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Indirect Tax Changes

The trend of recent Budgets which has projected increased goods and services tax (GST) collections has come to an abrupt halt – at least for the moment.

 

Citing the global financial crisis and overall economic slowdown as the main contributing factors, the Federal Government has projected GST collections to decrease by $1.3B to $43.1B in 2008/09 before stabilising in 2009/10 and then again trending upwards from 2010/11 to reach $51.8B in 2012/13.

 

Notwithstanding the budgeted reduction in collections in 2008/09, the Australian Taxation Office administration budget for overall GST administration will remain relatively unchanged in 2009/10 at $624.3M (a modest decrease of $5.5M from 2008/09).

 

There were a number of key GST changes announced in the Budget, which may be summarised as follows:

  • Amendments to the GST law dealing with the introduction of the Carbon Pollution Reduction Scheme (CPRS), in particular, ensuring that eligible international units and Kyoto units are treated as personal property rights and not real property rights to ensure overall consistency of GST treatment of such instruments;
  • Implementation of "most" (i.e. not all) of the recommendations of the Board of Taxation in relation to improvement of GST administration effective 1 July 2010;
  • Amendment of the GST law to ensure representatives of incapacitated entities are liable for GST in respect of post-appointment activities (this revenue measure has already previously been announced);
  • Amendment of the GST law in relation to its application to the domestic transport of imported and exported goods effective 1 July 2010; and
  • Extension of current indirect tax diplomatic and consular concessions.

Otherwise, the following indirect tax observations can be gleaned from the Budget:

  • No changes to Wine Equalisation Taxes (WET), other than the changes to the definition of wine (refer below);
  • No changes to Luxury Car Taxes (LCT), other than projected reduction in LCT revenue collections in 2008/09 and 2009/10 due to the economic slowdown; and
  • Amendments to the definition of beer and wine to ensure that beer and wine-based products that attempt to mimic spirit based products are subject to excise / customs duty as a spirit product, with effect from 1 July 2009.

GST – Introduction of CPRS

The Government proposes to amend the GST law to further clarify the GST treatment of the Carbon Pollution Reduction Scheme (CPRS), with effect from the introduction of the CPRS.

 

The changes are aimed at ensuring consistent GST treatment for all units recognised under the CPRS by treating eligible international units and all Kyoto units as personal property rights and not rights that meet the definition of real property under current GST law.

 

GST – Government Response to Board of Taxation Report on GST Administration

The Government has announced it will implement "most" (i.e. not all) of the Board of Taxation's (Board's) recommendations from its review of the legal framework for the administration of the GST.

 

It is anticipated that most changes will take effect from 1 July 2010.

 

The Budget was thin on detail but it did indicate the reforms would "reduce the compliance costs of the GST, achieve greater standardisation between the GST and income tax regimes, reduce anomalies and streamline the GST administrative framework".

 

The following announcements were also made within this context:

  • A Treasury review of the GST 'margin scheme' provisions and their impact on real property transactions; and
  • A Treasury review of the GST financial services provisions to determine if "reforms can be made to simplify the provisions whilst maintaining the intended effect of current policy".

With a view to reducing the number of non-residents required to register for GST, the Government has also asked the Board to review the GST law with a view to simplifying the current law and its application to cross border transactions.

 

Given the measure is expected to have an ongoing unquantifiable revenue impact, it has been expressed that it will be subject to the unanimous agreement of the States.

 

GST – Representatives of Incapacitated Entities

In a measure that has already been announced, the Government will amend the GST law to ensure that a representative appointed over an incapacitated entity is liable for, or entitled to, the GST consequences that arise from activities undertaken by the representative post-appointment.

 

The measure will be backdated to 1 July 2000.

 

Legislation to give effect to the changes has not as yet been introduced into Parliament.  It will be interesting to monitor how the amendments will deal with situations involving adjustments that arise post-appointment in relation to pre-appointment events.

GST – Cross Border Transport Supplies

The Government has announced it will amend the GST law in relation to the application of GST to activities of businesses involved in the domestic transport of exported and imported goods.

 

The measure is intended to take effect from 1 July 2010.

The changes proposed will "ease compliance costs for domestic transporters and non-residents, improve consistency in the GST treatment of postal and non-postal containerised goods, and assist sub-contracted transport suppliers with GST compliance".

 

The measure has been expressed to be subject to the unanimous agreement of the States.

 

Customs / Excise – Changing the Taxation Definition of Beer and Wine

The Government has announced it will alter the taxation definitions of beer and wine to ensure that beer and wine-based products that attempt to mimic spirit based products are taxed as a spirit under customs / excise rules, with effect from 1 July 2009.

 

The definition of beer will be changed to ensure that beer has a certain level of bitterness, and to clarify that the addition of sugar, artificial sweeteners and spirits may result in the product being taxed as a spirit based product (higher rate of excise) as opposed to a beer.

 

The definition of grape wine products will be changed to exclude products that add the flavour of any alcoholic beverage, other than wine.  Other changes to the definition of grape wine products will act to provide certainty as to the circumstances where alcohol can be added to a grape wine product so as to not affect it being subject to taxation under WET law.