GST: Local authorities

Repeal of sections 19A(1)(a)(ii) and 19AB

(Clauses 80 and 81)

Summary of proposed amendment

These parts of the Goods and Services Tax Act 1985 (GST Act) are being repealed to reflect the fact that from 1 July 2013, the eight local authorities named in the Goods and Services Tax Act (Local Authorities Accounting on Payments Basis) Order 2009 will no longer be eligible to account for GST on a payments basis.

Application date

The amendment in clause 81 will apply from the date of enactment.

The amendment in clause 80 will apply from 1 July 2013.

Key features

Section 19AB of the GST Act sets out that the Governor-General may specify a local authority which may continue to account for tax on a payments basis. As the only eight local authorities which are currently permitted to account for GST on a payments basis will be required to account for GST on an invoice basis from 1 July 2013, this section is no longer required.

Section 19A(1)(a)(ii) sets out that a local authority specified in an Order in Council made under section 19AB may account for GST on a payments basis. As the current Order expires on 30 June 2013, and no further Orders will be made, section 19A(1)(a)(ii) will no longer be relevant after 30 June 2013.

Background

The Goods and Services Tax Act (Local Authorities Accounting on Payments Basis) Order 2009 expires on 30 June 2013. The eight local authorities named in the Order will not be permitted to account for GST on a payments basis after it expires as the Order is not being extended.

Local authorities transitional provision

(Clause 95)

Summary of proposed amendment

Clause 95 sets out the transitional provision which will apply to the eight local authorities named in the Goods and Services Tax Act (Local Authorities Accounting on Payments Basis) Order 2009.

Application date

The amendment will apply from the date of enactment.

Key features

When a registered person changes from a payments basis to an invoice basis, section 19C sets out that they must perform a wash-up calculation based on their outstanding debtors and creditors at that time. The eight local authorities named in the Goods and Services Tax Act (Local Authorities Accounting on Payments Basis) Order 2009 will be required to change to an invoice basis when the Order expires. The bill contains a transitional provision which will allow those local authorities to spread payment of the amount calculated as a result of that wash-up calculation over 72 months. The 72-month period will begin on 1 July 2013.

If any of the local authorities choose to change to an invoice basis before 1 July 2013, they must perform the wash-up calculation based on their debtors and creditors at the end of the day before they change. Payment of this sum may still be spread over 72 months, again commencing from 1 July 2013. No interest or penalties will be imposed as a result of the local authorities spreading this payment.

Background

The GST Act was amended, with effect from 1 July 2001, to remove local authorities as a class of people who could account for GST on a payments basis. This eliminated the need for a dual system of accounting: an invoice system for financial reports and a payments system for GST purposes.

Since that time, three consecutive temporary exemptions have been made, the cumulative effect of which has been to allow eight local authorities until 30 June 2013 to prepare for the change to an invoice basis. From 1 July 2013 all local authorities are required to account for GST on an invoice basis.

The transitional provision is proposed to mitigate the significant cashflow implications which are likely to arise for the local authorities if they had to pay the sum determined by the wash-up calculation in one hit.

Amendment to section 19C

(Clause 82)

Summary of proposed amendment

Section 19C is being amended to include a reference to the proposed transitional provision for local authorities.

Application date

The amendment will apply from the date of enactment.

Key features

A reference to the proposed transitional provision for local authorities will be included in section 19C to clarify that the local authorities will be required to perform the wash-up calculation as set out in section 19C(3).

Background

Section 19C sets out that registered persons who change their accounting basis must perform a wash-up calculation in respect of the change. It currently refers to every registered person whose accounting basis is changed pursuant to section 19 or 19A of the GST Act. The eight local authorities which will be changing to an invoice basis on 1 July 2013 will not technically be changing their accounting basis pursuant to 19 or 19A, but rather as a result of the requirement in the new transitional provision that they account on an invoice basis.