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29 Mar 11
Impact of new GST provisions on government agencies

On 24 March 2011 a bill was introduced into Parliament proposing changes which will replace the current mechanism for determining GST payable on payments received by Australian government agencies, including local governments - from 1 July 2011, subject to transitional rules.

Currently taxes, fees and charges payable to government agencies are not subject to GST if they are specifically listed in a public Determination, as being a tax, fee or charge payment of which is not the provision of consideration (an essential element of whether a supply is subject to GST). The Determination listing the taxes, fees and charges is updated twice a year and is now over 680 pages in length.

Whilst this approach provides certainty, it is claimed that an inherent administrative difficulty with this approach is that, until such time as a tax, fee or charge is listed in the Determination, it will be potentially subject to GST.

New law

Under the proposed amendments the current system will be replaced by a self assessment system whereby Australian government agencies will be required to self assess the GST treatment of taxes, fees and charges imposed under Australian legislation in accordance with certain principles.

Under the proposed amendments:

  • an Australian tax (‘howsoever described’), and certain types of Australian fees and charges (‘howsoever described’) will not be treated as consideration and therefore not subject to GST, but
  • regulations can be made with the effect of treating a payment of Australian taxes or Australian fees or charges as consideration for a supply (and therefore subject to GST) - as well as regulations to exclude an Australian fee or charge, that would otherwise represent consideration, from being consideration for a supply (and so cause it not be subject to GST).

The definitions of an ‘Australian tax’ and an ‘Australian fee or charge’ specifically mean that descriptions (e.g. as a tax or a fee) are not determinative in analysing whether a specific payment falls within these definitions.

The discretion for regulations to determine (override) the GST treatment of payments for certain taxes, fees and charges allows for circumstances where, for policy reasons, the Government considers that GST should apply to a payment that would otherwise not be subject to GST (or cause GST not to apply to certain fees or charges).

Categories of fees and charges, which under the new laws, will not be subject to GST include:

  • fees or charges relating to the application for, the provision, amendment or retention of a permission, exemption authority or licence, such as:
    • application fees, licences or permits required by government prior to undertaking an occupation, and
    • regulatory charges imposed to undertake an activity, such as a permit for restaurants to occupy the footpath
  • fees or charges payable to an Australian government agency regarding lodgement (or accessing) documents provided under an Australian law. This would include fees and charges for searches and extracts of registers, copies of official documents, registration fees and lodgement fees for property transfers, deeds, plans and instruments.

However, consideration for commercial supplies of information, or supplies made under commercial arrangements, by Australian government agencies are intended to be subject to GST. This would include the hiring of government assets (such as office space, conference facilities and recreational halls).

Transitional provisions

The amendments will essentially reverse the underlying assumptions regarding the GST treatment of Australian taxes, fees and charges from an underlying presumption they are non-taxable, to one where they are taxable until self assessed otherwise, from 1 July 2011.

However, the amendments will not apply to the payment of an Australian tax, fee or charge imposed before 1 July 2012 if the payment is in satisfaction of a tax, fee or charge listed in the existing Determination in force on the date that the amendments obtain Royal Assent.

Actions required

Affected Australian government agencies will:

  • have until 30 June 2012 to self assess (under the new rules) existing Australian taxes, fees and charges as at date of Royal Assent, but
  • need to immediately self assess their GST obligations for any new taxes, fees and charges from 1 July 2011.

A full review of taxes, fees and charges (howsoever described) required to be undertaken by 30 June 2012 will be a significant exercise for some agencies, so appropriate planning and implementation should, ideally, occur well before 30 June 2012.

Should you require further information on the amendments or assistance with internal reviews then please contact:

Mark West on 07 3233 8871

David Marschke on 07 3233 8883

Lyndon Garbutt on 07 3233 8921.

Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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