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A New Tax System (Goods and Services Tax Administration) Bill 1998
Bills Digest No. 91 1998-99
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
- assessments of GST
- recovery of GST owing
- penalties for non-compliance with GST obligations
- special rules for certain entities such as partners of a partnership, participants in a joint venture, liquidators and receivers, and directors of a company
- the evidentiary effect of certain documents
- reviewable decisions, and
- miscellaneous administrative matters.
The Bill will also amend the existing provisio ns of the TAA concerning secrecy, prosecutions and offences, and taxation objections, reviews and appeals, to incorporate certain matters relating to the GST.
On 13 August 1998 the Government released details of its long awai ted tax reform plan, embodied in the publication entitled Tax Reform: not a new tax, a new tax system (Tax Reform Plan).
A key aspect of the Tax Reform Plan is the introduction of a Goods and Services Tax to replace the current Wholesale Sales Tax, as well as a number of State indirect taxes. The Tax Reform Plan as a whole formed a major component of the Government’s policy platform leading up to the Federal election held on 3 October 1998.
The Tax Reform Plan foreshadowed a targeted consultation process to assist in determining the final design of five key matters relating to the proposed GST, they being the GST-free areas of health, education, religious services and the non-commercial activities of charities, and the special transitional arrangements for motor vehicles.
That consultation process was undertaken by the Tax Consultative Committee, chaired by Mr David Vos, a tax partner at PricewaterhouseCoopers, which was appointed by the Treasurer on 26 October 1998. The Committee’s report was presented to the Treasurer on 13 November 1998 and the recommendations therein taken into account in drafting the legislation now before the Parliament.
Following the Governments re-election, a package of 16 Bills were introduced on 2 December 1998 to implement a GST as well as some of the other tax reform measures contained in its Tax Reform Plan. Six of those Bills introduce the GST, namely:
- A New Tax System (Goods and Services Tax) Bill 1998;
- A New Tax System (Goods and Services Tax Administration) Bill 1998;
- A New Tax System (Goods and Services Tax Transition) Bill 1998;
- A New Tax System (Goods and Services Tax Imposition - General) Bill 1998;
- A New Tax System (Goods and Services Tax Imposition - Customs) Bill 1998; and
- A New Tax System (Goods and Services Tax Imposition - Excise) Bill 1998.
The GST proposed is a broad-based indirect tax on final private consumption in Australia. It will tax the consumption of most goods, services and any other things, including things imported into Australia, but not to consumption outside Australia. The GST rate proposed is 10%.
The GST is based on the Value Added Tax (VAT) system, which has been adopted by nearly all OECD countries and more than 80 others around the world. The GST concept of taxing final private consumption is achieved by:
- imposing tax on supplies made by entities registered for GST purposes; and
- allowing those entities to claim a full credit for any GST they have paid on business purchases (or inputs). Such credits will be known as input tax credits.
Consistent with other GST and VAT regimes, there will be two types of non-taxable supplies, 'GST-free' and 'input taxed', known in most other countries with a GST or VAT as 'zero rated' and 'exempt' respectively.
GST-free supplies will not be taxed and i nput tax credits will be allowed on things acquired to make the supply. The main activities that will be GST-free include exports, certain expenditure by tourists, health and medical care, education, childcare, charitable activities and religious services.
Input taxed supplies will similarly not be taxed, however no input tax credits will be allowed on things acquired to make the supply. The main activities that will be input taxed are financial services and residential rents.
The main Bill implementing the GST is the A New Tax System (Goods and Services Tax) Bill 1998 (GST Bill). The Bills Digest for that Bill will contain a more detailed history of events leading up to the introduction of the GST and, naturally, a detailed acc ount of how the proposed GST will operate.
The TAA and the regulations thereunder contain important administrative provisions concerning the various taxation laws administered by the Commissioner of Taxation. They incl ude those relating to:
- providing the statutory authority for the office of the Commissioner of Taxation, including appointment, tenure of office, remuneration, delegation of powers, and related matters
- secrecy and the provision of taxation information
- offences and prosecutions
- exchange control
- departure prohibition orders
- the public and private rulings system, and
- the set of generic provisions regulating objections, reviews and appeals in relation to taxation decisions made under various Commonwealth tax laws, including income tax, fringe benefits tax and wholesale sales tax.
Clause 3 of this Bill provides that the amendments to the TAA are as set out in Schedule 1 of the Bill. Items 1 to 6 of Schedule 1 contain proposed amendments to the existing provisions of the TAA. Item 7 will insert new Part VI into the TAA, comprising new sections 19 to 70 .
An explanation of the amendments to the existing provisions of the TAA are a dequately and succinctly covered in the Explanatory Memorandum (EM) at paragraphs 1.8 to 1.13. The amendments relate to the secrecy provision, the prosecutions and offences provisions, and the taxation objections, reviews and appeals provisions of the TAA.
New section 19 provides that new Part VI of the TAA sets out the administrative provisions of the GST and should be read in conjunction with the GST Bill.
New section 21 provides that the Criminal Code(1) will apply to all offences against new Part VI .
New Division 2 , comprising new sections 22 to 27 , will enable assessments of GST to be made with or without an entity's request. The Commissioner of Taxation (the Commissioner) will be required to notify an entity of an assessment, which will be reviewable on objection. An assessment which amends an earlier assessment for a tax period will replace that earlier assessment.
Liability to GST and entitlements to input tax credits will not be dependent on an assessment under new Division 2 . Payments and refunds will ordinarily be made without any formal assessment of liability by the Commissioner.
Chapter 2 of the EM explains in more detail the operation of each of the proposed provisions of new Division 2 .
New Division 3 , comprising new sections 28 to 39 , deals with the recovery of any GST owing along with related matters.
New section 28 provides that the Commissioner will be able to recover:
- any GST that remains unpaid after the time by which it is due;
- any penalty imposed under new Part VI .
New section 30 provides that any GST or penalty paid for or on behalf or another entity will be able to be:
- recovered as a debt from that entity; or
- retained or deducted from money owing to that entity.
The recovery options stated in new section 30 are expressed as alternatives. Where an entity has funds on hand which would be insufficient to satisfy in full the amount an entity may recover pursuant to new section 30 , it would not seem to be within the strict ambit of the provision to be able to retain those funds (as provided by paragraph (b) ) and in addition, institute recovery proceedings (as provided by paragraph (a) ) for the balance. A choice between the recovery options provided by paragraphs (a) and (b) would seem to be required.
New section 31 will provide for situations involving joint liability for GST and penalties.
New subsection 31(1) provides that where each entity is jointly liable for any GST or penalty, each of them will be liable for the whole amount. Where an entity pays an amount owing, new subsections 31(2) and (3) will provide recovery options, of appropriate proportions, against the other entities jointly liable.
The discussion in paragraph 3.2.1 above is equally relevant.
New section 32 provides that any GST owing by the deceased at the time of death will be recoverable from the trustee. The trustee will also be encumbered with the same GST responsibilities as the deceased would have had and may also be liable to penalties.
New subsection 32(6) provides that any amount payable by the trustee will be a charge on all the deceased person's estate and take priority over all other encumbrances.
It appears from a reading of new subsection 32(1) that new section 32 is not expressed to apply to any penalty owing by the deceased at the time of death, only to any unpaid GST.
New section 33 provides that where neither a grant of probate nor letters of administration have been obtained within 6 months after a person's death, the Commissioner will be able to make an assessment of GST owing in relation to the deceased person. Such an assessment will be a reviewable decision and may be objected against.
New section 36 provides that the Commissioner will be able to collect money owing to an entity, which is held by a third party, in satisfaction of all or part of any GST or penalty owing by that entity.
New section 35 will impose a 4 year time limit on the ability of the Commissioner to recover any GST or penalty owing, except in the case of fraud or evasion.
New section 36 will impose a 4 year time limit on the ability of an entity to claim any entitlements to input tax credits or diesel fuel credits.
New section 37 will afford protection to an entity that underpays GST or has been overpaid any refund by the Commissioner where reliance has been placed upon a ruling, either private or public, issued by the Commissioner.
New section 38 provides that the Commissioner will be able to withhold a net amount refundable to an entity where that entity has any earlier outstanding GST returns, or a further or fuller return has been requested by the Commissioner.
New section 39 will provide for refunds where amounts of GST have been overpaid or net amounts owing by the Commissioner understated.
Where the discrepancy arises due to a non-taxable supply being treated as a taxable supply, the Commissioner will have to be satisfied that the recipient of the supply has been reimbursed and is neither registered nor required to be registered for GST purposes.
New Division 4 , comprising new sections 40 to 49 , will impose penalties for failing to comply with various GST obligations, as follows:
- failing to pay any GST payable by the due date, the penalty being calculated at the rate of 16% per annum - new section 40
- failing to make a payment by electronic means if required - new section 41
- failing to register or cancel registration - new section 42
- failing to provide on time a GST return - new subsection 43(1)
- failing to provide on time other information required by the GST law(2) - new subsections 43(2) and 43(3)
- failing to issue a tax invoice or an adjustment note as required by clauses 29-70 and 29-75 respectively of the GST Bill - new section 44
- issuing separate tax invoices relating to the same taxable supply or issuing separate adjustment notes for the same decreasing adjustment by both and entity and its agent - new section 45 , and
- making a false statement, whether or not known to be false, to a tax officer or another entity for a purpose in connection with the GST law, and as a result, GST is underpaid or a refund is overpaid - new section 46 .
New section 48 provides that the Commissioner will be able to remit some or all of any of the above penalties.
New Division 5 , comprising new sections 50 to 58 , will provide rules imposing separate obligations on certain entities where other entities have obligations under the GST law.
New section 50 provides that:
- obligations imposed on a partnership under the GST law will also be imposed on each of the partners
- each of the partners will be jointly and severally liable for any amounts payable by the partnership under the GST law; and
- each of the partners will be taken to have committed any offences committed by the partnership, subject to certain defences that will be available to them.
New section 51 provides that:
- each of the joint venture participants in a GST joint venture will be jointly and severally liable for any amounts payable by the joint venture operator under the GST law, and
- each of the participants will be taken to have committed any offences committed by the joint venture operator, subject to certain defences that will be available to them.
New section 52 provides that:
- obligations imposed on an unincorporated association or body of persons under the GST law will also be imposed on each of the members of the committee of management of the association or body, and
- each of the member of the committee of management will be taken to have committed any offences committed by the association or body, subject to certain defences that will be available to them.
New section 53 provides that:
- each of the members of a GST group will be jointly and severally liable for any amounts payable by the representative member of the GST group under the GST law; and
- each of the members will be taken to have committed any offences committed by the representative member, subject to certain defences that will be available to them.
New section 54 provides that:
- the representatives of an incapacitated entity (such as a bankrupt or an entity in liquidation or receivership) will be jointly and severally liable for any amounts payable in relation to the incapacitated entity under the GST law; and
- each of the representatives will be taken to have committed any offences committed by any one of them, subject to certain defences that will be available.
New section 55 will provide special obligations on a liquidator of a company and a receiver, or receiver and manager for debenture holders of a company. Such persons will be required to notify the Commissioner of their appointment, not pay certain debts and set aside a certain proportion of the companies assets to satisfy any GST or penalties payable. Penalties will apply for contravening the provision.
New section 56 provides that the public officer of a company for the purposes of the Income Tax Assessment Act 1936 will also be that for the purposes of the GST law. The public officer will therefore be responsible for ensuring the company meets all of its obligations under the GST law.
New section 57 provides that any notice, process or proceeding that may be given to, served on or taken against a company or its public officer under the GST law will, if the Commissioner considers it appropriate, be able to be served on, or taken against a director, secretary or other officer of the company, or an attorney or agent of the company. Such a person will have the same liability as the company or public officer would have had with respect to such a notice, process or proceeding.
Paragraph 5.18 of the EM is potentially misleading and further, may have consequences given the effect of paragraph 15AB(2)(e) of the Acts Interpretation Act 1901(3) , because of the wide ambit of operation that is suggested new section 57 will have. Paragraph 5.18 states:
Directors, company officers and attorneys or agents of a company will have the same potential liabilities as the public officer of a company.
A similar provision exists in the form of pa ragraph 252(1)(j) of the Income Tax Assessment Act 1936 , which was considered by the Full Federal Court in the case of Reynolds v DFC of T 84 ATC 4689. That case seems to suggest that the scope of the provision is limited.
The majority view was that the pr ovision only exposes a company officer to prosecution for an offence committed by the company if the officer is under some obligation with respect to the act or omission which gave rise to the particular offence. Such an obligation would usually, if not always, be created by the service upon the officer pursuant to paragraph 252(1)(j) of a notice requiring performance of a particular duty.
In the course of his judgment, with which Neaves J agreed, Lockhart J said at page 4699 that paragraph 252(1):
…is designed to ensure the observance by companies and their public officers of duties which the Act imposes upon them. The company may fail to appoint a public officer or a public officer may in some cases have little to do with the day-to-day affairs of the company (for example, he may be a member of an independent firm of accountants). The Commissioner is given the power to select in a particular case, a director or an officer of the company as the person who is more likely than the public officer to fulfil an obligation which the Act imposes upon the public officer or who, because of his position in or association with the company, will probably ensure observance by the company of its duties under the Act. The Commissioner may therefore select that director or officer as the person to whom he should direct a notice to fulfil some obligation imposed upon the company or its public officer under the Act: for example, a notice of the kind mentioned in para. 252(1)(h). In that case the director or officer upon whom the notice has been served becomes liable in respect of the notice to the same extent as the company or its public officer would have been if the notice had been served upon it or him as the case may be.
New section 58 will provide special obligations on an agent instructed by a non-resident principal, who is affected by the GST law, to wind up so much of the principal's business as is carried on in Australia.
The agent will be required to notify the Commissioner of his instructions, not part with any of the assets of the principal and set aside enough assets to cover any GST or penalties payable. Penalties will apply for contravening the provision.
The provision s of new Division 6 , comprising new sections 59 to 61 , specify the evidentiary effect certain documents and copies of documents will have, an explanation of which is adequately and succinctly provided in chapter 6 of the EM.
N ew Division 7 , comprising new section 62 , will provide the mechanism for reviewing decisions made by the Commissioner under the GST law. New subsection 62(1) provides that reviewable GST decisions will be reviewable in the manner set out in existing Part IVC of the TAA.
New subsection 62(2) specifies the decisions made under the GST Bill that will be reviewable. New subsection 62(3) specifies the decisions made under new Part VI of the TAA that will be reviewable.
New Divis ion 8 , comprising new sections 63 to 70 , deals with various miscellaneous administrative matters. In summary, the new Division provides:
- that the Commissioner will have the general administration of the GST law - new section 63
- that the Commissioner will be required to prepare an annual report - new section 64
- that the Commissioner will be able to direct a person to provide information - new section 65
- that access to land, premises, documents, goods or other property will have to be given to officers so authorised by the Commissioner who will be able to, among other things, inspect, make copies or take extracts or samples of documents or goods as the case may be - new section 66
- rules relating to an entity's address for service for the purposes of the GST law, in order to facilitate the service of, among other things, various notices, documents and legal proceedings - new section 67
- rules for protecting the confidentiality of information - new section 68
- rules relating to the manner in which any notice, approval, direction, authority or declaration may be given by the Commissioner - new section 69 , and
- rules relating to the keeping of records - new section 70 .
Throughout this Bill, reference is made to an 'amount of GST', usually in accompaniment with the te rm 'net amount'. 'Net amount' is defined in clause 195-1 of the GST Bill, and has application to this Bill by virtue of new subsection 20(2) .
However, no definition of the term 'amount of GST' is contained in either this Bill or the GST Bill. It is presumed that the term has its origins in clause 13-20 of the GST Bill, which deals with the ascertainment of GST on taxable importations. This view is supported by the provisions of new paragraph 31(2)(b) .
An explanation of the meaning of 'amount of GST' may be of assistance if provided in either this or the GST Bill.
Presumably, the titles of the GST Bills have been used to make it easier for the Parliament to identify those which form part of the Tax Reform Plan package. From a practica l perspective however, the titles appear to be unnecessarily lengthy and indeed cumbersome. The words 'A New Tax System' could be deleted from each title without affecting the relevance of the title to the particular piece of legislation.
1 Crimi nal Code Act 1995.
2 'GST law' is defined in clause 195-1 of the GST Bill to mean:
(a) the GST Bill
(b) any Act that imposes GST
(c) this Bill
(d) the TAA, so far as it relates to any Act covered by paragraphs (a) to (c)
(e) any other Act, so far as it rel ates to any Act covered by paragraphs (a) to (d) (or to so much of that Act as is covered), and
(f) regulations under any ACT, so far they relate to any Act covered by paragraphs (a) to (e) (or to so much of that Act as is covered).
3 This provision provid es that an explanatory memorandum may be used as an aid to interpretation of a statutory provision.
27 January 1999
Bills Digest Service
Information and Research Services
This paper has been prepared for general distribution t o Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document. IRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.