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Launch of simplified accounting methods for small business, Wednesday, 8 March 2000, 12.00 pm: transcript [GST; small business; bank mergers]



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Transcript No. 2000/24   TRANSCRIPT OF The Hon Peter Costello MP

TREASURER  

MR MICHAEL CARMODY Commissioner of Taxation  

Launch of Simplified Accounting Methods for Small Business Wednesday, 8 March 2000 12.00 pm  

SUBJECTS: GST/Small Business, Bank Mergers  

TREASURER:

When the Government was forced to amend its legislation for Goods and Services Tax in the Senate, and make food GST-free, as all exemptions do, it led to an increase in complexity, because it would require people in the food industry to distinguish between food that was GST-free and other products which were not GST-free. And since that time the Government has been working overtime to try and introduce a system which would take the compliance cost off the food sector which was forced upon it by those amendments in the Senate. 

Today, I’m very pleased to be able to announce that the Government will be introducing a simplified accounting method which will ease the compliance burden for people in the food industry considerably. This simplified accounting method has been put together with the assistance of industry representatives, many of whom are here today, and with the work of the Commissioner and the Australian Taxation Office. Essentially what it does, is that it introduces three simplified systems which businesses in the food sector can take advantage of: a business norms method; a snapshot method; or a stock purchase method. And as an example, what it would allow you to do under the business norms method, if you happen to be in a hot bread shop, rather than have to distinguish between your sales which are GST-free and those which are not you can apply a business norm at 50 per cent. Meaning that 50 per cent of your sales will be considered to attract a GST and 50 per cent not, rather than having to identify each sale separately and apply GST to some and not to others, you can adopt the business norm. And when you come to make your quarterly return you would just apply GST on the quarterly return to 50 per cent of your sales. If that is not the most economic way of doing your return you could alternatively choose the Snapshot Method or a Stock Purchases Method, and it would be at the election of the person concerned if they qualified under this system. The simplified accounting method for food retailers will ease compliance burdens in the food industry substantially. It will be of benefit to small business in particular. It’s been developed by the Australian Taxation Office with the encouragement of the Government and industry consultation. It is part of ensuring that compliance costs are kept to a minimum. And it is also, we believe, one of the most innovative ways in the world of dealing with this issue. 

Australia is not alone in introducing GST or value-added tax, there are 150 countries in the world that have done it, and in most of those companies, you have some kind of lower rate or exemption for food. We’ve looked around the world, we’ve adopted what we believe to be international best practice. It’s designed to help the small business sector in food retailing, and I think it will be of enormous benefit for compliance and keeping compliance costs down. 

I’ll now invite the Commissioner of Taxation to come and address the issues.

CARMODY:

Thank you Treasurer. And as was pointed out we are releasing today the simplified accounting method for small business food retailers that should make life a lot simpler and much more certain for them as they move to implement the GST. What it means for small business is that your typical convenience store, local mixed business, milk bar, delicatessen, will now have much easier ways of distinguishing between, for example, their savoury filled bread rolls and their bread rolls, their candied peel and their confectionary. The simplified accounting systems that we’ve developed have been done in close consultation with industry representatives, and they’ve certainly given the thumbs up to us on the value of these approaches. 

To take an example, as illustrated by the Treasurer, under one method determining your GST-free sales will be as simple as taking your takings for the period and multiplying by a factor that we will give that particular type of store. We have released in a range of fact sheets the first of these industry norm factors. They cover, for example, hot bread shops, convenience stores, mixed

businesses, milk bars. More will be on the way. So that if you take, as was illustrated, a typical convenience store that doesn’t sell petrol and other things, then to work out their GST-free sales, instead of counting day by day how many candied peel products they sold as distinct from cartons of milk, then all they need to do is have their takings for the period and multiply by 30 per cent. Similarly to work out their GST-free purchases - their purchases for the period multiplied by the industry norm, in that case 30 per cent. We also realise that these are averages of GST-free sales for the particular types of stores that we’re covering in these, so we are allowing these small businesses to personalise the percentage that they use to determine their GST-free sales and purchases. There are two methods for this. The first is called the snapshot method, and all that requires is that the business take two two-weekly periods in which they keep a record of their GST-free sales, and that provides them with the percentage or proportion of their sales that they then apply to their takings throughout the year. Similarly for their purchases. For those retailers who merely re-sell goods, that is they don’t convert, they don’t produce sandwiches and so on from it, there is a further simple option available to them to, again, personalise it for their store. And what that requires simply is that they take the two four-week periods, an analysis of their purchases to determine during that period the percentage of their purchases that are GST-free. And that provides them with the percentage they then apply to their sales as re-sellers to determine their GST-free sales. Eligibility for these simplified accounting methods are essentially for businesses with a turnover, mixed businesses with a turnover of up to $1 million and for businesses who do not have the sort of sophisticated point of sale equipment that automatically accounts for and identifies particular products. In addition, as a special transtitional measure for one year only, for businesses with the sales of $1 million and up to $2 million, we will allow the stock purchases and the snapshot method employed by them as a transitional period for one year to ease them in to the New Tax System. Copies of these booklets and these fact sheets will be available by ringing our infoline on 13 24 78. And over the next few weeks we’ll be translating those into over eight languages, reflecting the diversity of people who operate these small stores. I believe that with these initiatives, GST for small business retailers has now become much simpler and much more certain. I think we will leave it at that and open up the questions.

TREASURER:

Thank you. Right, are there any questions?

JOURNALIST:

Yes, the two-weekly exposure seems a hell of a snapshot. 

CARMODY:

It’s the difference between two two-weekly periods of accounting for these and 52 weeks of accounting for these. I would have thought that’s a fairly reasonable approach. And remember they also have the option if they think that that’s onerous, and certainly I don’t, they also have the option of simply looking at their purchases where invoices will contain details of what’s GST-free or not. 

JOURNALIST:

Or of using the business norms method?

CARMODY:

Absolutely. There’s an option here for everyone.

JOURNALIST:

Isn’t there a choice of moving between the three systems.

CARMODY:

Once you elect a particular system, you apply that for a 12 month period. 

JOURNALIST:

Mr Carmody . . .

CARMODY:

We’re not looking for cherry picking of options.

JOURNALIST:

Mr Carmody, with the business norms, you talk about five that are on the way. When do we expect to see those percentages and perhaps why aren’t they ready now?

CARMODY:

Well first of all we have, they are already ready for hot bread shops, they’re already ready for convenience stores, mixed businesses and milk bars that are there. We wanted to get out into the public arena, the fact that these methods were going to become available at the earliest time possible so that businesses under $1 million don’t feel some of the pressure, some undue pressure, that they’ve been feeling from some retailers of fairly expensive point of sale equipment. So our objective was to establish a methodology, get the rules out for everybody, get the first of these out and we are now working with other industries to

get them out at the earliest possible time.

JOURNALIST:

Well, when there’s five listed on page 11, cake shops down to delicatessens, when do we expect we might see those?

CARMODY:

They’ll come out progressively over the next few weeks.

JOURNALIST:

(inaudible) to make sure (inaudible) match up to reality?

CARMODY:

Well, these have already been developed by talking with industry groups and actually going out into some of these stores to get representative samples. So we’re confident, and certainly industry shares this with us, that they are an appropriate reflection. Of course, we’ll review them after a years experience.

JOURNALIST:

Commissioner, if business doesn’t have access to the internet isn’t there a problem getting the booklet because your hotline is advising people today that it’s a 3 to 6 week wait for the booklet. And they’re saying . . .

CARMODY:

Well, let me give you the authoritative advice, I don’t know who you’ve been talking to …

JOURNALIST:

I rang your number.

CARMODY: 

… but as of Friday we have, they’re printing now, and over 50,000, the first issue of 50,000 will be available on Friday. And it’s then just a matter of turning them around in the mail.

TREASURER:

Alright . . . 

JOURNALIST:

Treasurer, are bank mergers inevitable and or desirable?

TREASURER:

Let me make a couple of points. The first point is that there’s been a lot of speculation in today’s press that the Commonwealth Bank will be merging with Colonial. As I understand it, no official statement to that effect has been made. The shares, the trading shares have been suspended for both companies, and I would expect the companies concerned to make a statement when they’re ready. It may not be today, it may be sometime off. When the statement is made, they would, I imagine, set down the terms and conditions, the prices, the method in which it would be accomplished, and it would be subject to various approvals. Firstly it would be subject to the Treasurer’s approval, which needs to be done if the merger or the takeover is in the national interest. Secondly, it would be conditional upon approval from the Australian Prudential Regulatory Authority which needs to be satisfied that all prudential standards have been met, depositors funds are safe and so on. And I can’t imagine that there’d be a problem with that. Thirdly, it would be subject to the approval of the Australian Competition Commission, which would need to be satisfied as to the competitive aspects of the arrangements. And the approvals given by the Australian Competition Commission can have conditions where the merged entity would get a uncompetitve market share, that is too great a market share in a particular market, it can order divestment accordingly. Now, since there’s been no annoucement yet made, I can’t speculate on the terms and conditions that would be attached. But I would expect, if an annoucement is made, that the banks will be indicating what they intend to do with branches, with employment and with services. And I will look at that statement very carefully when it’s made in exercising my discretion, and I imagine the other regulators will look at the statement when it’s made in exercising their discretion.

JOURNALIST:

Treasurer have you met with either the Commonwealth or Colonial Bank, or have you been briefed by them?

TREASURER:

I had a meeting with executives of both banks yesterday.

JOURNALIST:

Treasurer, the Prime Minister made a undertaking to rural and regional Australia that services wouldn’t decline any further there. When you look at this merger, will you be using that as a benchmark to whether you give it approval or not?

TREASURER:

The Prime Minister’s commitment is that services will not be withdrawn, and as I understand it, it’s that Government services will not be withdrawn. Having said that, the Government wants to keep private sector services up in the bush and indeed is encouraging new private sector services into the bush, particularly with telecommunications reform. What I’ll be doing when it comes to me is, I’ll then be exercising my power according to the statute, which is looking at, if this is in the national interest. And that’s a very broad test, and it involves looking at all manner of things, including whether it will get better services to customers, what it will do for competition in the market, what it will do in international terms for creating strong financial institutions, what it will do for the structure of the Australian finance industry. And it’s a very broad test, and I’ll be exercising my discretion in relation to all of those matters.

JOURNALIST:

What about job losses? Is that something you’ll also consider (inaudible)?

TREASURER:

I’ll be very interested to see what the banks say about employment. As I said, when these announcements are made they generally give an indication as to how the merger is going to be accomplished and what will happen in relation to jobs. Now, we don’t yet know, we don’t even yet know, do we, that this has been agreed, because no statement has been made. We certainly do not yet know what they intend to do in relation to branches and employment. And only the banks themselves can tell you that. Only the banks themselves can tell you that, so we will have a look at the statement when it comes in.

JOURNALIST:

Didn’t you have a meeting with them, didn’t they tell you?

TREASURER:

As I said, I had meetings with the Chief Executives, but no statement has been made and it’s the institutions concerned if they make the statement that will be presumably disclosing their terms and their conditions.

JOURNALIST:

If such a merger goes ahead, isn’t this going to place a lot more pressure on the Government to wind back Four Pillars?

TREASURER:

No, this is not inconsistent with the Four Pillars policy. The Four Pillars policy is that none of the large four banks, that is, Commonwealth, Westpac, ANZ, National Australia, in the current circumstances will be allowed to merge. That is, that we ensure we have four strong commercial and retail banks in the Australian market competing with each other. Now, I actually think some of the competition has been very fierce, and this is what’s driving some of these acquisition strategies. But for a bank to merge or make an offer on one of the smaller banks is not in breach of the Government’s policy. It is consistent with the Government’s policy on Four Pillars and it will be handled in accordance with the tests, as I said, the national interest, prudential and competition. And we’ve got to make sure that we have competition in our markets to give benefits to consumers, and also we’ve got to an eye to the structure of the Australian financial industry taking on the world. And in world terms, some of the Australian banks want to get into international business, which from a national perspective is quite important. There are some Australian banks that now derive a large part of their income and earnings offshore, and they bring that income and earnings back into the Australian taxation system. That provides revenue for domestic services in this country and that is good for Australian taxpayers, that they’re getting those sorts of earnings into the tax system. It’s another fact that we’ll keep in mind in all this.

Thank you very much for your time.