2004-2005

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

SENATE

SUPPLEMENTARY EXPLANATORY MEMORANDUM

Amendments to be moved on behalf of the Government

(Circulated by authority of the

Treasurer, the Hon Peter Costello MP)

General outline and financial impact............................................................ 1

Chapter 1            Amendments to Schedule 3 — supply of options

and rights offshore............................................................... 1

Chapter 2            Amendments to Schedule 4 — mature age worker

tax offset................................................................................. 1

Amendments to Schedule 3 — supply of options and rights offshore

Amendments 2 to 5 amend Schedule 3 to allow affected entities to refrain from registering, or if already registered, to deregister and neither be required to remit goods and services tax on taxable supplies of options and rights offshore nor claim input tax credits .

Date of effect :  1 October 2005.  Transitional arrangements to allow deregistration from 1 July 2005 come into effect upon Royal Assent.

Proposal announced :  These changes were announced in the Minister for Revenue and Assistant Treasurer’s Press Release No. 57 of 20 June 2005.

Financial impact :  These amendments will cost the revenue as follows:

Compliance cost impact :  These amendments reduce compliance costs for affected entities that are currently registered and choose to deregister.

Amendments to Schedule 4 — mature age worker tax offset

Amendments 1 and 6 to 8 amend Schedule 4 to make two changes to the mature age worker tax offset provisions.  Firstly, they make a technical correction to the commencement date for the legislation, to ensure that the measure will commence on Royal Assent.  Secondly, they exclude the offset from the pay as you go instalments calculations. 

Date of effect :  1 July 2004.

Proposal announced :  These amendments have not previously been announced.

Financial impact :  Nil.

Compliance cost impact :  Nil.

Explanation of amendments 2 to 5

1.1         Amendments 2 to 5 amend Schedule 3 to allow affected entities, that are not otherwise required to be registered, to refrain from registering or, if already registered, to deregister and neither remit goods and services tax (GST) on taxable supplies, nor claim input tax credits concerning the supply of Australian holiday packages.  The measure benefits those affected entities that are currently registered and places them in the same position as any affected entities that did not register for GST.

1.2         This outcome is achieved by amendments to the current and projected annual turnover tests in the GST law.  The amendments ensure that supplies:

·          that Schedule 3 makes connected with Australia; or

·          of rights or options to use accommodation in Australia, where the supply is not made in Australia and is made through an enterprise the supplier does not carry on in Australia,

are not taken into account in working out if the entity is required to be registered for GST purposes.  [Amendment 4]

1.3         In addition, as a transitional measure, the amendments will allow affected entities that are registered for GST to deregister from 1 July 2005.  [Amendment 5]

1.4         The amendments ensure that affected entities that choose to register and remit GST are not entitled to lodge GST returns on an annual basis if they make supplies of more than $50,000 per annum that are connected with Australia.  [Amendment 4]

1.5         Finally, the amendments remove the restriction imposed by Schedule 3 that only entities carrying on an enterprise in Australia can enter into a reverse charge agreement with a non-resident entity under Division 83.  Instead, the amendments prevent entities to which Schedule 3 applies from entering into reverse charge agreements in respect of such supplies to address potential integrity concerns.  [Amendments 2 and 3]

Application and transitional provisions

1.6         Schedule 3 will now apply to supplies made on or after 1 October 2005.  1 October 2005 is the start of a quarterly tax period and applying the amendments from this date will reduce the compliance impact for affected entities that choose to remain registered for GST.  The later application date will allow additional time for affected entities to revise their pricing arrangements and decide whether they wish to deregister prior to the new arrangements coming into operation.  The amendment to the operation of the reverse charge provisions will also apply to supplies made on or after 1 October 2005.  [Amendment 5]

1.7         The amendment that allows affected entities to deregister prior to 1 October 2005 applies from the date of Royal Assent and allows deregistration for GST from 1 July 2005.  [Amendment 5]

Explanation of amendments 1 and 6 to 8

2.1         Amendments 1 and 6 to 8 amend Schedule 4 to make a technical correction to the commencement date of the mature age worker tax offset measure.  As introduced, the commencement date would be immediately after the commencement of Schedule 1 to the Tax Laws Amendment (2004 Measures No. 7) Act 2005 .  Now it is proposed that the commencement date will be Royal Assent of the Bill, to make sure the measure does not commence retrospectively.  [Amendment 1]

2.2         The amendments also ensure that the mature age worker tax offset is only allowed on assessment, by making certain that the offset will not be taken into account for the purposes of pay as you go (PAYG) instalments .  To achieve this, the offset will be disregarded in determining the ‘adjusted tax’ on ‘adjusted taxable income’ or on ‘adjusted withholding income’, and it will be disregarded in determining the ‘adjusted assessed tax’ on ‘adjusted assessed taxable income’.  [Amendment 8]

2.3         This amendment is being made because it is not necessarily reasonable to assume that a taxpayer who receives a certain amount of offset in one year will have the same entitlement to the offset in the next year.  PAYG instalment calculations or variations which took into account the offset from an earlier year would not necessarily be an accurate reflection of tax liability for the relevant year and might result in an over- or an under-payment of instalments.

Application and transitional provisions

2.4         The change to the commencement date has no impact on the application provisions.  The amendments which insert the mature age worker tax offset into the Income Tax Assessment Act 1997 will still apply to assessments for the 2004-05 income year and later income years.  [Amendments 6 and 7]

2.5         The amendment made to section 45-340 of Schedule 1 to the Taxation Administration Act 1953 (the amendment relating to PAYG instalments) applies in relation to the calculation of an entity’s adjusted tax:

·          for a base year that is the first income year starting on or after 1 July 2004 or a later income year; and

·          in relation to a PAYG instalment period that includes or starts after the date of Royal Assent of this Bill.

2.6         The amendment made to section 45-375 of Schedule 1 to the Taxation Administration Act 1953 applies in relation to the calculation of an entity’s adjusted assessed tax for a variation year that is the income year starting on or after 1 July 2004 or a later income year.  [Amendment 8]