House of Representatives

A New Tax System (Goods and Services Tax) Bill 1998

A New Tax System (Goods and Services Tax) Act 1999

Explanatory Memorandum

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


This chapter tells you about things that are exempt from GST. It explains:

what are GST-free supplies; and
what are input taxed supplies.

Chapter Summary

Non-taxable supplies

A non-taxable supply is a supply that is GST-free; or input taxed.

GST-free supplies

If a supply is GST-free, no GST is payable on the supply and you are entitled to input tax credits on your creditable acquisitions that relate to the supply.

Input taxed supplies

If a supply is input taxed, no GST is payable on the supply but you are not entitled to input tax credits on your creditable acquisitions that relate to the supply.

Non-taxable supplies

5.1 You do not charge GST on non-taxable supplies.

GST-free supplies

5.2 You do not charge GST on supplies that are GST-free. However, you are still entitled to input tax credits on acquisitions relating to the supplies. The effect is that there is no GST whatsoever included in the consideration for the supply.

5.3 In other countries, GST-free supplies are often referred to as zero-rated .

Input taxed supplies

5.4 You do not charge GST on supplies that are input taxed. However, you are not entitled to input tax credits on acquisitions relating to the supplies. The effect is that you have borne GST on those acquisitions and will pass on that cost in the price of the supply.

5.5 In other countries, input taxed supplies are referred to as exempt .

5.6 If you supply something that you have used solely in connection with supplies that are input taxed, that supply is also input taxed. Subsection 9-30(4).

Supplies that are both GST-free and input taxed

5.7 If a supply would be both wholly input taxed and wholly GST-free, GST-free overrides input taxed and the supply is GST-free -- subsection 9-30(3). For example, exports are GST-free and financial supplies are input taxed. Thus, the export of financial supplies are GST-free.

GST-free supplies

Health -- Subdivision 38-A

Medical services

5.8 A supply of a medical service is generally GST-free if it is provided by or on behalf of a medical practitioner or an approved pathology practitioner -- subsection 38-5(1) . Both these terms are defined in the Dictionary at section 195-1 .

5.9 The medical service will be GST-free if it is a service that is generally accepted in the medical profession as being necessary for the treatment of the patient. For example, if a doctor conducted an iridology service, or some other form of complementary therapy, that service would not be GST-free according to the definition of medical service (see the Dictionary ).

5.10 A supply of a medical service is not GST-free if it is provided in certain circumstances such as the removal of tattoos and injection of prescribed substances in the management of obesity. Paragraph 38-5(2)(a).

5.11 Medical services provided in relation to cosmetic surgery or other cosmetic procedures will not be GST-free unless a Medicare benefit is payable for such a service -- paragraph 38-5(2)(b). For example, a nose reconstruction for purely cosmetic reasons would not be GST-free but a nose reconstruction that alleviated a breathing difficulty or was performed following an accident would be GST-free.

5.12 Goods that are supplied in the course of a medical service will also be GST-free. This applies to things such as bandages, dressings and antiseptics. Subsection 38-5(3).

Other health services

5.13 Other health services will be GST-free if they are provided by health practitioners listed in the table at section 38-10 . The services must be necessary for the treatment of the patient and be of the type normally supplied in that profession. The practitioner must be a member of a relevant professional body subject to State government professional registration or uniform national professional self-regulation. However, for certain hearing related services the practitioner must be an accredited service provider under the Hearing Services Administration Act 1997 . Section 38-10.

5.14 A supply is GST-free if it is provided by an ambulance service in the course of the treatment of a patient. Subsection 38-10(4).

5.15 Other health services will be GST-free where:

a supplier receives funding from Commonwealth, State or Territory governments;
the supply is connected with the supply of a health service; and
the health service is determined by the Health Minister.

For example, co-ordinated care services where a care provider co-ordinates medical and other health services on behalf of a patient. Section 38-15.

Hospital treatment

5. 16 A supply of hospital treatment is GST-free. This includes public and private hospital treatment and hospital in the home services, hospital outreach services and hospital services which are contracted out. Hospital services related to cosmetic surgery such as facelifts, are not GST-free -- subsections 38-20(1) and (2). A supply of goods as part of the hospital treatment is GST-free. This includes goods that are integral to the medical and health services supplied in a hospital, but does not include television hire for patients or food served in hospital cafeterias. Subsection 38-20(3 ).

Residential care

5.17 Residential care is defined in the Aged Care Act 1997 to include personal care and/or nursing care provided to a person in a facility in which the person is also provided with accommodation, appropriate staffing, meals, cleaning, furniture and equipment.

5.18 Residential care under section 38-25 refers to care for both aged and disabled people. This includes respite care.

5.19 A supply of residential care is GST-free if it is provided by a residential care facility that qualifies for funding under the Aged Care Act 1997 . Subsection 38-25(1) .

5.20 Residential care services that are provided by a facility that receives Commonwealth, State or Territory funding, and are in accordance with a determination by the Minister responsible for Aged Care, will also be GST-free. Subsection 38-25(2 ).

5.21 Residential care services supplied through private residential care facilities will be GST-free if they are provided in accordance with a determination by the Minister responsible for Aged Care -- subsection 38-25(3) . Determinations under this section will be disallowable instruments. Section 177-10 .

Community care

5.22 Community care services provide assistance to people so that they can stay in their own homes instead of having to move to a nursing home. A publicly funded program called Health and Community Care provides services, of a similar nature to those provided in nursing homes, to aged and disabled people in their homes. Similar services funded through State and Territory programs and privately funded will also be GST-free.

5.23 A supply of community care or care that is funded by the Commonwealth under the Aged Care Act 1997 or the Home and Community Care Act 1985 will be GST-free. Subsections 38-30(1) and (2) . This includes such things as prepared food (for example, meals on wheels), home maintenance, personal care assistance and respite care.

5.24 Privately funded community care services are GST-free if they are of a type specified in item 2.1, Part 2 of Schedule 1 to the Quality of Care Principles made under the Aged Care Act 1997 . Such services include assistance with bathing, eating, personal hygiene and respite care. Subsection 38-30(3) . The provision of goods, including food, associated with these services will not be GST-free unless specified elsewhere. For example, certain medical aids and appliances are GST-free. See 5.27

5.25 Flexible care is defined in the Aged Care Act 1997. It means care:

provided in a residential or community setting;
provided through an aged care service; and
that addresses the needs of aged care recipients in alternative ways to the care provided by residential care services and community care services.

Where this form of care is funded by the Commonwealth it is GST-free. Section 38-35.

Specialist disability services

5.26 Specialist disability services, funded under the Disability Services Act 1986 or complementary State or Territory law, and of the kind listed in section 38-40 are GST-free.

Aids and appliances

5.27 Certain aids and appliances designed for people with an illness or disability which are not of a kind ordinarily used in the wider community are GST-free. The list of GST-free aids and appliances is at Schedule 1 . Subsection 38-45(1) . A supplier and recipient can agree that a supply of medical aids or appliances is treated as a taxable supply. Subsection 38-45(2) This option is available to ease administration for entities that make both taxable and GST-free supplies.

Drugs and medicines

5.28 Drugs and medicinal preparations are GST-free if the supply is on prescription and the supply is prohibited except on prescription. Paragraph 38-50(1)(a) .

5.29 Pharmaceutical Benefits Scheme drugs and medicinal preparations which are sold on prescription will also be GST-free. Paragraph 38-50(1)(b).

5.30 Drugs and medicines that can only be sold within a pharmacy under the advice of a pharmacist, or supplied by a medical practitioner or dental practitioner are GST-free. This includes such preparations as ventolin. Subsection 38-50(2) .

5.31 A supply of a drug, medicine or other pharmaceutical item is GST-free if it is supplied on prescription under the Repatriation Pharmaceutical Benefits Scheme. Subsection 38-50(3) .

Health insurance

5.32 Health insurance and ambulance subscriptions are to be GST-free. Section 38-55 .

Education -- Subdivision 38-B

Education courses

5.33 The supply of an education course is GST-free. The supply of an education course includes the supply of the school facilities and administration services required for delivery of that course. Section 38-85 .

5.34 All recognised preschool, primary school, secondary school and tertiary courses are GST-free.

5.35 All courses covered by the determination of education courses by the Education Minister under the Student Assistance Act 1973 are GST-free. This determination is referred to in Social Security legislation to identify courses that students must be undertaking to be eligible for income support as full-time students.

5.36 The determination covers secondary courses and tertiary courses provided they are accredited with the relevant State or Territory accreditation authority and are not classified as hobby courses. Secondary and tertiary courses include:

accredited secondary courses;
school based apprenticeship or traineeship courses;
special school secondary courses;
English as a second language;
pre vocational courses;
remedial education or courses which aim to achieve basic skills to prepare students for further education;
vocational education and training programs structured to the attainment of Australian Qualifications Framework qualifications;
TAFE courses;
open learning courses;
New Apprenticeships Access Programme; and
higher education courses -- bachelor degree, postgraduate diploma, graduate degree and masters qualifying courses.

5.37 The Education Minister may determine that any primary, secondary or tertiary course not covered by the determination is a GST-free course. Private for profit schools are not covered by the determination.

5.38 In addition to those courses identified in the determination, there are a number of other GST-free education courses:

preschool and primary school courses;
special education centre courses. Special education centres cater to children with disabilities, providing therapeutic assistance and some educational instruction which may be either curriculum based or preparatory to schooling;
Masters and Doctoral courses;
English language courses for overseas students (for example those provided by ELICOS centres), or combination English language and other courses for overseas students provided by an accredited provider;
professional or trade courses; and
tertiary residential college courses.

Professional or trade courses

5.39 Professional or trade courses are GST-free -- paragraph (h) of the definition of education course in section 195-1 . Section 38-85.

5.40 Courses undertaken to gain qualifications are GST-free if the qualifications are an essential prerequisite to employment in a trade, profession or occupation. To be an essential prerequisite of a profession or trade, the qualification must be imposed by or under an Australian law or an award, order, determination or industrial agreement in force under an Australian law, or by a professional or trade association that has uniform national requirements for entry into that profession or trade.

5.41 If there is neither an industrial instrument nor an association with uniform national requirements, then requirements that are imposed by a professional or trade association which are not uniform nationally for example, a professional association whose requirements differ from State to State are essential prerequisites.

5.42 A qualification need not be from a recognised education provider for example, the exemption could extend to:

courses offered by associations regulating who can practice in a particular profession, or
a course to obtain a certificate required to operate a particular type of equipment.

5.43 A qualification will not be GST-free merely because it is required by a particular employer or group of employers. For example, a motor vehicle drivers licence is a requirement of a number of jobs. The cost of driving lessons is not GST-free.

5.44 A distinction is to be made between courses undertaken to obtain qualifications and courses undertaken to maintain them. Courses to maintain qualifications such as undertaking continuing professional development to retain membership of a professional body are not GST-free.

Tertiary residential college course

5.45 Private Tuition provided within a university college in connection with a higher education course is GST-free paragraph (i) of the definition of education course in section 195-1 .

5.46 The fees paid to a university college can sometimes include an education component. If residential fees include an entitlement to receive tuition or other assistance in connection with the education course undertaken at the institution where the residential premises are located, this component of the college fee is GST-free -- section 195-1 , definition of tertiary residential college course .

Recognition of prior learning

5.47 Assessments of prior learning are also GST-free -- section 38-110 . Assessments may be made for the purpose of access to education or employment, professional associations or occupational registration or licensing requirements.

5.48 Assessments may be made by an entity registered with a training recognition authority, by a professional or trade association, an education institution, government authority for example, the National Office of Overseas Skills Recognition or local government body.

Excursions and field trips

5.49 Curriculum related school excursions are GST-free except for the food component. Section 38-90.

5.50 Curriculum related tertiary or other higher education excursions and field trips are GST-free except for the food and accommodation components.

5.51 An excursion is not GST-free if it is predominantly recreational. For example, an interstate trip made by a school group of staff and students to watch a football match would be a predominantly recreational excursion.

Course materials

5.52 A supply of course materials is GST-free. Section 38-95.

5.53 Course materials are things that are provided by the supplier of an education course and are necessarily consumed or transformed by students as part of a course.

5.54 Course materials may include photocopied educational materials, art supplies and ingredients used in a cooking class.

Supplies that are not GST-free

5.55 Goods sold, leased or hired to students are not GST-free. For example, the sale of food in a tuckshop or the hire of a musical instrument will be taxable. Section 38-100 .

5.56 Goods that are not course materials such as text books and computers that become the property of students are not GST-free.

5.57 However, goods or property that are provided for students to use while undertaking a course such as text books, computers, sports equipment and school buildings are GST-free unless there is a hire charge separate from the course fee.

5.58 Memberships of student organisations are not GST-free. Payments to a student body are not for the supply of an education course.

5.59 An education course does not include private tutoring, which is taxable. However, if an education course supplier engages a private tutor to deliver services, it would pay a GST-inclusive price to the tutor but would not pass on the GST cost to the student.

5.60 Recreation, leisure and personal enrichment courses of the type generally run as evening classes on a non award basis are not GST-free.

Student accommodation

5.61 Boarding school accommodation that is on the school premises is GST-free except for the food component. Section 38-105 .

5.62 Accommodation provided by a rural student hostel to students is also GST-free.

5.63 Tertiary student accommodation is non-commercial residential accommodation. Tertiary student accommodation is input taxed by subdivision 40-B , as is residential rental accommodation which students living off campus might use.

5.64 Accommodation supplied by an education institution to a person who is not undertaking a GST-free education course is taxable commercial accommodation see Division 423 . This would apply, for example, to accommodation provided to staff, or to accommodation let as short term holiday accommodation.

Child care -- Subdivision 38-C

5.65 Child care is GST-free if provided at facilities that receive government funding or if the child care provider is a registered carer for the purposes of the Childcare Rebate.

5.66 Child care includes the provision of all the goods and services that are directly related to the child care. For example, supplies of food, electricity, bed linen and nappy wash services are covered by the exemption. Section 38-155.

Childcare Rebate

5.67 Child care supplied by a carer registered under the Childcare Rebate Act 1993 is GST-free. It does not matter whether the recipient of the supply is eligible for the childcare rebate under that Act. Section 38-140.

5.68 The childcare rebate is a payment to families under the Childcare Rebate Act 1993 . The rebate assists families with their work related child care costs in any type of paid child care -- including friends, relatives, preschools or nannies. One of the requirements for the childcare rebate is that the carer is registered with the Health Insurance Commission.

5.69 Child care supplied by a registered carer is GST-free even if the family using the child care service is ineligible for a childcare rebate.

Child Care Assistance

5.70 If a child care provider receives child care assistance for any child supplied with child care, all child care it provides is GST-free. It does not matter that the provider does not receive child care assistance for other children receiving care at the facility. Child care assistance provides assistance to families using Commonwealth approved child care services. Child care assistance is payable under the Child Care Act 1972 to long day care centres, family day care schemes, outside school hours care services and some occasional care services . Sections 38-145 and 38-150 .

5.71 Child care assistance is paid on behalf of families direct to child care providers so they can reduce the fees they charge. Families must meet income and assets tests to be eligible for child care assistance.

5.72 There are also other forms of child care services receiving direct funding from the Commonwealth. These are generally services in rural and remote areas. The Minister administering the Child Care Act 1972 can determine that these types of care are GST-free. Section 38-150.

Exports and things consumed outside Australia -- Subdivision 38-D

5.73 GST is a tax on consumption in Australia. Generally, things that are not for consumption in Australia, such as exports, are GST-free. Subdivision 38-D provides for some such GST-free supplies.

Exports of goods

5.74 The table in subsection 38-185(1) lists the supplies of goods that are GST-free. Subsection 38-185(2) provides that these supplies are taxable if the same goods are imported after being exported.

Exports of goods

5.75 A supply of goods is GST-free if you export the goods within 60 days after the earlier of:

the day you receive any of the consideration; or
the day you provide an invoice.

Item 1 of subsection 38-185(1)

5.76 If the consideration for an export is provided in instalments, you may not meet the requirement that you export the goods within 60 days of receiving any consideration. This would mean that such a supply, even though it is to be exported, would not be GST-free under Item 1 . Item 2 of subsection 38-185(1) provides that such a supply is GST-free if it is made under a contract which requires the goods to be exported and you export the goods within 60 days after the earlier of:

the final instalment of the consideration; or
the day you provide an invoice for the final instalment.

Example Karen is an engineer. She has a contract with an overseas purchaser to build a machine. The machine will take six months to build and will be exported once complete. Karen receives the consideration for the machine in six instalments, the machine is not exported within 60 days of the first payment and so is not GST-free under Item 1 . The machine is exported 20 days after the last instalment. The supply is GST-free under Item 2 .

Export of aircraft or boats

5.77 A supply of an aircraft or ship is GST-free if the recipient (usually the owner or an agent of the owner) exports it from Australia under its own power within 60 days of taking physical possession of it. For example, a yacht sails out of Australian waters using its own engine or sails. Item 3 of subsection 38-185(1).

Adjustment events

5.78 If you do not export the goods within 60 days, you have an adjustment event under Division 19 . You adjust your net amount for the tax period in which that event happened. See 4.39.

Record keeping

5.79 You must keep appropriate records to verify the export and when it happened. Such records could include:

airway bills;
bills of lading;
evidence from the Australian Customs Service that the goods were exported; or
evidence from the customs authority of the country to which the goods were exported that the goods arrived in that country from Australia. New section 67 of the Taxation Administration Act 1953.

Export of goods to be consumed on international flights and voyages

5.80 When you supply stores on a ship or aircraft, the supply is GST-free where the use, consumption or sale is on a flight or voyage that has a destination outside Australia. It does not matter if that flight or voyage involves a journey between places in Australia. Item 4 of subsection 38-185(1)

5.81 Ship and aircraft stores are defined in section 130C of the Customs Act 1901 to mean stores for the use of passengers and crew or for the service of the ship or aircraft.

Export of goods that are imported for repair

5.82 Goods which are imported into Australia to be repaired, renovated, modified or treated, and are then exported are GST-free. Item 5 of subsection 38-185(1) makes the supply of goods in the course of the repair and renovation work GST-free. Item 4 of subsection 38-190(1) makes the service component associated with this supply GST-free. This is consistent with the treatment of other exports.

5.83 Repair, renovation or modification of goods, involving the skills of the repairer and any goods incorporated into the goods, which are then exported as an integrated whole is, in effect, treated as an export.

Example On the flight into Mascot Airport one of Arnolds Airlines planes experiences engine difficulties. In reality, two engines and the landing gear needed replacement. These goods were attached to the aircraft. The supply of these goods is GST-free. The supply of the cleaning fluid used to clean the seat covers is also GST-free because the cleaning fluid became unusable after treating the seat covers.

Supply of goods to relevant travellers for export

5.84 Item 7 of subsection 38-185(1) provides that a supply of goods is GST-free if they are supplied to Australian and foreign national tourists under the prescribed rules for exporting goods.

Supplies of things other than goods or real property for consumption outside Australia

5.85 The table in subsection 38-190(1) lists the supplies of services and things other than goods or real property that are GST-free. Subsection 38-190(2) provides that some of these supplies are taxable if the supply is connected with Australia.

Supply connected with property outside Australia

5.86 The supply of anything (other than goods or real property) that is directly connected with goods or real property situated outside Australia is GST-free -- Item 1 of subsection 38-190(1) . For example, the supply by an architect of plans prepared in Australia for land or buildings situated outside Australia is GST-free.

Recipient of a supply is not an Australian resident

5.87 A supply is GST-free if:

it is made to a non-resident who is not in Australia when the supply is made; and
it is not directly connected with goods or real property situated in Australia when the supply is made.

Item 2 of subsection 38-190(1)

Example Hubert supplies legal advice to a non-resident who is in Tahiti when Hubert provides the advice. The advice relates to Australian trade practices law. The supply is GST-free.

The supply of rights

5.88 A supply that is made in relation to a right is GST-free if:

the right is for use outside Australia; and
it is to a non-resident entity who is outside Australia when the supply is made.

Item 4 of subsection 38-190(1)

Example An Australian copyright owner sells to a non-resident the right to distribute a product in a country other than Australia. The supply of that distribution right is GST-free.

Export of services used to repair imported goods

5.89 The repair, renovation, modification or treatment of goods that come from outside Australia and are then exported is GST-free -- Item 5 of subsection 38-190(1) . See 5.82 for the supply of goods in these situations.

Exclusion from GST free treatment

5.90 Subsection 38-190(2) provides that despite subsection 38-190(1) the supply of a right or option to acquire something the supply of which would be connected with Australia is not GST-free.

Example An Australian based hotel chain supplies rights to accommodation in Australian hotels to a New Zealand travel agency. The travel agency supplies accommodation vouchers to New Zealand tourists who may use the vouchers to obtain accommodation at the Australian hotels. The supply of the accommodation to the tourists is a supply that is connected with Australia. See 3.11. The supply to the travel agency of the rights to the accommodation is therefore not GST-free.

Religious services -- Subdivision 38-E

Religious services

5.91 A supply of religious services by a religious institution is GST-free. For the religious services to be GST-free, they must be essential to the practice of the religion. Section 38-220.

Example The supply of a rabbis services at a bar mitzvah would be GST-free because it is integral to the practice of Judaism.Car hire and purchase of flowers for use in a church wedding is not an integral part of the wedding service and is not GST-free.

5.92 A supply by a non-religious institution that is similar to a religious service is not GST-free, such as a marriage ceremony conducted by a civil celebrant.

5.93 A supply by a non-religious institution for use in connection with a religious service is not GST-free, even if such a supply would have been GST-free if made by a religious institution. Subdivision 38-E.

Religious institutions

5.94 The Courts have determined that, for a body to be regarded as a religious institution:

its objects and activities must reflect its character as a body instituted for the promotion of some religious object, and
the beliefs and practices of the members of that body must constitute a religion.

5.95 The two most important factors for determining whether a particular set of beliefs and practices constitute a religion are:

belief in a supernatural being, thing or principle; and
acceptance of canons of conduct which give effect to that belief, but which do not offend against the ordinary laws.

5.96 Religious institution is not confined to the major religions.

Charities -- Subdivision 38-F

Charitable institutions

5.97 At common law, charities are generally organisations that are established for:

the advancement of education;
the relief of poverty;
the advancement of religion; or
other purposes beneficial to the community.

Non-commercial activities

5.98 Non-commercial supplies by charities are GST-free. Non-commercial activities are supplies for nominal consideration and supplies of donated second-hand goods.

5.99 To avoid unfair competition with business, the commercial activities of charities will be taxable. Subdivision 38-F.

Donations to charities

5.100 Gifts to charities are not subject to GST because gifts are not consideration for a supply. See 3.9 for the definition of consideration.

5.101 If you donate a thing to a charity and you had acquired the thing in a creditable acquisition, you do not have an adjustment for change in creditable purpose under Division 129 . See 6.216 for change in creditable purpose. Section 129-45 .

Example Beryl is a baker. She donates bread that is unsold at the end of the days trading to a charity. If she were taken to have used that stock for a private purpose she would have an adjustment for change in creditable purpose. The effect of section 129-45 is that Beryl has no adjustment and remains entitled to the input tax credits for her acquisitions used to make the bread.

Supplies of second-hand goods

5.102 Supplies of donated second-hand goods by a charity are GST-free.

5.103 If goods are purchased to be donated, the acquisition is not for a creditable purpose. The donor does not get an input tax credit. As the donor has incurred the GST, the resale of the goods by a charity does not attract GST. For example, if you buy a bike to donate it to a charity you are not entitled to an input tax credit as the acquisition was not made for the purpose of your enterprise. Its resale by the charity is GST-free. See 3.23 for creditable purpose. Section 38-255.

Supplies for nominal consideration

5.104 Supplies for nominal consideration by a charity are GST-free. Nominal consideration means less than 50 percent of the tax inclusive market value. Section 38-250 .

Example If the bread donated by Beryl is sold by the charity for 10 cents a loaf and the tax inclusive market value is $1.10, the sale is GST-free.

Reprocessed goods

5.105 Goods reprocessed by the charity lose their GST-free status.

Example If donated second-hand clothing is cut up and sold as rags, it has been transformed. The clothes have been dealt with in such a way that the clothes are no longer clothes. The goods sold are not the same as the goods donated; they are new goods manufactured by the charity. The sale of the rags will be subject to GST.If donated clothing is cleaned or repaired prior to sale, the supply does not attract GST.

Water and sewerage -- Subdivision 38-G

5.106 A supply of water will be GST-free unless it is supplied in, or transferred into, a container of less than 100 litres capacity. For example, all reticulated water provided by your local council for residential and commercial purposes is GST-free. Water that is supplied in tankers for rural use is also GST-free, as long as it is transferred into a storage tank with more than 100 litres capacity. Section 38-285.

5.107 A supply of sewerage services is GST-free. Section 38-290. A service that consists of the emptying of a septic tank is GST-free. Section 38-295 . The supply and installation of septic tanks will be taxable.

Supply of an enterprise as a going concern -- Subdivision 38-H

5.108 Subdivision 38-H provides that the supply of enterprises as going concerns is GST-free. This exemption means that the purchaser does not have to obtain additional funds to cover the GST included in the price of a going concern.


5.109 For a supply of a going concern to be GST-free:

the recipient of the supply must be registered or required to be registered;
the supply must be for consideration;
both parties must have agreed in writing that the supply is of a going concern;
all of the things for the continued operation of the enterprise must be supplied; and
the supplier must carry on the enterprise until it is sold.

Subsections 38-325(1) and (2).

5.110 You can supply part of an enterprise as a going concern. For example, a large farm that is subdivided into a number of smaller farms and sold would qualify for GST-free treatment provided the smaller farms were capable of separate operation. However, if you separately supply parts of an enterprise that are not of themselves a going concern, those supplies will not be GST-free.

Example You run a farm and you sell your haymaker. The haymaker is not of itself a going concern. That supply is not GST-free.However, if you run a haymaking enterprise using four haymakers and you sell two of the haymakers and half of your customer list and some of the other things necessary to carry on the enterprise of haymaking, that supply could be GST-free.

Input taxed use and change in use of going concerns

5.111 If you acquire a going concern and the supply of it to you was GST-free, you may have an adjustment in relation to that acquisition if you intend or you later make input taxed supplies through the going concern. See 6.256

Supplies of transport -- Subdivision 38-I

5.112 Supplies of transport specified in section 38-355 are GST-free, including supplies of transport into and out of Australia for passengers and goods. Any transport that is wholly outside Australia is also GST-free. Such supplies are consumed outside Australia.

5.113 Certain transport supplies made within Australia that are connected with overseas travel are also GST-free.

5.114 The table in section 38-355 sets out the transport supplies that are GST-free.

5.115 Australia does not include Australias external territories -- section 195-1 .

Transport of passengers and goods to, from or outside Australia

5.116 Supplies of transport of passengers and goods, such as mail, plants and animals, to, from or between destinations outside Australia are GST free. Item 1 of section 38-355 .

5.117 Transport to Australia means to the first place of arrival in Australia. Transport from Australia means from the last place in Australia. Item 1 of section 38-355 .

Particular supplies connected with passengers

Australian domestic travel by non-residents

5.118 Section 38-355 Item 3 makes the supply of domestic air travel to non-residents of Australia GST-free, if it is purchased while the non-resident was physically outside Australia.

Australian domestic leg of passengers international flights

5.119 The supply of domestic flights within Australia that are directly associated with an international air journey is GST-free if the domestic flights are supplied as part of the international ticket. Item 2 of section 38-355 .

5.120 This provision only applies to domestic air travel connected with an international flight. It does not apply to air travel connected to international journeys by sea, or other means.

Australian domestic leg of passengers international voyage

5.121 The supply of the journey between Australian ports as part of an international voyage is GST-free if that supply is part of the international ticket. Item 4 of section 38-355 .

Transport, loading or handling of goods within Australia

5.122 The supply of transport, loading and handling goods within Australia as an integral part of the transport of goods to or from Australia is GST-free. However, the supply must be made by the same supplier providing the international transport of the goods to or from Australia. Section 38-355 Item 5.

5.123 The supply of a transport service by a supplier who is not the actual provider of the transport would be subject to GST, but a registered recipient is likely to be eligible for the input tax credits on the acquisition.


5.124 Section 38-355 Items 6 and 7 provide for the insuring, arranging of insurance and arranging of this transport to also be GST-free.

Precious metals -- Subdivision 38-J

Input taxing supplies of precious metals

5.125 Gold prices are internationally fixed. Gold dealers cannot pass on the GST charged on supplies of gold they make. Under the general rules there would be GST on the GST paid on the last supply. To avoid this, the first supply after the precious metals is refined is GST-free under the rules discussed below. This means that the refiner is entitled to input tax credits on the acquisitions that are used in refining the precious metal and does not charge GST on the supply of the precious metal. The result of this is that there is no GST embedded in the price of that supply. Subsequent supplies are input taxed -- section 40-100 . This means that there is no entitlement to input tax credits on those acquisitions and no GST charged on the supply. There is no entitlement to input tax credits because there is no GST in the price of the acquisition. There is no GST on the supply so that the fixed price is not affected.

GST-free supplies of precious metals

5.126 The first supply of precious metals by a refiner after refining will be GST-free if the recipient of the supply is a dealer in precious metals. The dealer has to acquire the precious metal for investment purposes. Section 38-385. A refiner is an entity that regularly converts or refines precious metals in carrying on its enterprise. A dealer is an entity that regularly supplies and acquires precious metal for investment purposes as a principal part of carrying on its enterprise.

5.127 Precious metal is defined in section 195-1 as:

gold of at least 99.5% fineness;
silver of at least 99.9% fineness; and
platinum of at least 99% fineness.

The regulations may also prescribe any other substance of specified fineness to be precious metal.

Importations of precious metals

5.128 The importation of precious metal is a non-taxable importation

-- section 13-10 . This means that there is no GST charged on the importation of precious metals.

Supplies through inwards duty free shops -- Subdivision 38-K

Inward duty free stores

5.129 International travellers arriving in Australia have access to inward duty free shopping facilities at Australian international airport terminals. The airport shops are in customs control under the Customs Act 1901 , and are located in the international terminals between the point of disembarkation and the customs barrier. The shops are only permitted to sell tobacco products, spirits and perfume.

5.130 The supply of goods through an inward duty free shop to a relevant traveller is GST-free, as long as the goods are imported or are excisable goods. This eliminates GST from the sale by the store to the relevant traveller. A supply to a person who is not a relevant traveller will not be GST-free. Section 38-415 .

5.131 This is the supply from the shop to the passenger or member of the transport crew. For the actual importation see 3.42

Crown land -- Subdivision 38-L

5. 132 The first supply of land held by the Commonwealth, a State, or a Territory will be GST-free if it is unimproved. A subsequent supply of that land will be taxable under the general rules. The supply of unimproved land means the supply of freehold interest in the land, or the supply of a long-term lease of the land, where the land has not been improved. Subdivision 38-L.

Long-term lease

5.133 A lease hire or license is a long-term lease if it is for at least 50 years and, when the lease was entered, it is reasonable to expect that it will continue for 50 years or more. Section 195-1 .

Subdivided farm land - Subdivision 38-M

5.134 Subdivision 38-M provides that the supply of potential residential land is GST-free if:

the land is subdivided from land on which the supplier has carried on a farming business for at least 5 years; and
the supply is made to an associate for nil or inadequate consideration.

5.135Where the supply is made at market value, the general rules will apply and GST will be payable.

5.136 Farming business is defined in subsection 38-475(2) . Potential residential land is defined in section 195-1 . See 6.98 for how GST is calculated on the supply of land and premises.

Cars for use by disabled people -- Subdivision 38-N

Disabled veterans

5.137 If you are a disabled veteran as outlined in paragraphs 38-505(1)(a) or (b) or another disabled person as outlined in paragraph 38-510(1)(a) , the supply of a car to you is GST-free if:

you acquire the car for your personal transportation; and
you intend to use the car for that purpose during all of the period from when you acquired the car to the earliest of:
two years after acquisition; or
the time the car becomes incapable of use for the purpose you acquired it for; or
a time the Commissioner considers appropriate.

Subsections 38-505(1), 38-510(1) and section 195-1 .

5.138 This entitlement is subject to the car depreciation limit. The car depreciation limit is in section 42-345 of the Income Tax Assessment Act 1997 . Only that value of the car that does not exceed the depreciation limit is GST-free. The value of the car for these purposes does not include the value of modifications made to the car to enable it to be used by you. For example, modifying the car to be operated by hand controls. Subsections 38-505(2) and (3) and 38-510(2) and (3).

Car parts

5.139 If you acquire car parts for a car you acquired GST-free under this subdivision, the supply of the parts to you is GST-free. Subsections 38-505 (4) and 38-510(4) .

Input taxed supplies

Financial Supplies -- Subdivision 40-A

5.140 Most countries that have a GST system exempt financial services as there is no readily agreed identifiable value for supplies consumed by customers of financial services. The approach adopted in the Bill is consistent with the international model.

5.141 What are financial supplies ? The principle adopted in the Bill relies on describing categories of activities. This is consistent with the methodology used in other countries. The phrase financial supply encompasses the concept of supplying a variety of financial facilities. The supply may be direct or indirect, such as by loaning money directly to a customer or by providing services as a mortgage broker. The need to include indirect services arises to ensure neutrality in decision making by those consuming financial services and to reduce the bias that may otherwise exist for financial institutions to internalise certain services.

What are financial supplies?

5.142 The categories of financial supplies that are to be input taxed are set out in the table in subsection 40-5(2) as follows: money, accounts, securities for debt, shares, unit trusts, superannuation funds, life insurance, futures, hire purchase, options, underwriting and arranging supplies.

Money - item 1

5.143 This Item covers a broad range of financial transactions. It encompasses the following kinds of activities:


transfers between accounts;
issue of bankers drafts and payments;
charges for bills and cheques deposited for collection and payment at maturity;
credits opened at other branches and other banks;
cash remitted by post to customers or third parties;
direct debits;
exchange commission;
special clearance of cheques;
transfer or receipt of funds by telephone and automated means;
distribution of salary or commercial credits, either directly or through clearing systems;
issue of travellers cheques;
provision of cheque reconciliation services;
provision of credit cards, charge cards and similar payment cards including:

membership fees and annual subscriptions;
credit charges (interest); and

direct debits.


the provision of, or making arrangements for, advances, loans, (including currency loans, overdrafts and mortgage loans);
commitment fees, facility fees and supplemental facility fees in the course of making lending arrangements (including currency loans);
completion and perfection of direct security, collateral security or other items given as security in the course of lending or granting credit (see also item 3 );
discounting bills;
interest charged on advances, loans, including currency loans, overdrafts and mortgage loans;
loans made;
unauthorised borrowing, interest and charges, including charges for overdrawn accounts and demands for repayment.


issue of mortgage statements;
deed production fees;
redemption fees;
fees for further loans;
transfer of mortgage title;
conversion of payment method.

5.144 Generally the provision of money in exchange for a supply is not a supply. Subsection 9-10(2).

Accounts - item 2

5.145 Services of the following kind will be input taxed: account service fees or charges, clearance fees, the issue of bank cheques, early withdrawal charges, dishonoured cheque charges, stopped cheque charges, duplicate statements to account holders, provision of statements, cash and clearing services, provision of cash cards, cash transmission and cash handling, counter services, provision of foreign exchange and credits opened at other branches and at other banks. This list is not exhaustive.

Dealing with securities for a debt item 3

5.146 The creation, issue, transfer, assignment or receipt of a security for a debt is a financial supply. It includes a guarantee or indemnity but not if the security is a lease, licence, or other similar arrangement in respect of real property.

5.147 This exclusion is included to ensure that the rental of property is treated as a supply of that property for GST and not as a financial supply.

Equity securities item 4

5.148 The allotment, issue, transfer, assignment or receipt or any other dealing with a security within the meaning of subsection 92(1) of the Corporations Law (other than paragraph (ca) of that subsection) is a financial supply.

5.149 The definition of securities in subsection 92(1) includes:

debentures, stocks or bonds issued by a government;
shares in, or debentures of, a body;
interests in a managed investment scheme; and
option contracts.

It includes futures contracts and excluded securities.

Unit trusts item 5

5.150 This item is treated similarly to share dealings, however it also includes the management of a unit trust.

Futures contracts item 6

5.151 Short term interest rate futures and other cash settled futures constitute a dealing in money or security for money within item 1. However, to confirm that all futures contracts (not just securities for money) are input taxed, item 6 is included.

5.152 Options based on financial futures contracts will be input taxed. Note some options which are cash settled or otherwise relate to money may also fall within item 1 and be input taxed under item 1.

5.153 Equity options will be input taxed under item 7.

Options and warrants item 7

5.154 Dealings with options are input taxed.

Underwriting item 8

5.155 Item 8 applies where an underwriter in the securities sector agrees, for a fee, to buy part of a securities issue that is not subscribed for or purchased. The underwriter may wish to spread the risk of having to buy part of the issue among sub-underwriters, who agree to underwrite a certain portion of the issue or sale.

Superannuation funds item 9

5.156 The creation, transfer, assignment or receipt of, or any other dealing with a interest in or a right under, a superannuation fund is a financial supply. It also includes the management of a superannuation fund.

Life insurance item 10

5.157 The provision, transfer or assignment of:

a life insurance policy; or
reinsurance relating to a life insurance policy;

is a financial supply. However, the supply of general insurance is subject to GST in Division 78 .

Hire purchase agreements item 11

5.158 Certain credit transactions which are akin to a loan are financial supplies. Before a hire purchase agreement will be input taxed, it is a requirement that a separate credit charge must be identified and charged and disclosed to the recipient.

Incidental supplies item 12

5.159 Supplies that are incidental to other financial supplies are input taxed. For example, the valuation of a house by the bank when you apply for a home loan.

Arranging financial supplies item 13

5.160 This item covers arranging for transactions. It picks up activities such as:

brokerage commission. Statutory levies such as stamp duty which the broker passes on to the client are not part of the broker's consideration;
the service of introducing clients to a person effecting transactions;
bringing together sellers/issuers and purchasers/investors;
carrying out/co-ordinating the necessary negotiations essential to the conclusion of the deal;
instructing/organising and co-ordinating the work of other parties eg lawyers and accountants;
carrying out the necessary consultations with appropriate regulatory authorities; and
acting as the central point of contact and execution between the party intending to effect a transaction in securities and their advisors.

5.161 Each contract for a capital raising operation, share placement, merger or acquisition deal which involves a transaction in securities will have its own features, each of which must be taken into account in determining the GST treatment of the transaction.

5.162 Advisory services will also generally be supplied as part of, or as a pre-requisite to, making arrangements for such transactions. Advisory services are taxable.

Exclusions from the definition of financial supplies

5.163 A range of services which are sometimes associated with financial transactions are excluded from the definition of financial supplies and are therefore taxable. These services include the provision of advice in relation to a supply covered by any of items 1 to 13 in the table in subsection 40-5(2) , insurance, legal services, accounting services or the services of tax agents. The following supplies are taxable:

advisory services (even if of a financial or investment nature) are taxable;
general insurance, which is insurance other than life insurance or health insurance;
legal services;
accounting services;
tax agents services;
safe custody service for cash, documents or other things; and
payroll services.

Subsection 40-5(3)

Supply of residential premises -- Subdivisions 40-B and 40-C

5.164 When you supply residential premises such as houses and flats, the supply will be input taxed to ensure comparable treatment with owner occupiers. No GST will be payable on the supply of residential premises and you are not entitled to input tax credits for your acquisitions that relate to the supply. However, the residential premises will only be input taxed to the extent that the premises are to be used predominantly for residential accommodation. For example, if you have a flat on top of a shop, the supply of the shop will be taxable. Paragraphs 40-35(1)(a) and 40-70(1)(a) and subsection 40-65(1)

5.165 The supply of residential premises will be input taxed whether:

you receive residential rent because the residential premises are supplied by lease, hire or licence -- section 40-35 ; or
you supply the residential premises by the sale of real property -- section 40-65 .

5.166 The supply of a long term lease (that is, a lease of 50 years or more) is not a supply of residential rent. The supply of a long term lease is to be treated as a sale of residential premises and input taxed under Subdivision 40-C. Subsection 40-35(2) and section 40-70 .

5.167 The supply of real property as residential premises and the supply of residential premises by way of a long term lease is input taxed to the extent that the residential premises are not:

commercial residential premises such as hotels, motels, etc (commercial residential premises is discussed at 6.140); or
newly constructed residential premises. Subsections 40-65(2) and 40-70(2)

Therefore, the sale of new residential houses by registered businesses (such as builders and developers) and the sale of commercial residential premises will be taxed.

What are residential premises?

5.168 Residential premises is defined in the Dictionary in section 195-1 to mean land or a building occupied or intended to be occupied as a residence, and includes a floating home. Floating home is further defined in the same section to mean a floating platform with a building attached to be occupied as a residence and does not have means of, or is not capable of being readily adapted for, self-propulsion.

Non-taxable importations -- Division 42

5.169 Some importations are non-taxable for GST because they are duty free under the customs law or would have been GST-free or input taxed if they were supplies.

Importations of GST-free or input taxed goods

5.170 An importation of anything that would have been GST-free or input taxed, if it were a supply, is a non-taxable importation. For example, the supply of a wheelchair is GST-free (see 5.27). An importation of a wheelchair will also be GST-free under section 13-10 . This means that an unregistered importer is treated the same as a registered importer.

Non-taxable importations in Part 3-2

5.171 The importations made non-taxable by the operation of Part 3-2 complement several of the existing exemptions from customs duty under the Customs Tariff Act 1995 .

Non-taxable importations Schedule 4 to the Customs Tariff Act 1995

Repair and warranty-related importations

5.172 Certain repair-related importations are non-taxable importations. Most items are described by reference to items in schedule 4 of the Customs Tariff Act 1995 . The following repair and warranty related importations are non-taxable:

goods (covered by item 17 in schedule4 of the Customs Tariff Act 1995 ) that are exported then imported without being subjected to treatment, industrial processing, repair, renovation, alteration or any other process, and on which all duties, taxes and charges of the Commonwealth have been paid;
goods (covered by item 18A in schedule 4 of the Customs Tariff Act 1995 ) previously imported into Australia and returned after repair overseas in accordance with the provisions of the warranty on the previously imported goods;
goods (covered by item 18B in schedule 4 of the Customs Tariff Act 1995 ) supplied free of charge and imported to replace goods previously imported into Australia; and
goods, as described in item 21 in schedule 4 of the Customs Tariff Act 1995 , which are imported for repair, alteration or industrial processing, and are to be exported.

Section 42-5

Goods of insubstantial value

5.173 Importations of certain goods of insubstantial value are non-taxable under section 42-5 . This item refers to the following items in schedule 4 of the Customs Tariff Act 1995 :

Item 32A: those below the value which the Chief Executive Officer of Customs determines to be insubstantial and on which no duty is payable;
Item 32B: those where the duty payable and the value are considered to be insubstantial;
Item 33A: calendars, catalogues, overseas travel literature , overseas price lists and other overseas printed matter, as prescribed by by-law; and
Item 33B: samples, as described by by-law, of negligible value.


5.174 Other importations which are non-taxable under section 42-5 are:

goods imported as part of a global product safety recall, and covered by item 18C in schedule 4 of the Customs Tariff Act 1995 ;
goods covered by item 23A, 23B or 24 in schedule 4 of the Customs Tariff Act 1995 that have been donated or bequeathed by non-residents;
trophies, medallions etc won outside Australia or donated by non-residents, covered by item 25A, 25B or 25C in schedule 4 of the Customs Tariff Act 1995 ; and
containers imported then exported, covered by item 34 in schedule 4 of the Customs Tariff Act 1995.

Ship and aircraft stores

5.175 An importation of ship and aircraft stores is non-taxable under section 42-10 . See 5.80 for exports of ship and aircraft stores.

Passenger and transport crew concessions

5.176 Subject to the concession limits described in the by-laws to item 15 of schedule 4 in the Customs Tariff Act 1995 , an importation of goods by a passenger or crew member of a ship or aircraft is non-taxable, if covered by this item. Subsection 42-15(1). The concession limits restrict the duty free imports of cigarettes, alcohol and other goods. This includes certain personal effects, furniture and household goods of the passenger or crew member.

5.177 Purchases by a relevant traveller from an inward duty free shop are non-taxable importations, if they are covered by item 15 in schedule 4 to the Customs Tariff Act 1995 and its associated by-laws. The by-laws provide the concessions to passengers which allow them to bring in certain goods to a certain value and/or volume duty free. Subsection 42-15(1). See 5.129.

5.178 A relevant traveller is a person who has arrived in Australia on an international flight as a passenger or a member of the crew of an aircraft, and who has not been questioned by a Customs officer about the goods carried on that flight. Subsection 42-15(2).

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