House of Representatives

Treasury Laws Amendment (GST Integrity) Bill 2017

Second Reading Speech

Mr McCormack (Minister for Small Business)

I move:

That this bill be now read a second time.

Today, I introduce a bill to amend the A New Tax System (Goods and Services Tax) Act 1999('GST law') to give effect to changes that were announced by the Hon. Kelly O'Dwyer MP, Minister for Revenue and Financial Services, on 31 March 2017.

The bill provides that entities buying gold, silver and platinum that have been supplied as a taxable supply for GST purposes will be required to apply a reverse charge. This means they will remit the GST to the ATO instead of the seller remitting the goods and services tax.

In addition the bill clarifies that precious metals are not second-hand goods.

These changes will negate two types of avoidance activity by entities exploiting the different tax treatment applying to 'precious metals' and 'scrap metals'.

Precious metals are gold, silver, platinum and other prescribed metals meeting particular investment form and fineness requirements.

Generally, a supply of precious metals is not taxable, whereas a supply of scrap metals will be a taxable supply under the GST rules.

However, precious metals can be altered to turn them into scrap metals, for example by removing logos or brand markings, or chopping the metal so that it is no longer in investment form.

The first type of avoidance activity involves entities altering precious metals to turn them into scrap metals. On sale of the scrap metal, GST would be charged. However, the seller would go missing without having remitted the GST to the ATO, and the purchaser would still claim an input tax credit on their purchase.

To address the 'missing trader' scheme, the bill applies a reverse charge to supplies involving these metals, which ensures the purchaser becomes responsible for remitting the GST to the ATO. This removes the opportunity for the seller to keep the GST and go 'missing'.

The second type of avoidance activity involves entities altering precious metals to turn them into scrap metals, so they are treated as second-hand goods. The GST law allows entities to claim input tax credits for second-hand goods bought from the public, in line with the policy rationale that GST is embedded in the price when dealers purchase these goods.

However, scrap metals, broken jewellery and other items that are bought and later sold to refiners for their valuable metal content are very unlikely to have any GST embedded in the price.

Allowing an input tax credit in such situations is not consistent with the policy underpinning the second-hand goods rules.

The bill clarifies the law to ensure it operates as intended and this avoidance, and at times fraudulent, activity is stopped.

The bill will have effect from 1 April 2017, as announced.

To make sure this activity does not simply shift from gold to other metals, the amendments also apply to goods containing silver, platinum or other metals that may be prescribed.

The government is committed to protecting the integrity of the tax system. By making these changes to the GST treatment of precious metals, the government is securing necessary funds for states and territories that provide crucial services such as hospitals and schools that Australians rely on.

Full details of the measure are contained in the explanatory memorandum.

Debate adjourned.