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Client Update: GST announcements in the Budget

12 May 2010

In brief: The Federal Government has announced a range of GST measures in the latest Budget. They are primarily the result of various reviews arising out of the Board of Taxation's Review of the Legal Framework for the Administration of the GST. Partner Ross Stitt (view CV) looks at the key announcements which relate to the financial supply provisions, the margin scheme and cross-border transactions.

Financial supply provisions

On 12 May 2009 the Government requested Treasury to review the application of GST to financial services. That review has been completed and the Government has decided to retain the current architecture of the financial supply provisions. However, there will be changes in the following areas:

  • The financial acquisitions threshold for input tax credits will be increased from $50,000 to $150,000.
  • The treatment of hire purchase agreements will be simplified by removing the need to treat part of the supply as taxable and part as input taxed.
  • The attribution rules for hire purchase agreements for cash GST taxpayers will be aligned with those for non-cash taxpayers.
  • The special borrowing concession for input tax credit entitlement in section 11-15(5) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth.) will be amended to exclude bank deposit accounts.
  • The list of reduced credit acquisitions for which reduced input tax credits (RITCs) are available will be extended to include acquisitions related to supplies of life insurance by superannuation funds to their members and acquisitions of transactional fraud monitoring services. There will also be clarification that RITCs are available for lenders' mortgage reinsurance as well as lenders' mortgage insurance. The current 75 per cent RITC rate will be retained. There also will be changes to the reduced credit acquisition category of trustee and responsible entity services to protect the GST base.
  • There will be a technical amendment to clarify certain concepts (guarantees and indemnities).

The above changes fall well short of the type of reform discussed in the report of the Henry review. The 'key points' on financial services in that report included the statements that 'financial services should be taxed in an equivalent way to other forms of consumption' and that 'a financial services tax could replace input taxation'. Comprehensive reform of that type seems unlikely any time soon.

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The margin scheme

The application of the margin scheme has been reviewed by Treasury. As a result of that review the Government has agreed to two changes described in the Assistant Treasurer's media release in the following terms.

Restructuring the margin scheme provisions to give prominence to the main principles with exceptions set out separately and insert objects clauses for the key provisions so that the intention is clear; and

Implementing a minor technical amendment, effective from 1 July 2012, to remove an anomaly to allow and approve valuation of the land to be used for the purposes of calculating the margin on subdivided land.

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Cross-border transactions

The Government has announced that it will implement all the recommendations of the Board of Taxation from its Review of the application of GST to cross-border transactions. The reform in this area will take effect from 1 July 2012. As stated in the Budget 'the package will significantly reduce the number of non-residents who are unnecessarily drawn into Australia's GST system, through limiting the connected with Australia provisions; expanding the compulsory reverse charge provision; extending the GST-free rules for cross-border supplies; and removing the need for some non-residents to register'. These changes are welcome for anyone involved in the application of GST to cross-border transactions.

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Other announcements

The Budget also confirmed that the start date for a range of minor changes previously announced will be 1 July 2011. These include the reform of change-of-use adjustments, the clarification of the treatment of tax law partnerships, the adoption of the income tax self-assessment regime for indirect taxes and the introduction of reverse charging for supplies of going concerns and farmland.

The current mechanism for exempting Australian taxes, fees and charges will be replaced with 'a principles-based legislative exemption' from 1 July 2011.

The Australian Tax Office will receive an additional $337.5 million from the Government over four years 'to fund additional activities that promote voluntary GST compliance'. This is aimed at addressing a range of problems including fraudulent GST returns, non-lodgement of GST returns and non-payment of GST debts.

For further information, please contact:

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