Treasury recently released exposure draft legislation regarding the GST treatment of taxes, fees and charges imposed by Australian Government Agencies. The proposed rules represent a significant change to the way such arrangements are dealt with for GST purposes by all levels of Government. Government Agencies will quickly want to understand the new GST regime in order to properly prepare for the 1 July 2011 start date.
How are Australian ta xes, fees and charges currently treated?
Under the current GST rules set out in Division 81 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), Australian taxes, fees and charges imposed by an Australian Government Agency are subject to GST, unless the particular tax, fee or charge is listed in a legislative determination issued by the Treasurer. The latest incarnation of the legislative determination is the A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2011 (No. 1), which was made on 15 December 2010 and runs to 10 volumes and approximately 680 pages. The determination is updated every six months.
The policy underlying these rules is that GST should apply to the commercial activities of all levels of government and that the non-commercial activities of government should be outside the scope of the GST.
In the 2010-11 Budget, the government announced that it would "amend the GST law to replace the current mechanism for exempting Australian taxes, fees and charges with a principles-based legislative exemption, with effect from 1 July 2011" (Budget Paper No. 2, 2010-11, page 25). The change was prompted primarily by the lack of flexibility for the Commonwealth, States and Territories to impose new charges outside of the limited timeframe for updating the legislative determination to be exempt from GST.
Treasury has now released exposure draft legislation implementing these rules.
What will change?
Under the proposed amendments, Government Agencies will no longer review the latest version of the legislative determination to determine the GST treatment of a particular tax, fee or charge. Instead, Government entities will determine the GST treatment in accordance with the basic GST rules and certain principles set out in the GST Act, as discussed below.
Australian taxes will generally not be subject to GST. However, regulations can be made that treat certain taxes as subject to GST as appropriate.
Australian fees or charges imposed by Government entities will not be subject to GST where such fees or charges are for:
- the provision or retention of a permission, exemption or licence under an Australian law;
- recording, copying, modifying, allowing access to, receiving or processing information.
Other Australian fees and charges imposed by Government entities would generally be taxable. Regulations can be made that treat certain fees and charges as taxable or exempt from GST as appropriate.
Accordingly, all Australian Government Agencies will need to determine the GST treatment of their fees and charges, that is, they will need to self-assess the GST treatment of their fees and charges.
We expect the GST treatment of a number of taxes, fees and charges will change under the new regime.
In his media release announcing the proposed amendments, the Assistant Treasurer, Bill Shorten, stated: "Introducing a principles-based model for determining which taxes, fees and charges are exempt from the GST will significantly reduce administrative costs and will provide increased certainty in relation to the GST treatment of new taxes, fees and charges".
It is difficult to agree with the Assistant Treasurer's statement that the new rules will provide increased certainty. The move from a list based approach to a principles-based approach is expected to create challenges and uncertainty as to the GST treatment of Government taxes, fees and charges that will need to be resolved by Government Agencies (including with external assistance as required). Some of the issues likely to arise under the proposed rules include whether an entity is an 'Australian Government Agency'; the distinction between an 'Australian tax' and an 'Australian fee or charge'; and the scope and application of the principles described above regarding whether Australian fees or charges are exempt from GST.
In the short term, every Government Agency will likely need to review each of their taxes, fees and charges and determine the updated GST treatment. This will probably require external advice in relation to a large number of taxes, fees and charges and, where appropriate, private GST rulings from the Australian Taxation Office should be sought. In the longer term, Government Agencies will need to develop an efficient GST review process for dealing with new taxes, fees and charges.
When do the new rules apply?
The new rules are proposed to take effect from 1 July 2011. However, there are transitional rules to the effect that taxes, fees and charges currently listed in the legislative determination will remain exempt from GST until 1 July 2012, after which the rules set out above will apply.
What should Government Agencies do?
The closing date for submissions and feedback to Treasury on the Exposure Draft legislation is 11 February 2011 and Government Agencies may wish to make such submissions, given the importance of the issue. Government Agencies at all levels of Government will also quickly want to understand the new GST regime. Given the 1 July 2011 start date, Government Agencies will want to consider the following issues:
- Whether any taxes, fees and charges subject to GST under the current rules become exempt under the proposed rules from 1 July 2011. If so, a further issue is whether such taxes, fees and charges should be included in the GST Regulations so that they continue to be subject to GST.
- Whether any taxes, fees and charges that are exempt from GST under the current rules (and are hence covered by the transitional rules) become subject to GST under the proposed rules from 1 July 2012. If so, a further issue is whether such taxes, fees and charges should be included in the GST Regulations so that they continue to be exempt.
- The GST treatment of any new taxes, fees and charges to be imposed from 1 July 2011 and, further, whether such taxes, fees and charges need to be included in the GST Regulations.
Government Agencies will want to identify those taxes, fees and charges that involve some uncertainty from a GST perspective and hence consider whether external advice and / or private GST rulings from the Australian Taxation Office are appropriate.
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This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.