million) must lodge its GST returns electronically, is to be modified so that it will be relieved of that obligation if the Commissioner considers that it is not practicable for the entity to do so. There may be technical barriers to compliance with this requirement in some situations. [Item 46]

Customs able to refuse delivery until GST paid

1.51 Amounts of GST on taxable importations are to be paid by the importer to the Commonwealth at the same time, place and manner as customs duty is payable on the goods. Under Customs legislation, a Customs officer can refuse to deliver the goods if the customs duty is not paid. The GST Act does not currently confer such a power.

1.52 Item 47 adds new subsection 33-15(2) to the GST Act so that a Customs officer may refuse to deliver goods until the GST for those goods has been paid.

Beverages must be for human consumption

1.53 Under the GST Act, basic food and drink are GST-free. Food is defined in section38-4 to include, amongst other things, food (and ingredients for food) for human consumption and beverages (and ingredients for beverages).

1.54 There is no requirement that the beverages (and ingredients for beverages) be for human consumption. As such, beverages as specified in Schedule2 will be GST-free, whether or not they are for human consumption. For example, milk powder not fit for human consumption, but used for animal feed would be GST-free.

1.55 Item51 amends section38-4 so that only beverages, and ingredients for beverages, for human consumption are GST-free.

Supplies of unprocessed cows milk not to be GST-free

1.56 Subsection 38-4(1) is amended so that the GST-free treatment of milk does not apply to unprocessed cows milk. Unprocessed supplies of other types of milk, such as goats milk, will continue to be GST-free. Item52 amends the subsection so that unprocessed cows milk is excluded from the definition of food. [New paragraph 38-4(1)(ga)]

Other health services

1.57 Item 53 will amend the table in Section 38-10 of the GST Act, specifying supplies of medical services that are GST-free by substituting the term optometry for optician. This amendment more accurately reflects the type of medical service that is intended to be GST-free.

1.58 Items 125 and 126 amend section 182-15 to correct a technical anomaly, to ensure that column 2 of Schedule 3 to the GST Act is non-operative.

Drugs and medicinal preparations

1.59 Items 54 to 57 clarify the circumstances in which drugs and medicinal preparations are GST-free and ensures that the provision correctly reflects the Governments original policy intention. The current provision is too restrictive in its specification of drugs and medicinal preparations which come under section 38-50 of the GST Act.

1.60 It describes the range of drugs that are GST-free as those which may only be supplied on prescription, or by doctors, dentists, pharmacists or pharmacies. However, under State or Territory law, these drugs may also be supplied by other health professionals such as optometrists and chiropodists in certain circumstances. The current provision does not apply to such situations with the effect that such drugs or medicinal preparations would not be GST-free.

1.61 The Governments policy intention is that the drugs and medicinal preparations which are GST-free are those which:

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under State and Territory law relating to the classification of substances such as drugs, medicines or poisons, for the purpose of regulating or restricting supply of those substances and products containing those substances;

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are prescription products (Schedules 4 and 8 of the Standard for the Uniform Scheduling of Drugs and Poisons (SUSDP) refer);

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can generally only be sold in pharmacies or under the advice of pharmacists (Schedules 2 and 3 respectively of the SUSDP refer); or

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are listed on the Pharmaceutical Benefits Scheme or the Repatriation Pharmaceutical Benefits Scheme and supplied on prescription;

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are pain relief products available in smaller pack sizes, with a single active ingredient; or

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are supplied under the Special Access Scheme (SAS), (see paragraph 1.63).

1.62 It is also the intention of the Government that the sale of these drugs and medicinal preparations is only GST-free at the point of retail sale, and that the supply of drugs and medicinal preparations for humans only will be GST-free. [Item 57, new subsection 38-50(7)]

1.63 A further amendment to section 38-50 is required so that drugs and medicines sold under the SAS will be GST-free. Normally, medicinal products need to be approved for inclusion on the Australian Register of Therapeutic Goods before they can be marketed in Australia. However, a small number of exceptions are made to this requirement, for example, in circumstances where a person has a life threatening or other serious condition and approved products are unsuitable. These exemptions are administered through the SAS.

1.64 To these ends, the following items amend section 38-50:

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Item 54 amends paragraph 38-50(1)(b) of the GST Act by substituting the words prohibited except with, restricted, but may be supplied. This amendment more accurately describes prescription medicines that must be supplied on prescription in all but limited circumstances.

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Item 55 amends subsections 38-50(2) and (3) of the GST Act to clarify the drugs and medicinal preparations that are GST-free. Drugs and medicinal preparations of a kind specified in regulations are not GST-free. [New subsections 38-50(2) and (3)]

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Item 56 amends the GST Act by substituting subsection 38-50(3) with subsection 38-50(2).

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Item 57 inserts new subsection 38-50(6) . This amendment will allow drugs made available under the SAS to be GST-free.

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Item 57 also adds new subsection 38-50(7) . This amendment limits the GST exemption to drugs supplied to individuals for human consumption. [New subsection 38-50(7)]

Private health insurance

1.65 Items 58 and 59 amend section 38-55 to exclude reinsurance from the private health insurance exemption. These amendments ensure that reinsurance of health insurance is treated the same way as for other reinsurance. Purchasers of reinsurance can claim an input tax credit for GST paid, so an exemption for reinsurance is not necessary.

Spare parts for international flights or voyages

1.66 Subsection 38-185(1) sets out the supplies of exported goods that are GST-free. Item 5 of the table currently limits GST-free treatment of goods that are consumed on international flights or voyages to stores for use, consumption or sale on the international flight or voyage.

1.67 Item 64 amends item 5 in the table in subsection 38-185(1) so that GST-free treatment for goods consumed on international flights or voyages is extended to spare parts.

Export related amendments

1.68 Items 60 to 63 amend a number of items in the table in section 38-185 to ensure that exports prior to an invoice being issued or a payment received will be GST-free. Currently an export is GST-free if the supplier exports the goods from Australia within 60 days after any payment is made or, if earlier, the day on which an invoice is provided. This amendment changes the within 60 days requirement to before or within 60 days to cover those situations where goods are exported before payment is made and before an invoice is issued.

1.69 Under the existing legislation, where the ownership of goods to be exported transfers to the overseas purchaser while the goods are still in Australia, the purchase is subject to GST. Currently, a non-resident overseas business, purchasing and taking delivery of goods in Australia, would need to be registered and claim a GST input tax credit in order for these goods to become GST-free. This may impose unnecessary compliance costs on the non-resident or result in a change in business practices. Item 65 inserts new subsection 38-185(3) into the GST Act. This amendment ensures that exports are GST-free when ownership of goods passes to an overseas purchaser, who is not registered or required to be registered, before the goods are removed from Australia.

1.70 The new section imposes some requirements on the supplier for the supply to be GST-free. Essentially the supplier will be treated as having exported the goods from Australia if:

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the supply is made to an entity that is not registered and required to be registered;

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that entity exports the goods from Australia;

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the goods have been entered for export within the meaning of section 113 of the Customs Act 1901;

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the goods have not been altered or used in any way (other than preparation necessary for export) before being exported; and

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the supplier holds sufficient documentary evidence to show that the goods were exported.

1.71 If these requirements cannot be met by the supplier the supply will not be GST-free and the supplier will be liable to pay GST in respect of the supply. [Item 65]

Leases of goods for use outside Australia

1.72 Item 66 introduces new section 38-187 , which provides that a lease of goods for use outside Australia is GST-free.

Example 1.1

GFA Company in Australia leases a piece of equipment to a New Zealand company for use in New Zealand for $8,000. The supply by GFA Company will be GST-free under new section 38-187 because the leased goods will be used outside Australia.

Apply a 75% test to supported accommodation supplied by charities

1.73 Consultation with charities indicate that the 50% test is too low to give effect to the policy of making non-commercial supplies of charities GST-free in the supported accommodation/community housing sector.

1.74 Supported accommodation agencies charge clients an income-based contribution towards rental costs. In many cases this contribution is marginally above the 50% of market-value test. Not meeting the 50% test would make the supplies input taxed as residential rents, or taxable as commercial accommodation in the case of some boarding houses. Either treatment would have a negative impact on funding for this sector.

1.75 Items 67 and 68 increase the 50% market value and cost of supply tests for the non-commercial supplies of charities to 75% for supplies of supported accommodation/community housing. The test for supplies other than accommodation remains at 50%. [New paragraphs 38-250(1)(b) and 38-250(2)(b)]

Drainage services

1.76 Items 69 and 70 extend the application of the water and sewerage exemption to drainage services.

1.77 It was the Governments original policy intention that the provision of all domestic water and all waste water removal services be GST-free. However, the GST Act does not specifically refer to the drainage of storm water.

1.78 New section 38-300 ensures that a supply of a service that consists of draining storm water is GST-free.

Clarifying the treatment of the domestic transportation component of goods imported into Australia and goods exported from Australia

1.79 The GST-free transport provisions in section 38-355 currently provide that the domestic transport, loading or handling of goods is GST-free if it is an integral part of the supply of transporting goods to or from Australia and it is provided by the supplier who transports the goods to or from Australia. However, for the purpose of calculating the value of a taxable importation in section 13-20, only the international component of the transport is included. This would require an apportionment of the value of the total transport supply.

1.80 Items 71 to 75 provide for consistency between the GST-free treatment of transport and insurance and the transport and insurance component included in the value of a taxable importation.

1.81 Item 1 in the table in section 38-355 currently provides for the international transport of passenger and goods to and from Australia. Item5 in that table deals with the domestic part of transport of goods to or from Australia. Item 1 has been amended so that it now only deals with the transport of passengers. [Items 71 and 72]

1.82 Item 5 in the table has been replaced with a new item 5 which deals with both the international and domestic transport of goods to and from Australia. [Item 73]

1.83 In relation to imported goods all the costs of transporting the goods to their final port of destination in Australia will be included where the transport is provided by the same supplier. However, any local handling charges are not included (they will be the subject of a separate supply). The final port of destination will be the port or airport that is indicated on the transportation document (e.g. bill of lading). For goods posted to Australia, the final destination will be the place in Australia to which the goods are addressed.

1.84 For exported goods, the transport, loading and handling costs incurred in Australia will be GST-free where the transport is supplied by the same supplier. The transport costs will be from the place of export in Australia. The place of export will generally be the place where the goods were packed in a freight container.

1.85 The amendment contains definitions for freight container, international transport, place of consignment, place of export, and transportation document. [Items 145, 148, 153, 154, and 164]

1.86 Subsection 13-20(2) sets out the value of a taxable importation. Subparagraph 13-20(2)(b)(i) refers to the amount paid or payable to transport the goods to Australia. Item 19 substitutes this amount with the amount paid or payable for the international transport of the goods to their place of consignment in Australia. This will provide consistency between this amount and the amount of the transportation supply that is GST-free under item 5 in the table in section 38-355.

1.87 The definition of international transport for imported goods means the transport of the goods from a place outside Australia to their place of consignment in Australia (excluding loading and handling in Australia). [Item 148] The place of consignment will be the port or airport of final destination as indicated on the transportation document (e.g. bill of lading). [Item 153]

1.88 Item 21 inserts new subsection 13-20(3) which provides that the Commissioner may in writing determine ways to work out transport and insurance parts of the importation value. In many cases amounts paid for transport and insurance may cover a number of shipments. The issue of how these amounts should be apportioned between each shipment has been raised. This amendment will allow the Commissioner to determine ways to work out the transport and insurance parts of the taxable value of an importation.

Disability certificates for certain motor vehicles

1.89 Item 76 will amend subparagraphs 38-510(1)(a)(i) and (ii) of the GST Act to reflect the fact that the authority issuing disability certificates to authorise exemption from GST for motor vehicles is Health Services Australia, a government company. This amendment will provide that the Managing Director or an employee or officer of the nominated company authorised by the Managing Director can issue a disability certificate.

Goods imported by the Olympic and Paralympic family

1.90 Item 77 adds an additional category of importation that will be non-taxable in subsection 42-5(1). Item 64 in Schedule 4 to the Customs Tariff Act 1995 provides for concessions for certain prescribed goods brought into Australia by, or on behalf of, non-Australian Olympic and Paralympic Family Members for the Sydney 2000 Olympic Games and related events.

Non-taxable importations

1.91 New subsection 42-5(1A) is added by item 78 to clarify the non-taxable importation covered by item 34 in Schedule 4 to the Customs Tariff Act 1995. The non-taxable importation only relates to the containers that are to be re-exported and not the goods imported in those containers.

1.92 Subsection 42-5(2) is amended by item 79 to ensure that the importation of non-dutiable goods covered by the items in Schedule 4 to the Customs Tariff Act 1995 that are listed in subsection 42-5(1), will be non-taxable importations.

Repeal provision about ship and aircraft stores

1.93 Division 42 sets out the importations that are non-taxable. Item80 amends the Division by repealing section 42-10. This section is ineffective as goods that are ships stores or aircrafts stores lose their character as stores once they are entered for home consumption. A supply of ships/aircrafts stores is GST-free under item 5 in the table in subsection 38-185(1).

GST groups

1.94 Section 48-10 allows certain companies, partnerships, trusts and non-profit bodies to form a GST group. However, the description of What this Division is about in section48-1 only refers to certain companies being able to form a GST group.

1.95 Item 81 amends section48-1 to include a broad description of the entities which can be approved as GST groups, so as not to exclude partnerships, trusts and non-profit bodies.

Correct cross-reference in subsection 48-10(2)

1.96 Item 83 replaces an incorrect reference to paragraph 48-10(1)(a) with a reference to paragraph 48-10(1)(b).

Allow members of a group to use joint venture provisions

1.97 Item 84 repeals paragraph 48-40(2)(a) and substitutes a new paragraph so that a supply from an entity of a GST group to another member of the same GST group is treated as if it were not a taxable supply. However, these supplies are treated as taxable supplies if:

•

the entity is a participant in a GST joint venture and the entity acquired the supply from the joint venture operator for the joint venture; or

•

it is a taxable supply because of Division 84 (which is about offshore supplies other than goods or real property).

Relax participation requirements of GST joint ventures

1.98 In this amendment, membership requirements of joint ventures are altered to recognise common industry practice.

1.99 Under the GST Act all participants in a joint venture must be Australian residents. It is common practice in the minerals industry for non-resident companies to be participants of joint ventures with Australian resident companies.

1.100 Item 86 amends section 51-10 so that a company does not need to be an Australian resident in order to satisfy the participation requirements.

1.101 All joint venture participants must currently have the same tax periods. As a joint venture is not like a GST group where the group is treated as a single entity this is not necessary.

1.102 Item 86 also amends section 51-10 so that a company does not need to have the same tax periods as all the other participants in the GST joint venture in order to satisfy the participation requirements.

1.103 Currently, a company that is a member of a GST group cannot be a joint venture participant. Since most members of the mining industry will want to form GST groups, not allowing companies to be part of a group as well as a joint venture would effectively limit who can participate in a joint venture.

1.104 Items 87 and 88 further amend section 51-10 so that a company can be a participant in a joint venture even if it is a member of a GST group.

Payment of taxes, fees and charges

1.105 Items 7 and 89 to 95 are technical amendments and amend Division 81 of the GST Act to give effect to the original intention of the legislation to ensure that the payment of taxes, fees and charges are included as consideration for a taxable supply. The amendment will ensure that, subject to the Treasurers determination to exclude them, any tax, fee or charge will be consideration for a taxable supply.

1.106 Items 136 and 137 repeal the definition of Australian tax and insert a new definition of Australian tax, fee or charge into section 195-1.

1.107 Items 170, 191 and 192 are technical amendments and amend the LCT Act in relation to taxes, fees and charges, to ensure consistency with the GST Act.

Reverse charge mechanism for imported services

1.108 The normal GST rules apply so that, under section 9-40 the supplier of a taxable supply is liable to pay the GST on the supply. The rule cannot be applied in the case of an offshore supplier whose supply is deemed to be a taxable supply under section84-5. The supplier in this case will not be registered and no collection mechanisms will extend to the supplier. The normal rule used for taxable imports under section13-15 also cannot be applied to transactions subject to section84-5 since the concept of an import does not extend to intangible supplies.

1.109 Instead, the GST on a section84-5 taxable supply is collected by means of a reverse charge rule set out in section 84-10. Under the reverse charge rule, the recipient of the supply and not the supplier is liable to pay the GST on the supply.

1.110 Item 96 amends Division84 so that, if the reverse charge rule applies, the GST payable by the acquirer is 10% of the price not 1/11 of the price as is presently the case [new section84-12] . New section84-13 ensures that credits are available based on the correct taxable value. [Items10, 16 and 96]

Exclude from the returnable container provisions containers that were sold GST-free under section 38-6

1.111 Division93 of the GST Act applies to returnable containers so that if you acquire a returnable container and the supply of the container to you was not a taxable supply, you may be entitled to an input tax credit. This removes the cascade of GST that would otherwise occur under the general rules for certain statutory refund schemes in relation to returnable containers such as bottles.

1.112 Under Division38-A packaging for food is treated in the same manner as the contents. That is, packaging for GST-free food is also GST-free provided that it is both usual and necessary. For example, water or 100% orange juice are GST-free beverages, and the bottles that they are sold in will also be supplied GST-free.

1.113 Item 97 inserts new section 93-25 into the GST Act to ensure that the bottle yard does not receive an input tax credit under Division93 when it acquires a bottle under a returnable containers scheme and the bottle was sold to the consumer GST-free.

Division 10 Valuation of taxable supplies of goods in bond

1.114 Division 108 concerns the GST treatment of goods that are held in bond. Item 98 amends section 108-1 of the GST Act to delete a reference to customs duty. Item 99 replaces the reference to Customs in subsection 108(5)(1) with a reference to excisable goods that are in bond. Item 100 amends paragraph 108(5)(1)(b) so that a reference to customs duty is deleted and the reference to the Customs Act 1901 is replaced with a reference to the Excise Act 1901. Item 142 clarifies the definition of excisable goods by defining them in terms of the subsection of the Excise Act 1901 under which they are defined.

1.115 The purpose of removing references to customable goods is that when those goods are ultimately entered for home consumption, that entry will be a taxable importation and GST will be paid on the full value of the goods. Division 108 will now only apply to excisable goods held in bond.

Importations without entry for home consumption

1.116 Some changes have been made to some of the items listed in the table in section 114-5 Importations without entry for home consumption. Item 10 in the table has been updated regarding some references to sections in the Customs Act 1901. These sections refer to goods delivered after being seized under a seizure warrant issued under section 203, or under section 203B or 203C of that Act. [Item 103]

1.117 New item 16 is added to this table and relates to goods that should have been entered for home consumption or delivered into home consumption under one of the other items, but were not [Item 105] . As a result, items 8, 9, 11 and 12 will not be required as they are covered by the new item 16 . Item 7 of the table is also removed as the circumstances covered by that item are taxable supplies in their own right and Customs will bear a GST liability on the sale. [Items 102 and 104]

1.118 New section 114-10 is added to make it clear that an item in the table in section 114-5 will only apply if goods have not previously been entered for home consumption (unless they have been exported from Australia since they were entered). This will ensure that 2 taxable importations will not occur for the same goods, in the case where goods are seized after being properly delivered pursuant to an entry for home consumption. [Item 107]

1.119 New section 114-15 is added and provides, where a security given under the Customs Act 1901 has been forfeited, GST is to be paid when the security is forfeited. [Item 107]

1.120 New section 114-20 is added and covers the time of payment of GST in situations where information is provided under section 71 of the Customs Act 1901. This section provides that in these circumstances GST is to be paid when the information was provided on or before the granting of the authorisation. [Item 107]

1.121 Item 48 adds a further entry to the table in section 33-99 Special rules relating to payments of GST.

Division 117 Importation of goods that were exported for repair or renovation

1.122 Division 117-5 sets out the value of a taxable importation of goods that were exported for repair or renovation. Section 117-10 sets out 3 alternatives for the value of the repair or renovation. This section has been removed and the value of the repair or renovation is now set out in new paragraph 117-5(1)(a). [Item 110] This part of the value of the taxable importation will be the cost, as determined by the Chief Executive Officer of the Australian Customs Service, of materials, labour and other charges involved in the repair or renovation. [Item 108]

1.123 Item 109 removes redundant words from paragraph 117-5(1)(c) that are covered by the meaning of customs duty.

Remove redundant words in paragraph 117-5(1)(c)

1.124 Division 117 deals with valuation rules for importations of goods that were exported for repair or renovation. Item 109 amends section 117-5 by removing certain redundant words. These words are already covered in the definition of customs duty in section 195-1.

Simplified accounting methods for retailers

1.125 Smaller retailers who do not have adequate point of sale equipment may have difficulty accounting for GST on their taxable supplies if they only record a total turnover figure on their cash register. Additionally, these types of businesses usually have high volume, low value sales. To reduce compliance costs for these businesses, new Division123 allows the Commissioner to determine simplified accounting methods of calculating GST liability for retailers selling a mix of taxable and GST-free supplies. [Items 26, 50, 111, 158 and 159]

1.126 In the case of a retailer that sells taxable and GST-free food, but cannot easily account for these supplies separately at the point of sale, the Commissioner may allow the retailer to estimate the percentage of their turnover that relates to taxable supplies and calculate GST on that basis, for example, if total turnover was $220,000 with 50% being taxable supplies, the GST liability would be ($220,000 50% 1/11) = $10,000.

1.127 The Commissioners determination will specify the kinds of retailers that will be able to use the simplified accounting method. These retailers will be either retailers involved in supplying food or charitable institutions that make non-commercial supplies. [New section 123-5]

1.128 You must notify the Commissioner if you choose to apply a simplified accounting method or to revoke your choice. However, you cannot change your choice to apply a simplified accounting method within 12 months and you can only choose to apply one simplified accounting method at any one time. [New section123-10]

Threshold for financial services

1.129 Subsection 129-5(2) is amended to ensure that the threshold for financial supplies contained within the change of creditable purpose rules operates as intended. [Item 112]

1.130 If an adjustment occurs because there is a change in the extent to which the acquisition or importation is used in making financial supplies, the change in use is ignored, unless the annual turnover of financial supplies that you make exceeds either:

•

$50,000; or

•

5% of annual turnover (including input taxed supplies).

Division 135 supplies of going concerns

1.131 Items 113, 114, 116 and 117 ensure that an entity that acquires a going concern GST-free will have an increasing adjustment if it uses the going concern for any private purpose. Division 135 of the GST Act currently requires an increasing adjustment when an entity acquires a going concern GST-free and uses it for making input taxed supplies. The amendment provides consistency with the general rules that GST is payable when acquisitions are used for private or input taxed purposes.

1.132 Item 115 ensures that the increasing adjustment under Division135 is calculated correctly. The supply of a going concern will be GST-free, therefore the price of the going concern will not include an amount for GST. The current formula uses 1/11 of the price in the calculation. GST equals 1/11 of the GST-inclusive price or 1/10 of the GST-exclusive price. As the price in this situation does not include GST, the formula should use 1/10 of the price.

Tax periods of representatives of incapacitated entities

1.133 Item 118 inserts new section 147-25 to clarify the tax periods for representatives of incapacitated entities. Division 147 of the GST Act requires representatives of an incapacitated entity to be registered in that capacity. However, the GST Act does not say what tax periods apply to the representative. Under new section 147-25 , the tax periods applying to the incapacitated entity will also apply to the representative. [Items 35, 118 and 162]

Allow rule for apportionment for progressive supplies partly for use outside Australia to apply regardless of accounting basis

1.134 Item 119 replaces subsection 156-15(1) so that it is consistent with section156-5. Section156-15 provides that, if part of a supply to which section156-5 applies is connected with Australia, then that part that is not connected with Australia is treated as a separate supply. Item 121 ensures that this rule applies whether you account for GST using the cash basis or the non-cash basis.

1.135 The effect of this amendment is to ensure that leases of goods are GST-free to the extent that the goods are used outside Australia. For example, where an aircraft that is leased by an airline and is used internationally, the lease will be GST-free if the aircraft is used outside Australia.

Make clear that Division 156 applies to leases, etc.

1.136 New section156-20 is inserted to clarify that Division156 applies where a supply or acquisition is by way of lease, hire or similar arrangement, made for a period. [Item 120]

Customs security given on taxable importation

1.137 Division 171 of the GST Act refers to temporary importations where a security or undertaking is required under the Customs Act 1901. Item 122 amends subsection 171-5(1) to allow securities and undertakings to also be taken for any GST that might become payable in the event that the temporary importation conditions are breached.

Notional liability of Commonwealth entities

1.138 New subsection177-1(2A) is inserted into section177-1 so that any written directions given by the Finance Minister to ensure that Commonwealth entities are effectively covered by GST, apply to any relevant provisions of the A New Tax System (Goods and Services Tax Transition) Act 1999 (GST Transition Act). [Item 123]

Technical correction to section 177-10

1.139 Section177-10 provides that Ministers can make determinations for the purposes of the GST Act. It is the Health Minister that makes determinations under paragraph 38-15(c), not the Aged Care Minister, so paragraph177-10(1)(a) is repealed. [Item 124]

Limit turnover to supplies connected with Australia

1.140 Sections 188-15 and 188-20 are amended so that in working out your current and projected annual turnover, you disregard any supplies that are not connected with Australia. [Items 128 and 129]

Ensure that insurance payouts do not count towards turnover thresholds

1.141 Under Subdivision 78-B settlement of insurance claims can be treated as constituting taxable supplies by insured entities. An amendment is needed to clarify that insurance payouts are not included in calculating your annual turnover.

1.142 Item 130 inserts new section 188-22 to provide that in working out your current or projected annual turnover you disregard any supply that you have made to the extent that the consideration for the supply is a payment (or a supply) by an insurer in settlement of an insurance claim. [New section 188-22]

1.143 Item 139 adds a note in section 195-1 indicating that section 188-22 affects the meaning of current annual turnover.

1.144 Item 156 adds a note in section 195-1 indicating that sections 188-22 and 188-25 affect the meaning of projected annual turnover.

Value of non-taxable supplies

1.145 Item 131 clarifies the rule for valuing non-taxable supplies. These supplies should not reduce by 10/11 when calculating annual turnover. New section 188-30 ensures that the value of non-taxable supplies is the price of the supply.

Repayment of principal not to count towards value of loan

1.146 Item 132 inserts new section 188-35 so that in working out the value of a supply that is a loan of money, any repayment of the principal and any obligation to repay the principal, is disregarded in working out the value of the supply. [Items 132 and 165]

Approved forms

1.147 Items 127 and 133 will repeal Division 186. Item 133 will repeal the definition of approved form in Division 186 and section 195-1 of the GST Act, and will substitute a definition of approved form as that given by section 995-1 of the ITAA 1997. This will ensure consistency between the GST Act and ITAA 1997.

1.148 Items 187, 189 and 190 are technical amendments to the LCT Act to ensure consistency with the GST Act.

Cash accounting turnover threshold

1.149 Item 138 corrects a cross-referencing error in the definition of cash accounting turnover threshold in section 195-1.

Definition of customs duty

1.150 The definition of customs duty in section 195-1 is amended by item 140 to exclude WET and LCT. Both of these taxes are imposed in some circumstances as a duty of customs (A New Tax System (Luxury Car Tax Imposition Customs) Act 1999 and A New Tax System (Wine Equalisation Tax Imposition Customs) Act 1999).

Professional or trade courses

1.151 A supply of a professional or trade course is GST-free under the GST Act.

1.152 A professional or trade course is defined (section 195-1) as a course leading to a qualification that is an essential prerequisite:

•

for entry to a particular profession or trade in Australia; or

•

to commence the practice of (but not to maintain the practice of) a profession or trade in Australia.

1.153 An essential prerequisite in relation to the entry to, or the commencement of the practice of, a particular profession or trade includes a qualification imposed by or under an industrial instrument (section 195-1). However, in cases where there is no industrial instrument, the definition of essential prerequisite refers to requirements relating to theentry to the profession or trade only. It does not refer to the commencement of the practice of the profession or trade.

1.154 Item 141 amends the definition of essential prerequisite in section195-1 to include reference to commencement of the practice of the profession or trade. This corrects the drafting error and brings the provision into line with the Governments original intention.

GST-free first aid and lifesaving courses

1.155 Section 195-1 of the GST Act includes first aid or life saving courses as education courses. This allows for such courses to be GST-free under section 38-85. However, under the legislation the GST-free status is currently limited to courses which provide training in life saving and resuscitation and which are provided by non-profit bodies.

1.156 These restrictions exclude such activities as surf life saving education and training, surf safety training and aero-medical retrieval and rescue training from being provided on a GST-free basis. They also mean that courses in life saving and resuscitation offered by profit bodies are subject to GST. This approach is inconsistent with that taken more generally through the GST Act where the focus is on the activity undertaken.

1.157 Item 143 repeals paragraph (a) of the definition of first aid or life saving course and substitutes a new definition which includes surf life saving and aero-medical rescue.

1.158 Item 144 brings profit bodies into the ambit of those entities able to offer first aid or life saving courses on a GST-free basis by omitting non-profit from the definition of first aid or life saving course.

Importation

1.159 Items 17, 101, 106, 146, 147 and 163 correct a definitional problem with the meaning of importation in the GST Act.

Partly creditable land transport

1.160 Item 152 contains a technical amendment repealing the definition of partly creditable land transport in section195-1.

Residential premises

Redeveloped residential premises are new residential premises

1.161 Under the current provisions of the GST Act, if an existing residence is knocked down and replaced by a new one, the building (although it is new) will be input taxed as it has been constructed on land that has previously been used and sold as a residential premise.

1.162 In addition, a number of commercial properties in central business districts at some stage in the past would have been sold and inhabited as residential property. Under the current legislation, if a developer purchases such a commercial building in a central business district, knocks it down and builds an apartment block, the supply of the apartment block by the developer would be input taxed because the land on which it stands has, at some stage in the past, been sold as residential premises.

1.163 Item 151 replaces the definition of new residential premises to ensure that the value added by the developer in constructing new residential premises is subject to GST. The new definition also ensures that if a developer purchases a commercial building in a central business district, knocks it down and builds an apartment block, the supply of the apartment block is treated as a sale of new residential premises and is subject to GST.

1.164 New residential premises is defined to mean residential premises that:

•

have not previously been sold, or been the subject of a long-term lease, as residential premises; or

•

have been created through substantial renovation of a building; or

•

have been built, or contain a building that has been built, to replace demolished premises on the same land.

[Item 151]

1.165 Item 161 inserts a definition of substantial renovations into section195-1. The term substantial renovations means the renovation or alteration of an existing building to the extent that all or substantially all of the building that existed immediately before the renovation or alteration was begun has been removed or replaced, other than the foundation, external walls, interior supporting walls, floors, roof and staircases.

1.166 To avoid any doubt, the definition of new residential premises also ensures that, where the building is substantially renovated or demolished and a new building constructed, both the land and the buildings are treated as new residential premises. This provision clarifies that a builder/renovator is not required to apportion, and apply different GST treatment to, the price of selling the land and new house between the land component as residential premises (input taxed) and the new building as new residential premises (taxable). [Item 151]

Definition of residential premises

1.167 Item 157 repeals the definition of residential premises and substitutes a new definition. The new definition requires that for land to be considered residential premises it must be intended to be occupied, and capable of being occupied, as a residence. That is, it is permissible to use the land for residential purposes and the land has some facilities ordinarily associated with residences (i.e. water and sewerage).

1.168 The amendment ensures that sales of vacant residential land will not be input taxed under section40-65. The supply of land is not input taxed where it is:

•

vacant residential land;

•

commercial land; or

•

new residential premises.

Definition of potential residential land

1.169 Currently, the definition of potential residential land means land that it is permissible to use for residential purposes but it excludes land that contains any residential premises. The definition of residential premises includes land occupied, or intended to be occupied, as a residence. These definitions are circular because the definition of potential residential land excludes residential land.

1.170 Item 155 amends the definition of potential residential land to mean land that it is permissible to use as residential premises but that does not contain any residential buildings. This removes the inconsistency between the 2 definitions.

Accommodation at boarding schools

1.171 Section 38-105 provides that boarding school accommodation is GST-free if supplied to students undertaking a primary, secondary or special education course, where the supplier of the accommodation also supplies the course.

1.172 Item 160 amends the definition of special education course in section195-1 to cover non-government providers of a special education course in addition to government providers. This brings the provision into line with the Governments original intention.

Ensure drinking water in containers other than bottles is GST-free

1.173 Currently, only bottled drinking water is GST-free. Drinking water is sold in other containers that are not bottles. For example, water is sold in 4 litre casks. Item 167 amends Schedule 2 of the GST Act so that drinking water in containers other than bottles is GST-free. [Schedule 2, table item 14]

Medical aids and appliances

1.174 Item 168 inserts a note in Schedule 3 Medical aids and appliances of the GST Act. The note will specify that the second column of the table that prescribes the categories under which a particular medical aid or appliance falls is not operative. This amendment will ensure that the categorisation of an aid or appliance will not limit its GST-free treatment.

Part 2 Amendment of the A New Tax System (Luxury Car Tax) Act 1999

Luxury car tax value

1.175 Item 171 is a technical amendment and inserts new subsection 5-20(1A) to correct the calculation of the LCT value of a car.

1.176 It ensures that the LCT will apply in the same way to cars that are GST-free under Subdivision 38-P of the GST Act (that deals with cars for use by disabled people) as it does to other cars.

1.177 This amendment restores the Governments original intention to apply the LCT equally to supplies of all luxury cars. Without the amendment, disabled people would pay an incorrect amount of LCT.

1.178 Item 175 makes a corresponding technical amendment to section 7-15, to ensure that the amount of LCT payable on a taxable importation of a luxury car is applied equally to importations of all luxury cars including cars for use by disabled people. [New paragraph 7-15(e)]

Non-taxable importations

1.179 Subsection 7-10(4) is amended by item 173 to ensure that the importation of non-dutiable goods covered by the items in Schedule 4 to the Customs Tariff Act 1995 that are listed in subsection 7-10(3) will be non-taxable importations.

Customs able to refuse delivery until luxury car tax paid

1.180 Amounts of LCT on taxable importations are to be paid by the importer to the Commonwealth at the same time, place and manner as customs duty is payable on the goods. Under Customs legislation, a customs officer can refuse to deliver the goods if the customs duty is not paid. The LCT Act does not currently confer such a power.

1.181 Item 177 adds new subsection 13-20(2) to the LCT Act so that a Customs officer may refuse to deliver goods until the LCT for those goods has been paid. [New subsection 13-20(2)]

Securities and undertakings for temporary importations

1.182 The LCT Act only refers to the giving of a security or undertaking to the Australian Customs Service for the payment of customs duty on temporarily imported goods. However, currently there is no reference to a security or undertaking for the payment of LCT on temporary importations.

1.183 In addition, the LCT Act does not clearly state that LCT is intended to become payable upon a breach of the temporary importation provisions, where no customs duty is payable.

1.184 Item 178 inserts new subsections 13-25(1) and (1A) , to provide for a security or undertaking to be given for the payment of LCT in respect of temporary importations.

Return for a repair not an adjustment event

1.185 Adjustments occur because in some situations GST may have been paid or input tax credits applied but subsequent events mean that the GST or those input tax credits were incorrectly accounted for. Section 15-5 of the LCT Act outlines adjustment events and sets out the circumstances under which an adjustment event can arise in relation to LCT previously paid. It is not envisaged that the return of a luxury car for repair or maintenance would be considered to be an adjustment event. Item 179 will amend the LCT Act to insert new subsection 15-5(4) which will specifically exclude as an adjustment event a luxury car returned for repairs and maintenance. [New subsection 15-5(4)]

Writing off bad debts

1.186 Under section 15-40 of the LCT Act, a decreasing LCT adjustment arises if you have previously accounted for LCT on a supply and you do not receive the whole or part of the full consideration, and therefore write off as bad, some or all of the debt. Subsection 15-40(2) specifies the method by which the decreasing LCT adjustment is derived. Presently this amount is reached by subtracting from the amount of LCT payable on the supply, the amount of LCT payable if the value relating to the supply was equal to that value reduced by an amount equal to the debt to be written off.

1.187 By specifying the decreasing LCT adjustment in terms of value, difficulties arise in terms of calculating the adjustment. Item 182 remedies this situation by using the price of the luxury car as the basis upon which the decreasing LCT adjustment is calculated [new paragraph 15-40(2)(b)] . Item 185 amends section 15-45 in relation to increasing LCT adjustments.

1.188 Item 181 is a technical amendment which amends paragraph 15-40(2)(a) to ensure that you take into account any previous LCT adjustments when determining a decreasing luxury car tax adjustment.

1.189 Item 180 is a technical amendment and aligns the bad debt provisions in the LCT Act with the GST Act. Item 180 amends the circumstances in which a bad debt can be written off in section 15-40 by allowing a debt, that has been due for 12 months or more, to be written off.

1.190 Items 183 and 184 are technical amendments that relate to debts written off as bad, or debts due for 12 months or more.

Aligning the grouping and joint venture provisions for the LCT with the GST

1.191 Under the GST Act, a representative member of a group can be appointed to take responsibility for all of the GST obligations of a GST group.

1.192 Item 186 will insert new Division 16 into the LCT Act 1999, allowing the representative member of a GST group to also deal with all of the LCT liabilities and entitlements of the group. The GST group representative will take responsibility for the groups LCT obligations. [New Subdivision 16-A]

1.193 The amendments will also allow the operator of a GST joint venture to deal with the luxury car tax liabilities and entitlements arising from the operators dealings on behalf of the other participants in the joint venture. [New Subdivision 16-B]

1.194 The main rules concerning GST groups and joint ventures in Subdivision 16-A and Subdivision 16-B are:

•

the representative member of a GST group is liable for the LCT payable on a taxable supply or taxable importation of a luxury car made by a member of the GST group [new section 16-5] ;

•

the representative member deals with LCT adjustments on behalf of a member of the GST group [new section 16-10] ;

•

LCT is payable by the joint venture operator of a GST joint venture on a taxable supply or importation of a luxury car made by a participant in the joint venture [new section 16-15] ;

•

the joint venture operator of a GST joint venture is responsible for any LCT adjustment relating to any supply or importation made by the joint venture operator on behalf of the other participants in the joint venture [new section 16-20] ; and

•

the additional net amount relating to a GST joint venture in section 51-45 of the GST Act;

-

is increased by the amount of any LCT on taxable supplies of luxury cars for which the joint venture operator is liable on behalf of the joint venture; and

-

is increased or decreased by the amount of LCT adjustments made on behalf of the joint venture.

[New section 16-25]

1.195 New definitions are inserted into the Dictionary in section 27-1 to implement Division 16 [items 194, 195, 198, 199, 200 and 202] . Item 85 is a technical amendment relating to this provision.

Liability for LCT on taxable importations

1.196 In order to bring the GST treatment of the importation of luxury cars into line with the Customs Act 1901 the liability for the LCT has been clarified so that the term taxable importation paragraph 5-10(3)(b) has been replaced with the term entered for home consumption. This term has a defined meaning given as that in the Customs Act 1901. A number of consequential amendments are also made. [Items 169, 188 and 193]

1.197 Item 174 amends the definition of LCT value to remove the reference to transport and insert a reference to international transport.

1.198 Item 176 inserts subsection 7-15(2) into the LCT Act and provides that the Commissioner in writing:

•

determine the way in which the amount paid or payable for a specified kind of transport or insurance is to be worked out; and

•

in relation to importations to which specified circumstances apply, determine that the amount paid or payable for a specified kind of transport or insurance is taken to be zero.

[Items 176 and 197]

1.199 Item 172 is a technical amendment and repeals the definition of taxable importation of a luxury car and replaces it with a new definition. Under this new definition, you make a taxable importation of a luxury car if:

•

the luxury car is imported; and

•

you enter the car for home consumption.

1.200 Item 196 inserts a new definition of import , and item 201 inserts a definition of place of consignment .

Part 3 Amendment of the A New Tax System (Wine Equalisation Tax) Act 1999

1.201 Amendments have been made to the WET Act to clarify some aspects of its operation. The definition of wine has been made more comprehensive to make it clear which products are covered by the WET. Some minor amendments have also been made to the credit grounds to clarify the operation of the credit grounds for wine purchased in Australia by overseas travellers. Some transitional aspects have also been amended to ensure that in some cases, old retail stocks of wine that were previously subject to sales tax are not also subject to WET.

Private importations of wine to be subject to the WET

1.202 Currently the WET only applies to assessable dealings made by an entity that is registered or required to be registered (section 5-5 of the WET Act. This would allow any private importation of wine to be made free of the payment of WET.

1.203 Item 204 will amend the WET Act to ensure that any customs dealings with wine are subject to the WET. Any wine that is brought into Australia by a returning traveller will still be included in their traveller concession. Where wine brought into Australia by a returning traveller exceeds this concession, it will be subject to the WET. [Items 215 and 217]

1.204 Item 205 clarifies the note in subsection 5-5(2) in relation to wine tax payable on customs dealings.

Untaxed wine sales

1.205 Some stocks of old wine held by retailers that was previously subject to sales tax, may be inadvertently subject to the WET when sold under the untaxed wine sale provisions in section 5-25. Item 209 amends the WET Act to ensure that wine held by a retailer prior to 1 January 1993, that has been subject to sales tax, is not subject to WET when sold after 1 July 2000. Wine that was not subject to sales tax because it was sold before 21 August 1984 will also be covered by this new paragraph. [New paragraph 5-25(3)(d)]

Amendments to the local entry table

1.206 The local entry table in section 5-30 sets out the time when a local entry is made. The purpose of this is to determine the time at which the dealing with wine occurs and the time tax becomes payable. Wine tax on customs dealings is payable at the same time, at the same place, and in the same manner as customs duty is payable on the wine (or would be payable if the wine was subject to customs duty).

1.207 Item 210 amends the WET Act to simplify the rules applying to local entries of wine. The time of dealing requirement for customs dealings is changed to the time at which wine tax is payable under section 23-5. As such it removes the need for column 4 in the local entry table. [Items 206, 207 and 208]

1.208 The wording in LE4 in the local entry table is amended by items 211 and 212 to delete inappropriate references to the Customs Act 1901 and to make it clear that under this entry it is the purchaser of the wine that is subject to the WET.

1.209 Local entry LE13 and paragraph 27-35(2)(a) have been removed as they are not relevant to wine. They related to goods brought into Australia on a temporary basis without the payment of duty. [Items 213 and 230]

1.210 Section 5-40 of the WET Act currently deals with wine brought into Australia by a returning traveller. This amendment simplifies this provision by inserting item 15 in the list of items in Schedule 4 to the Customs Tariff Act 1995 in section 7-15. This will remove the need for section 5-40. [Items 214 and 215]

Non-taxable importations of wine

1.211 Division 7 of the WET Act provides that GST-free supplies and certain importations covered by the items in Schedule 4 to the Customs Tariff Act 1995 that are listed in section 7-15,are exempt from WET. These items in the Customs Tariff Act 1995 that relate to wine are also mirrored in section 42-5 of the GST Act relating to non-taxable importations. Section 13-10 of the GST Act also refers to another non-taxable importation that would have been a supply that was GST-free or input taxed, if it had been a supply (paragraph 13-10(b) of the GST Act). This amendment will ensure that all non-taxable importations (including those covered by the above paragraph) are not subject to the WET. [Item 216]

1.212 A number of the items in Schedule 4 to the Customs Tariff Act 1995 currently listed in section 7-15 are not relevant to wine and are removed from this section. [Item 218]

Non-taxable importations

1.213 Subsection 7-15(2) is amended by item 219 to ensure that the importation of non-dutiable goods covered by the items in Schedule 4 to the Customs Tariff Act 1995 that are listed in subsection 7-15(1) will not be taxable.

Wine tax credits

1.214 Credit grounds CR9, CR11 and CR12 have been removed and replaced with a new credit ground CR11. [Items 220 and 221]

1.215 Credit ground CR9 currently provides a credit for wine tax excluded from the price of wine sold to a purchaser who has the intention of exporting the wine. As there are no quotation grounds for unregistered persons to obtain wine free of the WET, it is inappropriate to have a provision that would allow wine to be sold free of WET to anyone that had the intention of exporting the wine. There are other provisions in the WET Act, which will adequately cover wine that is exported.

1.216 A registered entity intending to export wine will be able to quote their Australian Business Number at the time of purchase under paragraph 13-5(1)(d) of the WET Act, and obtain the wine free of WET. An unregistered person is entitled to claim a refund of the WET once the wine has been exported (credit ground CR10).

1.217 Credit grounds CR11 and CR12 currently provide for credits where wine is sold to Australian and foreign travellers. Under the GST Act overseas travellers (both Australian and foreign) will be able to purchase goods free of GST through the current sealed bag system. Wine that is purchased by a traveller through this system can also be purchased free of the WET.

1.218 New credit ground CR11 will cover these types of sales where wine tax that was previously borne by the seller is excluded from the price of the wine sold to an overseas traveller through this system. The credit ground will also cover any other situations where wine tax is excluded from the sale price of a GST-free supply of tax paid wine.

1.219 The definitions of accompanied baggage , eligible Australian traveller and eligible foreign traveller are no longer necessary [items 233, 238 and 239] . Item 240 modifies the definition of export to exclude these terms.

1.220 The requirement in credit ground CR13 that the destruction of wine be under Customs supervision has been removed in line with the actual practice carried out in these situations. [Item 222]

Grouping and joint venture provisions for WET liabilities

1.221 New provisions have been inserted to the WET Act to allow members of GST groups to also group their WET liabilities. [Items 223 to 226, new Subdivision 21-B]

1.222 The representative member of a GST group will also pay any wine tax liabilities for other members of the group. However, any wine tax payable at the time of importation will be payable by the member importing the wine and not the representative member. [Item 226, new subsection 21-40(1)]

1.223 Any wine tax credits for members of the group are also claimed by the representative member. [Item 226, new section 21-45]

1.224 Unlike the intra group supplies rule for taxable supplies between members, there is no exclusion from the WET for transactions between group members. However, the quoting provisions in Division 13 of the WET Act may apply to exempt these transactions from the WET.

1.225 The new joint venture provision allows a joint venture operator of a GST joint venture to also pay any WET liabilities and claim any WET credits on behalf of other joint venture participants. [Item 226, new Subdivision21-C]

1.226 Where a GST joint venture exists any WET liabilities of the joint venture will be paid by the joint venture operator [item 226, new section 21-70] . Any wine tax credits of the GST joint venture participants will also be claimed by the joint venture operator [new section 21-75] . As is the case for assessable dealings between group members, these will be taxable unless exempt because a quote is made.

1.227 Any amount of wine tax payable by the joint venture operator is added to their additional net amount in section 51-45 of the GST Act. Similarly, any wine tax credits reduce the net amount. [Item 226, new section21-80]

1.228 Items 82 and 85 add notes to the GST grouping and joint venture provisions in sections 48-1 and 51-1 of the GST Act. Items 244 and 246 add definitions of GST group and GST joint venture to section 33-1. Items 249, 251, 253 and 254 add definitions of joint venture operator , member , participant and representative member .

Customs able to refuse delivery until the WET paid

1.229 Amounts of the WET on customs dealings are to be paid by the importer to the Commonwealth at the same time, place and manner as customs duty is payable on the goods. Under Customs legislation, a customs officer can refuse to deliver the goods if the customs duty is not paid. The WET Act does not currently confer such a power.

1.230 Item 227 adds new subsection 23-5(2) in the WET Act so that a customs officer may refuse to deliver goods until the wine tax for those goods has been paid. [New subsection 23-5(2)]

The definition of wine

1.231 Item 231 inserts a new more comprehensive definition of wine. The new definition provides certainty as to the types of products that will be covered by the WET. Subdivision 31-A makes it clear that the WET extends to fruit or vegetable wines and grape wine products such as wine cocktails, flavoured wines and Irish style cream drinks. A minimum and maximum alcohol band is specified for grape wine products and fruit or vegetable wines to prevent designer drinks and pre-mixed alcoholic products, commonly referred to as ready-to-drink, containing less than 8% alcohol, and low strength spirits from accessing the WET. A separate definition for cider has been included to ensure that traditional cider is included in the WET.

1.232 Wine is defined to mean:

•

grape wine;

•

grape wine products;

•

fruit or vegetable wine;

•

cider or perry;

•

mead; and

•

sake.

[Section 31-1]

1.233 Each of these terms is defined in item 231. Each definition contains a requirement that the beverage in addition to the requirements set out in the legislation also complies with any requirements of the regulations. New subsection 31-8(2) provides that regulations may specify requirements for the types of wine. [Items 237, 241, 243, 250 and 255] .

1.234 Item 203 replaces the note in section 2-1.

1.235 Item 228 repeals section 27-1 as the new wine definition makes it clear that the WET applies to cider, perry, mead and sake. Item 236 repeals the definition of beer as it is no longer required.

Grape wine

1.236 Grape wine will cover traditional products such as table wine, sparkling wine and grape wines fortified by the addition of grape spirit or brandy or both grape spirit and brandy. [Item 231, new section 31-2]

Grape wine products

1.237 Grape wine products will cover products such as vermouth, marsala, wine cocktails and wine creams. [Item 231, new section 31-3]

Fruit or vegetable wine

1.238 Fruit or vegetable wine will cover traditional fruit wine and vegetable wine. [Item 231, new section 31-4]

Cider or perry

1.239 Cider and perry will cover traditional cider and perry products. [Item 231, new section 31-5]

Mead

1.240 Mead will cover traditional mead products. [Item 231, new section 31-6]

Sake

1.241 Sake will cover traditional sake products. [Item 231, new section 31-7]

Application to own use (AOU)

1.242 The definition of AOU connected with retail sales of grape wine has been removed from section 33-1 as this term is covered by the meaning of AOU connected with retail sales of wine. [Item 234]

Commonwealth, etc. not liable to pay wine tax

1.243 Item 229 adds a provision to make it clear that the Finance Ministers directions referred to in subsection 27-20(2) may also take account of the WET.

Approved forms

1.244 Item 232 removes Subdivision 31-E relating to approved forms. This provision is now covered by the definition of approved form in section 995-1 of the ITAA 1997. [Item 235]

GST importation value

1.245 The taxable value for a local entry is the GST importation value. Item 245 amends the definition of GST importation value to exclude wine tax payable on the local entry. This avoids wine tax being payable on wine tax.

Importations

1.246 Item 248 removes the definition of importation of goods into Australia , as this definition has been removed from the GST Act. Item252 adds a definition in section 33-1 of non-taxable importation.

Amendment to transitional provisions

1.247 Schedule 6 to this Bill amends the A New Tax System (Wine Equalisation Tax and Luxury Car Tax Transition) Act 1999, to provide a special credit for wine held for the purpose of sale or exchange at 1 July 2000.

Chapter 2 - Customs Act 1901

Outline of Chapter

2.1 This Chapter explains the amendments to the Customs Act 1901 (Customs Act) as a result of the introduction of the goods and services tax (GST).

2.2 The amendments to the Customs Act, and of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act), ensure corresponding concessions apply, in relation to the GST and LCT, to goods that are temporarily imported in circumstances where the goods would be exempt from Customs duty.

2.3 The amendments to the Customs Act also insert new definitions and make consequential amendments to that Act as a result of the GST.

Context of Reform

2.4 The amendments relating to the Customs law are consequential to the introduction of the GST.

Summary of the amendments

2.5 The amendments will:

•

insert new definitions into subsection 4(1) of the Customs Act;

•

amend section 71F of the Customs Act to allow Customs to remove from the COMPILE computer system an import entry that has been lodged, but not acted upon, where the entry covers goods that attract any duty, fee, charge or tax;

•

amend section 162A of the Customs Act to ensure that the regulations will allow a security or an undertaking to be given in relation to goods that are imported on a temporary basis and which would otherwise be subject to GST or LCT;

•

make consequential amendments to the Customs Act;

•

amend section 71F of the Customs Act to ensure that an import entry is deemed to have been withdrawn if, in relation to the goods covered by the import entry, a fee, charge or tax that is payable remains unpaid; and

•

amend the GST Act and LCT Act to allow an importer to delay payment of GST and LCT where the goods are imported on a temporary basis.

Detailed explanation of the amendments

2.6 A detailed explanation of the amendments has been divided into the following parts:

A.

Amendments commencing on Royal Assent;

B.

Amendments commencing immediately after the GST Act commences;

C.

Amendments commencing after Schedule 2 to the Customs Legislation Amendment Act (No. 2) 1999;

D.

Amendments of the GST Act; and

E.

Amendments of the LCT Act.

A. Amendments commencing on Royal Assent

2.7 Amendments commencing on Royal Assent are contained in Part1 of Schedule 2 .

Definitions

2.8 New definitions of GST, GST Act, LCT and LCT Act are inserted into subsection 4(1) of the Customs Act [items 1, 2, 3 and 4] .

Removal from COMPILE computer system of certain entries

2.9 At present, if an import entry has been lodged with Customs but not acted upon, the entry is deemed, under subsection 71F(6) of the Customs Act, to have been withdrawn and may be removed from the COMPILE computer system. At present, subsection 71F(6) does not cover goods described in an entry that are duty-free but that attract a sales tax liability. Such entries cannot be removed from COMPILE. Where imported goods attract GST, Customs will not be able to remove from the COMPILE system any such entry lodged but not acted upon. Items 5 and6 will amend paragraphs 71F(6)(b), (c) and (d) to allow Customs to also remove such an entry where the amount payable is duty, fee, charge or tax.

2.10 The amendments of subsection 71F(6), effected by items 5 and 6 , apply only in relation to entries communicated to Customs after the commencement of Part 1 of Schedule 2. [Item 7]

Temporary importation concessions

2.11 Sections 162 and 162A of the Customs Act allow the Collector to give permission to an importer to take delivery of goods being temporarily imported into Australia, if the importer gives a security or undertaking for the payment of duty on the imported goods. Regulations 124 and 125B of the Customs Regulations prescribe the circumstances in which the sections can be utilised. The duty is not payable if the conditions set out in the regulations are complied with and the goods are re-exported within a specified period. Otherwise, the security may be enforced or, if an undertaking was given, the amount of the duty may be recovered in a court of competent jurisdiction.

2.12 Section 162 requires the importer of the goods subject of the permission to give the required security or undertaking to the Collector. Section 162A allows the Collector to give permission to the importer for temporary importation if the Chief Executive Officer (CEO) of Customs has accepted a security or undertaking for payment of duty in relation to a defined class of goods specified in the regulations.

2.13 It is intended that if goods are temporarily imported in circumstances that would make them exempt from the payment of Customs duty under section 162 or 162A, or would make them exempt if Customs duty were payable, corresponding concessions should apply in relation to the GST and the LCT.

2.14 These amendments to section 162A authorise the making of regulations to exempt goods from GST or LCT if the goods are imported on a temporary basis [item 8] and to enable the CEO to accept a security or an undertaking to pay any duty, GST or LCT on goods covered by regulations made under subsection 162A(1). The amendments also provide that if the security or undertaking is accepted, a Collector may permit the person who imports some or all of the goods to take delivery of the goods without payment of duty, GST or LCT [item 10 repeals subsection 162A(2) and substitutes new subsection (2), item 12 adds a note] .

2.15 If security such as money or a deposit of an instrument transferable by delivery is given under section 162A, the money or instrument is not to be returned until no duty, GST or LCT is, or could become, payable [item 13] . The amendments also ensure that where an undertaking was given to pay any duty, GST or LCT, the amount is recoverable, if necessary, in a court of competent jurisdiction [item 14 repeals subsection 162A(8) and substitutes new subsection (8)] .

2.16 Regulations that are in force under subsection 162A(1) immediately before the commencement of the amendment effected by item 8 are saved [item 9] . Likewise, permissions given under subsection 162A(2) that are in force immediately before the commencement of the amendments of section 162A effected by Part 1 of Schedule 2 are saved [item 11] . Amendments of section 162A effected by Part 1 of Schedule 2 apply only in relation to the delivery of goods after the commencement of the GST Act [item 15] .

B. Amendments commencing immediately after the GST Act commences

2.17 Amendments commencing on 1 July 2000 are contained in Part2 of Schedule2 .

Definitions

2.18 New definitions of wine tax and Wine Tax Act are inserted into subsection 4(1) of the Customs Act. [Items 16 and 17]

Consequential amendments

2.19 Part 2 of Schedule 2 contains a number of changes consequential on the introduction of the GST. For example, references to sales tax are omitted and, where necessary, references to GST, LCT and wine tax are inserted. Provisions of the Customs Act that are amended are paragraphs 70(7)(b), 77D(5)(b) and 77E(5)(b) and section 71B [items 18, 20, 23 and 25] . A new subsection 71B(4B) is inserted [item 21] .

2.20 Amendments of paragraph 70(7)(b), section 71B and paragraph 77E(5)(b) made by this Part of Schedule 2 apply only in relation to goods delivered or entered for home consumption after the commencement of this Part of Schedule 2 [items 19, 22 and 26] . The amendment of section 77D of the Customs Act applies only to goods taken into home consumption under a permission granted under section 77D after the commencement of this Part [item 24] .

2.21 The remaining amendments in Part 2 of Schedule 2 also contain amendments consequential on the introduction of the GST. These will ensure GST and LCT are covered by section 162 (section 162 is explained at paragraphs 2.5, 2.6 and 2.7) [items 27, 28, 29 and 30] .

C. Amendments commencing after Schedule 2 to the Customs Legislation Amendment Act (No.2) 1999

2.22 Amendments commencing after Schedule 2 to the Customs Legislation Amendment Act (No. 2) 1999 are contained in Part 3 of Schedule 2 .

2.23 Part 3 of Schedule 2 will amend paragraph 71F(6)(b) (dealing with withdrawal of import entries) to ensure that an import entry is deemed to have been withdrawn if, in relation to the goods covered by the import entry, any duty, fee, charge or tax that is payable remains unpaid. At present, paragraph 71F(6)(b) covers only goods in relation to which duty is payable. This amendment only applies to import entries communicated to Customs after this Part commences. [Items 31 and 32]

D. Amendment of the GST Act

Security given for temporary importation

2.24 In circumstances where goods are imported on a temporary basis (the goods are imported with the intention to take them out of Australia again), customs duty may be delayed if the importer gives a security or an undertaking to Customs for payment of the duty (refer to temporary importation concessions, paragraph 2.12 to 2.16). If the goods that are imported on a temporary basis are also subject to GST, this amendment will allow the importer to delay payment of GST. [Item 122 of Schedule 1 repeals subsection 171-5(1) and substitutes new subsections (1) and (1A)]

E. Amendment of the LCT Act

Security given for temporary importation

2.25 In circumstances where a car is imported on a temporary basis (the car is imported with the intention to take it out of Australia again), customs duty may be delayed if the importer gives a security or an undertaking to Customs for payment of the duty. If the car is subject to LCT, this amendment will also allow the importer to delay payment of LCT. [Item 178 of Schedule 1 repeals subsection 13-25(1) and substitutes new subsections (1) and (1A)]

Commencement

2.26 Part 1 of Schedule 2 , other than item 5, commences on Royal Assent. Item 5 commences on the day on which this Bill receives Royal Assent if, and only if, this Bill receives Royal Assent before the day on which Schedule 2 to the Customs Legislation Amendment Act (No. 2) 1999 commences.

2.27 Part 2 of Schedule 2 commences immediately after the GST Act commences.

2.28 Part 3 of Schedule 2 commences on the day on which this Bill receives Royal Assent, or immediately after the commencement of Schedule 2 to the Customs Legislation Amendment Act (No. 2) 1999 if that Schedule has not commenced before the day on which this Bill receives Royal Assent.

Chapter 3 - Amendment of the income tax law

Outline of Chapter

3. 1 This Chapter explains amendments to the income tax law as a consequence of the introduction of the goods and services tax (GST). Amendments to the Income Tax Assessment Act 1997 (ITAA 1997) are contained in Schedule 3 to this Bill. Amendments to the Income Tax Assessment Act 1936 (ITAA 1936) are contained in Schedule 8 .

Context of Reform

3.2 From 1 July 2000 an entity that is registered for GST purposes will derive income and incur expenditure which includes GST. Asthe income tax law now stands, the GST-inclusive price of taxable supplies an entity makes would ordinarily be incorporated in its assessable income. Similarly, the entire expenditure incurred by an entity in making acquisitions would generally be deductible even though the entitlement to input tax credits will mean that the entitys resources would actually be diminished to a lesser extent.

3.3 These amendments put beyond doubt that GST on business inputs is to be excluded from assessable income and expenditure incurred, to the extent of any input tax credit entitlement. The exclusion of GST components from transaction amounts is also consistent with the design principle that GST is not a cost to business.

Summary of new law

Purpose of the amendments

3.4 The amendment of the income tax law by this Bill will ensure that the net GST liability of an entity is not itself subject to income tax and that entities will not incidentally obtain an additional income tax benefit for GST input tax credits which are refundable.

3.5 The exclusion of amounts relating to GST and input tax credits will apply to amounts of income and deductions, including elements in calculating these amounts, such as the cost base and reduced cost base for calculating capital gains and losses.

3.6 The amendments will also change some words used in the income tax law to make them consistent with meanings given by the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Date of effect

3.7 The amendments will apply from 1 July 2000, the commencement of the GST. [Subclause 2(9)]

Detailed explanation of new law

3.8 The explanation of the effect on the income tax law has been divided into the following sections:

A.

Effect of GST on assessable income;

B.

Effect of GST on deductions;

C.

Effect of GST on capital gains tax (CGT);

D.

Other specific rules;

E.

Disregarding the effect of GST group and GST joint venture provisions;

F.

Change in terms to ensure consistency in meaning;

G.

Amendment of the ITAA 1936; and

H.

Transitional provisions.

A. Effect of GST on assessable income

3.9 The GST payable on a taxable supply [item 7, new paragraph 17-5(a)] , and the amount of any increasing adjustment relating to a supply (for example, if the price ultimately received is greater than that receivable at the time of the supply, thereby increasing the entitys net GST liability) [item 7, new paragraph17-5(b)] , is expressly excluded from assessable income and exempt income.

3.10 If the recoupment of an amount paid in acquiring something is included in assessable income, the GST effect of that recoupment is also excluded [item 7, new paragraph17-5(c)] . For example, a refund to you of an amount you have paid results in an increasing adjustment (because the input tax credit-entitling consideration you have given is reduced, thereby increasing your net GST liability). If that refund is included in assessable income, the increasing adjustment reflecting a reduction in the input tax credit attributable to the acquisition needs to be excluded from the assessable amount.

Amount included in assessable income for decreasing adjustment

3.11 In certain circumstances, an adjustment for GST purposes will result in an amount being included in assessable income. If there is a change in the creditable purpose of an acquisition resulting in a decreasing adjustment, it means that the net input tax credit effectively attributable to the acquisition has been increased (thereby decreasing the entitys net GST liability), even though the consideration paid remains unchanged.

3.12 This is the case when something acquired for use in making input taxed supplies is instead applied in making taxable supplies. This is also the case for something acquired for mixed use, when use in making taxable supplies increases relative to use in making input taxed supplies. Division 129 of the GST Act provides for increasing adjustments and decreasing adjustments because of changes in the creditable purpose of an acquisition or importation.

3.13 You will need to include an amount in your assessable income if you have a decreasing adjustment under Division 129. [Item 7, new section 17-10]

Example 3.1

A computer is acquired by a financial intermediary partly for making taxable supplies and partly for making input taxed supplies. At the time of acquisition it is intended that 10% usage of the computer will be for making taxable supplies. If, at the end of an adjustment period, it is determined that the proportion of use for making taxable supplies is actually 50% there will be a decreasing adjustment under Division 129 to compensate for the fact that the input tax credit had initially been underestimated.

Because deductions for the computer allow for input tax credit entitlements (see paragraph 3.19), a decreasing adjustment reduces the deductible amount. The amount included in assessable income under section 17-10 reverses the effect on deductions of the initial underestimation of the input tax credit.

3.14 You will also need to include an amount in your assessable income if you have a decreasing adjustment under Division 132 [item 7, new section 17-10] . This occurs if something that has been applied in making financial supplies is sold. The sale of the item as a taxable supply results in an increased input tax credit entitlement, reflected by the decreasing adjustment. Because that increased entitlement reduces the deductible amount, the amount included in assessable income under new section 17-10 reverses the effect on deductions of the initial underestimation of the input tax credit.

Excluding GST components when calculating assessable amounts

3.15 The basic rules of excluding the GST from assessable amounts and the amount corresponding to input tax credits from deductible amounts (see paragraph 3.19) extend also to amounts that constitute elements in the calculation of assessable income or deductions.

3.16 If an amount that is included in assessable income is calculated by subtracting amounts paid or payable from amounts received or receivable, the GST components of those amounts are excluded from the calculation. GST payable is therefore excluded from amounts received or receivable and amounts corresponding to input tax credits are excluded from amounts paid or payable. [Item 7, new section 17-15]

3.17 A note will be added to the core provision about assessable income to alert readers of the income tax law to these rules. [Item 1]

3.18 The terms GST [item 56] , taxable supply [item 70] , taxable importation [item 69] , increasing adjustment [item 61] and decreasing adjustment [item 55] , as defined in the GST Act, will be added to the Dictionary to the ITAA 1997.

B. Effect of GST on deductions

3.19 An amount corresponding to input tax credits to which you are entitled will be excluded from deductible losses or outgoings you incur [item 14, new section 27-5] . This is the counterpart of the rule about excluding GST from assessable amounts.

3.20 The amount of any decreasing adjustment is expressly made nondeductible [item 14, new section 27-5] . For example, if the price ultimately paid for something acquired is greater than the payment at the time of acquisition, the decreasing adjustment reflects the entitys increased input tax credit entitlement.

Deduction for increasing adjustments

3.21 In certain circumstances, an adjustment for GST purposes results in a deduction. If there is a change in the creditable purpose of an acquisition resulting in an increasing adjustment, it means that the net input tax credit effectively attributable to the acquisition has been decreased (thereby increasing the entitys net GST liability), even though the consideration paid remains unchanged. This is the case when something acquired for use in making taxable supplies. This is also the case for something acquired for mixed use, when use in making taxable supplies decreases relative to use in making input taxed supplies. Division 129 of the GST Act provides for increasing adjustments and decreasing adjustments because of changes in the creditable purpose of an acquisition or importation.

3.22 An increasing adjustment under Division 129 will be deductible provided the adjustment does not relate to an increased use of the item for private or domestic purposes [item 14, new subsections 27-10(1) and (2)] . Anincreasing adjustment relating to increased use of the item for private or domestic purposes reflects the fact that the incidence of GST rests on the person who applies goods or services for a private or domestic purpose.

3.23 An increasing adjustment under Division 138 of the GST Act on cessation of an entitys GST registration will be deductible providing the asset to which the adjustment relates is held, immediately after the registration is cancelled, for the purpose of gaining or producing assessable income [item 14, new subsection 27-10(3)] . A deduction will not be allowed if the registration cancellation occurs because the entity is not carrying on an enterprise.

Payment of GST disregarded

3.24 The payment of GST in accordance with Division33 of the GST Act is generally disregarded for income tax purposes. [Item 14, new subsection 27-15(1)]

3.25 There are exceptions if an importation is either not a creditable importation or is only partly creditable. In the former case, the GST paid on the importation may be deductible, that is, if the criteria for deductibility are otherwise satisfied. In the latter case, the part of the GST paid on the importation that is not matched by an input tax credit may be deductible. [Item 14, new subsection 27-15(3)]

3.26 Wine equalisation tax or luxury car tax included in a net amount for Division33 purposes will be deductible providing the criteria for deductibility are otherwise satisfied. [Item 14, new subsection 27-15(2)]

Excluding GST components when calculating deductions

3.27 The basic rules of excluding the amount corresponding to input tax credits for deductible amounts and the GST from assessable amounts (see paragraph 3.9) extend also to amounts that constitute elements in the calculation of assessable income or deductions.

3.28 If a deductible amount is calculated by subtracting amounts received or receivable from amounts paid or payable, the GST components of those amounts are excluded from the calculation. GST payable is therefore excluded from amounts received or receivable and amounts corresponding to input tax credits are excluded from amounts paid or payable. [Item 14, new section27-20]

3.29 A note will be added to the core provision about deductions to alert readers of the income tax law to these rules. [Item 2]

3.30 The terms creditable purpose [item 54] and input tax credit [item62] , as defined in the GST law, will be added to the Dictionary to the ITAA 1997.

C. Effect of GST on CGT

3.31 This Bill will amend the disposal proceeds and cost base rules in the CGT provisions in a way consistent with the basic rules for the treatment of assessable amounts and deductions.

3.32 Elements of cost base and reduced cost base are to exclude amounts corresponding to input tax credits to which you are entitled in relation to those elements. [Item 38, new subsection 110-45(3A) and item39, new subsection 110-50(3A)]

3.33 Capital proceeds from a CGT event are to exclude any GST payable, that is, if the capital proceeds also constitute consideration for a taxable supply. [Item 40, new subsection 116-20(5)]

3.34 Any input tax credit for the acquisition of collectables and personal use assets will be excluded in determining whether the CGT exemption thresholds ($500 for collectables, $10,000 for personal use assets) are reached. [Items 41 and 42]

3.35 Consistent with the general rule about excluding an amount equal to the input tax credit, the reference to payments by a lessor to vary a lease or for the surrender of a lease is also to exclude the input tax credit for the variation or surrender [item 43] . These payments are taken into account in cost base calculations when a CGT event happens to a lessors interest in land that is the subject of a long-term lease.

D. Other specific rules

3.36 Consistent with the general rules about excluding the GST component from amounts that are taken into account in calculating assessable income and deductions, some specific rules will be inserted in relevant parts of the income tax law.

3.37 In calculating a balancing adjustment for depreciable plant, the termination value of plant is to exclude any GST component. [Item 33, new subsection 42-205(3)]

3.38 In determining the closing value of trading stock, an amount equal to the input tax credit that would arise on acquisition of the stock at that time is to be disregarded. [Item 35, new subsection 70-45(1A)]

3.39 In calculating a balancing adjustment for mining or quarrying property, the termination value is to exclude any GST component. [Item44, new subsection 330-490(3)]

3.40 In calculating a balancing adjustment for intellectual property, the termination value is to exclude any GST component. [Item 45, new subsection 373-70(3)]

3.41 In calculating a balancing adjustment for a forestry road or timber mill building, the termination value is to exclude any GST component. [Item 50, new subsection 387-490(3)]

E. Disregarding the effect of GST group and GST joint venture provisions

GST groups

3.42 Companies within a 90% owned group may consolidate their GST obligations for supplies to entities outside the group. GST is payable by the representative member of the GST group on taxable supplies made by all group members. A further consequence under Division48 of the GST Act is that intra-group transactions are not subject to GST.

3.43 For the purpose of accounting for GST in calculating taxable income, the GST liability of the representative member is to be treated as if it were payable on the taxable supplies and taxable importations made by each group member. [Item 7, newsubsection17-20(1)]

3.44 Similarly, the representative members entitlement to an input tax credit is to be treated as if each group member who made the acquisition or importation were entitled to the credit for the purpose of applying the rules in Division 27. [Item 14, new subsection 27-25(1)]

3.45 As intra-group transactions are not subject to GST there are no GST amounts to account for.

3.46 The terms GST group [item 57] and member, [item 64] as defined in the GST Act, will be added to the Dictionary to the ITAA 1997.

GST joint ventures

3.47 Participants in a joint venture may consolidate their GST obligations for supplies to entities outside the joint venture. GST is payable by the joint venture operator on the joint ventures taxable supplies. A further consequence under Division51 of the GST Act is that supplies by one participant to another in the course of the joint ventures activities are not subject to GST.

3.48 For the purpose of accounting for GST in calculating taxable income, the GST liability of the joint venture operator is to be treated as if it were payable on the taxable supplies and taxable importations made by participants in the course of the joint ventures activities. [Item 7, new subsection17-20(2)]

3.49 Similarly, the joint venture operators entitlement to an input tax credit is to be treated as if each participant who made the acquisition or importation were entitled to the credit for the purpose of applying the rules in Division 27. [Item 14, new subsection 27-25(2)]

3.50 The terms GST joint venture [item 59] and participant [item 67] , as defined in the GST Act, will be added to the Dictionary to the ITAA 1997.

F. Change in terms to ensure consistency of meaning

Definition of market value

3.51 The definition of market value in the Dictionary to the ITAA 1997 will be modified to take into account the input tax credit that an entity would be entitled to if it acquired the thing being valued. The net effect on an entitys resources in acquiring something must allow for the fact that the consideration it gives is partly offset by the input tax credit it is entitled to. [Item 63]

3.52 The term GST-inclusive market value, as defined in the GST Act will be inserted in the Dictionary to the ITAA 1997. When this term is used it expressly includes the GST component that would be included in the price of something, that is, without adjusting for any input tax credit entitlement [item 58] . A specific rule for adjusting that value to account for the input tax credit entitlement may then be necessary as provided for in the context of deductible gifts that have been valued [item 17, new subsection 30-15(3), items 24 and 25 in relation to subsection 30-215(3] and item 28, new subsection 30-215(4)] .

3.53 The following table lists the provisions in the ITAA 1997 that have been amended so that terms used have meanings consistent with those in the GST Act.

3.54 Part 2 of Schedule 3 amends a number of provisions that will be affected by the change to the meaning of market value. Items 71 to 84 will replace existing references to market value that rely on the ordinary meaning of the term with a defined term. An asterisk indicates that the meaning given in the Dictionary applies to the term.

3.55 Not all references to market value have been asterisked. This is because the change in meaning resulting from the introduction of GST does not affect some things such as shares, and other securities, and payments that are not supplies.

Replacement of the term price

3.56 The term price is defined in the GST Act as having a GST-inclusive meaning see section 9-75 of that Act. This meaning may be misinterpreted if it is used in contexts where the rules in proposed new Division 27 (about deductibility, if there is an entitlement to an input tax credit) apply, or where it relates to a supply that may not be a taxable supply. References to price have therefore been changed if they appear in provisions of the income tax law in these contexts.

3.57 The following table lists the provisions in the ITAA 1997 that have been amended so that terms used have meanings consistent with those in the GST Act.

3.58 The term import is to be defined in the ITAA 1997 in the same way as in the GST Act [item 60] .

3.59 The term import is currently used, in the ordinary meaning of the term, in a provision of the ITAA 1997 dealing with the substantiation of depreciation expense. In this context, the substitution of the term with the defined term [item 51] does not alter the meaning of the provision.

G. Amendment of the Income Tax Assessment Act 1936

3.60 A number of provisions in the ITAA 1936 that currently use the term price will also be amended to remove the risk of misinterpretation. The following table lists the provisions that will be amended by Schedule8 to this Bill.

3.61 Subsection 6(1) which contains definitions of terms used in the ITAA 1936 will be amended to insert definitions to new terms inserted by the amendments. The terms to be inserted are creditable acquisition [item16] , GST Act [item 17] , net GST [item 18] , net input tax credit [item 19] , taxable supply [item 20] .

H. Transitional provisions

3.62 Entities holding goods immediately before the introduction of GST on 1 July 2000 that has wholesale sales tax embedded in its cost will be entitled to a special GST credit see section 16, A New Tax System (Goods and Services Tax Transition) Act 1999.

3.63 The special GST credit is to be treated as an input tax credit for the purpose of applying the income tax amendments proposed by this Bill [Schedule 6, item 9] . This means that for calculating the amount of a deduction the expenditure incurred in acquiring the goods will need to be reduced by the amount of the special GST credit corresponding to the goods.

Chapter 4 - Trade Practices Act 1974

Outline of Chapter

4.1 This Chapter explains amendments to Part VB of the Trade Practices Act 1974 (TPA). The amendments are contained in Schedule 4 to this Bill.

4.2 A New Tax System (Trade Practices Amendment) Act 1999 inserted Part VB and Part XIAA into the TPA together with a Schedule version of Part VB. Part VB of the TPA confers on the Australian Competition and Consumer Commission (ACCC) powers to monitor prices and institute proceedings against corporations that engage in price exploitation during the transition to the New Tax System. The States and Territories have agreed to pass legislation adopting a Schedule version of Part VB as a law of their own jurisdiction, thereby establishing a National Price Exploitation Code with uniform coverage over incorporated and unincorporated businesses.

Context of Reform

4.3 Under Part VB, as it presently stands, the ACCC may monitor all prices throughout the entire New Tax System transitional period (i.e. 8 July 1999 to 1 July 2002). The ACCC can also, from 29 July 1999, issue price exploitation notices (under section 75AW or 75AX) or institute proceedings against businesses that fail to pass on the wholesale sales tax reductions from 32% to 22% on a limited range of electronic and gift goods. However, the ACCCs enforcement (as opposed to monitoring) powers with respect to all other goods and services do not commence until the GST implementation date (i.e. 1 July 2000). This result stems from the current definition of regulated supply contained in section 75AT of the TPA when read with the prohibition in section 75AU of the TPA.

4.4 Therefore, if a business unreasonably raised its prices in anticipation of the GST (i.e. before 1 July 2000), in contravention of section 75AU of the TPA, the ACCC could not exercise its enforcement powers to issue a price exploitation notice or institute proceedings under Part VB or the Schedule version of Part VB of the TPA until 1 July 2000.

Summary of the amendments

4.5 The proposed amendments to section 75AT will bring forward the date of effect of the ACCCs enforcement powers so that the ACCC can exercise those powers immediately with respect to unreasonable price rises made even before the GST is implemented. A minor amendment to subsection 75AU(2) is also proposed to make it clear that the prohibition against price exploitation is to apply to supplies made before and after the GST is implemented. Identical amendments will be made to the Schedule version of Part VB of the TPA.

4.6 The new date of effect for the ACCCs enforcement powers will be the date on which this Bill receives Royal Assent. [Subclause 2(1)]

Detailed explanation of the amendments

4.7 Items 1 to 4 amend the TPA to ensure that the ACCCs enforcement powers extend to the supply of any good, service or anything else during the transitional period and before the GST is implemented (i.e.between 8 July 1999 and 30 June 2000). Previously, the ACCCs powers during that period were restricted to supplies of the limited range of electronic and gift goods subject to the WST reduction from 32% to 22% on 29 July 1999.

4.8 Items 1 and 3 amend subparagraph (a)(ii) of the definition of regulated supply in section 75AT and clause 75AT of the Schedule. New subparagraphs (a)(ii) and (a)(iii) will treat supplies made before 1 July 2000 as if they were made on or after 1 July 2000. Thus supplies made before 1 July 2000 that would be taxable supplies by persons that will be required to register for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 will be subject to the price exploitation prohibition in section 75AU. [Items 2 and 4] Effectively, for-profit businesses with annual turnovers exceeding $50,000 (and $100,000 for non-profit businesses) will be liable for substantial pecuniary penalties under the TPA if they unreasonably raise their prices in anticipation of the GST.

4.9 Paragraph (b) of the definition of regulated supply remains unchanged and thus there will be no change to the ACCCs enforcement powers in relation to supplies made on or after 1 July 2000 and before the end of the transitional period (1 July 2002).

Application

4.10 The amendments made by Schedule 4 will commence on the day this Bill receives Royal Assent.

Chapter 5 - Tax Administration Acts

Detailed explanation of new law

Technical corrections to remove references to registration for wine tax

5.1 Item 1 repeals item 66 in Schedule 1 of the A New Tax System (Indirect Tax Administration) Act 1999 to remove decisions about registration for wine tax from the list of reviewable wine tax decisions under the A New Tax System (Wine Equalisation Tax) Act 1999 (WETAct). These references are incorrect and refer to events that do not occur under the WET Act.

5.2 Item 4 inserts new subsection 62(2A) so that each decision under section 17-45 of the WET Act disallowing the whole or part of a claim for wine tax credit is a reviewable wine tax decision.

Reviewable goods and services tax (GST) decisions

5.3 Items 2 and 3 correct references to Divisions 48 (GST groups) and 51 (GST joint ventures) in the table of reviewable GST decisions.

Provision of wine tax information to States and Territories

5.4 Section 68 of the Taxation Administration Act 1953 (TAA 1953) relates to the protection of confidentiality of indirect tax information and provides that a person authorised by the Commissioner of Taxation (Commissioner) or a Deputy Commissioner of Taxation (Deputy Commissioner) may provide certain information in limited circumstances.

5.5 New paragraph 68(3)(e) will be added by items 5 to 8 to allow information relating to alcoholic beverages to be provided to a State or Territory officer for the purpose of any rebate, refund or other credit arrangement provided by a State or Territory in respect of alcoholic beverages. This provision will allow a person authorised by the Commissioner or a Deputy Commissioner to provide certain information relating to the wine tax to State and Territory officers. [Items 5 to 8]

Record keeping requirements

5.6 Section70 of the TAA 1953 is amended to extend the record keeping requirements of that section to entities that make GST-free or input taxed supplies. [Item 9]

Wine tax records

5.7 There is a minor amendment to paragraph 70(1)(b) of the TAA1953 to ensure that records are kept for all assessable dealings with wine and not just dealings that are taxable dealings. [Item 10]

Chapter 6 - Indirect Tax Transition Acts

Detailed explanation of new law

Supply of rights exercisable on or after 1 July 2000

6.1 Section 11 of the A New Tax System (Goods and Services Tax Transition) Act 1999 (GST Transition Act) provides that to the extent a right granted on or after 2 December 1998 could reasonably be expected to be exercised after 1 July 2000, it will be subject to the goods and services tax (GST). This requires an apportionment of the value of the right relating to pre and post 1July 2000. There may be some unintended consequences arising from the application of this section. These amendments will make it clear that certain rights do not fall within this provision.

Warranties included in the price of goods and services

6.2 The GST transitional provisions provide that the supply of a right that has been granted on or after 2 December 1998 is subject to GST to the extent that the right could reasonably be expected to be exercised on or after 1 July 2000. The sale price of goods and services may include a value that relates to a warranty. Where goods sold before 1 July 2000 have a warranty included in the purchase price it will not be appropriate to subject part of the warranty value to GST.

6.3 An amendment is required to ensure that the value of warranties included in the price of goods and services sold prior to 1 July 2000 are not subject to GST. Where the warranty is the subject of a separate contract and the warranty period spans 1 July 2000, part of the warranty value will be subject to GST. A warranty will be considered to be included in the purchase price where the warranty normally forms part of the purchase price (e.g. the value of statutory warranties). [Item 2, new paragraph 11(1A)(a)]

6.4 New subsection 11(4) provides a definition of warranty for the purposes of section 11. [Item 3]

Rights to purchase under hire purchase agreements

6.5 Liability for GST under a hire-purchase agreement will arise at the commencement of the agreement and not continuously throughout the period of the agreement. If a hire-purchase agreement is entered into prior to 1 July 2000, it will not be subject to GST.

6.6 The GST transitional provisions provide that the supply of a right which has been granted on or after 2 December 1998 is subject to GST to the extent that the right could reasonably be expected to be exercised on or after 1 July 2000. Where a hire-purchase agreement is entered into prior to 1 July 2000 it may under some State legislation involve an option to purchase at the completion of the contract and this may occur after 30June2000. Where this occurs the effect of the transition provisions appears to bring a pre-1 July 2000 hire-purchase contract within the GST. This result is not intended and an amendment is required to ensure that the correct outcome is achieved. [Item 2, new paragraph 11(1A)(b)]

Indefinite rights included in the price of software

6.7 Computer games and software sold before 1 July 2000 are not expected to be subject to GST. However, similar to the warranties, there is concern that the value of the right to use a computer game or software after 1 July 2000 granted by the software licence would also be caught under the GST transition provisions. This would require retailers of computer games and other software to account for GST in the price of software sold between 2 December 1998 and 30 June 2000.

6.8 This result would be inappropriate and an amendment is required to ensure that computer games and other software sold before 1 July 2000 are not subject to GST. The GST treatment should, in principle, be no different from any other good that is purchased. In the case of computer games and other software what is being sold is the computer game or software. Attached to that sale is a licence (usually an indefinite licence) to use the software. In effect, there is only one transaction, the sale of the computer game or software, and the appropriate result is that sales prior to 1 July 2000 are not subject to GST.

6.9 There may be some situations where it is appropriate for GST to be paid on the value of the right to use the software purchased before 1 July 2000. This will be where the software licence is granted for a finite period that spans the GST implementation date. For example, if a licence is granted to an organisation for multiple use of certain software on their network for a 3 year period, it would be appropriate for the value of that licence which relates to a period after 1 July 2000, to be subject to GST. [Item 2, new paragraph 11(1A)(c)]

Apply the principles in section 177-1 to the transition arrangements

6.10 Section 13 and 14 of the GST Transition Act provide concessional treatment to supplies involving agreements spanning 1 July 2000 where the recipient of the supply is entitled to full input tax credits. New subsections13(4A) and 14(5) are inserted to ensure that Commonwealth entities that are notionally entitled to a full input tax credit, are treated as though they are entitled to a full input tax credit in the same way as any other registered entity. [Items 4 and 7]

Review opportunities

6.11 A review to market price is a review opportunity. However, a review to market price that takes place before 1 July 2000 will not allow indirect tax changes, such as the GST, to be reflected in subsequent contract payments.

6.12 The definition of review opportunity in section 13 of the GST Transition Act is amended to ensure that a review that does not allow indirect tax changes to be reflected in contract payments (either directly or indirectly) is not a review opportunity. [Items 5 and 6]

6.13 This restores the original policy intent that GST should apply to existing contracts only if the supplier can alter the consideration to pass on GST.

Life memberships

6.14 Where life memberships are purchased by businesses (e.g.football club life memberships) between 2 December 1998 and Royal Assent, the supply is GST-free to the extent that the supply occurs before 1 July 2005, unless consideration is paid before 2 December 1998. This imposes a difficult apportionment task upon the suppliers of these memberships.

6.15 Section14 of the GST Transition Act is amended to provide that where a supply of a life membership is made to an entity that would be entitled to a full input tax credit, any consideration paid before 1 July 2005 (or an earlier review opportunity) is for a GST-free supply. The amendment removes compliance costs for businesses offering such memberships. [Item 7]

Ensure wholesale sales tax (WST) credit for second hand goods is confined to stock for resale

6.16 Section 16 of the GST Transition Act allows a credit for WST paid on goods held for sale or exchange on 1 July 2000. However, the credit is not available for second hand goods unless the goods were imported. This is because imported second hand goods are the only type of second hand goods to which WST applies. Currently, that Act could allow a credit where an entity imports goods, pays sales tax, uses the goods as plant or equipment and then holds them for resale.

6.17 Item 8 amends section 16 of the GST Transition Act so that the credit will be available for imported second hand goods where:

•

nobody was entitled to a sales tax exemption for the importation; and

•

you held the goods solely for sale or exchange in the ordinary course of business.

Vehicles used in operating leases pre-2 December 1998

6.18 Where a vehicle is purchased by a business for the purposes of an operating lease, WST is borne by the purchaser and effectively recouped as an element of the lease payments and the residual value. Some operating lessors who incurred WST on vehicles at the time of purchase will also incur GST where they sell those vehicles after 1 July 2000. These lessors will not have been able to adjust the lease payments to take account of the GST on the sale of the vehicle and thereby recoup this additional cost.

6.19 The GST Transition Act is amended to provide transitional relief similar to transitional credits for sales tax on trading stock. The amendment provides a notional input tax credit to operating lessors in certain circumstances so that they are able to offset GST payable on the sale of the vehicle.

6.20 Item 10 adds a new section 19A to the GST Transition Act so that a special credit will be available on the supply of a motor vehicle in certain circumstances. The credit will be available if all of the following conditions are met:

•

the vehicle is first sold on or after 1 July 2000;

•

the supplier was, immediately before the sale, the lessor of the motor vehicle under an operating lease;

•

the supplier bought the vehicle prior to 2 December 1998 for the purpose of leasing it under an operating lease; and

•

the vehicle has been subject to sales tax.

6.21 The credit will be equal to 1/11 of the price of the supply. It is treated as an input tax credit and is attributable to any one tax period of your choice.

6.22 An operating lease is a lease whereby the lessor substantially retains all risks and benefits incidental to the ownership of the motor vehicle.

6.23 No relief will be available for vehicles purchased free of sales tax by lessors. The measure also does not apply to finance leases or hire purchase agreements.

Prevent grouping provisions being used to circumvent the phasing in of credits for motor vehicles

6.24 Section 20 of the GST Transition Act denies input tax credits for motor vehicle purchases between 1 July 2000 and 1 July 2002. These provisions are not effective for certain intra-group transactions, such as where a motor vehicle manufacturer sells to a financing arm within the same GST group who then leases the vehicle.

6.25 Item 11 amends section 20 of the GST Transition Act by inserting new subsection 20(3A) to exclude intra-group supplies of motor vehicles that would fall within the scope of section. This item amends section 20 so that subsection 48-40(2)(a) of the A New Tax System (Goods and Services) Act 1999 (GST Act) will not apply where a motor vehicle, trailer or vehicle body is supplied by one member of a GST group to another member of the group.

6.26 The amendment has the effect of treating supplies of this type between group members as taxable supplies and ensuring that GST will be payable on the intra-group supply. Entitlement to input tax credits for the acquisition will be denied or reduced in accordance with section 20 of the GST Transition Act.

Notification of intention to claim input tax credits on insurance premiums

6.27 Division 78 of the GST Act provides that if you were entitled to an input tax credit for an insurance premium, you will be liable to GST on any settlement made under your insurance policy. Section 23 of the GST Transition Act currently provides that you are not entitled to input tax credits for premiums for insurance policies paid before 1 July 2003 unless you notify the Commissioner of Taxation (the Commissioner) that you are claiming an input tax credit for the premium. This means that you will not have any GST liability for settlements under such insurance policies unless you notified the Commissioner.

6.28 However, section 23 of the GST Transition Act does not currently provide any time in which to notify the Commissioner. Conceivably, you could notify the Commissioner that you are claiming the input tax credits after you know that there will be a settlement.

6.29 Section 23 of the GST Transition Act also only refers to notifying the Commissioner in relation to claiming an input tax credit on the premium. This could mean that to claim the input tax credits you would have to notify the Commissioner in relation to each premium you paid for each insurance policy you have.

6.30 Item 12 amends section 23 of the GST Transition Act to provide that you have a choice about when to notify the Commissioner. You can notify the Commissioner before you become registered or you can notify the Commissioner when you lodge a GST return [new subsection 23(3)] . You can only make the notification once in relation to all the input tax credits to which you are entitled on premiums paid before 1 July 2003 [new subsection 23(2)] . You will not be entitled to input tax credits on such insurance premiums unless a notification is made. The notification relates to all the input tax credits for which you are entitled for all your insurance policies [new paragraph 23(1)(b)] . The notification is only effective in relation to policies that commence on or after the notification takes effect [new paragraph 23(1)(c)] . A policy commences if it is a new policy, which includes renewal of policies.

6.31 If you notify the Commissioner before you become registered, the notification takes effect from the date of effect of your registration [new paragraph 23(4)(a)] . This means that if you take out, or renew an insurance policy before the date of effect of your registration, you are not entitled to the input tax credits in relation to that premium.

6.32 If you notify the Commissioner with a GST return, the notification takes effect from the day after you lodge that return [new paragraph 23(4)(b)] . This means that if you take out, or renew an insurance policy on or before the day you lodge that return, you are not entitled to input tax credits in relation to that premium.

Special credit for wine held for the purpose of sale or exchange at 1 July 2000

6.33 The A New Tax System (Wine Equalisation Tax and Luxury Car Tax Transition) Act 1999 provides a special credit for wine held for the purpose of sale or exchange at 1 July 2000. The special credit is equal to 12/41 of the amount of sales tax that you have borne in respect of the wine. For older stocks of wine where the rate of sales tax borne was between 20% and 26%, this formula will not provide for an appropriate credit amount. The special credit available in respect of stocks of wine subject to sales tax at a rate between 20% and 26% is to be calculated in accordance with the following formula:

sales tax amount X (sales tax rate - 14%) / sales tax rate


where:

sales tax amount is the amount of sales tax that you have borne in respect of the wine; and

sales tax rate is the rate at which you have borne sales tax in respect of the wine.

[Item 13, new subsection 3(3A)]

Example 6.1

Johns Liquor Store holds wine that was purchased on 15 June 1993 for $24 (including $4 sales tax). John is entitled to a special credit of $1.20 in respect of this wine, calculated as:

(4 X (0.2 - 0.14)=$1.20) / 0.2


6.34 There will be no credit entitlement for wine that was subject to a rate of sales tax of less than 20%.

Chapter 7 - Amendments relating to the Tradex scheme

Outline of Chapter

7.1 This Chapter explains amendments to the goods and services tax (GST), wholesale sales tax (WST) and wine equalisation tax (WET) legislation to give effect to the Tradex scheme. The Prime Minister announced the Tradex scheme on 7 December 1997 as a key element of the Governments Investing for Growth industry statement. The Tradex scheme will assist importers who bring goods into Australia temporarily for activities such as processing, packaging or warehousing prior to export.

7.2 The Tradex scheme aims to provide relief to businesses that currently pay customs duty and WST on imported goods which are later re-exported or used as inputs to exports. The Tradex scheme will provide the same relief in relation to GST and WET.

Summary of new law

7.3 The measures contained in these amendments will enable goods imported into Australia under the Tradex scheme to be entered free of GST, WST, and WET. The amendments also ensure that if goods imported under the Tradex scheme are not exported or are used contrary to the Tradex rules, the relevant tax will be payable.

Detailed explanation of new law

Changes to WST

7.4 Part 1 of Schedule 7 covers amendments commencing before 1July 2000. These amendments ensure goods can be imported free of WST under the Tradex scheme. This will be achieved by the insertion of a new exemption, item 185A of Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992. [Items 1 to 3, 7 and 8]

7.5 They also ensure that goods imported free of WST under the Tradex scheme will be liable to WST in the event that they are not exported or are otherwise dealt with contrary to the requirements of the Tradex scheme. This will be achieved by inserting a new assessable dealing, LE15, in Table 2 of Schedule 1 to the Sales Tax Assessment Act 1992. [Item 5 and 6]

7.6 The amendments to the WST law insert new section 10A in the Sales Tax Assessment Act 1992 to ensure that Tradex scheme goods can be liable to WST even though they may have been applied to own use as Tradex goods. [Item 4]

Changes to GST and WET

7.7 Part 2 of the measures contains amendments relating to indirect taxes (GST and WET) commencing on 1 July 2000. These amendments ensure that goods can be imported free of GST or WET under the Tradex scheme. In the case of GST, this will be achieved by inserting a new nontaxable importation, 21A, in sub-section 42-5(1) of A New Tax System (Goods and Services Tax) Act 1999 (GSTA 1999). [Items 9, 10, 11 and 12] Inthe case of WET, this will be achieved by inserting a new exemption, 21A, in subsection 7-15(1) of A New Tax System (Wine Equalisation Tax) Act 1999. [Item 18]

7.8 Part 2 also ensures that goods imported free of GST or WET under the Tradex scheme will be liable to GST or WET in the event that they are not exported, or are otherwise dealt with contrary to the requirements of the Tradex legislation. In the case of GST, this will be achieved by inserting a new increasing adjustment, Division 141, in Chapter 4 (The Special Rules) in the GST Act. [Item 13] In the case of WET, this will be achieved by inserting a new assessable dealing, LE14A, in the table at subsection 5-30(5) of the WET Act. [Items 13 to 18]

Chapter 8 - Amendments to other Commonwealth Acts

Outline of Chapter

8.1 This Chapter explains the amendments made to a number of other Acts that are consequent to the introduction of the indirect tax laws goods and services tax, wine equalisation tax and luxury car tax. Theamendments are contained in Schedule 8 .

Context of Reform

8.2 The new indirect tax laws will operate within the framework of existing laws. These laws need to be amended to include references to the indirect tax laws.

Summary of the amendments

Purpose of the amendments

8.3 The following Commonwealth Acts will be amended to include references to the new indirect tax laws:

•

Administrative Decisions (Judicial Review) Act 1977 (AD(JR)A 1977);

•

Crimes (Taxation Offences) Act 1980 (C(TO)A 1980);

•

Freedom of Information Act 1982 (FOIA 1982); and

•

Taxation (Interest on Overpayments and Early Payments) Act 1983 (T(IOEP)A 1983).

Date of effect

8.4 The amendments will apply immediately after the commencement of the A New Tax System (Goods and Services Tax) Act 1999, that is, from 1 July 2000. [Subclause 2(17)]

Detailed explanation of the amendments

Administrative Decisions (Judicial Review) Act 1977

Background

8.5 The AD(JR)A 1977provides for the review in the Federal Court of an administrative decision to which that Act applies, and of conduct in the course of making a decision to which that Act applies. Schedule 1 to that Act lists classes of decisions to which that Act does not apply.

8.6 Among the classes of decision listed in Schedule 1 are the making of assessments, decisions forming part of the process of making of assessments and decisions on objections in relation to various taxing Acts. Theindirect tax laws provide for administrative review of such decisions.

Explanation of the amendment

8.7 References to the indirect tax laws, including Part VI of the Taxation Administration Act 1953 (TAA 1953), will be inserted in Schedule 1 of the AD(JR)A 1977. This will exclude from judicial review, under the AD(JR)A 1977, decisions made under the indirect tax laws that fall within the classes referred to in Schedule 1. [Items 1 and 2]

Crimes (Taxation Offences) Act 1980

Background

8.8 The C(TO)A 1980 provides for criminal sanctions against persons who engage in arrangements or transactions designed to ensure that a company or trust is rendered incapable of paying taxes for which it is liable.

Explanation of the amendment

8.9 The C(TO)A 1980 will be amended to insert new Parts which will apply the existing provisions relating to sales tax evasion to offences committed under the new indirect tax laws. [Items 3 to 14]

Freedom of Information Act 1982

Background

8.10 Access can be denied to a document that is an exempt document for the purposes of the FOIA 1982. A document is an exempt document under section 38 of that Act if its disclosure is prohibited under a provision of an enactment. That prohibition applies to the secrecy provisions of various Acts listed in Schedule 3 of that Act.

8.11 However, a person may access documents under the control of the Commissioner of Taxation (Commissioner) if they contain information about their personal tax liability.

Explanation of the amendment

8.12 Schedule 3 will be amended to include a reference to section 68 of the TAA 1953(about protecting the confidentiality of information) [item15] . A document containing information to which that provision applies will be an exempt document unless it contains information about a persons own indirect tax liability.

Taxation (Interest on Overpayments and Early Payments) Act 1983

Background

8.13 TheT(IOEP)A 1983 provides for the payment of interest by the Commissioner on certain overpayments or early payments of tax.

8.14 Part III of the T(IOEP)A 1983 provides for the payment of interest to a taxpayer on an amount of relevant tax, which is overpaid as a result of a decision to which this Act applies. This would occur as a result of a successful objection or appeal against, or review of, an assessment, and the tax is refunded or applied against another tax liability.

Explanation of the amendment

8.15 The definition of relevant tax will be amended to include references to an indirect tax, or a penalty, or a charge under an indirect tax law [item 26] . This will ensure that interest will be paid on any overpaid tax that is refunded or applied against another tax liability as a result of an objection against an assessment of indirect tax.