Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2016
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
TAX AND SUPERANNUATION LAWS AMENDMENT (2016 MEASURES NO. 1)
BILL 2016
SUPPLEMENTARY EXPLANATORY MEMORANDUM
Amendment to be moved on behalf of the Government
(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)
Table of contents
Glossary ................................................................................................. 1
General outline and financial impact....................................................... 3
Amendment to the Tax and Superannuation Laws Amendment
(2016 Measures No. 1) Bill 2016 ............................................................ 5
Index......................................................................................................11
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
GST goods and services tax
GST Act A New Tax System (Goods and Services Tax)
Act 1999
intangibles things other than goods or real property
ITZ indirect tax zone
the Bill Tax and Superannuation Laws Amendment
(2016 Measures No. 1) Bill 2016
1
General outline and financial impact
Amendment to the Tax and Superannuation Laws Amendment
(2016 Measures No. 1) Bill 2016
The amendment to the Tax and Superannuation Laws Amendment (2016
Measures No. 1) Bill 2016 (the Bill) allows non-residents and their
resident agents to agree that the resident agent will be the liable entity for
GST despite the operation of the other amendments in Schedule 2 to the
Bill.
Date of effect: The amendment applies in determining net amounts for tax
periods starting the first day of the second quarterly tax period occurring
on or after Schedule 2 to the Bill commences.
Proposal announced: Not previously announced.
Financial impact: Nil.
Human rights implications: This amendment does not raise any human
rights issues. See Statement of Compatibility with Human Rights --
paragraphs 1.24 to 1.27.
Compliance cost impact: This amendment imposes some transitional
compliance costs on affected resident agents, non-resident entities and
their business customers that carry on an enterprise in the indirect tax zone
where the agent and the non-resident entity choose to apply the
amendment.
3
Amendment to the Tax and
Superannuation Laws Amendment
(2016 Measures No. 1) Bill 2016
Outline of chapter
1.1 The amendment to the Tax and Superannuation Laws
Amendment (2016 Measures No. 1) Bill 2016 (the Bill) allows
non-residents and their resident agents to agree that the resident agent will
be the liable entity for GST despite the operation of the other amendments
in Schedule 2 to the Bill.
1.2 A key objective of the Bill is to reduce compliance costs for
non-resident entities that interact with the Australian GST system. The
Bill generally achieves this by transferring GST obligations from
non-resident suppliers to Australian business recipients of supplies.
1.3 Division 57 of the A New Tax System (Goods and Services Tax)
Act 1999 (GST Act) makes a resident agent of a non-resident supplier
liable for GST on the taxable supplies made through the agent. The Bill
disconnects supplies 'done' in the indirect tax zone (ITZ) by resident
agents for supplies between their non-resident principals and Australian
based recipients. This means that the agent will not be liable for GST in
relation to the supply. However, it also makes the Australian recipients of
cross-border supplies liable for GST as a reverse charge in certain
circumstances.
1.4 Some non-resident suppliers and resident agents would prefer to
maintain their existing arrangements, so that resident agents continue to
be liable for GST in relation to supplies made through the agent. This
amendment allows non-residents and their resident agents to agree to
'opt-out' of the new arrangements, so that the resident agents continue to
account for GST.
1.5 All legislative references in this Supplementary Explanatory
Memorandum are to the GST Act unless otherwise specified.
5
Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016
Detailed explanation of new law
Amendment to Tax and Superannuation Laws Amendment (2016
Measures No. 1) Bill 2016
1.6 The amendment provides additional flexibility for non-residents
that use resident agents to make supplies that are performed in the ITZ. It
allows non-residents and their resident agents to agree that, going forward,
supplies made through the resident agent will continue to be connected
with the ITZ, resulting in the agent continuing to be liable for GST in
relation to the supply. Were such supplies to be disconnected under
subsection 9-26(1), in certain circumstances the recipient of the supply
would be required to reverse charge the supply and account for any GST.
1.7 The amendment achieves this by switching off the disconnection
rule in subsection 9-26(1) where relevant conditions are met, resulting in
the supply remaining connected to the ITZ. This applies on an 'opt-out'
basis - the non-resident supplier and the agent must specifically agree that
subsection 9-26(1) will not apply.
Conditions for supplies remaining connected
1.8 The disconnection rule in subsection 9-26(1) of Schedule 2 to
the Bill does not apply to supplies and accordingly removes any
obligations for Australian-based business recipients to account for GST as
a reverse charge if:
• the resident agent would be liable for the GST on the
supplies because of section 57-5, had subsection 9-26(1) in
Schedule 2 to the Bill not been included in the GST law; and
• the non-resident supplier and the resident agent (that would
be liable for GST on supplies by the non-resident supplier)
agree in writing that subsection 9-26(1) does not apply to all
supplies by the non-resident made through the resident agent.
[Schedule 2, item 5A, subsection 57-7(1)]
Liability of the resident agent
1.9 The first condition provides that the amendment will only apply
to supplies for which the resident agent would be liable for GST. As a
result, all supplies to which this amendment applies must be supplies for
which a resident agent will be liable for GST under Division 57.
1.10 This approach is in line with the underlying drivers for the
cross-border business-to-business measure, which is to reduce compliance
6
Amendment to the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016
costs for non-resident entities that interact with the Australian GST
system. While removing non-residents from the system will generally
achieve this, that approach leads to a different compliance cost outcome in
this case as resident agents are well placed to comply with GST
obligations.
Agreement in writing
1.11 The second condition provides that the non-resident and the
resident agent must agree in writing that subsection 9-26(1) does not
apply to supplies made through the agent. This requirement ensures that
the parties understand the implications of the agreement for their tax
obligations.
1.12 The agreement affects supplies made from the time the
agreement is made, or such later time as may be specified in the
agreement. [Schedule 2, item 5A, paragraph 57-7(1)(c)]
1.13 If the non-resident and the resident agent no longer want
supplies through the agent to be connected to the ITZ, they must agree in
writing to terminate the arrangement. This termination applies from the
later of the date the agreement is entered into or such later date specified
in the agreement for the termination. [Schedule 2, item 5A, subsection 57-7(4)]
1.14 In some cases, the agreement that subsection 9-26(1) will not
apply may also be the termination agreement. For example, the parties
may agree in writing that subsection 9-26(1) should not apply to supplies
made through the agent from the time the agreement is signed, but also
include a provision that specifies that this arrangement will cease to apply
from a particular time or if certain conditions are satisfied (such as the
agent ceasing to be an agent of the non-resident).
Opt-out applies to all supplies
1.15 The condition specifies that all supplies made by the non-
resident through the resident agent must be subject to the agreement.
1.16 Permitting agreements in which only certain supplies will be
subject to the Division 57 agency rules would go beyond what Division 57
currently achieves. It would lead to greater complexity in practical
administration and compliance, as transactions would need to be
scrutinised on a transaction-by-transaction basis according to the
agreement.
Notification requirement
1.17 If the non-resident and the resident agent agree in writing that
subsection 9-26(1) does not apply, resulting in the resident agent being
7
Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016
liable for GST, then a notification requirement applies. Generally, the
resident agent must notify any Australian business recipients in the
approved form when it makes such supplies. Alternatively, if there is an
agreement that the non-resident supplier will provide the notice, the
non-resident supplier, rather than the agent, must notify the recipient.
[Schedule 2, item 5A, subsection 57-7(2)]
1.18 Notice must be provided to the recipient by the relevant entity
within 7 days of the earlier of the day any consideration is provided in
relation to the supply, or the day an invoice for the supply is issued.
[Schedule 2, item 5A, subsection 57-7(3)]
1.19 This notification requirement applies on a transaction-by-
transaction basis. Notice must be provided in relation to each supply that
is not subject to the disconnection rule in subsection 9-26(1) because of an
agreement that has been entered into between the non-resident and their
resident agent.
1.20 The notification requirement is not a condition for reconnection
of the supply. Accordingly, failure to meet the notification requirement
will not disconnect the supply. However, as a result of this amendment,
the general administrative penalty for a failure to provide notice when
required may apply. [Schedule 2, item 17A, subsection 286-75(7) in Schedule 1 to
the Taxation Administration Act 1953]
1.21 The purpose of the notification requirement is to ensure that the
Australian business recipient knows how to account for GST on the
supply. It is anticipated that the Australian Tax Office will provide that
the approved form for this notice will, in most cases, simply be a tax
invoice for the supply.
Consequential amendments
1.22 This amendment also includes a number of minor consequential
amendments to the GST law, including guide material, to reflect the
substantive amendments. [Schedule 2, items 3 and 3A, the note to
subsection 9-26(1) and table item 8AA in section 9-39]
Application and transitional provisions
1.23 Consistent with the existing provisions of Schedule 2, these
amendments apply in determining net amounts for tax periods starting the
first day of the second quarterly tax period occurring on or after
Schedule 2 to the Bill commences.
8
Amendment to the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Amendment to the Tax and Superannuation Laws Amendment (2016
Measures No. 1) Bill 2016
1.24 This amendment is compatible with the human rights and
freedoms recognised or declared in the international instruments listed in
section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
1.25 The amendment to the Tax and Superannuation Laws
Amendment (2016 Measures No. 1) Bill 2016 allows non-residents and
their resident agents to agree that the resident agent will be the liable
entity for GST, despite the operation of the other amendments in
Schedule 2 to the Bill.
Human rights implications
1.26 This amendment does not engage any of the applicable rights or
freedoms.
Conclusion
1.27 This amendment is compatible with human rights as it does not
raise any human rights issues.
9
Index
Schedule 2: GST treatment of cross border transactions
between businesses
Bill reference Paragraph number
Items 3 and 3A, the note to subsection 9-26(1) and table item 8AA in 1.22
section 9-39
Item 5A, subsection 57-7(1) 1.8
Item 5A, paragraph 57-7(1)(c) 1.12
Item 5A, subsection 57-7(2) 1.17
Item 5A, subsection 57-7(3) 1.18
Item 5A, subsection 57-7(4) 1.13
Item 17A, subsection 286-75(7) in Schedule 1 to the Taxation 1.20
Administration Act 1953
11
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