"WE'VE BEEN TOLD THAT......"
DISSENTING REPORT
MINORITY REPORT OF GOVERNMENT SENATORS
Community Affairs References Committee
Government Senators do not agree with the emphasis placed on some
of the information contained in the Majority Labor Senators' report. We
therefore have provided this separate report.
1. INTRODUCTION
The Community Affairs References Committee Inquiry into A New Tax
System (ANTS) is one of three Reference Committee Inquiries
concerning various aspects of the impacts of the Government's tax reform
proposals.
This Committee's terms of reference saw submissions received and evidence
taken mainly in relation to charitable and community services.
The findings of this Committee are to be drawn on in the final Senate
Select Committee's report on A New Tax System which is due to be
presented by 19 April 1999.
2. A QUESTION OF PROCESS
The normal process for the Senate to consider legislation in detail is
to refer it to Legislation Committees. The fact that this normal process
was overturned and the ANTS legislation is before the Community
Affairs References Committee, where the Government has minority representation,
provided an early indication that of how this Inquiry would be used.
Senator Evans made the Labor Party's position clear with respect to whether
they would take into account the evidence given to the Committee when
determining the Opposition's position on the Government's tax reform proposals.
During the first Sydney hearing Senator Evans remarked:
(CA 614)
"I am a Labor Party senator. We are voting against it."
A further demonstration of Labor's predetermined position and that the
inquiry was not going to change their attitude occurred later in the day
when Senator Evans said:
(CA 846)
“Just a bit of advice for the lot of you concerned about the complexity;
just oppose a GST on everything. I find that's the easiest way!”
The Senate Inquiries on A New Tax System, while not supported
by the Government, nevertheless provided the opportunity not only for
witnesses to provide submissions and give evidence, but also for Government
Senators to provide witnesses with information about the Government's
tax reform proposals especially when it became evident that most witnesses
had based their submission on hearsay.
While the opportunity was there for witnesses, the low level of understanding
of how the GST works genuinely frustrated Government Senators. This poor
understanding occurred despite the Report of the Tax Consultative Committee
chaired by Mr David Vos being publicly available since November 1998 and
the legislation and Explanatory Memoranda being available from when they
were introduced into the Parliament in December 1998.
On too many occasions the answer to the question of whether the witness
had read the Bill was no. Instances of this include:
(CA 639)
Senator KNOWLES—Hold on. Have you read the legislation?
Ms Wannan (Convenor, National Association of Community Based Children's
Services)—I said, `No'. We do not claim to be on top of the GST.
(CA 360)
Senator KNOWLES—Mr Sutton, I have to say that your submission
has completely and utterly stumped me. Most people have come along and
said they want an extension of the GST-free status; you have come along
and said you want a restriction on it.
Mr Sutton (Federal President, Australian College of Clinical Psychologists)—We
want it open to those who provide health services.
Senator KNOWLES—Hang on. I am a bit confused, as I said.
On page 79 of the bill, psychology is included in the GST-free area.
Mr Sutton—That was not our advice from the list that was
given to us at the time of the election and from the one that is on the
web.
Senator KNOWLES—We are talking about the bill. This is an
inquiry into the bill. Have you read the bill?
Mr Sutton—Certainly not page 79, and certainly not the bill.
All our information—
Senator KNOWLES—Have you read the section of the bill that
applies to health services?
Mr Sutton—No, we have not.
(CA 554)
Senator KNOWLES—There is. Have you read the bill?
Mr Whiley (Assistant Secretary, Australian Pensioners and Superannuants
Federation) —No, I haven't. How would I get access to it?
(CA 733)
Senator KNOWLES—I look at page 3 of your submission—the
broad description of items to which GST exclusion is recommended. All
those items under goods and services are, in fact, GST free in the legislation.
Mr Christensen (Vice President, Administration, Better Hearing Australia
Inc.)—Thank you. If you are, in effect, saying, `Why did we put
in the submission because these items were not covered?' we had the Vos
report to work on. I personally have not seen the draft legislation so
I would be highly delighted, as would the organisation, if in fact we
do not need to go much further than these goods and services will be exempted.
In other cases there was a limited understanding of fundamental concepts
of the GST, for example how input credits work and what is GST-free. Compliance
and administrative requirements were also commonly overstated.
For example, the Australian Consumers Association (ACA) demonstrated
a surprising lack of understanding of how the GST works. In their submission,
the ACA stated
As discussed on page 14, the effect of a WST is not to increase prices
by the amount of the tax (10% was used in our example). Rather, this amount
is added and a retail mark up based on this new figure is charged. Where
inputs are subject to a WST this increase is passed all along the line.
ACA fears that not only will a cascade effect continue to occur, because
of the use of a value added tax (VAT) to implement a goods and services
tax but that price adjustments will be made on the inflated retail price,
rather than the wholesale cost. This is a further reason why ACA believes
the Senate Committee should explore the introduction of a broad based
consumption tax (BBCT). By introducing a BBCT, the `cascade effect' is
eliminated, reducing the impact on prices of value adding.
Government Senators note that the GST is a broad-based consumption
tax and that because input tax credits are available throughout the chain
of production, the cascade effect is eliminated.
Some witnesses also appeared disinterested in using the Inquiry as an
information gathering exercise. The following extract from evidence refers:
(CA 906-907)
Senator KNOWLES—I only have one question to Mr Weissmann.
Why is it that you are making the statement that banking and finance sectors,
mining corporations, agribusiness and tourism industries are going to
totally escape the tax obligation, when they will all be paying GST right
the way through their whole process? I take just one instance. The banking
and finance sectors will not charge a GST to you or anybody else, but
they will pay GST right the way through the system. The other corporations
too will be paying tax right throughout the system and collecting it back
and paying the tax at the end of the day. Why is it that your document
here says that they will totally escape the tax obligation, when it is
completely the reverse?
And in response to a further comment from Mr Weissmann:
Senator KNOWLES—Can I explain to you what the exemption means?
The exemption for a bank means that they do not charge you GST, but they
pay GST on everything else themselves. If you would prefer them to charge
GST on top of it, that might be something that can be considered. But
they are actually charged and pay GST right throughout their system. So
I think you have a misunderstanding of what exemption means. They are
not exempt from GST at all. Banking and finance institutions claim that
they have the worst end of the stick because they cannot claim any input
taxes back.
Mr Weissmann (Supporter, Adelaide Day Care Centre for Homeless Persons)—I
see. So in that respect I stand corrected, but then—
and later
Miss Vandersman (Coordinator, Adelaide Day Care Centre for Homeless
Persons)—We have not actually come here to hear your explanations.
We have come here to express what our clients need us to express.
Government Senators were concerned about these continuing misunderstandings,
noting that they were also evident in submissions to the Tax Consultative
(Vos) Committee and also noting that the Government had undertaken a significant
effort in briefing community sector organisations.
The report of the Vos Committee (p 17) had this to say:
Therefore, integral to understanding not only the Committee's recommendations,
but also the process of reasoning that led the Committee to those recommendations,
is an adequate understanding of both the proposed GST and the wholesale
sales tax system (WST) it replaces. The Committee considers this to be
important given the number of submissions that appear to have had difficulty
in grasping aspects of the proposed GST that are crucial in understanding
its impact on GST-free activities.
Many submissions were confused about what being `GST-free' entails. They
approached it from a WST mindset, where purchases by an exempt body (such
as a non-profit school, university, public hospital or a public benevolent
institution) are exempt from WST, rather than from a GST perspective where
all purchases are GST-inclusive and then creditable to the registered
purchaser.
To enhance understanding of the Committee's recommendations, the Committee
considers it necessary to briefly outline the structure of the GST and,
in particular, how the GST-free treatment of supplies of goods and services
actually works.
The report then went on with an outline of how the GST works.
Rather than witnesses relying on primary sources, it appeared that much
of the evidence exhibited a common thread of “we've been told that
” or “we read somewhere”, “our unions members have
said that…”, “our financial advisers have said”, “someone
mentioned to me that that is how it would work” etc.
The evidence was littered with assertion rather than analysis and such
“evidence” forms the basis of much of the Committee's report
without any analysis of whether the claims are accurate. For example,
the box on page 4 of the Committee report includes a wildly inaccurate
claim by St Vincent de Paul about the price impact from the GST package
which then forms the basis for inaccurate cameo results of the impact
of the GST. Witnesses appearing for St Vincent de Paul admitted in evidence
to the Select Committee that they were a "bunch of amateurs"
(Select Committee Evidence page 270) and Professor Harding saying "I
would assume that there would be question marks about the reliability
of the data" (Select Committee Evidence page 222).
As a result, Government Senators have not put their names to the Committee
report. We consider that the best approach is to set out the facts in
relation to the GST so that the witnesses and other interested readers
have an additional resource for information on the Government's tax reform
proposals.
The position of the charitable sector after tax reform
In A New Tax System, the Government has recognised the special
role of the charitable sector by making it clear that non-commercial activities
of charities will be GST-free.
Many witnesses and Opposition Senators chose to compare ANTS with
the systems of the United Kingdom and Canada without knowing how vastly
Australia's system will differ.
The Government's approach contrasts starkly with the approach in the
United Kingdom and Canada, where, while some activities undertaken by
charities are GST-free, most of their activities are input-taxed. This
gives rise to added complexities for these organisations, something the
Government wanted to avoid in Australia's case. It also results in genuine
charitable activities being input taxed and not GST-free as is proposed
in Australia.
In the UK, welfare activities for example, such as the provision of care
and treatment for the elderly, sick, distressed or disabled or the protection
of children is input taxed (unlike Australia, where these activities will
be GST-free). Within this input taxation, further complexities arise as
some limited supplies to charities are GST-free, such as printed advertisements
(but not including supplies of printed matter such as Christmas cards),
advertisements on TV and radio, but only in respect of the cost of broadcasting
and not the cost of making the advertisement.
However, supplies to charities such as computers, furniture, stationery
and fuel, for example, will be subject to VAT and will not be eligible
for input tax credits. In addition, the treatment of fundraising events
adds even more complexity. Events such as fetes, balls, gala shows or
similar performances are input taxed, but only in cases where they satisfy
certain conditions such as ensuring a certain time between successive
events.
Canada also input taxes most activities of charities. In both Canada
and the UK, their systems will result in genuine charitable activities
(such as looking after the sick or needy) being input taxed, whereas in
Australia the Government proposes they be GST-free, whilst the commercial
activities of such bodies will be subject to GST.
Coalition Senators consider the Government's approach to the GST treatment
of charities provides a simple and fair system that ensures genuine charitable
activities are GST-free but also that charities do not get an unfair price
advantage over businesses through poorly targeted concessions. The Government
also wants to ensure the system is simple for charities to administer
and that they can benefit, where possible, from obtaining input tax credits.
In Australia, charities who register for GST will be able to claim input
tax credits for GST paid on all their inputs, and will only be required
to charge GST on goods and services sold at a commercial price. Goods
and services sold at non-commercial rates will be GST-free.
Non-commercial activities are:
- supplies that are less than 50 per cent of the market value; or
- supplies that are less than 50 per cent of the cost to the charity
of providing the supply; or
- supplies of donated second hand goods.
The GST legislation provides for this concession being available to all
income tax exempt charities. This was a recommendation of the Vos Report
and represents a broadening of policy since the ANTS document,
released in August 1998, which applied the concession only to entities
eligible for income tax deductibility.
The commercial activities of charities should be treated the same as
commercial activities of ordinary businesses to ensure ordinary businesses
aren't put at a competitive disadvantage.
Charities will be entitled to register for GST which will mean they will
be able to claim back the GST paid on all their inputs as input
tax credits.
Before going into a case study to address several common issues which
were raised with the Inquiry, the basic concepts of the GST as they applied
to the charitable sector appeared not to be understood. Government Senators
therefore include as an Attachment an extract from the Vos Report which
outlines the mechanics of the GST.
A particular issue was that of input tax credits and the following short
extract from the Vos Report addresses the key concepts.
Input tax credits
A common misunderstanding was that eligibility for credits was dependent
upon the input being used in a GST-free activity. The Committee has been
advised that entitlement to input credits under the proposed GST arises
from the fact that a registered entity has purchased goods or services
for use in their activities irrespective of whether they are linked
to any sales. For example, the GST included in the price of goods and
services purchased by a university for the purposes of research where
no goods or services end up being sold, will be creditable to the university.
That is, the Committee has been advised there is no requirement that inputs
be traced through to outputs and credits claimed accordingly. A registered
entity will simply be entitled to a credit for the GST paid on all their
inputs within a particular tax period and be liable for GST on all their
taxable sales in that period. This will mean that entities carrying on
largely GST-free sales within a particular period will be in a refund
position. (Vos Report, p19)
With respect to issues raised by charitable bodies, Government Senators
have decided that a case study may be the best way to explain the nature
of how the GST applies. The National SIDS Council of Australia (submission
365) raised several common issues and provides a good vehicle to explain
some basic GST concepts.
Medical Appliances and aids
In its submission, the SIDS Council stated that for families who have
a child die of SIDS the availability and use of Sleep Apnoea Machines
is vital. The definition used to decide which medical aids and appliances
are GST-free should be broadened to encapsulate equipment which may be
used for preventative reasons.
In evidence given in Adelaide, the SIDS Council stated:
(CA 954)
Mrs Weber—Our advice was actually that they would not be
GST free because of the way we use them, because often these babies are
not at medical risk. There is nothing wrong with the infants that are
quite often being monitored. It is the parent's anxiety. So, therefore,
that is a little bit different from an aid that is needed to save lives.
Senator GIBBS—Senator Knowles, I think the witness is talking
about these devices as a preventative measure: would the GST free include
that?
Senator KNOWLES—What I am saying is that they are listed
in there as a medical aid, and that is the way in which they are purchased
as a medical aid. I cannot for one moment imagine that, when there is
a medical history of SIDS in the family—as you say, with a subsequent
child—they would say, `Oh, well; sorry, no; you have now got to pay
a GST on that machine.' It is listed as a medical aid. All I can say is
that it has been specifically listed.
The policy position is that sleep apnoea machines are listed in Schedule
1 of the GST Bill and are therefore GST-free. Items listed in Schedule
1 of the GST Bill are GST-free irrespective of who purchases them. For
example, if a sleep apnoea machine was purchased for preventative care
purposes by a private individual it would be GST-free in the same way
if purchased by a hospital.
Services Supplied by Charities at Nominal or Non-Commercial Rates
The SIDS Council stated that services supplied by charities at nominal
or non-commercial rates should be GST-free.
The policy position is that non-commercial supplies of goods and services
by charities is GST-free.
Sponsorships Being Subject to GST
The SIDS Council stated that sponsorships supporting charities and charitable
work should be GST-free.
The Government's policy position is that sponsorships are subject to
GST.
The following extract from the Vos Report provides a useful analysis
which underlies the policy approach:
Sponsorships in the usual sense are payments for services. That is, sponsorships
are payments in return for the service of advertising or other benefits.
However, because a sponsorship transaction will typically take place between
two registered entities, the impact of the GST will net out as in the
example above. That is, if a business sponsors a charity then the charity
will need to remit GST on the amount of sponsorship provided. But the
business will get a credit for that amount. So if the sponsorship was
worth $10,000, the business would pay $11,000, the charity would pay $1,000
tax, and be left with $10,000. The business would be entitled to a credit
of $1,000 and so be in the same position as if they had provided sponsorship
of $10,000 pre-GST.
A number of submissions from charities wanted sponsorships in the charitable
sector to be GST-free. However, this would provide an incentive for business
to direct its advertising through charitable entities. The concern of
the charitable entities seemed to rest on a belief that if GST was payable
on sponsorship, then the attraction of using the charity as an advertising
vehicle would be reduced. This, however, is incorrect. All sponsorships
will be subject to GST, and so the GST will not affect the attractiveness
of using a charitable entity as compared with another entity. Moreover,
the net financial position of the sponsor will not be affected because
the transactions will be taking place between two GST-registered entities.
(Vos Report, p 74).
Fundraising activities are subject to a GST
The SIDS Council stated that fundraising activities should be GST-free.
The Council believed Red Noses would be subject to GST.
The policy position is that donations to non-profit organisations do
not give rise to any GST liability. This is so even when something is
given in return like a red nose on SIDS day or a poppy on ANZAC day provided
it is something of insubstantial value.
This was made clear at the hearings in Adelaide:
(CA954-955)
Senator KNOWLES—…The concerns you have raised, from
the position where you sit, are very understandable vis-a-vis some of
the issues that have been raised by some of the others simply as red herrings
and to be quite misleading, but I would in all seriousness recommend a
copy of the legislation and the explanatory memorandum. Some of these
issues I think you will find will in fact be very much clarified for you.
Fundraising, for example, on your Red Nose Day—the red noses are
not competing commercially. It is like going out and selling a red nose
or a poppy on Armistice Day or whatever. That is not competing on a commercial
level so they are already GST free and that is in the bill as well.
Mrs Weber—What about the actual product? The information
we were given is that we, not the end user, would pay it on the purchase
price of the product. We do not currently pay it because they consider
it a useless item. At manufacturing level, would we pay a GST?
Senator KNOWLES—Any GST that you paid would be completely
reclaimable, so at the end of the day you would not be incurring the embedded
and input taxes that are currently in the production of red noses. See,
there are all the input taxes in it already—
Mrs Weber—Sure, I understand that.
Senator KNOWLES—which you currently pay and do not get back.
What you will actually get under this system is all of those back, plus
you will not charge a GST to the end user.
So, rather than the claim by SIDS that there will be a reduction in money
raised by SIDS from Red Nose Day, the actual situation will be that the
cost to the SIDS Council of the red noses will decrease as a result of
the removal of direct and embedded WST; SIDS would be able to claim input
tax credits to offset the GST liability on their purchases; and the donations
in return for the red noses will be GST-free.
Membership Fees not always subject to GST
The SIDS Council stated that nominal membership fees should be GST-free.
The government's policy is that, generally, membership fees are payments
in return for services and therefore consistent with general GST policy
should be subject to the GST.
However, where membership of a charity falls within the definition of
a non-commercial supply (less than 50% of the market value of the provision
of the goods and services received) it will be GST-free. For example,
if a member of a SIDS organisation is entitled to counselling services
and the membership fee is less than 50% of the commercial value of the
counselling, the membership fee will be GST-free.
When made aware of this, the Chair of the References Committee seemed
less interested in the fact that Government Senators were explaining how
the provisions of the Bill worked and more concerned that Labor Senators
had not understood the issue. In the Hobart hearing the following exchange
occurred:
(CA 1111)
Senator ABETZ—…In relation to sponsorships, that is
in effect advertising. While GST will be charged, it will be fully rebatable.
Therefore, if somebody who wants to sponsor the MS Society for $100, he
might have to pay $110, but when he does his tax return he will get that
$10 back. So at the end of the day, your sponsorships are still perfectly
safe and you do not have to worry about that.
In relation to membership of larger organisations, they will attract
the GST if there is a commercial value to them. So for membership of a
chamber of commerce and industry, commercial value GST will apply. But
to a community organisation where basically you do not have a commercial
value attached, but it is more a token gesture of support for which you
get a newsletter in return, or something like that, as I understand it,
there is no GST.
That may allay some of your fears, but I would like to have further discussions
with you in due course.
CHAIR—What you are saying now, Senator Abetz, is certainly
a significant move from what we have been told before. If you are going
to advise witnesses of any changes to, or new understandings of, the impact
of the GST on charitable and benevolent organisations, I would very much
appreciate it if the committee could be provided with that information
too. Could you agree to do that?
And later
(CA 1116)
Senator ABETZ—Very quickly: it was suggested that the term
`non-commercial' for charities had just come up. I refer to page 92 of
A New Tax System (Goods and Services Tax) Bill 1998, where subdivision
38-F reads, in part:
Subdivision 38-F—Non-commercial activities of charitable institutions
etc.
38-250 Nominal consideration etc.
(1) A supply is GST-free if:
(b) the supply is for consideration that is less than 50% of the GST
inclusive market value of the supply.
So if you have got a nominal membership fee for which you get a newsletter,
which usually costs more than the membership, the membership will in fact
be GST-free. That was in the bill, and it is a shame that people who profess
to make comments on the public record have not even got to page 92 of
the bill.
Mr Carter—Senator, I could get to that page and, in fact,
I quoted those—
Senator ABETZ—No, I am not talking about you. I am talking
to the person sitting on my right.
CHAIR—I am glad you thought it might have been you, Mr Carter.
Feel free, what were you going to say?
Mr Carter—I was just saying that I have actually quoted that,
in my paragraph halfway down the second page, where I said: ...at a cost
50% below commercial rate, that is, supply for nominal consideration ...
Senator ABETZ—It is good to know that you knew about the
non-commercial activities of charitable institutions.
Government Assistance for GST start-up costs
The SIDS Council stated that the charitable sector should be eligible
for financial assistance to compensate for GST start up costs.
The Government's policy position is that GST startup costs born by charities
are a legitimate call on the $500 million being made available to assist
small and medium enterprises.
Another issue on which considerable evidence was received was the Government's
proposal to cap the existing open-ended FBT exemption at $17 000 grossed
up taxable value.
Fringe Benefits Tax proposals
An FBT exemption currently applies to fringe benefits provided by public
benevolent institutions (PBIs), including public hospitals, to their employees.
Government Senators have noted that the Treasurer, in correspondence
to ACROD, stated that the Government is mindful of the fact that the majority
of eligible employers do not abuse the current FBT exemption (CA pp303-304).
Nonetheless, the fact that the concession is open ended leaves it vulnerable
to abuse through salary packaging arrangements. Coalition Senators are
also aware that the Government has received representations from charitable
organisations acknowledging that abuse of the FBT concession is currently
occurring in certain areas.
The proposed $17,000 grossed up taxable value cap will allow FBT exempt
organisations such as charities and public hospitals to retain concessional
FBT status, while at the same time removing the scope for its abuse.
The taxable value cap is broadly equivalent to the taxable value of an
average Australian car plus some additional minor benefits. The cap will
not include benefits that are exempt or not classified as benefits under
the Fringe Benefits Tax Assessment Act - for example, superannuation.
Government Senators note that the Opposition adopted the same FBT-capping
measure in its pre-election tax package. We assume on this basis that
Opposition Senators support the cap because it will allow eligible employers
to provide an employee with fringe benefits up to $17,000 of grossed up
FBT taxable value without incurring any FBT liability. This means that
PBIs will be able to retain a cost advantage in terms of their ability
to recruit and retain qualified staff.
4. LOCAL GOVERNMENT
Funding of Local Government
Funding for local government has traditionally come from both Commonwealth
and State governments. The Government's tax reform proposals mean that
the Commonwealth will no longer need to provide general purpose assistance
to local government.
The States will be provided with all GST revenue and as a result be required
to maintain funding to local government at least equal to the amount local
government now receives under the financial assistance grant arrangements,
adjusted each year for population and inflation movements.
Savings to local government
Whilst local government is currently exempt from wholesale sales tax
(WST), many goods purchased by local government have WST embedded in their
prices. The abolition of the WST will remove these costs to local government.
Local government is expected to benefit by around $70 million each
year by not paying WST embedded in the products it buys. Local government
will also benefit from the lower tax burden on diesel.
Inequitable treatment compared with charities
The Labor Senator's report claims that local government “charitable
services” are discriminated against under the tax reform legislation
compared with those of charitable organisations. Such an inequity does
not exist.
Section 38-30 of A New Tax System (Goods and Services Tax) Bill 1998,
entitled “Community care etc, states:
(1) A supply of community care is GST-free if community
care subsidy is payable under Part 3-2 of the Aged Care Act 1997
to the supplier for the care.
(2) A supply of care is GST-free if the supplier receives
funding under the Home and Community Care Act 1985 in connection
with the supply
(3) A supply of community care is GST-free if the supply
is of services:
(a) That are provided to one or more aged or disabled people; and
(b) That are of a kind covered by item 2.1 (daily living activities assistance)
of Part 2 of Schedule 1 to the Quality of Care Principles.
(4) A supply of care is GST-free if:
(a) The supplier receives funding from the Commonwealth, a State or a
Territory in connection with the supply; and
(b) The supply of the care is of a kind determined in writing by the
Aged Care Minister to be similar to a supply that is GST-free because
of subsection (2).
The legislation therefore provides no disadvantage for local government
in providing community care services compared to charities. Where the
supply of care is of a kind determined in writing by the Aged Care Minister,
the supply will be GST-free whether provided by a charity or a local government
body.
The definition of community care includes such things as prepared food
(for example, meals on wheels) home maintenance, personal care assistance
and respite care.
5. THE HEALTH SECTOR
Government Senators consider that the coverage of GST-free treatment
for the health sector is both comprehensive and fair.
Health and medical services
This was an area where many interested parties were totally unaware of
the comprehensive provisions contained in the Bill and the ministerial
power to add more appliances and services if necessary.
The Vos Committee recommended that GST-free treatment should apply to:
Clinically relevant health services provided by a registered medical
practitioner (as defined in section 3 of the Health Insurance Act 1973).
- Including those services provided on behalf of a medical practitioner
such as nurses, audiologists, radiographers as outlined in paragraph 12.2
of the Medicare Benefits Schedule and section 3AA of the Health Insurance
Act 1973).
- Excluding certain medical procedures (primarily cosmetic surgery
such as tattoo removal) specified in paragraphs 13.2.4 and 13.1.2 of the
Medicare Benefits Schedule.
The Bill provides for GST-free treatment for all health services listed
in the following table:
| Health services |
| Item |
Service |
| 1 |
Aboriginal or Torres Strait Islander health |
| 2 |
Audiology, audiometry |
| 3 |
Chiropody |
| 4 |
Chiropractic |
| 5 |
Dental |
| 6 |
Dietary |
| 7 |
Nursing |
| 8 |
Occupational therapy |
| 9 |
Optical |
| 10 |
Osteopathy |
| 11 |
Paramedical |
| 12 |
Pharmacy |
| 13 |
Psychology |
| 14 |
Physiotherapy |
| 15 |
Podiatry |
| 16 |
Speech pathology |
| 17 |
Speech therapy |
| 18 |
Social work |
Source – A New Tax System (Goods and Services Tax) Bill 1998,
Section 38-10
Hospital services
In relation to hospital services, A New Tax System (Goods and Services
Tax) Bill 1998 reflects the Vos Committee recommendation that
GST-free treatment should apply to:
· Public hospital services as defined in the Australian Health Care
Agreements 1998-2003 (and subsequent agreements) between the Commonwealth
and States; or replacement agreements, except for those services defined
under paragraphs 13.2.4 and 13.1.2 of the Medicare Benefits Schedule;
and
· Hospital treatment as defined in section 67 of the National
Health Act 1953 delivered to private patients (whether covered
by private health insurance or self-insured) by a private hospital (as
defined in subsection 3(1) of the Health Insurance Act 1973)
or by day hospital facility (as defined in subsection 4(1) of the National
Health Act 1953) except for those services defined under paragraphs
13.2.4 and 13.1.2 of the Medicare Benefits Schedule.
· GST-free treatment also extends to goods provided as part of the
service and administered on the premises where the service is performed.
Medical appliances and aids
The Vos Committee recommended a list of appliances and aids that should
be given GST-free treatment where they are specifically designed for people
with an illness or disability and are not of a kind ordinarily used in
the wider community.
The Government's legislation actually broadened the list recommended
by Vos, and the Schedule to the Bill is at attachment 1.
Drugs and medicines
The Government's legislation adopted the Vos Committee recommendations
that GST-free treatment apply to:
· drugs and medicines that can only be provided on prescription
(S4 and S8 items on the Standard for the uniform scheduling of drugs and
poisons);
· drugs and medicines that can only be sold within a pharmacy under
the advice of a pharmacist (S3 on the Standard for the uniform scheduling
of drugs and poisons); and
· Schedule of Pharmaceutical Benefits (PBS) and Repatriation Schedule
of Pharmaceutical Benefits (RPBS) products provided on prescription.
Th GST-free treatment of S3 items represented an extension of the policy
as announced by the Government in the ANTS policy document released
in August 1998.
With respect to over-the-counter medicines, the Government agreed with
the Vos conclusions that they should not be GST-free. The following extract
from the Vos report refers:
The most crucial issue for the Committee was to determine the treatment
of over the counter (OTC) non-prescription drugs and medicines.
As laws currently stand, prescription drugs can only be sold through
pharmacies. Most drugs that are scheduled on the PBS and RPBS are prescription
only drugs. However, there are some OTC drugs that appear on the PBS and
RPBS schedules. (for example, a commonly used pain reliever is an OTC
product that also appears on the PBS and RPBS schedules). For the reasons
outlined below, the Committee is of the view that if GST-free treatment
were to be extended generally to OTC drugs, this would add complexity
by imposing a burden on general retailers, requiring them to separately
account for sales of these products.
These same issues were considered by the Committee in determining GST-free
treatment for medical appliances and aids. On that occasion, the Committee
considered that the small number of retailers and small number of qualifying
goods, would make the compliance burden for business manageable. However,
in the case of OTC drugs, the large number of potential retailers and
goods would make the compliance burdens much more significant. (Vos report,
p 37)
6. AGED CARE AND DISABILITY SERVICES
A large amount of evidence was received by the Committee by groups representing
the aged care and disability service sector. Many of these groups were
supportive of tax reform, for example:
(CA 634)
Mr Denys Correll, National Executive Director, Council on the Ageing
(Australia), said, To clarify our position, we have not opposed tax
reform. That is quite clear. We have said that is necessary.
Residential Care
Residential care involves the provision of personal and/or nursing care
and related services in a setting owned or managed by the organisation
providing that care.
Tax Reform: not a new tax, a new tax system (ANTS) stated that:
Health care provided at…nursing homes, hostels and similar establishments
will be GST-free. The concession will extend to accommodation, drugs,
dressings and meals supplied to …nursing home residents in the course
of their…care.
Supplies of items not related to health care…will be taxable in
the normal manner.
The precise scope of health services for the aged that will be GST-free
will be the subject of consultation following the election.
The Vos committee made the following recommendations, all of which were
accepted by the Government and are reflected in the legislation before
the Senate.
· The supply of goods and services listed in the Quality of Care
Principles (subordinate legislation to the Aged Care Act 1997)
and provided by `qualifying institutions and projects' should be GST-free.
- Goods and services listed under the Quality of Care Principles are
broad ranging and include accommodation and maintenance of buildings and
grounds, personal care services, treatments and procedures, recreational
therapy, a limited range of furnishings, and bedding. These services do
not include additional items such as television hire and hair dressing.
· Qualifying institutions and projects are those:
- Funded under the Aged Care Act 1997.
- Funded under the Disabilities Services Act 1986 or complementary
State or Territory legislation.
- Funded privately, but assessed by the Commonwealth as providing services
similar in nature and objective to Aged Care Act 1997.
- Funded under annual appropriations through the Health and Aged Care
and Family and Community Services portfolios or equivalents in the States
and Territories, and approved as providing services similar in nature
and objectives to facilities funded under the Aged Care Act 1997.
Community Care
Community care involves the provision of personal and/or nursing care
and related services to an aged and/or disabled person, residing at home.
Services can be funded under a number of government programs, of which
programs funded under the Home and Community Care Act 1985 are
the most well known, or purchased directly through the private market.
ANTS stated that:
`Nursing home services provided to the elderly in their own home, including
Home and Community Care (HACC) services, will be treated in the same manner
as if the person had been resident in a nursing home.'
The Vos Committee recommendations that GST-free treatment should apply
to the following items were accepted by the Government and are reflected
in the legislation:
- services funded under the Home and Community Care (HACC) program;
- services provided to a person residing at home under the Aged Care
Act 1997;
- services provided to a person residing at home and funded under the
Health and Aged Care or Family and Community Services portfolio and approved
as being similar in nature and objectives to HACC services;
- services provided to a person residing at home and funded through State
and Territory budgets and approved as being similar in nature and objectives
to HACC services; and
- daily living activities assistance services purchased from the private
market, as set out at item 2.1 of Schedule 1 of the Quality of Care
Principles and provided in the person's own accommodation.
Retirement Villages
Residents of retirement villages with higher care needs, such as assistance
with daily living activities (e.g. assistance with bathing, personal hygiene,
continence, eating, dressing, moving and communication) and nursing care
will receive most services including meals GST-free.
- These higher care needs are specifically catered for by well defined
services under items 2.1 and 3.8 of parts 2 and 3 respectively of Schedule
1 of the Quality of Care Principles.
To allow all retirement village residents to receive meals GST-free would
discriminate against the elderly with low level care needs (i.e. not receiving
meals as part of a GST-free community care service) who remain in their
own homes. It may also allow retirement complexes to provide GST-free
meals to a wide section of the community, rather than targeting those
with a need for a certain level care.
The issue of the treatment of retirement village maintenance fees under
the GST was also raised. Government Senators have ascertained that the
treatment is as follows:
Retirement villages provide accommodation and other services to residents
under two scenarios:
- `loan licence' or `lease' arrangements; or
- freehold title to the units they occupy.
Under the `loan licence' or `lease' scenario, the retirement village
owners would not charge GST for charges that are effectively rental payments
and would not claim input tax credits for inputs used to provide the accommodation.
Input taxation would apply to weekly/monthly maintenance fees to the extent
that the components of the fees can be characterised as part of a rental
charge.
For example, while a charge to cover local government rates or repairs
to the unit would normally be considered a part of rent, a charge for
electricity use, laundry services or for meals in a common dining area
would not.
As the recovery of government rates would be regarded as part of the
rental charge, the GST-free treatment of government rates would effectively
be passed through to the retirement village residents. Although the recovery
of water and sewerage rates would not normally be regarded as part of
the rental charge, the supply of water and sewerage is GST-free in any
case.
Under the freehold title scenario, services received by residents would
be taxed in the same way as body corporate fees. Where the residents have
freehold title the services would be akin to services provided by a body
corporate and taxed accordingly. In these cases the government rates notice
would normally be issued directly to the unit owner and no GST would apply.
Carers
Most of the services that are important to carers will be GST-free. These
include Home and Community Care and disability community support services
– for example, home nursing, personal care, home help, delivered
meals, day care, home maintenance and modification, and transport services.
Home and Community Care services, Community Aged Care Packages and Extended
Aged Care at Home Packages will be GST-free. These services are provided
through government programs to older people and younger people with disabilities
so that they can stay in their own homes instead of having to move into
a nursing home or hostel. Similarly, disability community support services
provided under State government legislation will be GST-free.
Carer Resource Centres do not charge for their services and the GST will
not affect this.
To ensure that all Australians benefit from the new tax system, a range
of government assistance payments will be increased by 4% from July 2000.
This includes the Child Disability Allowance (to be called Carer Allowance
from 1 July 1999).
Compliance Costs/Cash-flow Effects of GST
The Government has acknowledged that there will be some start up cost
associated with complying with the GST. These costs include ensuring that
accounting processes are compatible with GST requirements and becoming
familiar with GST return forms.
These costs may vary among organisations. Some organisations may simply
need to activate a GST module on their existing accounting software. Other
organisations may have to revise their accounting procedures.
The Government is providing $500 million of financial assistance, which
will be a significant offset against the start-up costs.
Medical Aids and Appliances
The Committee also heard evidence on the issue of the treatment of medical
aids and appliances under tax reform. Much support for the Government's
proposals was again received, and any opposition again stemmed from a
lack of understanding of the witnesses rather than a deficiency in the
proposal. This fact is well demonstrated by the evidence of Mr Rex Christensen,
Vice President, Better Hearing Australia Inc:
(CA 733)
Senator KNOWLES—I look at page 3 of your submission—the
broad description of items to which GST exclusion is recommended. All
those items under goods and services are, in fact, GST free in the legislation.
Mr Christensen—Thank you. If you are, in effect, saying,
`Why did we put in the submission because these items were not covered?'
we had the Vos report to work on. I personally have not seen the draft
legislation so I would be highly delighted, as would the organisation,
if in fact we do not need to go much further than these goods and services
will be exempted.
There are many medical appliances and aids that are used by people with
disabilities in the community. Generally, most of these items are only
of benefit to people with specific disabilities and needs. However, there
are many products that may be of benefit to both people with disabilities,
as well as having uses in the wider community.
The Vos Committee decided that defining a list of appliances that would
be GST-free was the most effective way to implement the intent of the
policy and recommended that the following appliances and aids be given
GST-free treatment where:
· they are specifically designed for people with an illness or disability;
and
· are not of a kind ordinarily used in the wider community.
This approach was adopted in the legislation and the schedule to the
GST Bill outlining the GST-free medical aids and appliances is at Attachment
1.
7. CHILD CARE
Again in the area of child care many groups displayed little understanding
of the Government's tax reform proposals, and in particular, the legislation,
as illustrated by Ms Lynne Wannan, Convenor, National Association of Community
Based Children's Services:
(CA 733)
Senator KNOWLES—Hold on. Have you read the legislation?
Ms Wannan—I said, `No'. We do not claim to be on top of the
GST.
Childcare provided at recognised facilities will be GST-free. That is,
childcare provided at facilities that receive Commonwealth Government
funding, or where the parents qualify for a government childcare payment
(such as the use of recognised home based childcare), will be GST-free.
The GST-free treatment will apply to such services as long day care,
short care (before and after school), family day care, and occasional
care.
If a childcare provider charges for things which are directly related
to the provision of childcare, then these items will be GST-free. Such
items will include things like food and nappy cleaning charges.
The cost of recognised childcare will not rise. In fact, lower industry
costs should see the cost of recognised childcare fall marginally.
Childcare provided at non-recognised facilities (baby sitters, play centres,
holiday camps, sporting and craft programs) will be subject to the Goods
and Services Tax (GST). Non-recognised facilities are those that do not
receive government funding, or where the parents do not qualify for a
government childcare payment.
In practice, the GST will not apply to many of these services because
the providers will be below the GST registration threshold ($100,000 annual
sales for non-profit bodies and $50,000 annual sales for other businesses).
CONCLUSIONS
The Government's tax reform plans were comprehensively put before the
Australian public in August 1998 in the policy document Tax Reform:
not a new tax a new tax system (ANTS).
Implementation of the Government's policy will see:
· Personal income tax cuts totalling $13 billion a year providing
a 30 per cent marginal tax rate for over 80 per cent of taxpayers
· Increased family assistance to low and middle income earners
· Increased pensions and government benefits
· $10 billion a year of embedded taxes being removed from business
· GST-free treatment of health, education and non-commercial charitable
services
With respect to the GST-free areas, the Tax Consultative Committee made
recommendations as to their scope after the election and the Government
adopted the recommendations or took a more generous approach in its legislation.
Government Senators were genuinely frustrated by this Community Affairs
References Committee Inquiry because from the outset it was apparent that
Labor Senators had a fixed position with respect to the Government's tax
reform proposals without any alternative policy proposals.
Many witnesses and submissions also appeared to rely on assertion and
anecdotes ("…I've been told that …") rather than primary
sources like the legislation and explanatory memoranda which have been
public since December 1998. This situation has lead Government Senators
to place little store in the claims and conclusions of the Labor Senators'
report which arise in many cases from evidence containing inaccuracies.
This Inquiry has largely focussed on charities and not-for-profit welfare
organisations who provide essential services to the community in areas
ranging from personal care to emergency accommodation and providing food
and clothing. While some submissions and witnesses raised issues relating
to compensation and whether or not food should be subject to GST, Government
Senators consider these issues are being addressed in more detail in the
Senate Select Committee and are therefore not addressed in this Government
Senator's report.
Government Senators recognise and value the services that charities and
public benevolent institutions provide, noting that while government funding
is provided to the community sector, the community based organisations
raise considerable funds and deliver the vast majority of services.
Recognition of the sector has also occurred in the Government's tax reform
proposals because the non-commercial activities have been accorded GST-free
status. That is, no GST is paid on purchases by a registered charity and
there is no GST charged on the non-commercial services provided by charities.
Against this background, the following conclusions are made by Government
Senators:
Charities
GST-free treatment of the non-commercial activities of charitable institutions
is generous by international standards and will see the running costs
of the sector fall due to the industry cost reductions in the Government's
tax package.
The FBT exemption cap of $17 000 of grossed-up taxable value per employee
is a fair approach which allows the PBI sector to maintain an employment
cost advantage while removing the scope for abuse. Government Senators
note that the FBT cap was also part of the ALP policies at the last election.
Local Government
Local governments will be financially better off under the new tax system,
and are expected to benefit by around $70 million each year by not paying
WST embedded in their prices, and through savings on diesel.
The States will be provided with all GST revenue and as a result be required
to maintain funding to local government at least equal to the amount local
government now receives under the financial assistance grant arrangements,
adjusted each year for population and inflation movements.
The legislation provides no disadvantage for local government in providing
community care services compared to charities. Where the supply of care
is of a kind determined in writing by the Aged Care Minister, the supply
will be GST-free whether provided by a charity or a local government body
(s38-80, A new Tax System (Goods and Services Tax) Bill 1998)
The Health Sector
The coverage of the GST-free treatment for the health sector is both
comprehensive and fair.
Contrary to the conclusion of the Labor Senator's report, the Government
has achieved the best possible outcome for GST-free health services in
terms of `simplicity in administration and compliance' with `clear and
definitive boundaries'. This was achieved through measures such as ensuring
that the medical practitioner does not have to identify patient eligibility,
and making clinically relevant services provided by medical practitioners,
or on their behalf, for example radiographers or nurses, GST-free.
The list of services, aids and appliances is comprehensive.
Aged Care and Disability Services
Aged care and disabilities was an area where a great deal of evidence
provided was inaccurate and appeared to be based on anecdote rather than
analysis of the Government's proposals. This was despite the fact the
Government had distributed a comprehensive community sector briefing kit
which covered most of the issues raised.
In regard to residential care, the legislation provides excellent GST-free
coverage for the sector and indeed the supply of goods and services, using
the Quality of Care Principles (subordinate legislation to the
Aged Care Act 1997).
The Government has also ensured that most of the services that are important
to carers will be GST-free. These include Home and Community Care and
disability community support services – for example, home nursing,
personal care, home help, delivered meals, day care, home maintenance
and modification, and transport services.
Claims about complexity and compliance were consistently overstated or
misunderstood given that all inputs are GST rebated regardless of whether
the service is GST free or taxable.
Child Care
The Government's tax reform package received considerable support from
child care professionals. For example, Mr Timothy Bradford, Australian
Confederation of Child Care said:
(CA 443)
… we do accept that the government can see that there is a need
to improve the existing system in order to achieve desirable economic
and social outcomes. We accept also that there is good sense in simplifying
the administrative framework for the existing family assistance programs
and we also welcome the decision to ensure that essential family services
such as health, education and child care have been deemed to be GST free.
As the Government has outlined, childcare provided at recognised facilities
will be GST-free. That is, childcare provided at facilities that receive
Commonwealth Government funding, or where the parents qualify for a government
childcare payment (such as the use of recognised home based childcare),
will be GST-free.
Childcare provided at non-recognised facilities (baby sitters, play centres,
holiday camps, sporting and craft programs) will be subject to the GST.
Non-recognised facilities are those that do not receive government funding,
or where the parents do not qualify for a government childcare payment.
In practice, however, the GST will not apply to many of these services
because the providers will be below the GST registration threshold ($100,000
annual sales for non-profit bodies and $50,000 annual sales for other
businesses).
In response to the conclusion of the Labor Senator's report, rather than
further burdening the child care sector, the availability of input tax
credits will make the sector better off than it is at the moment. Not
only is the Government abolishing the WST and other hidden taxes, input
tax credits will ensure that there is no net GST burden. In other words,
they have the best of both worlds. They do not pay GST and they do not
charge it.
Much was made in evidence about the perceived added burden of the child
care sector having to initially pay GST before claiming it back. Many
stated that this would lead to an initial cash flow problem. This issue
was dealt with in the Vos report (p 23):
Several submissions noted that the GST would have an adverse cash-flow
effect on entities supplying largely GST-free supplies. That is, entities
that will usually be in a position of claiming GST refunds, will first
of all have to make the GST-inclusive purchase and therefore required
cash up front. The Committee considers that cash flow problems will be
minimal, providing the Government ensures refunds are paid promptly.
It should also be noted that businesses which account on an invoice method
will be entitled to an input tax credit upon receipt of the invoice even
if they don't actually have to pay until some time later. In some cases
this will lead to a refund being paid prior to paying for the goods or
services on the invoice.
Senator Sue Knowles, Deputy Chairman, (LP, Western Australia)
Senator Alan Eggleston, (LP, Western Australia)
Senator Winston Crane, (LP, Western Australia)
Senator Julian McGauran, (NPA, Victoria)
Senator the Hon Eric Abetz, (LP, Tasmania)
Senator the Hon David Brownhill, (NPA, New South Wales)
Attachment 1.
Schedule 1—Medical aids and appliances
Note: GST-free supplies of medical aids and appliances are dealt with
in section 38-45.
| Item |
Category |
Medical aids or appliances |
| 1 |
Cardiovascular |
heart monitors |
| 2 |
|
pacemakers |
| 3 |
|
surgical stockings |
| 4 |
Communication aids for people with disabilities |
communication boards and voice output devices |
| 5 |
|
communication cards |
| 6 |
|
page turners |
| 7 |
|
eye pointing frames |
| 8 |
|
software programs specifically designed for people with
disabilities |
| 9 |
|
printers and scanners specifically designed for software
and hardware used by people with disabilities |
| 10 |
|
switches and switch interfaces |
| 11 |
|
mouth/head sticks/pointers |
| 12 |
|
alternative keyboards |
| 13 |
|
electrolarynx replacements |
| 14 |
|
speech amplification/clarification aids |
| 15 |
Continence |
urine/faecal drainage/collection devices |
| 16 |
|
waterproof covers or mattress protectors |
| 17 |
|
absorbent pads for beds and chairs |
| 18 |
|
disposable/reusable continence pads, pants and nappies
required for continence use (excluding nappies for babies, sanitary
pads or tampons) |
| 19 |
|
enuresis alarms |
| 20 |
|
incontinence appliances |
| 21 |
|
hospital/medical/continence deodorising products |
| 22 |
|
waterproof protection for beds and chairs |
| 23 |
|
sterile plastic bags |
| 24 |
|
electric bag emptiers |
| 25 |
|
enemas, suppositories and applicators |
| 26 |
|
urinals and bedpans |
| 27 |
|
penile clamps |
| 28 |
Daily living for people with disabilities |
customised eating equipment for people with disabilities |
| 29 |
|
customised toothbrushes for people with disabilities |
| 30 |
|
dentures and artificial teeth |
| 31 |
|
environmental control units designed for the disability
of a particular person |
| 32 |
|
computer modifications required for people with disabilities |
| 33 |
|
“medical alert” devices |
| 34 |
Diabetes |
finger prickers |
| 35 |
|
alcohol skin wipes |
| 36 |
|
test strips |
| 37 |
|
needles and syringes |
| 38 |
|
glucose monitors |
| 39 |
Dialysis |
home dialysis machines |
| 40 |
Enteral nutrition |
enteral nutrition and associated delivery equipment |
| 41 |
Footwear for people with disabilities |
surgical shoes, boots, braces and irons |
| 42 |
|
Orthotics |
| 43 |
Hearing/speech |
hearing aids |
| 44 |
|
visual display units specifically designed for
deaf people, or for people with a speech impairment, to communicate
with others |
| 45 |
|
telephone communication devices specifically designed
to allow deaf people to send and receive messages by telephone |
| 46 |
|
batteries specifically designed specifically for
use with hearing aids |
| 47 |
|
visual/tactile alerting devices |
| 48 |
|
interactive and broadcast videotext systems |
| 49 |
|
closed caption decoding devices |
| 50 |
|
external processors for cochlear implants |
| 51 |
Home modifications for people with disabilities |
bidet/bidet toilet attachments |
| 52 |
|
special door fittings relating to the disability of a
particular person |
| 53 |
Mobility of people with disabilities—motor vehicles |
special purpose car seats |
| 54 |
|
car seat harness specifically designed for people with
disabilities |
| 55 |
|
wheelchair and occupant restraint |
| 56 |
|
wheelchair ramp |
| 57 |
|
electric/hydraulic wheelchair lifting device |
| 58 |
|
motor vehicle modifications |
| 59 |
Mobility of people with disabilities—physical: bedding
for people with disabilities |
manually operated adjustable beds |
| 60 |
|
electronically operated adjustable beds |
| 61 |
|
hospital-type beds |
| 62 |
|
customised bed rails for people with disabilities |
| 63 |
|
bed cradles |
| 64 |
|
bed restraints |
| 65 |
|
bed poles and sticks |
| 66 |
|
pressure management mattresses and overlays |
| 67 |
|
backrests, leg rests and footboards for bed use |
| 68 |
Mobility of people with disabilities—physical: orthoses |
spinal orthoses |
| 69 |
|
lower limb orthoses |
| 70 |
|
upper limb orthoses |
| 71 |
|
pressure management garments and lymphoedema pumps |
| 72 |
|
Callipers |
| 73 |
|
corsets (surgical) |
| 74 |
|
handsplints and cervical collars |
| 75 |
|
mandibular advancement splints |
| 76 |
Mobility of people with disabilities—physical: positioning
aids |
alternative positional seating corner chairs |
| 77 |
|
alternative positional seating abduction cushions or
long leg wedges |
| 78 |
|
alternative positional seating modifications |
| 79 |
|
standing frames |
| 80 |
|
standing frames or tilt table modifications |
| 81 |
|
side lying boards |
| 82 |
|
night-time positioning equipment modifications |
| 83 |
Mobility of people with disabilities—physical: prostheses |
artificial limbs and associated supplements and aids |
| 84 |
|
Mammary |
| 85 |
Mobility of people with disabilities—physical: seating
aids |
postural support seating trays |
| 86 |
|
electrically operated therapeutic lounge/recliner chairs
specifically designed for people with disabilities |
| 87 |
|
cushions specifically designed for people with disabilities |
| 88 |
Mobility of people with disabilities—physical: transfer
aids |
manual, electric, ceiling track or pool hoists specifically
designed for people with disabilities |
| 89 |
|
hoist slings |
| 90 |
|
Goosenecks |
| 91 |
|
transfer boards |
| 92 |
|
transfer sheets, mats or belts |
| 93 |
|
Stairlifts |
| 94 |
|
portable stair climbers |
| 95 |
|
monkey rings for people with disabilities |
| 96 |
Mobility of people with disabilities—physical: walking
aids |
Crutches |
| 97 |
|
walking sticks—specialised |
| 98 |
|
walking frames—standard adult |
| 99 |
|
walking frames—standard child |
| 100 |
|
walking frames—specialised |
| 101 |
|
walking frame modifications |
| 102 |
|
specialised ambulatory orthoses |
| 103 |
|
specialised ambulatory orthosis modifications |
| 104 |
|
quadrupod and tripod walking aids |
| 105 |
Mobility of people with disabilities—physical: wheelchairs
and accessories |
wheelchairs, motorised wheelchairs, scooters, tricycles,
spinal carriages and other goods for the carriage of people with disabilities |
| 106 |
|
accessories associated with wheelchairs, motorised wheelchairs,
scooters, tricycles, spinal carriages and other goods for the carriage
of people with disabilities |
| 107 |
|
battery chargers for wheelchairs, scooters, tricycles,
spinal carriages and other goods for the carriage of people with disabilities |
| 108 |
|
stair-aid apparatuses designed for carrying people with
disabilities in wheelchairs up or down stairs |
| 109 |
Pain relief delivery systems |
syringe drivers |
| 110 |
|
patient control analgesia |
| 111 |
Personal hygiene for people with disabilities |
bathboards or toilet seats for people with disabilities |
| 112 |
|
bath supports |
| 113 |
|
shower chairs or stools |
| 114 |
|
shower supports |
| 115 |
|
shower trolleys |
| 116 |
|
mobile shower chairs |
| 117 |
|
Commodes |
| 118 |
|
commode cushions |
| 119 |
|
commode pans |
| 120 |
|
toilet frames |
| 121 |
|
toilet supports |
| 122 |
|
self-help poles |
| 123 |
Respiratory appliances |
Ventilators |
| 124 |
|
continuous positive airway pressure (CPAP) appliances |
| 125 |
|
respiratory appliance mask assemblies—complete |
| 126 |
|
respiratory appliance mask assemblies—components |
| 127 |
|
respiratory appliance accessories |
| 128 |
|
sleep apnoea machines |
| 129 |
Respiratory appliances—other products for those
with breathing difficulties: |
peak flow meters |
| 130 |
|
Nebulisers |
| 131 |
|
Spacers |
| 132 |
|
Vaporisers |
| 133 |
|
Respirators |
| 134 |
|
air pumps |
| 135 |
|
bottled oxygen and associated hardware |
| 136 |
|
oxygen concentrators |
| 137 |
|
breathing monitors |
| 138 |
|
Ventilators |
| 139 |
Safety helmets specifically designed for people with
disabilities |
safety helmets specifically designed for people with
disabilities |
| 140 |
Skin |
jobst suits |
| 141 |
|
transcutaneous nerve stimulator machines |
| 142 |
Stoma |
stoma products including all bags and related equipment
for patients with colostomies and ileostomies |
| 143 |
Vision |
tactile or Braille books, magazines or newspapers |
| 144 |
|
electronic reading aids |
| 145 |
|
talking book machines (and parts) specifically designed
for people with a vision impairment |
| 146 |
|
enlarged text computer monitors for people with a visual
impairment |
| 147 |
|
Braille note takers |
| 148 |
|
Braille printers and paper |
| 149 |
|
Braille translators (hardware and software) |
| 150 |
|
money identification equipment |
| 151 |
|
auditory/tactile alerting devices |
| 152 |
|
sonar canes |
| 153 |
|
reading magnification devices (excluding magnifying glasses) |
| 154 |
|
artificial eyes |
| 155 |
|
lenses for prescription spectacles |
| 156 |
|
prescription contact lenses |
| 157 |
|
ultrasonic sensing devices specifically designed
for use by people with a vision impairment |
| 158 |
|
viewscan apparatus specifically designed for use
by people with a vision impairment |
* To find definitions of asterisked terms, see the Dictionary, starting
at section 195-1.
Attachment 2.
Overview
As noted in Chapter 1, the Committee's role is to identify desirable
boundaries for the GST-free activities, as well as the appropriateness
of the proposed transitional arrangements for motor vehicles. This role
has to be exercised in the context of a completely new indirect tax system,
rather than looking at alterations to the existing indirect tax system.
Therefore, integral to understanding not only the Committee's recommendations,
but also the process of reasoning that led the Committee to those recommendations,
is an adequate understanding of both the proposed GST and the wholesale
sales tax system (WST) it replaces. The Committee considers this to be
important given the number of submissions that appear to have had difficulty
in grasping aspects of the proposed GST that are crucial in understanding
its impact on GST-free activities.
Many submissions were confused about what being `GST-free' entails. They
approached it from a WST mindset, where purchases by an exempt body (such
as a non-profit school, university, public hospital or a public benevolent
institution) are exempt from WST, rather than from a GST perspective where
all purchases are GST-inclusive and then creditable to the registered
purchaser.
To enhance understanding of the Committee's recommendations, the Committee
considers it necessary to briefly outline the structure of the GST and,
in particular, how the GST-free treatment of supplies of goods and services
actually works.
A number of submissions focussed on whether a multi-stage value added
tax system was appropriate, or whether a single stage system would be
better. That is, a number of submissions, particularly within the education
sector, considered the use of an exemption certificate or declaration,
similar to that used in the current WST system would be appropriate. In
the current tax reform context this would equate to advocating the use
of a retail sales tax (RST), where goods and services are taxed only when
they enter private final consumption. In such a tax system, where an entity
purchases goods or services for its own use, such as a school purchasing
desks or pens, there is no tax paid, with tax only being paid if the goods
or services are on-sold into private consumption.
This is an area obviously outside the Committee's terms of reference,
as it is clearly a matter of Government policy. The Government's preference
for a multi-stage value added system rather than a RST is based on its
view that there are significant weaknesses with a retail sales tax. It
is the Government's view that the RST would be more complex for businesses
and administrators and would not be as reliable a source of revenue.
The mechanics of the GST
Tax Reform: not a new tax, a new tax system outlined a number
of key features of the GST. The features the Committee considers most
relevant to its deliberations are noted below.
The GST is a key element of the Government's indirect tax reform strategy.
The Government proposes that the GST is to replace the wholesale sales
tax and a number of State taxes. The Government has argued that the GST
has the advantages of:
- applying to a broad base;
- applying only one rate to taxable goods and services;
- being paid on the final selling price; and
- not taxing business inputs.
The value-added concept
The GST will be based on the `value added tax' model adopted by many
other countries. It will be a tax of 10 per cent on the consumption
of most goods and services in Australia, including those that are imported,
but it will not apply to exports of goods, or services consumed outside
Australia.
The GST is a multi-stage tax.
Registered entities, which the Committee was advised will include hospitals,
schools, universities, gift-deductible charities and religious institutions,
as well as normal businesses, will charge GST when they sell or otherwise
supply goods or services to another registered entity or a consumer. When
calculating their GST liability, the entities will offset the tax paid
on their inputs (such as purchases of raw materials and machinery). This
offset is referred to as an input tax credit. In this way, tax will be
collected only on the value added by each business in the production and
distribution chain, with the tax being ultimately paid by the final consumer.
However, sales by one registered entity to another will be effectively
GST-free.
If the tax collected on sales exceeds total input tax credits in a particular
tax period, then the net difference will be paid to the Australian Tax
Office. If input tax credits exceed the tax collected on sales, a refund
can be claimed. For example, if a hospital buys computers and stationery
for administration work and then only supplies GST-free health services,
so that no tax collected in a given period but tax has been paid on the
computers and stationery, the hospital will be entitled to a GST credit
or refund.
Registration
Individuals, partnerships, companies, trusts and other bodies that engage
in taxable activity will be required to register if their total sales
will exceed $50,000 per annum. Non-profit societies, clubs and associations
will only need to register if their total sales (including membership
fees, but not donations) will exceed $100,000 per annum.
Although individuals, businesses and clubs with smaller annual sales
will not have to register, they will have the option of registering if
they wish. In particular, the Committee is advised that gift-deductible
charities and religious institutions will be eligible for registration.
If they do not register, they will not charge tax on their sales (outputs)
or claim back tax paid on their purchases (inputs).
Input tax credits depend upon the entity being registered
An important element to the Government's proposed GST is that eligibility
to receive credit for GST paid on inputs is dependent upon an entity being
registered.
A common misunderstanding was that eligibility for credits was dependent
upon the input being used in a GST-free activity. The Committee has been
advised that entitlement to input credits under the proposed GST arises
from the fact that a registered entity has purchased goods or services
for use in their activities irrespective of whether they are linked
to any sales. For example, the GST included in the price of goods and
services purchased by a university for the purposes of research where
no goods or services end up being sold, will be creditable to the university.
That is, the Committee has been advised there is no requirement that inputs
be traced through to outputs and credits claimed accordingly. A registered
entity will simply be entitled to a credit for the GST paid on all their
inputs within a particular tax period and be liable for GST on all their
taxable sales in that period. This will mean that entities carrying on
largely GST-free sales within a particular period will be in a refund
position.
Taxable activity
A taxable activity is any supply of goods or services for a payment,
whether in cash or kind. However, certain supplies will be excluded from
the definition of taxable activity. For example, wages received by employees
will not be taxable under the GST in practice employees will not be caught
up in the GST system. Private activities and some other supplies that
will be input taxed (see below) will also not be taxable activities.
The GST base – very few exceptions
The Government has decided that the GST will apply to a very broad base,
but some supplies of goods and services will not be taxable.
This will apply in some circumstances because imposing GST would be technically
difficult (as in the case of financial services) or it would create inequities
between private and public sector providers (as in the case of health
and education).
GST will also not be imposed where the supply is not of a commercial
nature. The most common example of this is in the charitable sector where
goods and services are often given away (for example, a charity providing
food and blankets for no charge). In such a case, no sale has occurred
and so there will be no GST paid. There will also be occasions, most notably
in religious services, where the particular supply has no commercial equivalent
and so it would seem inappropriate to levy GST on the sale.
There will be two types of non-taxable supplies under the GST:
- supplies that are not taxed and where credit is allowed for tax paid
on purchases (known as GST-free); and
- supplies that are not taxed and no credit is allowed for tax paid
on purchases (known as input-taxed).
The main focus for the Committee is GST-free supplies.
Activities that are GST-free
Where activities are GST-free, a registered person will not charge
tax on the sale of those goods and services, but will nevertheless claim
back the tax paid on inputs. Other countries use the term `zero-rated'
to describe this type of activity.
An important point with respect to GST-free activities is that purchases
of goods and services by an entity making GST-free supplies will not be
GST-free unless the goods and services they are purchasing are themselves
GST-free. An example is where a school purchases chairs and desks for
use in the classroom. Even though they are for use in a GST-free activity,
the school will purchase them GST-inclusive, and then be entitled to a
credit for the GST paid on the purchase.
This position needs to be contrasted with the situation that currently
exists under the WST. Schools are exempt from WST and they can purchase
goods exempt from WST by means of quoting an exemption declaration (previously
referred to as an exemption certificate) to the supplier who then is relieved
from the requirement to charge the school WST.
Activities that are input – taxed
Some activities will be input taxed. These activities will not be taxable,
but anyone selling them will not be able to claim credits for the tax
paid on their inputs.
This approach has been chosen where it is technically difficult to impose
GST on the sale of particular services, but it is not appropriate to allow
the sale to be GST-free. Other countries use the term `exempt' to describe
input-taxed.
Certain classes of financial services will be input-taxed, as will rental
of residential accommodation. The rationale for input-taxing residential
accommodation is to ensure there is comparable treatment for renters with
owner occupiers.
Facilitating implementation
The Government intends that the GST will start on 1 July 2000.
This date has been selected to allow time for entities in the GST system
to learn about the new tax and establish appropriate administrative systems.
The Government will provide financial support of up to $500 million
for small and medium businesses to upgrade their record keeping capacity
through software and hardware, so that the start-up costs of a GST are
minimised. Business will be consulted through a Small Business Consultative
Committee to ensure that this support is targeted and delivered in the
most effective way.
The Committee recommends that the Government ensures that entities dealing
with largely GST-free activities be entitled to participate in this GST
implementation funding. The Committee believes this would be appropriate
given that the extra compliance costs due to the start-up phase of the
GST will apply to all those in the GST system and not just those who will
be net remitters of tax.
Areas of special concern
There were a range of issues raised in submissions that the Committee
considers arose mainly due to a misunderstanding of how the GST actually
operates. The Committee considers these can easily be dealt with via an
explanation of that particular part of the operation of the GST. The Committee
considers it would be useful to deal with these in a general manner, so
the principles can be understood and applied in a number of cases.
GST applies to the price paid
A basic principle of the GST is that it is only imposed on the price
paid for goods or services. Where goods or services are given away, then
aside from any tax avoidance issues, there will be no GST implications.
For example, where a public benevolent institution raises money through
donations and then purchases food to give away, it will be entitled to
receive an input credit for the tax paid on the food, and it will not
be subject to any GST on the gift.
Transactions between registered entities result in no net GST
The GST will only have a net impact when there is a sale to an unregistered
entity, which will include private individuals. Where a transaction takes
place between registered entities, then even though GST is paid, it will
simply be a credit for the entity paying the GST-inclusive amount.
For example, a hospital might contract with a company to provide cleaning
services. The cleaning company will need to include GST in the bill they
charge the hospital. The cleaning company will need to remit to the Tax
Office the GST payable by the hospital. However, the hospital will be
entitled to a credit for the GST paid for the cleaning services as that
is simply another input to its activities. So if there were $1,000 worth
of cleaning services, the company would charge $1,100, the hospital would
pay $1,100 and the company would remit $100, leaving it with $1,000. The
hospital would get a credit of $100 leaving it with net outgoings of $1,000.
Therefore, the net position of both the hospital and the company is the
same as if there were no GST.
Sponsorships are subject to GST
The Government has determined that sponsorships, in the usual sense,
are payments for services. That is, sponsorships are regarded as payments
in return for the service of advertising or other related benefits. However,
because a sponsorship transaction will typically take place between two
registered entities, the impact of the GST will net out, as in the example
given above. That is, if an entity sponsors another entity then the entity
providing the service of sponsorship will need to remit GST on the amount
of sponsorship provided. But, leaving aside the special treatment of input-taxed
financial services, the sponsor will get a credit for that amount. If
two organisations decided they wanted to enter into an arrangement whereby
one would effectively provide for $10,000 worth of sponsorship, the sponsor
would pay $11,000, the recipient of the sponsorship would pay $1,000 tax,
and be left with $10,000. The sponsor would be entitled to a credit of
$1,000 and so be in the same position as if they had provided sponsorship
of $10,000 pre-GST.
A number of submissions, particularly from charitable organisations,
wanted sponsorships in the charitable sector to be GST-free. The concern
of the charitable entities seemed to rest on a belief that if GST was
payable on sponsorship, then the attraction of using the entity as an
advertising vehicle would be reduced. However, all sponsorships will be
subject to GST, and so the attractiveness of using a charitable entity
as compared with another entity will not be affected by the GST. Moreover,
the net financial position of the sponsor will not be affected because
the transactions will normally be taking place between two GST-registered
entities.
Donations are not subject to GST
The Government has determined that donations, unlike sponsorships, are
not payments in return for goods or services. Therefore they do not come
into the GST system and no GST is payable upon the receipt of genuine
donations.
Nor are government grants
The Government has also determined that government grants are not payments
in return for goods or services and so should remain outside the GST.
However, some payments by governments are called grants but are in fact
payments for providing specified services. In these cases, they will be
subject to GST, but where the recipient is a registered entity, the transaction
will be between two registered entities and so will have no net GST implications.
Fundraising activities will be subject to GST
Fundraising activities by all registered entities will be subject to
the GST. A general tenet of the GST is that the supplier should not need
to know the status of the recipient and should not need to know the purpose
of the supply. All that matters is that the supply is for consideration
and then, generally, GST is paid on the consideration.
Memberships will be subject to GST
A number of submissions, particularly in the charitable sector, considered
that subscriptions paid as memberships of organisations should not be
subject to GST. The Government has made it clear that it regards membership
fees as payments in return for services and therefore will be taxable.
GST-free status extends to activities and not institutions
A number of submissions argued that GST-free status should apply on an
institutional basis rather than on the basis of the activity performed.
The Committee notes that this is contrary to Government policy and the
design of the GST. The GST will apply equally to all entities where they
make sales of similar goods or services. For example, if a school sells
textbooks to students, the school will need to pay GST to the same degree
as commercial bookshops.
Cash flow impact
Several submissions noted that the GST will have an adverse cash-flow
effect on entities supplying largely GST-free supplies. That is, entities
that will usually be in a position of claiming GST refunds, will first
of all have to make the GST-inclusive purchase and therefore required
cash up front. The Committee considers that cash flow problems will be
minimal, providing the Government ensures refunds are paid promptly.