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Budget 2009: Government response to Board of Taxation Review of GST Administration.



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NO.042

GOVERNMENT RESPONSE TO BOARD OF TAXATION REVIEW OF GST

ADMINISTRATION

Tonight I am pleased to announce the Government's response to the Board of Taxation's review of the legal framework for the administration of the GST. I thank the Board for undertaking this review and I release the Board's report tonight.

The Board has made 46 recommendations and I have agreed to implement 41 of these recommendations. Most of the recommendations with substantial changes to the GST law will apply from 1 July 2010, with recommendation 20 applying from 7.30pm (AEST) on 12 May 2009 (see Attachment A).

The key components of the package announced by the Government tonight include:

z harmonising the GST law and the income tax self assessment regime and rulings

regime;

z adopting more principled and flexible GST grouping rules;

z simplifying the GST adjustment provisions; and

z reforming the GST treatment of sales of going concerns and farmland.

The Government is considering other compliance cost savings in relation to business activity statement reporting (‘Simpler BAS': recommendations 1-3) and will consult with the small business community on ways to reduce BAS related compliance costs.

The Board received a number of submissions raising concerns about the complexity and uncertainty associated with the operation of the GST margin scheme and financial supplies provisions and the GST treatment of cross-border transactions. The Board was unable to canvass these matters in detail in the time available to complete the review and recommended that the Government examine these issues further.

The Government supports this approach and has established separate reviews into the operation of the existing GST law with respect to each of these matters.

Board of Taxation to review the application of the GST to cross-border transactions

I have asked the Board to undertake a review of the application of the GST to cross-border transactions and consult widely with stakeholders. The terms of reference are contained in Attachment B.

Treasury reviews of the GST margin scheme and the application of GST to

Media Release of 12/05/2009

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financial supplies

I have also agreed to Treasury undertaking reviews of the GST margin scheme and the application of GST to financial supplies. I have asked Treasury to consult widely. These reviews are designed to simplify the operation of the legislation and reduce both compliance and administrative costs whilst retaining the existing policy intent. To facilitate the reviews the Treasury has prepared discussion papers and welcomes submissions. The discussion papers can be obtained from the Treasury website.

Further details of the Government's response to the Board's report are contained in Attachment A.

The agreement of the States and Territories will be required to implement some of the announced changes.

Attachment A

GOVERNMENT RESPONSE TO BOARD OF TAXATION

REVIEW OF THE LEGAL FRAMEWORK FOR THE ADMINISTRATION OF THE

GST

No. Board Recommendation Recommendation supported Start date for

legislation

1-3 Simpler BAS method for reporting GST Net refund position BAS reporting concessions

Other compliance cost savings under consideration

N/A

4 Adjustments for changes in use Amending the GST change of use provisions to provide higher thresholds and fewer and shorter adjustment periods and greater alignment with other adjustment rules.

Adjustments for private use should be explicitly aligned with the percentage of private use for income tax purposes and adjustments for change of use arising from input taxed use should only occur where the change in use is significant.

Supported 1 July 2010

5 Adjustments for cessation of registration for goods leaving Australia Taxpayers should not be required to make adjustments in relation to goods in the event that they deregister, provided the goods are effectively exported and used in the non Australian enterprise. Technical amendments should be

Supported The start of

the first quarterly tax period after Royal Assent

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made to the provisions relating to attribution and entitlement upon cessation of registration to ensure consistent and appropriate treatment of all taxpayers.

6 Adjustments for

manufacturers' rebates Amending the GST law to ensure that adjustments for manufacturers' rebates, which in effect change the price of a transaction, result in adjustments for the payer and the third party, reflecting the economic outcomes of the transaction.

Supported. However, the GST law should be amended more broadly to ensure that it applies so as to require GST adjustments in all situations in which consideration is paid by an entity in the supply chain to a third party which effectively alters the consideration paid.

This measure will not apply to Government rebates such as those paid to consumers as utility rebates.

1 July 2010

7 Adjustments - technical amendment Amending the GST law to ensure consistency and certainty in the use of the terms ‘apply' and ‘application' in the adjustment provisions.

Supported The start of

the first quarterly tax period after Royal Assent

8 Adjustments for pre-registration acquisitions

Allowing an entitlement for an adjustment to the extent of the remaining economic value for things acquired before an entity was registered for GST. The amendment should not apply to adjustments that are already available.

Supported 1 July 2010

9 Tax Invoices

Where a tax invoice is not

Supported 1 July 2010

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regarded as valid for minor reasons, taxpayers should not be required to seek a valid tax invoice from the supplier, where they have other documents that confirm the GST treatment of the supply and the amount of GST. This option should be available to taxpayers without first seeking the agreement of the Commissioner. Where a taxpayer makes all reasonable efforts to obtain a tax invoice, but cannot, they can treat another suitable document as a tax invoice, provided they notify the Commissioner, and meet any other requirements as determined by the Commissioner.

10 Tax invoices and attribution Clarifying the GST law that an input tax credit can be claimed in a later tax period even though the relevant tax invoice was first held in an earlier period.

Supported 1 July 2010

11 Adjustment notes The threshold at which an adjustment note must be held should be increased from $50 to $75.

Supported 1 July 2010

12 Business to business transactions - option to treat as fully taxable Introducing an option to treat transactions between registered businesses as fully taxable if it is not possible to know when entering into a transaction the extent to which it is taxable. This should not apply to a supply where part or all of it is an input taxed supply.

Supported 1 July 2010

13 Correcting GST mistakes Enabling taxpayers to correct GST mistakes and other indirect tax mistakes through the current or a supplementary BAS. Taxpayers should also be able to self assess their interest charge liability when correcting GST mistakes.

Not supported N/A

14 Multi-party transactions The Government should further examine the treatment of multi-party transactions in order to eliminate unrecoverable tax. The Government should have regard to overseas work in this area.

Supported N/A

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15 Vouchers

Undertaking a review of the vouchers regime, having regard to overseas work in this area with a view to developing a simpler system with lower compliance costs.

Supported N/A

16 Shortfall interest charge A shortfall interest charge should apply to the GST and other taxes reported on the BAS, including luxury car tax, wine equalisation tax and fuel tax credits.

Supported in principle but further consideration to be deferred until fiscal conditions allow.

N/A

17 Rulings

The income tax ruling system should be adopted for GST, luxury car tax and wine equalisation tax with appropriate modifications including an exception for oral rulings.

The Government may wish to consider if oral rulings should continue to be offered for other taxes, including income tax.

Supported 1 July 2010

18 Relying on rulings issued to the other party to a supply Recipients and suppliers should be able to rely on each other's rulings in relation to the tax status of supplies between them, where they agree to provide their rulings to each other for this purpose. Where recipients and suppliers agree to rely on the other's ruling then they should be bound to apply the ruling in the preparation of their BAS, but may object to the other's ruling.

However, this should not extend to supplies in other parts of the supply chain.

Supported 1 July 2010

19 Period of review The four-year period of review for the GST, luxury car tax, wine equalisation tax and fuel tax credits should be refreshed in cases where the Commissioner or the taxpayer reduces (or increases) the amount of tax payable or increases (or reduces) a refund payable to a taxpayer based on the information provided by the taxpayer, but only in

Supported 1 July 2010

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respect of the particular that led to the review.

20 Limited time to claim input tax credits The law should be amended to limit claims for input tax credits to a four-year period in line with the time limit on refunds and credits provision in the Tax Administration Act and to clarify that a taxpayer can defer input tax credit claims (within these limits) even if they held a tax invoice at the end of the period to which the credit would otherwise be attributable.

Supported 7.30pm

(AEST) on 12 May 2009

21 Self assessment Greater harmonisation should be introduced between the current self actuating system for GST, wine equalisation tax, luxury car tax and fuel tax credits and the income tax system of self assessment.

Supported 1 July 2010

22 Margin scheme Undertaking a review of the margin scheme, focussing on its effectiveness and efficiency in achieving its policy intent and how it interacts with other provisions in the GST law.

Supported N/A

23 Financial supplies Undertaking a review of the financial supplies provisions with a view to reducing their complexity and introducing more principled rules, while maintaining the existing policy.

Supported N/A

24 Cash and accrual accounting The Government should consider the merits of all transactions above a certain value (and meeting other criteria) being accounted for using accruals accounting.

Supported N/A

25 Financial acquisitions threshold The financial acquisitions threshold should be simplified by reducing the frequency of testing to an

Supported 1 July 2010

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annual basis.

26 Non-residents in Australia's GST system Reviewing the application of the GST to cross-border transactions with a view to simplifying the GST law and reducing the number of non-residents in the system.

Supported N/A

27 Registration for non-residents The Commissioner should consider further streamlining the proof of identity and proof of enterprise requirements for non-residents in the four circumstances in which the Board has identified that the risk to revenue is low.

Supported. To be considered as part of the review of cross-border transactions (recommendation 26).

N/A

28 Non-resident agency provisions Broadening the GST law to allow a resident entity that is not an agent of a non-resident, to agree to account for and be liable for the GST consequences of a non-resident.

Supported. To be considered as part of the review of cross-border transactions (recommendation 26).

N/A

29 Non-residents that need to register Non-residents that do not account for their taxable supplies or taxable importations or their creditable acquisitions or creditable importations because of the current or expanded agency provisions, should no longer have to register for GST.

Supported. To be considered as part of the review of cross-border transactions (recommendation 26).

N/A

30 GST deferral scheme The GST deferral scheme should be extended to small business taxpayers that are eligible to lodge quarterly.

Not supported N/A

31 Refund collection system - External territories Introducing a system under which residents of Australia's External Territories can claim refunds under the Tourist Refund Scheme if they can show proof of shipping of exported goods to their External Territory.

Supported 1 July 2010

32 GST grouping and GST joint ventures a) Membership rules GST grouping membership rules

Supported 1 July 2010

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should be simplified and broadened by replacing the detailed rules with principle-based rules.

b) Holding companies Holding companies should be entitled to register and group for GST purposes, despite not carrying on an enterprise. However, they should not be entitled to continue to be registered once they leave the group, unless at that time they are carrying on an enterprise.

c) Self assessment Entities should be able to self assess their eligibility to form a GST group and GST joint venture. Where possible, entities should have an option to do so electronically.

d) Intra tax period grouping Entities should be able to form, alter or revoke a GST group or GST joint venture at any time during a tax period.

e) Clean exit rules Clean exit rules should be introduced to allow entities to leave GST groups or GST joint ventures clear of any GST consequences.

33 Reverse charge mechanism - going concern and farmland The GST free concessions for the supply of going concerns and farm land supplied for farming should be removed and replaced with a reverse charge mechanism. The reverse charge mechanism should also be available for a wider range of supplies of going concerns.

Supported 1 July 2010

34 GST free farm land supplied for farming The Government should consider whether farm land supplied for farming to unregistered recipients should continue to be GST free.

Supported 1 July 2010

35 General law partnerships Clarifying the GST treatment of general law partnerships, including in relation to matters such as partner-to-partnership

Supported The start of

the first quarterly tax period after Royal Assent

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transactions or changes in the membership of a partnership.

36 Tax law partnerships Clarifying the GST treatment of tax law partnerships, including where a tax law partnership is formed or dissolved and when it makes a supply or an acquisition.

Supported The start of

the first quarterly tax period after Royal Assent

37 Bare trusts

The GST law should be amended to remove doubt surrounding the GST liabilities and entitlements of bare trusts.

Supported The start of

the first quarterly tax period after Royal Assent

38 Incapacitated entities Ensuring that the representative of an incapacitated entity is responsible for the GST consequences that arise from supplies, acquisitions and importations made during its appointment.

Separately announced. Assistant Treasurer’s Press Release No 5 of 6 February 2009.

N/A

39 Running balance account Amending the GST law so that there is only a requirement to offset a credit against a business activity statement amount when that amount becomes due and payable and not before this time.

The activities of each joint venture role that a joint venture operator undertakes should be treated separately for Running Balance Account purposes and also separately from the activities of the joint venture operator in its own capacity as an entity.

Supported 1 July 2011

40 Domestic agency provisions Expanding the domestic agency provisions to include representatives that operate in a similar way to common law agents, such as invoicing and commission agents and consider simplification of the underlying principles.

Supported 1 July 2010

41 Gambling

The GST law should be amended to confirm the application of the GST rules concerning gambling supplies made to non-resident entities.

Supported The start of

the first quarterly tax period after Royal Assent

42 Luxury car tax and wine equalisation tax - net amount The law should be amended to

Supported The start of

the first quarterly tax

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Attachment B

BOARD OF TAXATION - TERMS OF REFERENCE

A REVIEW OF THE APPLICATION OF GST TO CROSS-BORDER TRANSACTIONS, IN PARTICULAR THE EXTENT OF NON-RESIDENT PARTICIPATION

The Board of Taxation should consult with relevant stakeholders and report to the Government on improvements to the design of the GST system necessary to ensure that cross-border transactions are treated in an efficient and effective manner. A particular focus will be those design features underpinning the involvement of non-residents in the Australian GST system with a view to simplifying the design.

The review should include, but not be limited to, consideration of:

z the impact of the current cross-border provisions on the international competitiveness

of Australian enterprises;

z the extent to which non-residents should be drawn into the operation of the GST;

z the role of resident agents acting for non-residents and whether there is scope to

confirm that luxury car tax and wine equalisation tax are part of the net amount that is calculated under the GST Act.

period after Royal Assent

43 Non-profit sub-entities The GST law should be amended to ensure that non-profit sub-entities are able to access the same GST concessions as their parent entity.

Supported The start of

the first quarterly tax period after Royal Assent

44 Power to recover overpaid refunds Allowing over claimed refunds to be treated as an amount of tax which becomes payable when either refunded to the taxpayer or applied against a tax debt.

Supported The start of

the first quarterly tax period after Royal Assent

45 Payment of refunds of overpaid GST The law should be amended to clarify that the Commissioner has a discretion to refund the GST where appropriate.

Supported Royal Assent

46 Associates

The GST law should be amended to remedy the interaction of the associate provisions and other provisions such as those relating to input taxed and GST free supplies.

Supported The start of

the first quarterly tax period after Royal Assent

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broaden it; and

z ways to simplify and reduce compliance and administrative costs associated with

cross-border transactions.

The Board should have regard to the design features of the GST as a multi-stage value added tax and should also ensure that any possible changes do not undermine the integrity of the GST in aiming to tax final consumption in Australia. In considering any changes, the Board should ensure that its recommendations have regard to the likely impact on revenue.

The Board should consult widely and report to the Government by the end of February 2010 on the outcome of its consultations and its recommendations.

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