The underlying themes of the GST announcements in the Budget are "simplification" and "clarification", which are themes which were present in the GST announcements in last year's Budget. This year's announcements consolidate the various reviews conducted by Treasury after last year's Budget in response to the various recommendations of the Board of Taxation from its review of the application of GST to various transactions.
In summary, the major GST announcements in the Budget include the following:
- restructuring the margin scheme provisions applicable to certain supplies of real property to give prominence to the main principles underlying those provisions, with exceptions set out separately and insert objects clauses for the key provisions. This restructure however is not intended to alter the current principles or objects of the margin scheme provisions. Time will tell whether this move towards a principles based approach will reduce the complexities and uncertainties of the existing provisions which have been the subject of numerous piecemeal amendments since their enactment.
- amending the financial supply provisions by:
- increasing the threshold above which registered taxpayers need to interact with the financial supply provisions (otherwise known as the "financial acquisitions threshold") from $50,000 to $150,000; and
- increasing the types of acquisitions that can qualify as "reduced credit acquisitions" to include for example, lender's mortgage insurance and transactional fraud monitoring services. However, new provisions of an anti avoidance nature will be introduced to reduce the opportunities of taking advantage of the reduced credit acquisition concession by bundling services together (such as trustee and responsible entity services).
- There is however no proposed change to the current reduced input tax credit rate of 75%.
- amending the cross-border provisions to significantly reduce the number of non residents who are unnecessarily drawn into the GST system through:
- limiting the types of supplies that would have a relevant "connection with Australia" so as to reduce the supplies made by non residents that would be subject to GST;
- expanding the reverse charge provision in respect of a supply made by a non resident so that the recipient of that supply is liable for the payment of the GST on that supply;
- broadening the GST free rules in respect of exports of goods and services; and
- removing the need for some non residents to register for GST.
- amending the GST law to replace the current mechanism for exempting certain Australian taxes, fees and charges (otherwise known as the "Division 81 Determination") with a principles-based legislative exemption.
The proposed mechanism will mean that the GST treatment of such taxes, fees and charges will not be dependent on the item being listed in the Division 81 Determination which spans nearly 700 pages, but will be determined against a set of legislative principles.
It is proposed that announcements (a) to (c) inclusive will be effective from 1 July 2012 (subject to in the case of (b) and (c), the unanimous agreement of the States and Territories), but announcement (d) will be effective from 1 July 2011. It is intended that the Government will consult further with interested parties on implementing some of the changes proposed above.