Draft legislation concerning GST on Government fees and taxes has been released

The Government has released draft legislation which proposes to overhaul the goods and services tax (“GST”) treatment of government taxes, fees and charges. Currently the Treasurer produces a biannual determination (a ruling which is binding on the Commissioner) which serves as an exhaustive list of GST exempt taxes, fees and charges. Broadly, the draft legislation proposes to move to a principles based exemption which allows government entities to self-assess the GST treatment of their fees and charges. It is proposed that the changes will take effect from 1 July 2011.

At present, Division 81 of the A New Tax System (Goods and Services Tax) Act 1999 (the “GST Act”) regulates the GST treatment of government taxes, fees and charges. It provides that such charges may be consideration for a supply, and hence be subject to GST. However section 81-5(2) allows the Treasurer to produce a determination listing charges which are exempt from GST. In effect this has meant that government entities must consult the Treasurer’s determination to see which of their fees and charges are exempt from GST.

The proposed legislation would replace the current Division 81 with a new, principles based test. Under this test Australian taxes will prima facie not be consideration, and hence will not be subject to GST. Likewise, an “Australian fee or charge” will not be consideration if it relates to:

• an application, provision or retention of a government licence (or similar permission or exemption); or
• the provision of information or documents with a government agency, or the lodgement of documents or information with the agency.
  

An “Australian fee or charge” will be a fee which is payable under an Australian law to a government agency.

For example, an application fee for a drivers licence will continue to be exempt from GST. A fee paid when lodging a freedom of information request will also be exempt. 

However the Treasurer will have the ability to make regulations stating that a tax, fee or charge is subject to GST.

If the amendments are introduced it is likely that most charges currently listed in the Treasurer’s determination will continue to be exempt from GST. However these should be reviewed on a case by case basis in light of the new provisions.

These amendments should provide relief from the current compliance burden associated with ensuring that taxes, fees and charges are added to the Treasurer’s list of charges that are exempt from GST.  However, it may result in greater uncertainty when determining the GST treatment of taxes, fees and charges as there will not be a definitive list provided. The draft legislation is open for public comment until 11 February 2011. Moore Stephens would be happy to assist interested parties prepare submissions or review your current taxes, fees and charges to determine if it will result in changes being required to be made to your GST systems. Please contact your Moore Stephens relationship partner for more information.

Authors: Abi Chellapen and Andrew Cromb, Moore Stephens Melbourne