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Indirect Tax Legislation Amendment Bill 2000

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1998-1999-2000

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

INDIRECT TAX LEGISLATION AMENDMENT BILL 2000

 

 

 

 

SUPPLEMENTARY EXPLANATORY MEMORANDUM

 

 

 

Amendments to be moved on behalf of the Government

 

 

 

(Circulated by authority of the

Treasurer, the Hon Peter Costello, MP)

 



T able of contents

Glossary                                                                                             1

General outline and financial impact.............................................. 3

Chapter 1      Non-profit bodies...................................................... 9

Chapter 2      Producer rebates under the WET......................... 15

Chapter 3      Alcoholic beverages............................................... 25

Chapter 4      Other amendments................................................. 27

Chapter 5      Customs Act 1901.................................................. 41

Chapter 6      Trading after midnight on 30 June 2000............... 43

 



The following abbreviations and acronyms are used throughout this Explanatory Memorandum.

Abbreviation

Definition

ABN

Australian Business Number

ABN Act

A New Tax System (Australian Business Number) Act 1999

ATO

Australian Taxation Office

AOU

application to own use

BAS

business activity statement

BYO

bring your own

Commissioner

Commissioner of Taxation

Customs Act

Customs Act 1901

FBT

fringe benefits tax

GST

goods and services tax

GST Act

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

GST Transition Act

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

LCT

luxury car tax

LCT Act

A New Tax System (Luxury Car Tax) Act 1999

WET

wine equalisation tax

WET Act

A New Tax System (Wine Equalisation Tax) Act 1999

WST

wholesale sales tax

 



Non-profit bodies

Amendments 2 and 5 to 25 amend the GST Act to:

·       provide government schools with the same GST concessions as charities, including non-government schools;

·       remove the requirement that all supplies made through a school tuckshop or canteen must be supplies of food, in order for a non-profit body to be able to choose to treat all of its supplies of food as input taxed; and

·       provide charitable bodies that belong to the same religious organisation the ability to eliminate internal transactions within their religious organisation for GST purposes.

Date of effect :  1 July 2000.

Proposal announced :  Not announced.

Financial impact :  Negligible.

Compliance cost impact :  Negligible.

Producer rebates under the WET

Amendment 36 inserts new Schedule 9A to the Bill which amends the WET Act to provide for a rebate of WET for certain cellar door and mail order sales made by small wine producers.

Date of effect :  1 July 2000.

Proposal announced :  Assistant Treasurer’s Press Release No. 17 of 11 April 2000.

Financial impact :  $46 million for the 3 years commencing 1 July 2000.

Compliance cost impact :  Minimal, claims will be made at the same time and in the same manner in which wine tax is payable.

Summary of regulation impact statement

Regulation impact on business

Impact :  Low.

Main point :  This measure will have minimal impact on the compliance costs of affected businesses which already claim similar assistance from the states.

Policy objective :  The Government’s policy objective is to assist winemakers who make retail sales directly to unlicensed people from the cellar door or via mail order and the Internet, and who use their product in application to own use.

Alcoholic beverages

Amendment 38 amends the GST Transition Act to allow an additional GST special credit for certain alcoholic beverages held for resale at the start of 1 July 2000 where the rate of duty on the product will decrease.

Amendment 39 is a technical correction to section 16B of the GST Transition Act.

Date of effect :  1 July 2000.

Proposal announced :  Not announced.

Financial impact :  Nil.

Compliance cost impact :  Negligible.

Other amendments

There are various amendments to the GST Act that will:

·       clarify the GST treatment of goods sold through inwards duty free shops [amendments 26 and 27] ;

·       make some technical corrections to the Bill relating to supplies involving non-residents [amendments 28 and 29] ;

·       deny input tax credits for goods and services acquired or imported for the purpose of providing fringe benefits to employees of a financial supplier that is wholly or partially denied input tax credits on its acquisitions [amendments 30, 33 to 35] ;

·       technical corrections to the Bill for borrowing related importations [amendments 31 and 32] ;

·       further clarify the application of GST to supplies made by entities to their members and provide that partnerships, the members of which are principally individuals, are not carrying on an enterprise if they do not have a reasonable expectation of profit or gain [amendments 42 and 43] ;

·       ensure that complying superannuation funds are carrying on an enterprise for GST purposes [amendment 43] ;

·       clarify the calculation of GST for a mixed supply [amendment 44] ;

·       technical correction to the Bill relating to the supply of real property by way of long-term lease [amendment 49] ;

·       ensure that goods that have entered Australia under temporary importation provisions are subject to GST if reimported [amendments 50 and 51] ;

·       ensure that input tax credits can only be claimed once by a partnership in respect of partner reimbursements [amendment 52] ;

·       enable employers to claim input tax credits where they pay an expense on behalf of an employee and that expense is related to that person’s activities as an employee [amendment 53] ;

·       ensure that an entity that enters goods for home consumption but is not the importer of the goods can claim input tax credits in respect of the taxable importation [amendments 45, 54 and 55] ; and

·       ensure that the rules which provide for an increasing adjustment where things are taken out of the GST system will not disadvantage executors and beneficiaries of deceased estate s who continue to carry on an enterprise of the deceased [amendments 56 to 60] .

In addition, there are amendments to the ABN Act, the GST Transition Act and the LCT Act that:

·       amend the ABN Act to further clarify the application of the ABN to entities that only make supplies to their members and provide that partnerships, the members of which are principally individuals, are not carrying on an enterprise if they do not have a reasonable expectation of profit or gain [amendment 41] ;

·       amend the GST Transition Act to clarify the application of the phasing in of input tax credits for acquisitions of motor vehicles and where motor vehicles are the subject of an eligible short term lease [amendments 61 and 62] ; and

·       amend the LCT Act to ensure that the luxury car tax applies to all campervans and motor homes with a value above the LCT threshold [amendment 63] .

Date of effect :  Various.

Proposal announced :  Not announced.

Financial impact :  Negligible.

Compliance cost impact :  Some amendments will have no impact on compliance costs while others will reduce compliance costs.

Customs Act 1901

The amendments to the Customs Act clarify the position in relation to customs duty on non-commercial low value postal importations and ensure that GST will be payable on the importations. The amendments fix the time when the rate of import duty is calculated for such goods and the time when import duty must be paid [amendments 64 to 66] .

Date of effect :  1 July 2000.

Proposal announced :  Not previously announced.

Financial impact :  Nil.

Compliance cost impact :  Nil.

Trading after midnight on 30 June 2000

Schedule 10A to this Bill amends the GST Transition Act and related Acts to permit businesses which trade over midnight 30 June 2000 and into 1 July 2000 to choose to continue to trade on a pre-GST basis until the earlier of:

·       6.00 am on 1 July 2000;

·       close of business; or

·       an earlier time that the business chooses.

The amendment ensures that sales tax continues to apply if a business chooses to adopt a transition trading period.

Date of effect :  The amendments will apply from 1 July 2000.

Proposal announced :  This measure has not been announced.

Financial impac t :  The measures are expected to have a small but unquantifiable financial impact.

Compliance cost impact :  The measure will reduce compliance costs for affected businesses.

 



C hapter

Non-profit bodies

Outline of Chapter

1.1         This Chapter explains amendments to the GST Act contained in the Bill that relate to non-profit bodies. The amendments:

·       provide government schools with the same GST concessions as charities. Under the existing GST legislation there are a number or instances where charities, including non-government schools, receive concessional treatment that is not available to government schools;

·       remove the requirement that all supplies made through a school tuckshop or canteen must be supplies of food, in order for a non-profit body to be able to choose to treat all of its supplies of food as input taxed; and

·       provide charitable bodies that belong to the same religious organisation the ability to eliminate internal transactions within their religious organisation for GST purposes. This is achieved by allowing certain members of the same religious organisation to utilise the benefits of grouping while alleviating some of the administrative difficulties that these organisations may experience in relation to the current grouping rules.

Detailed explanation of new law

Government schools

1.2         For the purposes of providing government schools with the same GST concessions as non-government schools, amendment 24 inserts a definition of ‘government school’ into section 195-1 of the GST Act. A school (including a proposed school) will be considered a government school if it is conducted by or on behalf of an Australian government agency and provides (or will provide once it starts operation) any of the following education courses:

·       pre-school courses;

·       full-time primary courses; or

·       full-time secondary courses.

1.3         Amendments 9, 11 to 13, 15 and 17 to 22 insert references to ‘government school’ into the GST Act to enable government schools to receive the following GST concessions that are available to non-government schools:

·       Subdivision 29-B - the ability to account on a cash basis regardless of turnover;

·       Subdivision 38-G - GST-free treatment of non-commercial activities including sale of donated second-hand goods;

·       Subdivision 38-H - GST-free treatment of raffles and bingo;

·       Division 63 - the choice to treat some or all of their separately identifiable branches or activities as separate entities for GST purposes;

·       New Subdivision 40-F - provides the choice to treat certain fund-raising activities as input taxed; and

·       New section 111-18 - the ability to claim input tax credits when reimbursing volunteers.

1.4         It was not considered necessary to amend Subdivision 40-E

 - school tuckshops and canteens, as government schools already have access to this concession under subsection 40-130(1).

1.5         Similarly, it was not considered necessary to amend new subsection 27-15(2) that allows certain non-profit bodies to lodge their GST returns monthly regardless of the date on which they balance their accounts. New subsection 27-15(2) will apply to entities that meet the requirements of subsection 63-5(2) which is being amended to include government schools.

1.6         It should be noted that where a government school chooses to apply Division 63 to treat a separately identifiable branch or activity as a separate entity for GST purposes, the registration turnover threshold that applies to the separately identifiable branch or activity is $100,000 under subsection 23-15(2).

School tuckshops and canteens

1.7         Under Subdivision 40-E, a non-profit body may choose to treat all of its supplies of food through a school tuckshop or canteen it operates as input taxed, provided the shop operates on the grounds of the school and all the supplies made through the shop are food. A non-profit body cannot apply this provision where other supplies such as stationery and uniforms are also made through the shop.

1.8         Amendment 14 repeals paragraph 40-130(2)(a) to remove the requirement that all supplies made through a school tuckshop or canteen must be supplies of food.

1.9         A non-profit body will be able to choose to treat all of its supplies of food through a school tuckshop or canteen it operates on the grounds of the school as input taxed regardless of whether it makes other supplies that are not food.

Example 1.1

Outback Creek Public School operates a tuckshop on the school grounds. The tuckshop sells food and uniforms. The school can choose to treat all of its supplies of food as input taxed under section 40-130.

Religious groups

Background

1.10       Division 48 of the GST Act enables certain entities, including entities that are members of the same non-profit association, to form GST groups. When a GST group is formed, the group will effectively be treated as a single entity for GST purposes and transactions between group members will not be subject to GST. Thus, the ability to form a GST group enables grouped entities to obtain cash flow benefits by removing the need to charge GST and claim input tax credits on intra-group transactions. Also, grouping reduces GST compliance costs by removing the requirement to create tax invoices for supplies between grouped entities.

1.11       However, for many religious organisations, use of the GST grouping provisions in Division 48 is administratively impractical because of the complexity of the structures of these organisations. Because of the large number of entities involved in some religious organisations, it would be virtually impossible for a representative member of a group encompassing these entities to consolidate accounts by 21 days after the end of each tax period. Further, the size of the group would mean that even the smallest of entities within the group would be required to account for GST monthly.

1.12       Amendment 16 inserts new Division 49 , which will enable religious organisations to utilise the benefits of grouping, while alleviating some of the administrative difficulties that these organisations may experience with Division 48. This new Division will allow certain charitable bodies belonging to the same religious organisation to be approved as a ‘GST religious group’, enabling transactions between members of that group to be excluded from the GST. [New section 49-1]

Eligibility criteria

1.13       The Commissioner will approve 2 or more entities as a GST religious group if those entities jointly apply in the approved form. Each of the applicant entities must satisfy the membership requirements of a GST religious group and must nominate one of the entities (which must also be an Australian resident) to be the principal member for the group. [New section 49-5]

1.14       The terms ‘GST religious group’, ‘member’ of a GST religious group, ‘satisfies the membership requirements’of a GST religious group and ‘principal member’ for a GST religious group are defined in section 195-1 by reference to new Division 49 . [Amendment 24]

1.15       An entity will satisfy the membership requirements of a GST religious group if:

·       it is registered for GST;

·       it is endorsed as an income tax exempt charity under Subdivision 50-B of the ITAA 1997;

·       all the other members of the GST religious group are so endorsed;

·       it is part of the same religious organisation as all other members in the same GST religious group or proposed GST religious group; and

·       it is not a member of any other GST religious group.

[New section 49-10]

Effect of forming a GST religious group

1.16       A GST religious group is effectively treated as a single entity. As such, a supply that one member of a GST religious group makes to another member of the same group is treated as though it is not a taxable supply [new section 49-30] . Similarly, an acquisition that a member of a GST religious group makes from another member of the same group is treated as though it were not a creditable acquisition [new section 49-35] .

1.17       Under Division 11, a member of a GST religious group will be entitled to claim input tax credits on acquisitions from entities outside the group where those acquisitions relate to supplies made to members within the group. In determining the amount of input tax credits a member is entitled to, the GST religious group is treated as a single entity [new section 49-50] . The effect of this is that each member would look at the creditable purpose of the group as a whole in making the acquisition to determine the extent to which it is creditable.

1.18       Furthermore, adjustments for adjustment events or changes in creditable purpose cannot arise in respect of these transactions between members of the same GST religious group [new sections 49-40 and 49-45] .

Example 1.2

Eastside Parish and Southside School are members of the same GST religious group. Eastside Parish supplied Bibles to the Southside School at a cost of $660. As the parish and the school are members of the same GST religious group, Eastside Parish does not have to charge GST on the supply to Southside School and Southside School is not entitled to claim an input tax credit on the acquisition. Furthermore, Eastside Parish does not have to provide Southside School with a tax invoice.

1.19       It should be noted that unlike the grouping rules as provided in Division 48, a GST religious group does not have to lodge GST returns. Under the new grouping rules for GST religious groups, individual members (not the principal member) will be responsible for GST transactions outside of the group. Each member will be required to lodge a GST return each tax period for its own external transactions. Internal transactions between members of a GST religious group will not have to be included in their GST returns.

1.20       For the purposes of determining the annual registration turnover of a member of a GST religious group, internal transactions between the member and other members of the same group will be included in annual turnover.

1.21       Amendments 5 to 8 and 10 insert references to GST religious groups in the checklists of special rules for taxable supplies, acquisitions and adjustment events and the general checklist for special rules. Amendments 23 and 24 insert references to GST religious groups in the notes to the dictionary definitions for creditable acquisitions and taxable supplies, noting the meanings of these terms are affected by the new Division.

Changing membership

1.22       The principal member of a GST religious group may apply to the Commissioner to approve another entity as a member of the group, remove an entity from the group, or approve another group member as the principal member of the GST religious group [new subsection 49-70(1)] . The Commissioner must also remove an entity from the group without an application to change membership being made, if satisfied that the entity does not satisfy the membership requirements for the GST religious group [new subsection 49-70(2)] .

Revocation of approval as a GST religious group

1.23       The principal member of a GST religious group can apply to the Commissioner to revoke the approval of the GST religious group [new subsection 49-75(1)] . The Commissioner must also revoke the approval of the GST religious group without an application for revocation being made, if satisfied that no member, or only one member of the GST religious group satisfies the membership requirements [new subsection 49-75(2)] .

Date of effect of approvals and revocations

1.24       The Commissioner will decide the date of effect of any approval or revocation of approval under new Division 49 . The date of effect must be a day on which, for all members of the GST religious group in question, a tax period begins, but the date of effect may be a different date to the date of the decision to approve or revoke. [New section 49-85]

Notifications

1.25       The principal member must notify the Commissioner of any circumstances under which the Commissioner must revoke the approval of a group member under new subsection 49-70(2) or revoke the approval of the group as a whole under new subsection 49-75(2) . This notification must be given within 21 days after the circumstances occurred which necessitated the revocation. The notification may take the form of an application under new subsection 49-70(1) or new subsection 49-75(1) . [New section 49-80]

1.26       If the Commissioner makes a decision under new Division 49 , the Commissioner must give notice of that decision. This notice will generally be given to the principal member of the GST religious group, except in the case where the decision relates to the initial approval of the GST religious group, in which case the notification will be given to the member nominated as the principal member. [New section 49-90]

Reviewable GST decisions

1.27       An entity may object against any reviewable GST decision that the Commissioner has made under new Division 49 . Amendment 25 inserts new table items 24A-F in subsection 62(2) of the TAA 1953, listing reviewable GST decisions in relation to GST religious groups:

·       refusing an application for approval as a GST religious group under new section 49-5 ;

·       refusing an application for a change in membership of a GST religious group under new subsection 49-70(1) ;

·       revoking an approval of a GST religious group under new subsection 49-70(2) ;

·       refusing an application for revocation of a GST religious group under new subsection 49-75(1) ;

·       revoking the approval of a GST religious group under new subsection 49-75(2) ; and

·       deciding the date of effect of approvals or revocations relating to GST religious groups under new subsection 49-85 .



C hapter 2  

Producer rebates under the WET

Outline of Chapter

2.1         Amendment 36 adds new Schedule 9A to the Bill to provide legislation to give effect to the Commonwealth’s WET rebate scheme for small winemakers. As part of tax reform the Government undertook to ensure that small winemakers with cellar door and mail order sales up to $300,000 (wholesale) per annum will in most cases be effectively free from WET in relation to those sales. This will be achieved by the Commonwealth paying a 14% rebate in addition to the current 15% subsidy provided to winemakers by the states.

2.2         The Commonwealth rebate will taper to zero where the winemaker’s eligible annual sales are between $300,000 and $580,000 (wholesale). Where the annual sales are in excess of $580,000 (wholesale), only the 15% state subsidy will apply.

Summary of new law

2.3         The new legislation sets out the circumstances where winemakers will be entitled to a rebate for certain retail sales or application to own use (AOU) of wine. The legislation sets out details of the following:

·       rebatable wine;

·       eligible producers;

·       eligible retail sales and AOUs;

·       annual rebatable turnover;

·       amount of producer rebates; and

·       rebates to be claimed in each tax period.

Detailed explanation of new law

Rebatable wine

2.4         The WET rebate does not apply to all alcoholic beverages covered by the WET Act. It applies to the following types of wine:

·       grape wine;

·       grape wine products;

·       fruit or vegetable wine; and

·       mead.

[Item 12 of new Schedule 9A, new definition of ‘rebatable wine’]

Eligible producers

2.5         To be eligible for the rebate an entity must be a producer of rebatable wine. This term is defined as an entity that:

·       manufactures the wine, or supplies to another entity the grapes, other fruit, vegetables or honey from which the wine is manufactured; and

·       holds a producer’s licence.

[Item 9 of new Schedule 9A]

2.6         A producer’s licence is a licence issued under a state or territory law which allows the holder to make retail sales from particular premises as a wine producer or a vigneron. It does not include other types of licences that allow the holder to make retail sales of wine. The definition of producer’s licence also allows the Commissioner to determine other categories of licences issued by states or territories that are provided in a similar capacity to producer or vigneron licences.

2.7         Entities that merely purchase bottled wine or bulk wine for bottling and sale by cellar door or mail order are not eligible for a rebate on this wine.

Eligible retail sales and AOUs

2.8         The rebate applies to certain retail sales and AOUs of rebatable wine where:

·       you are the producer of the wine;

·       you hold a producer’s licence; and

·       you are liable to pay wine tax for the dealing.

2.9         The retail sales must take place from the premises to which the producer’s licence relates and must not contravene the state or territory law under which the licence was issued [new subsection 19-5(1)] . Mail order and Internet sales will be accepted as being made from premises if the wine is dispatched from premises to which the producer’s licence relates [new subsection 19-5(2)] . However, where a commission is payable to a third party in respect of mail order or Internet sales these sales are not rebatable [new paragraph 19-5(4)(b)] .

2.10       The rebate will therefore apply to the following assessable dealings with rebatable wine by eligible producers:

·       cellar door sales to unlicensed end users;

·       mail order sales to unlicensed end users (including Internet sales made directly by the winery); and

·       AOUs (includes wine used for tasting and promotional activities).

2.11       The rebate will not apply where wine is sold in the course of providing food for consumption on premises from which it is supplied. For example, some producers may have a cellar door outlet and also operate a restaurant or café from the same or an adjacent site. In these circumstances they are eligible for the rebate only for retail sales made from the cellar door outlet. They are not eligible for a rebate for retail sales made from the restaurant or café under the restaurant licence. However, where wine is purchased from the cellar door and consumed in the restaurant under a BYO licence, the wine is eligible for the rebate. [New paragraph 19-5(4)(a)]

2.12       ‘Premises’ in relation to a supply of food is defined for the purposes of new paragraph 19-5(4)(a) but does not apply to the other references to premises (e.g. new paragraph 19-5(1)(c) refers to sales from premises to which the licence relates).

2.13       The rebate does not apply where the annual rebatable turnover for the premises from which the eligible sales or AOUs take place is more than $580,000. [New paragraph 19-5(4)(c)]

Annual rebatable turnover

2.14       The annual rebatable turnover is linked to the sales or AOUs made under the particular producer’s licence. It is calculated for each financial year as the sum of:

·       the notional wholesale selling price of all retail sales of rebatable wine the producer makes under that licence, to which new subsection 19-5(1) applies; and

·       the notional wholesale selling prices of all AOUs of rebatable wine the producer makes under that licence, to which new subsection 19-5(3) applies.

[New section 19-20]

Amount of producer rebates

2.15       New section 19-10 sets out the amount of rebate an eligible producer is entitled to claim. This section refers to annual entitlements. New section 19-15 , which is discussed in greater detail in paragraphs 2.19 to 2.22, allows the Commissioner to determine ways in which producers can claim the rebate in each tax period.

2.16       The annual rebate is linked to a producer’s annual rebatable turnover of rebatable wine for a particular producer’s licence. Where this turnover is $300,000 or less, the amount of the rebate for that financial year is 14% of that turnover.

Example 2.1

Jessica manufactures wine from grapes that she grows. She holds a state producer’s licence and makes cellar door and mail order sales from her winery under that licence. The retail value of these sales for the financial year is $420,000. Jessica also applies wine to her own use (tastings, give-aways) with a retail value for the financial year of $20,000. Jessica uses the half retail price method to calculate the notional wholesale selling price of the retail sales and AOUs. The amount of WET paid for these sales and AOUs is calculated as:

$420,000   ×   50%   =   $210,000   ×   29%   =   $60,900

$20,000   ×   50%   =   $20,000   ×   29%   =   $5,800

Jessica’s annual rebatable turnover is $230,000 and Jessica is entitled to claim a rebate of $32,200 ($230,000 × 14%).

2.17       If the annual rebatable turnover of rebatable wine for a particular producer’s licence is between $300,000 and $580,000, the amount of the producer rebate is calculated using the formula:

$42,000   -   ((annual rebatable turnover   -   $300,000)   ×   15%)

Example 2.2

Albert manufactures wine from grapes that he grows. He holds a state producer’s licence and makes cellar door and mail order sales from his winery. The retail value of these sales for the financial year is $700,000. Albert uses the half retail price method to calculate the notional wholesale selling price of the retail sales. The amount of WET paid for these sales is calculated as:

$700,000   ×   50%   =   $350,000   ×   29%   =   $101,500

Albert’s annual rebate is calculated as:

$42,000  -   (($350,000   -   $300,000)   ×   15%)   =   $34,500

2.18       If the annual rebatable turnover of a producer of rebatable wine for the producer’s licence is more than $580,000 (wholesale value) no rebate is claimable.

Note: the state subsidy is claimed separately from the relevant state or territory body and not as a WET credit.

Rebates claimed in each tax period

2.19       To allow producer’s to claim rebates in each tax period rather than on an annual basis the amendment provides the Commissioner with the power to determine how amounts may be claimed for a tax period [new subsection 19-15(1)] . This will allow amounts to be claimed as wine tax credits in each tax period [new subsection 19-15(2)] .

2.20       Where estimates are used to determine rebates an adjustment may be required in the final tax period to ensure that the total rebate claimed for the financial year equals the annual entitlement determined in accordance with new section 19-10 . Where the amount of rebate has been over claimed an amount of wine tax will be payable equal to the over claimed amount.

2.21       The following examples highlight the potential operation of new section 19-15 where a determination was made by the Commissioner allowing the rebate to be claimed each tax period based on an estimate of annual entitlement. For example, quarterly lodgers will claim a quarter of the estimated rebate payable for the year in each of the 3 quarters. The amount claimed in the final quarter’s return will reflect the actual entitlement taking into account previous amounts claimed. This may either be a credit or an amount payable.

2.22       If you estimate the wholesale value of your annual rebatable turnover for the financial year will be more than $580,000, you would not claim the rebate during the year. If the actual wholesale value of your annual rebatable turnover is less than $580,000 you would claim the rebate at the end of the financial year.

Example 2.3

Hinkler Winery estimates that its annual rebatable turnover for the financial year will be less than $300,000. The winery lodges on a quarterly basis and has the following rebatable dealings for the first 3 quarters:

Period

Wholesale value of rebatable dealings

Rebate Claimed

1 st quarter

$75,000

$10,500

2 nd quarter

$80,000

$11,200

3 rd quarter

$70,000

  $9,800

Total

$225,000

$31,500



If the wholesale value of rebatable dealings for the fourth quarter is $60,000, the total wholesale value of rebatable dealings for the financial year is $285,000. The rebate for the fourth quarter is $8,400 (14% of $60,000).

However, if the wholesale value of rebatable dealings for the fourth quarter is $90,000, the total wholesale value of rebatable dealings for the financial year is $315,000. Accordingly, the rebate for the fourth quarter is worked out as follows:

$42,000   -   (($315,000   -   $300,000)   ×   15%)   =   $39,750

less amounts previously claimed                                    $31,500

Amount of rebate claimed in fourth quarter             =     $8,250

Example 2.4

Ulm’s Winery estimates that its annual rebatable turnover for the financial year will be $430,000. It lodges on a quarterly basis. Ulm’s estimated rebate for the year is as follows:

$42,000   -   (($430,000   -   $300,000)   ×   15%)   =   $22,500

Ulm’s Winery can claim a rebate of $5,625 ($22 500 ÷ 4) for each of the first 3 quarters.

If the winery’s actual rebatable turnover for the financial year is $450,000, the rebate claimed for the fourth quarter will be $2,625, worked out as follows:

$42,000   -   (($450,000   -   $300,000)   ×   15%)   =   $19,500

less amounts previously claimed                                    $16,875

Amount of rebate claimed in fourth quarter             =                 $2,625

However, if Ulm’s actual rebatable turnover for the financial year is $480,000, Ulm will have to pay $1,875 as wine tax payable in the fourth quarter, worked out as follows:

$42,000   -   (($480,000   -   $300,000)   ×   15%)   =           $15,000

less amounts previously claimed                                    $16,875

Amount of wine tax payable in fourth quarter          =             $1,875

Producer rebates treated as wine tax credits

2.23       New credit ground CR9 is added to the wine tax credit table in section 17-5 of the WET Act. This treats the producer rebate as a wine tax credit. [Item 2 of new Schedule 9A]

Application and transitional provisions

2.24       The amendments will apply from 1 July 2000.

Regulation impact statement

Policy objective

2.25       The Government’s policy objective is to assist winemakers who make retail sales directly to unlicensed people from the cellar door or via mail order and who use their product in application to own use (AOU).

2.26       As part of the new tax system the current WST regime for wine will be replaced by GST and WET. Under existing arrangements , the states provide a subsidy of 15% of the wholesale value of wine, and beverages consisting primarily of wine, bought by unlicensed people at the cellar door, by mail order and, in some states, used for sampling stock.

2.27       In the context of discussions with the Australian Democrats on the tax reform package, the Government undertook to ensure that arrangements were established which provided a tax exemption for cellar door and mail order sales up to a wholesale value of $300,000 per annum.

Implementation options

Assistance delivered as a tax offset

2.28       Assistance delivered as an offset against the winemakers WET liability on the BAS.

2.29       Provide a 14% offset against the WET payable on cellar door and mail order sales, and AOU up to $300,000 per annum. This offset tapers to zero for sales between $300,000 and $580,000 per annum. Sales in excess of $580,000 attract the 15% state subsidy alone. The combination of the existing state subsidy and the Commonwealth offset ensures that cellar door and mail order sales up to $300,000 per annum are effectively WET free.

2.30       Eligibility for the offset is aligned as closely as possible to the eligibility for the state subsidies, which varies across states.

Assistance as a separate outlay

2.31       Assistance (as described in paragraphs 2.28 to 2.30) is delivered as an outlay (separate from the BAS).

Assessment of impacts

Impact group identification

2.32       This measure will provide assistance to winemakers who make sales to unlicensed people and who provide stock for, among other things, sampling, promotions and donations (known as AOU). The $300,000 cap will target the assistance to small and medium sized winemakers.

2.33       This measure will also impact on the Commonwealth agency delivering the assistance (the ATO, in the case of the offset option or the appropriate Commonwealth agency in the case of the outlay option).

Analysis of costs / benefits

Assistance delivered as a tax offset
Compliance costs and benefits

2.34       Winemakers who make less that $580,000 in eligible sales or AOU will be able to claim an offset against their WET liability on the BAS. This will involve identifying retail sales to unlicensed people and AOU product separately from sales to licensed people (i.e. retailers and wholesalers). The compliance cost of determining eligible sales and AOU should be minimal as in most cases these amounts are already determined for the purpose of claiming the state rebate.

2.35       Winemakers will also benefit from the ability to offset the assistance on their BAS, improving cash flow for the business.

Administration costs

2.36       The ATO will incur costs in establishing appropriate administrative arrangements to facilitate the offset and to monitor compliance with the legislation.

Revenue costs

2.37       It is estimated that the scheme will cost around $46 million over 3 years from 2000-2001.

Economic and social costs and benefits

2.38       The threshold will also target the assistance towards small and medium sized winemakers.

2.39       The WET rebate is designed to promote tourism and industry in regional areas.

Assistance as a separate outlay
Compliance costs

2.40       In addition to the compliance costs associated with the offset option, this option would result in cash flow problems for business which would have to pay WET to the Commonwealth and receive a rebate from 2 levels of government.

Administration costs

2.41       This option would also require a separate administrative regime to be established by the Commonwealth agency providing the outlay to deliver and monitor compliance with the legislation.

Revenue costs

2.42       Same as the offset option.

Economic and social costs and benefits

2.43       Same as the offset option.

Other issues - consultation

2.44       The Government consulted with the wine industry, the ATO and the state Treasuries and Revenue Offices, who were supportive of the offset option, in developing this legislation.

Conclusion and recommended option

2.45       The Government has decided to pursue the amendment to provide assistance to small and medium sized winemakers as an offset against their WET liability on the BAS.

2.46       To this end, the Commonwealth will, from 1 July 2000, provide a 14% WET rebate on cellar door and mail order sales, and AOU up to $300,000 per annum. This rebate then tapers to zero for sales between $300,000 and $580,000 per annum. Sales in excess of $580,000 attract the 15% state subsidy alone.

 



C hapter

Alcoholic beverages

Outline of Chapter

3.1         Amendment 38 amends the GST Transition Act in relation to transitional credits for alcoholic beverages.

Detailed explanation of the amendments

Special credit for alcoholic beverages

3.2         Section 16 of the GST Transition Act provides a special GST credit for sales tax paid on certain stock held at the start of 1 July 2000. In the case of alcoholic beverages the availability of the credit under section 16 is limited to unopened stocks that are not covered by the WET.

3.3         Sections 16A and 16B operate to reduce the amount of credit available under section 16 by an amount equal to the difference between the new duty amount and the old duty amount where rate of duty will increase from 1 July 2000 or beverages will be subjected to duty for the first time on 1 July 2000.

3.4         Under the current legislation no adjustment is made to the amount of special credit under section 16, where the rate of duty will decrease from 1 July 2000 and the amount of new duty will be less than the old duty amount.

3.5          New section 16AB will operate to increase the section 16 credit by the difference between the old duty and the new duty amount. The amount of special credit available under the amended legislation will be the amount of sales tax paid in respect of the goods plus the difference between old duty and new duty.

Example 3.1

Dianne is a retailer and is registered for GST. She holds stocks of spirit based pre-mix beverages for resale at the start of 1 July 2000. The amount of excise that was included in the price of the beverages was $16.74 and the amount of sales tax was $15.70. The amount of excise that would have been paid if the stock was subject to excise after 1 July 2000 is $14.80. Dianne satisfies the conditions set out in section 16 and would be entitled to claim a special credit of $15.70. Section 16AB will operate to increase the amount of credit that Dianne is entitled to by $1.94 (difference between $16.74 and $14.80). Dianne will be able to claim $15.70 + $1.94 = $17.64 as a section 16 special credit.

Amendment to section 16B

3.6         A technical correction is made to paragraph 16B(1)(d) to ensure that this provision operates as intended by replacing the words “immediately after 1 July 2000” with “at the start of 1 July 2000”. [Amendment 39]

 



C hapter

Other amendments

Outline of Chapter

4.1         This Chapter explains various technical amendments to the GST Act. They include amendments to:

·       clarify the GST treatment of goods sold through inwards duty free shops [amendments 26 and 27] ;

·       make some technical corrections to the Bill relating to supplies involving non-residents [amendments 28 and 29] ;

·       deny input tax credits for goods and services acquired or imported for the purpose of providing fringe benefits to employees of a financial supplier that is wholly or partially denied input tax credits on its acquisitions [amendments 30 and 33 to 35] ;

·       technical corrections to the Bill for borrowing related importations [amendments 31 and 32] ;

·       further clarify the application of GST to supplies made by entities to their members and provide that partnerships, the members of which are principally individuals, are not carrying on an enterprise if they do not have a reasonable expectation of profit or gain [amendments 42 and 43] ;

·       ensure that complying superannuation funds are carrying on an enterprise for GST purposes [amendment 43] ;

·       clarify the calculation of GST for a mixed supply [amendment 44] ;

·       technical correction to the Bill relating to the supply of real property by way of long-term lease [amendment 49] ;

·       ensure that goods that have entered Australia under temporary importation provisions are subject to GST if reimported [amendments 50 and 51] ;

·       ensure that input tax credits can only be claimed once by a partnership in respect of partner reimbursements [amendment 52] ;

·       enable employers to claim input tax credits where they pay an expense on behalf of an employee and that expense is related to that person’s activities as an employee [amendment 53] ;

·       ensure that an entity that enters goods for home consumption but is not the importer of the goods can claim input tax credits in respect of the taxable importation [amendments 45, 54 and 55] ; and

·       ensure that the rules which provide for an increasing adjustment where things are taken out of the GST system will not disadvantage executors and beneficiaries of deceased estates who continue to carry on an enterprise of the deceased [amendments 56 to 60] .

4.2         In addition, there are amendments to the ABN Act, the GST Transition Act and the LCT Act that:

·       amend the ABN Act to further clarify the application of the ABN to entities that only make supplies to their members and provide that partnerships, the members of which are principally individuals, are not carrying on an enterprise if they do not have a reasonable expectation of profit or gain [amendment 41] ;

·       amend the GST Transition Act to clarify the application of the phasing in of input tax credits for acquisitions of motor vehicles and where motor vehicles are the subject of an eligible short term lease [amendments 61 and 62] ; and

·       amend the LCT Act to ensure that the LCT applies to all campervans and motor homes with a value above the LCT threshold [amendment 63] .

Detailed explanation of the amendments

Supplies through inwards duty free shops

4.3         Amendments 26 and 27 insert new items 4A and 8 into Schedule 2 to the Bill. New item 4A repeals section 38-415 of the GST Act and inserts a new section 38-415. The new section will grant GST-free status to all airport shop goods sold through an inwards duty free shop to a relevant traveller. At present, only imported and excisable goods are GST-free.

4.4         New item 8 makes a consequential amendment to the definition of ‘relevant traveller’ in section 195-1 of the GST Act.

Supplies to Australian residents outside Australia

4.5         Amendment 28 removes item 7 in Schedule 3 to the Bill. This item amended item 1 in the table in subsection 38-190(1) of the GST Act. This item removed the words “directly connected with goods” and replaced them with the words “a supply of work physically performed on goods”. This was consistent with the changes to items 2 and 3 in the table in subsection 38-190(1). However, this has the unintended consequence of narrowing the range of GST-free supplies that are connected with goods outside Australia. This technical correction ensures that item 1 remains in its current form.

4.6         Amendment 29 makes a technical correction to item 11 in Schedule 3 to the Bill to ensure that the amendment operates as intended. The explanatory memorandum to the Bill at paragraphs 3.25 to 3.27 outlines the operation of this amendment.

Financial Supplies

Interaction of GST and FBT

4.7         The Government announced on 22 December 1999 that 2 different FBT gross-up rates would apply. A GST-inclusive FBT gross-up rate will apply to a situation where input tax credits have been allowed on the acquisition of the fringe benefit and the existing FBT gross-up rate will apply where no GST is payable or no input tax credits are claimable on the acquisitions.

4.8         It is acknowledged that this measure does not specifically deal with entities that make input taxed supplies but where partial input tax credits are allowed (i.e. for fringe benefits). In the absence of any change, they would be subject to the higher gross-up rate on purchases even where only a small proportion of the input tax credit is claimable. Conceptually, they should be subject to the higher gross-up on that part of the fringe benefit that they could claim an input tax credit for. However, it will be difficult to determine the extent of input tax credit entitlement for the goods and services acquired for the purpose of the fringe benefit.

4.9         To address this issue, amendment 35 inserts new Division 71 into the GST Act to deny input tax credits for goods and services acquired or imported for the purpose of providing fringe benefits to employees of a financial supplier that is wholly or partially denied input tax credits on its acquisitions. The input tax credits are only denied under this Division where the supplier exceeds the financial acquisitions threshold contained in Division 189. [New subsections 71-5(2) and 71-10(2)]

4.10       Where suppliers are denied input tax credits under new Division 71 , the existing (i.e. the lower) FBT gross-up rate will apply to the fringe benefit.

4.11       Amendments 30, 33 and 34 insert references to new Division 71 in the GST Act.

Technical correction

4.12       Items 2 and 4 of Schedule 5 of the Bill insert subsections 11-15(5) and 15-10(5) to specifically provide that a borrowing related acquisition or importation is not treated as relating to making input taxed supplies provided that the borrowing itself does not relate to making input taxed supplies. Amendments 31 and 32 make a technical correction to item 4 of Schedule 5 to ensure that subsection 15-10(5) applies to borrowing related importations.

Definition of enterprise

Complying superannuation funds

4.13       In formulating the GST, it was intended that superannuation funds would satisfy the definition of carrying on an enterprise and be able to register for GST. However, whether or not a superannuation fund is carrying on an enterprise will depend on the facts of each individual case. This could mean that there will be superannuation funds which cannot register for the GST.

4.14       Amendment 43 ensures that all ‘complying superannuation funds’ are carrying on an enterprise for GST purposes, thus making it clear that such funds can be registered for GST. Providers of financial services are entitled to register and claim reduced input tax credits for certain specified acquisitions. It was intended that all superannuation funds should be eligible for reduced input tax credits.

4.15       Amendment 60 inserts a definition of ‘complying superannuation fund’ into the GST Act.

Mutual organisations

4.16       The definition of ‘enterprise’ in section 9-20 of the GST Act and section 38 of the ABN Act was amended by A New Tax System (Indirect Tax and Consequential Amendments) Act (No. 2) 1999 to remove any doubt that mutual organisations were considered to be carrying on an enterprise even if they only made supplies to their members.

4.17       Amendment 41 amends section 38 of the ABN Act by removing subsection 38(3) and inserting new subsection 38(2B) . This amendment changes the term body to entity and also includes a reference to the activities being in the form of a business [new subsection 38(2B)] . The new subsection corrects incorrect numbering in relation to subsection 38(3). A similar amendment is made to subsection 9-20(3) of the GST Act [amendment 43] .

4.18       Amendment 42 also makes a consequential amendment to subsection 9-15(2B) of the GST Act using the wider term entity rather than body . This subsection makes it clear that payment made by members of an entity to that entity can be consideration.

Clarifying the treatment of partnerships

4.19       Individuals who are undertaking a hobby or private recreational pursuit are not carrying on an enterprise for ABN or GST purposes. They are not able to register for ABN or GST in relation to those activities. This means that they are not entitled to input tax credits and therefore bear the GST in relation to those activities.

4.20       For ABN and GST purposes, partnerships of individuals are separate and distinct entities from the individual members. An entity other than an individual cannot have a private recreational pursuit or hobby. Therefore, to prevent individuals from being able to register, and obtain input tax credits, in relation to hobbies or private recreational pursuits, the definition of enterprise for GST and ABN purposes provides that partnerships where all the members are individuals are not carrying on an enterprise if they do not have a reasonable expectation of profit or gain.

4.21       This exclusion can be avoided by including an entity other than an individual as a member of the partnership, such as a shelf company. This would allow individuals to avoid GST by obtaining input tax credits on a hobby or private recreational pursuit.

4.22       Amendment 41 amends paragraph 38(2)(c) of the ABN Act and amendment 42 amends paragraph 9-20(2)(c) to provide that partnerships, the members of which are principally individuals, are not carrying on an enterprise if they do not have a reasonable expectation of profit or gain.

Valuing mixed supplies



4.23       Section 9-80 of the GST Act provides the method for working out the value of the taxable part of a supply that is partly a taxable supply and partly a GST-free or input taxed supply. Amendment 44 corrects this method to ensure that the value is correctly calculated. The value of the total supply is calculated as:

where taxable proportion is expressed as a decimal (e.g. 40% is 0.4). [New subsection 9-80(2)]

4.24          The value of the taxable part is calculated as the proportion of the value of the total supply that the taxable part represents (i.e. the taxable proportion).

Example 4.1



Andrea makes a supply for a $104. The taxable proportion represents 40% of the total value of the supply. The value of the total supply is worked out as:

The value of the taxable part is $100   ×   0.4   =   $40

Technical correction

4.25       Amendment 49 makes a technical correction to item 8 of Schedule 11 to the Bill to ensure that the amendment operates as intended. The amendment ensures that the supply by way of long-term lease of a residential property that had been rented or used as residential premises by the owner prior to 2 December 1998 will be input taxed.

Reimported goods

4.26       Under the current terms of subsection 42-5(1B) an importation of goods is a non-taxable importation if the goods are covered by item 17 of Schedule 4 to the Customs Tariff Act 1995 (Customs Tariff item 17), and the importer:

·       is the manufacturer of the goods;

·       has previously acquired the goods by means of a taxable supply; or

·       previously imported the goods and the previous importation was a taxable importation.

4.27       Customs Tariff item 17 provides duty free importation to goods that have been exported from Australia and are reimported in an unaltered condition where there is no outstanding duty liability attaching to the goods.

4.28       To clarify the application of the GST exemption to these goods amendment 50 repeals subsection 42-5(1B). Amendment 51 replaces that subsection with new section 42-10 which remakes subsection 42-5(1B) with 3 new elements as follows:

·       the link to Customs Tariff item 17 is removed and the elements of Customs Tariff item 17 that must be satisfied if an importation is to be treated as a non-taxable importation are included on the face of proposed section 42-10. That is, the provision now includes the requirement that the goods were exported from Australia and are returned to Australia without having been subject to any treatment, industrial processing, repair, renovation, alteration or any other process since their export.  This change removes anomalies that are created by other elements of Customs Tariff item 17 that are necessary for customs duty purposes;

·       to be regarded as a non-taxable importation under proposed section 42-10, the importer must also not be entitled to, nor have claimed, a refund of GST under the tourist refund scheme when the goods were exported; and

·       any previous importation of goods by the importer must have been a taxable importation on which GST has been paid.

Reimbursement of partners

4.29       An acquisition or importation made by a partner in their capacity as a partner is treated as though the partnership made that acquisition or importation and not the partner - subsection 184-5(1) of the GST Act. This means that the partnership will be entitled to any input tax credits for acquisitions or importations made by a partner in their capacity as a partner of that partnership.

4.30       However, Division 111 of the GST Act also allows GST registered partnerships to claim input tax credits when they reimburse partners for expenses that they incur in connection with their activities as a partner. Thus, if a partnership reimburses a partner for partnership expenses, it could be argued that the partnership is entitled to double input tax credits in respect of that acquisition or importation.

4.31       Amendment 52 inserts new subsection 111-5(3A) , which provides that when a partnership is entitled to an input tax credit in relation to an expense, a further input tax credit will not be allowable when reimbursing a partner for that expense.

Payments made by employers on behalf of employees

4.32       It is common for employers to directly pay for work related expenses of employees. For example, an employer may pay for the membership of the professional associations of an employee.

4.33       Currently, the GST Act does not allow an employer to claim an input tax credit in relation to these payments. To be entitled to input tax credits under general principles, the payment must have been in respect of a taxable supply to the employer - subsection 11-5(b) of the GST Act. Since the relevant supply is to the employee, the employer cannot claim an input tax credit under this provision.

4.34       However, if an employee pays for a work related expense and their employer reimburses them for that expense, the employer will be entitled to an input tax credit - paragraph 111-5(1)(a). Thus, when an employer directly pays for a work related expense of an employee, they are at a disadvantage when compared to an employer who reimburses their employee for the same expense.

4.35       Amendment 53 inserts new section 111-25 , which provides that an employer that makes a direct payment of a work related expense of an employee will be entitled to the same GST treatment as an employer that reimburses an employee for the same expense. Therefore, an employer may claim input tax credits where payments are made on behalf of employees for employment related expenses.

Input tax credits for goods purchased in bond

4.36       Section 15-15 of the GST Act provides that a person who makes a creditable importation can claim an input tax credit. Under the current legislation creditable importations can only be made by a person who imports goods into Australia. An entity that purchases goods in bond from an importer can not claim the input tax credit for the amount of GST paid in taking the goods out of bond because the entity does not import goods into Australia.

4.37        New section 114-25 has been added to allow a purchaser of goods in bond to claim an input tax credit for the amount of GST paid by them in taking goods out of bond. [Amendments 45, 54 and 55]

Deceased estates

4.38       Where an individual who is registered for GST dies, the Commissioner must cancel the deceased entity’s registration, and the entity’s concluding tax period will end on the day before the individual’s death. The enterprise will be liable to an increasing adjustment under Division 138.

4.39       If goods or services are being taken out of the GST system, this is analogous to final consumption, and input tax credits should not be available. Where an entity ceases to be registered, the assets of the entity immediately before it ceases to be registered have effectively been taken out of the GST system. In these situations the entity will have an increasing adjustment to their net amount in relation to these assets pursuant to Division 138 of the GST Act.

4.40       There may be circumstances where the executor of a deceased estate passes assets to the beneficiaries to carry on the enterprise of the deceased. As the executor has not acquired the assets as a taxable supply (as there is no consideration and it was not transferred in the course of furtherance of an enterprise) the executor and beneficiary will effectively be denied input tax credits even though it will be making taxable supplies.

4.41       The effect of the increasing adjustment is that the assets which continue to be used in an enterprise would have been be taxed twice. Similar inequities exist for beneficiaries that continue to carry on the enterprise of a GST registered deceased individual.

4.42       Amendment 57 inserts new section 138-17 into the GST Act to ensure that Division 138 does not apply where:

·       the executor of a deceased estate continues to carry on the enterprise of a deceased individual who was registered for GST [new paragraph 138-17(1)(a)] ; or

·       a beneficiary of a deceased estate continues to carry on the enterprise that was carried on by an executor or trustee who was registered for GST and that enterprise was the enterprise of the deceased individual [new paragraph 138-17(1)(b)] .

4. 43       New section 138-17 does not affect adjustments that may occur due to changes in creditable purpose under Division 129 [new subsection 138-17(2)] . Where an asset that has a GST exclusive value of more than $1,000 is acquired, the acquiring entity must continue to track its use so that any changes in creditable purpose continue to give the entity an adjustment under Division 129. The tracking period continues as long as it would have continued for the deceased individual.

4. 44       An executor or beneficiary that continues to carry on the enterprise of the deceased must continue to track the creditable purpose of acquisitions or importations with a GST exclusive value of over $1,000. The executor or beneficiary is taken to have made the acquisition or importation to the same extent and with the same application as the GST registered deceased individual. [New subsection 138-17(3)]

Example 4.2

Owen, a beneficiary of a deceased estate, continues to carry on the enterprise of the deceased and registers for GST. Included in the distribution of the estate to him is a computer that was previously acquired for $2,500. The computer had previously been used by the deceased for both business and private use. The deceased had used the computer for 80% business use and claimed input tax credits accordingly.

Owen is taken to have acquired the computer for a creditable purpose at an application rate of 80%. As he already has a computer at home which he uses for private purposes, he intends to use the other computer wholly for business purposes. At the end of the adjustment period he has worked out that his actual application of the computer is 100%. Owen is entitled to a decreasing adjustment since the former application of the computer was 80%.

4. 45       Section 129-25 provides that where a thing is disposed of, the last adjustment period is the tax period immediately after the disposal. Amendment 56 inserts subsection 129-25(3) to ensure that where a person who is registered for GST dies and the GST registered executor or beneficiary of the deceased’s estate continues to carry on the enterprise, the adjustment periods for any acquisitions or importations will continue.

4. 46       Section 138-20 provides that Division 138 does not affect the operation of Division 129. As subsections 138-17(2) and (3) modify the operation of Division 129 in relation to enterprises continued to be carried on by an executor or beneficiary, amendment 58 ensures that section 138-20 does not apply to those sections.

4. 47       Amendment 59 inserts new Division 139 . Under this Division, where the trustee or executor of a deceased estate distributes an asset to the beneficiary that does not relate to an enterprise of the deceased that the beneficiary intends to continue carrying on, the estate will be subject to an increasing adjustment similar to that which would have occurred under Division 138. The new Division restores the intended application of Division 138 in that where an asset is no longer used for a creditable purpose the asset has been removed from the GST system and the input tax credits previously claimed by the entity should be paid back.

4. 48       New section 139-5 cancels the input tax credits that a deceased person who was registered for GST had previously claimed in respect of assets that are now going to be used for other than creditable purposes. The reason for the adjustment is that the assets are being taken out of the GST system, which is like going into final consumption. No input tax credits are available in respect of things outside of, or taken out of, the GST system.

4. 49       Some of the assets used in the enterprise of the GST registered deceased individual may have lost value. This is the value used in the enterprise while the thing was in the GST system. The entity should be entitled to an input tax credit in relation to value used in the enterprise for a creditable purpose. New subsection 139-5(2) ensures that the adjustment takes account of this value and so only relates to value that the entity has not used while in the GST system.

4. 50       The amount of the adjustment under subsection 139-5(2) is 1/11 of the applicable value , which is the lesser of the consideration for the acquisition or importation of the asset and its GST-inclusive market value, multiplied by the actual application of the thing , which is the extent to which the thing has been applied for a creditable purpose.

4. 51       Any adjustments arising out of the operation of new Division 139 are attributable to the tax period in which they occur. [New section 139-10]

4. 52       Where the asset is supplied to a beneficiary and relates to the enterprise the beneficiary intends to continue to carry on, an increasing adjustment will not arise under Division 139 [new subsection 139-5(3)] . The reason for this is that the asset is not being taken out of the GST system, as it will still be used in the enterprise previously carried on by the GST registered deceased individual, and as such, input tax credits should still be available for the asset.

4. 53       New section 139-15 ensures that new Division 139 does not affect the operation of Division 129.

Example 4.3

Robert is an executor of the estate of Stefan, who carried on a farming business and was registered for GST. Stefan’s will provides that the farming business should pass to Stephanie, but that some assets that were used in that business will pass to Amanda and Uma. Robert carries on the deceased’s estate until the estate is distributed to the beneficiaries.

Robert is required to register for GST as he will continue to carry on the enterprise of the deceased. As Robert is required to be registered and continues to carry on the enterprise of the deceased, new paragraph 138-17(1)(a) ensures that the deceased estate will not be subject to a Division 138 increasing adjustment.

Stephanie decides that she will continue to carry on Stefan’s farming business. While Robert is still administering the estate he starts to distribute the assets to the beneficiaries. The business assets Robert distributes to Amanda and Uma will be subject to a new Division 139 increasing adjustment since they are now going to be used for private purposes.

Robert distributes a truck to Stephanie. Stephanie intends to continue to use the truck in the farming business. Therefore Robert will not have an increasing adjustment in respect of the truck (new subsection 139-5(3)).

Robert distributes a horse float to Uma. Stefan had acquired the float for $5,500. The horse float was used solely for a creditable purpose, and Stefan had no adjustments in relation to it. The total input tax credit in respect of the horse float is $500. The GST inclusive market value of the horse float when Uma receives it is $3,300. While it was part of the GST system, $2,200 of the value of the horse float was used for creditable purposes. The amount of the adjustment is 1/11 of the actual application (100%) multiplied by the applicable value ($3,300), which equals $300. The remaining input tax credit of $200 represents the GST applicable to the value that was used up while the horse float was used for creditable purposes, being 1/11 of $2,200.

4. 54       Amendment 60 makes a consequential amendment to the table in the definition of ‘increasing adjustment’ in section 195-1 to include reference to the increasing adjustment in new section 139-5.

Phasing in of input tax credits on motor vehicles

4. 55       The phasing in of input tax credits for motor vehicles is intended to cover situations where vehicles are purchased including by way of hire purchase. However, section 20 of the GST Transition Act refers to the acquisition of a motor vehicle, which could include the lease of a vehicle.

4. 56        Amendment 62 ensures that the term acquisition specifically refers to the purchase of a motor vehicle only. This means that the lessee in respect of lease payments for motor vehicles will not be subject to the phasing in rules because they have not purchased the vehicle.

Eligible short term leases

4. 57       Paragraph 20(4)(c) of the GST Transition Act provides broadly that where a sales tax exemption would have applied, the phasing in rules will not apply. Effectively, partial sales tax exemptions are permitted under sales tax for eligible short term leases. These partial sales tax exemptions operate by agreement under subsection 15A(2) of the Sales Tax Assessment Act 1992 . This same pro rata treatment should also apply to the phasing in rules.

4. 58       Amendment 62 inserts a formula to clarify how the reduction in input tax credits applies to partial sales tax exemptions [new subsection 20(4B)] . It also allows further agreements to be made in respect of eligible short term leases until 1 July 2002 [new subsection 20(4C)] .

Example 4.4

Amanda Pty Ltd leases motor vehicles on a short term basis and has entered into an eligible short term lease agreement with the Commissioner to establish an exempt percentage. Under this agreement, Amanda Pty Ltd has an exempt percentage of 20%. Amanda Pty Ltd purchases a number of motor vehicles covered by this agreement for $220,000 which include GST of $20,000. The normal entitlement to input tax credits is $20,000.

If these purchases are made on or after 1 July 2000 but before 1 July 2001 (the original input tax credit is $20,000), the entitlement to input tax credits is reduced by:

Original input tax credit   ×   (100%   -   exempt percentage)

=   $20,000   ×   (100%   -   20%)

=   $16,000

Therefore, Amanda Pty Ltd’s entitlement is $4,000

(i.e. $20,000   -   $16,000).

If these purchases are made on or after 1 July 2001 but before 1 July 2002 (the original input tax credit is 50% of the $20,000, i.e. $10,000), the entitlement to input tax credits is reduced by:

Original input tax credit   ×   (100%   -   exempt percentage)

=   $10,000   ×   (100%   -   20%)

=   $8,000

Therefore, Amanda Pty Ltd’s entitlement is $12,000

(i.e. $20,000   -   $8,000).

LCT on motor homes and campervans

4. 59       The LCT is intended to apply to taxable supplies and taxable importations of luxury cars. Under the current legislation larger models of campervans and motor homes escape the LCT because the definition of car in section 27-1 of the LCT Act restricts the application of the tax to motor vehicles designed to carry a load of less than 2 tonnes and fewer than 9 passengers. Motor homes and campervans with load capacity of greater than 2 tonnes therefore escape the tax.

4. 60       New paragraph 27-1(c) added to the definition of car in section 27(1) of the LCT Act ensures that all motor homes and campervans above the LCT threshold are subject to the luxury car tax irrespective of their load capacity. [Amendment 63]

 



C hapter

Customs Act 1901

Outline of Chapter

5.1         This Chapter explains the amendments to the Customs Act that are to be inserted in Schedule 11 to the Bill.

5.2         The amendments ensure that non-commercial low value postal importations are explicitly subject to customs duty. They also fix the time when the rate of import duty is calculated for such goods and the time when import duty must be paid.

Detailed explanation of new law

5.3         Customs duty (and therefore GST) is payable on non-commercial low value postal importations whether or not Customs requires the owner to give Customs further information about the goods. New item 16G amends subsection 71(2) to put this beyond doubt.

5.4         New item 16H amends section 132 of the Customs Act to specify the time when the rate of import duty payable on the goods is worked out. New item 16I amends the table in subsection 132AA(1) to make it clear that any customs duty that is payable on such goods must be paid before the goods are delivered into home consumption. [Amendments 64 to 66]

 



C hapter 6

Trading after midnight on 30 June 2000

Outline of Chapter

6.1         This Chapter explains the amendments in new schedule 10A which is inserted by amendment 40 . These amendments are to the A New Tax System (End of Sales Tax) Act 1999 , the A New Tax System (Goods and Services Tax Transition) Act 1999 and the A New Tax System (Wine Equalisation Tax and Luxury Car Tax Transition) Act 1999. They will permit a business which is still trading at midnight on 30 June 2000 to choose to continue to trade on a pre-GST basis until the earlier of:

·        6.00 am on 1 July 2000;

·        its close of business; or

·       an earlier time that the business chooses.

6.2         Some businesses, such as taxis, restaurants, supermarkets and hotels, will be open for trade at midnight on 30 June 2000 when the new tax system commences, and when they would commence to be liable to pay GST on supplies that they make. In some cases the changeover to the new tax system at midnight would unavoidably interrupt or impede their ordinary trade at that time.

6.3         For example, a taxi operator cannot impose GST on taxi hirings before GST commences without infringing the Australian Competition and Consumer Commission pricing guidelines. However, that taxi operator would, under the existing rules, be liable to GST on the first hiring it makes on 1 July 2001, even if it is made at 12.01 am. If the operator is obliged to impose the metered fare, it cannot pass on the GST on that service and the tax effectively becomes a tax on business until the operator can have the meter adjusted.

Explanation of amendments

6.4         The amendments in new Schedule 10A allow businesses to adopt a transition trading period in which businesses can choose not to pay GST on supplies made immediately after midnight on 30 June 2000. In certain circumstances this will permit a part of an enterprise, such as a supermarket, to choose to continue to trade on a pre-GST basis, and adjust its systems and processes to implement GST at a more convenient time such as a shift change or after the business closes for the night.

6.5         New section 6A of the GST Transition Act, inserted by item 2 , modifies the operation of the GST Transition Act for businesses that choose to make the changeover to GST at a time other than midnight. It provides that certain supplies which would be made after 30 June 2000 will be taken to be made immediately before 1 July 2000.

6.6         Section 7 of the GST Transition Act applies GST to supplies that are made on or after 1 July 2000. However, the supplies made during the transition trading period to which new section 6A applies will not be subject to GST because they are taken to be made before that date. Item 3 inserts a note to subsection 7(1) to that effect.

Which enterprises can adopt a transition trading period?

6.7         An entity may choose to adopt a transitional trading period [paragraph 6A(1)(a)] . Alternatively, the entity may continue to apply the existing rules in the GST Transition Act.

6.8         New section 6A only applies to supplies that are made by a part of an entity’s enterprise that was open for business before and after midnight on 30 June 2000 [paragraph 6A(1)] . For example, where a fast food chain adopts a transition trading period, the rules in new Schedule 10A would apply to an outlet that was trading at midnight on 30 June 2000 and continued trading afterward. However, those rules would not apply to another outlet which was not trading at midnight on 30 June 2000 but which opened at 4.00 am the next day.

When does the transition trading period end?

6.9         Generally, the period ends at the earlier of:

·       the outlet’s first close of business after 30 June 2000;

·       6.00 am on 1 July 2000; or

·       an earlier time that the business chooses.

Example 6.1

Roarer taxis operates a fleet of 3 taxi cabs in a country town, driven by bailee drivers Brabham, Fittipaldi, Hill and Schumacker.

Brabham’s shift, using car 1, commences at 6.00 pm on 30 June 2000 and continues until 3.00 am on 1 July 2000. Brabham may adopt a transition trading period and complete the shift without being liable for GST on taxi fares earned during that shift.

Fittipaldi commences a shift in car 2 at 10.00 pm on 30 June 2000 and continues the shift until 8.00 am on 1 July 2000. Brabham may choose to adopt a transition trading period, but that period will end at 6.00 am on 1 July 2000, after which Brabham will be liable for GST on hirings.

Hill completed a shift in car 3 at 12.30 am on 1 July 2000, and Schumacker commences a shift in that car at that time. Hill may choose not to pay GST on hirings made during the ½ hour after midnight. However, although car 3 is on the road at midnight, at the time of the shift change it ceases to be open for business, and Schumacker is liable for GST on all hirings during the shift.

What transactions are not subject to GST  during the transition trading period?

6.10       Subsection 6A(1) is the general rule which treats any supply which was made during the transition trading period, but before 6.00 am, as having been made immediately before the commencement of GST on 1 July 2000. Such supplies will not be subject to GST.

6.11       The transition trading rules apply only to supplies which are made, or cease to be made, before the end of the transition trading period selected by the entity. The main application of the transition trading rule is to goods and services which are supplied during the transition trading period, such as supplies of public transport, entertainment and retail sales.

6.12       Because the rules apply only to supplies, they do not apply to any importations made during the transition trading period. Nor do they apply to supplies which are continuing to be made after the end of that period.

6.13       In addition, the rules do not apply to supplies that would be input taxed, such as input taxed financial supplies made after midnight by an entity which has adopted a transition trading period. [Subsection 6A(3) ]

6.14       Where a choice is made to adopt a transition trading period, subsection 6A(2) modifies the operation of some of the rules in the GST Transition Act in respect of supplies that are made during the transition trading period.

6.15       Section 12 of the GST Transition Act deals with supplies made on a periodic or progressive basis and the period spans midnight 30 June 2000. For supplies that are subject to new section 6A, section 12 will only apply where the period of the supply spans the end of the transition trading period, so that supplies which cease to be made during that period will not be subject to apportionment under section 12 [paragraph 6A(2)(a)] . Where the period of the supply ends after the end of the transition trading period, the supply is not one to which new section 6A applies because the supply is not made before the end of that period. Consequently the apportionment under section 12 continues to be made on a day to day basis.

6.16       Section 24 of the GST Transition Act deals with gambling supplies made before midnight that relate to gambling events after midnight. New paragraph 6A(2)(f) alters its application in relation to supplies to which new subsection 6A(1) applies to supplies made before the end of the transition trading period that relate to a gambling event after the end of that period. [Paragraph 6A(2)(f)]

6.17       Section 24A of the GST Transition Act provides that unredeemed vouchers supplied before 1 July 2000 are subject to Subdivision 100 of the GST Act in the same way as vouchers supplied on or after that date. That provison will apply as if the reference to 1 July 2000 was a reference to the end of the transition trading period. This amendment will ensure that a voucher that is redeemed during the transition trading period will not be made subject to Division 100. [Paragraph 6A(2)(g)]

What happens to sales tax during the transition trading period?

6.18       Sales tax will continue to apply to supplies made during the transition trading period. The general rule in A New Tax System (End Of Sales Tax) Act 1999 provides that sales tax is not payable on assessable dealings if the time of the dealing is on or after 1 July 2000. Item 1 inserts new subsection 3(1A) in that Act, which provides that this general rule does not apply to dealings made during the transition trading period, which will continue to be subject to sales tax.

6.19       While sales tax is generally applied at the wholesale level, and it would be unusual for assessable dealings to be made during the period from midnight to 6.00 am, this rule will ensure that there is no hiatus during which neither sales tax nor GST would be payable on supplies that are assessable dealings.

6.20       Subsection 8(1) of the GST Act is a non-operative provision which explains the relationship between the end of sales tax and the start of GST. Item 4 inserts a note to that provision to draw the reader’s attention to the fact that supplies to which new subsection 3(1A) of the A New Tax System (End Of Sales Tax) Act 1999 appliesare still subject to sales tax.

What happens to the special credit for sales tax on stock?

6.21       Part 4 of the GST Transition Act provides for a special GST credit, similar to an input tax credit, in respect of sales tax that has been borne on goods. The special credit is available for goods, certain alcoholic beverages and certain petroleum products on hand at midnight on 1 July 2000. Where you adopt a transition trading period the special credit is available for stock on hand at the end of the transition trading period. [Paragraph 6A(2)(c)]

6.22       New paragraphs 6A(2)(d) to (f ) make changes that are consequential on this amendment. Subsection 16A of the GST Transition Act provides that if the sales tax borne on goods changes after 1 July 2000 the special credit changes accordingly. Section 17 provides that you have made a taxable supply of certain assessable goods where they are applied to your own use after 1 July 2000, or where you cease to be registered after 1 July 2000. These references change to the end of the transition trading period in respect of goods supplied during that period.

6.23       Section 3 of the A New Tax System (Wine Equalisation Tax and Luxury Car Tax Transition) Act 1999 provides for a special GST credit in respect of sales tax that has been borne on certain stocks of wine that are on hand at midnight on 30 June 2000. Item 5 inserts new subsection 3(2A) , which provides that where you adopt a transition trading period, the special credit will be available for wine that is on hand at the end of the transition trading period, rather than at midnight.