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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:
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The financial
acquisitions threshold for input tax credits will be
increased from $50,000 to $150,000.
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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.
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The attribution rules for
hire purchase agreements for cash GST taxpayers will be
aligned with those for non-cash taxpayers.
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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.
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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.
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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.
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.
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.
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.
Source:
Allens Arthur Robinson,
Australia, dated
12/05/2010
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