Senate

A New Tax System (Indirect Tax and Consequential Amendments) Bill (No. 2) 1999

Second Reading Speech

Senator Ian Campbell

I table the revised explanatory memorandum relating to the bill and move:

That this bill be now read a second time.

The legislation enacting the new tax system was passed by this Parliament in June. Since then, we have seen lower prices for goods such as TVs and stereos, as a result of reductions in wholesale sales tax on these items.

This is just the beginning of the new tax system that will deliver better outcomes for consumers, businesses, families, farmers and the community as a whole.

Since the introduction of the GST legislation, we have been engaged in an extensive consultation process. This continuing process of consultation has involved a broad cross section of industry and community sector representatives, the States and Territories, the Tax Office, and other Commonwealth Departments.

Through this process, we have responded to concerns that have been expressed and have assessed the fine-tuning required to ensure that the GST is implemented in the most effective way.

This bill includes amendments that the Government considers are necessary to provide a smooth transition to the new tax system.

Immediate deductibility of expenditure by small and medium sized businesses on GST-related plant or software

This bill will implement a major initiative of the Government to assist small and medium sized businesses as they prepare for the introduction of the GST.

As the Government announced on the 19th of August, there will be an immediate income tax deduction for small and medium sized businesses for expenditure incurred in acquiring or upgrading plant or software to prepare for the GST.

This immediate deduction will have an estimated revenue cost of $175 million in the 2000-2001 financial year. It is in addition to the $500 million that the Government is providing to help small and medium businesses, charities and education bodies prepare for the start of the GST.

The deduction will be available to a business with an annual turnover not exceeding $10 million. The turnover test will include the turnover of any entities connected to the business.

The deduction will apply to expenditure on acquiring or upgrading plant to meet obligations, or exercise rights, under the GST law. It is to be available for expenditure incurred during the current financial year.

Change to treatment of general insurance

A significant change is made to the special GST rules that apply to general insurance. These amendments result from consultation with the general insurance industry and they simplify the treatment of general insurance without altering the fundamental basis of the policy.

This will mean that, generally, businesses will not be liable for GST on settlement payouts they receive.

The new rules will reduce compliance costs for all registered entities that have insurance policies and also for insurers.

Structural flexibility for certain non-profit bodies

This bill will amend the GST law to provide flexibility for charitable institutions, trustees of charitable funds, gift deductible entities and certain non-profit bodies that are income tax exempt to treat separately identifiable units of their organisations as though they are separate entities for GST purposes.

The compliance benefits of these amendments have resulted from discussions with the Charities Consultative Committee-established by the Prime Minister to address the effect of GST on the charities sector.

Second-hand goods

Changes to the provisions applying to second-hand goods will better achieve the original policy intent of those provisions.

We are clarifying the treatment of goods that are acquired whole and then broken down for sale, such as in the case of motor vehicle dismantlers, or goods acquired collectively and sold separately, such as goods purchased in lots at auction;

We are eliminating much of the administrative burden associated with small items;

We are proposing an anti-avoidance measure to require substantiation of the price of second-hand goods from the unregistered sector;

And we are excluding animals and livestock from the definition of second-hand goods.

Imported telecommunications services

With the substantial growth in the availability of telecommunications products, this bill proposes an amendment to ensure that the GST captures all telecommunications services that are used in Australia, irrespective of where the supplier is based. This amendment makes sure that the domestic industry is not put at a competitive disadvantage.

Service provided to non-residents but used in Australia

Another amendment will ensure that services provided to non-residents, who are not in Australia at the time the service is provided, are taxable where that service is used or enjoyed by another person in Australia, for example, an employee of the non-resident. Without this amendment it is possible that some supplies that are effectively used or enjoyed in Australia may not be subject to GST.

Supply of farm land

The Government is also seeking to amend the GST Act to ensures that the sale of farm land is GST-free even if the entity supplying the land is different from the entity carrying on the farming business on the land. That is, the supply is GST-free provided that farming business has been carried on the land for 5 years.

A further amendment clarifies that the supply of the farmland is only GST-free if it is the sale of farmland or a supply by way of long-term lease.

Adjustments for stock on hand for a new registrant

An amendment to the GST law will allow an unregistered entity at the time it becomes registered to claim input tax credits for the GST included in the cost price of stock held for sale or manufacture. This prevents the double taxation that would otherwise occur.

Treatment of vouchers

This bill will ensure that certain vouchers, for example, gift vouchers, are subject to GST at the time of redemption. It will apply to vouchers that have a specified monetary value. Bus tickets, postage stamps and vouchers for specified goods or services will continue to be taxed at the time the ticket or voucher is supplied.

This amendment was requested by the Australian Retailers' Association and will be welcomed by the industry.

Petroleum Resource Rent Tax and Wool Tax

This bill contains amendments to remove GST from the calculation of the tax base of the Petroleum Resource Rent Tax and Wool Tax. This is a consequential taxation issue, reinforcing the Government's intention not to increase the revenue received from other Commonwealth taxes as a result of the GST.

Ensure that non-incorporated bodies are carrying on the enterprise and not the members

To confirm the entity basis for GST liability this bill will make it clear that a non-incorporated body is carrying on the enterprise and not the individual members.

A number of other amendments are included in this bill that will clarify the indirect tax laws where uncertainties have been identified or where technical correction are required.

Full details of the measures in the bill are contained in the explanatory memorandum.

I commend the bill.