EXPLANATORY STATEMENT
Issued by authority of the Minister for Revenue
and Assistant Treasurer
A New Tax System (Goods and Services Tax) (Average Input Tax Credit Fraction) Determination 2007
Purpose
The purpose of the A New Tax System (Goods and Services Tax) (Average Input Tax Credit Fraction) Determination 2007 is to specify the average input tax credit fractions for particular compulsory third party (CTP) schemes.
Background
Section 79‑100 of the A New Tax System (Goods and Services Tax) Act 1999 sets out the meaning of ‘average input tax credit fraction’. CTP operators use the average input tax credit fraction for their CTP scheme to work out the amount of decreasing adjustments they have when making certain payments under their scheme.
Subsection 79‑100(3) of the Act requires the Treasurer (or relevant Minister), in the financial year beginning on 1 July 2006 and every third financial year thereafter, to determine whether each CTP scheme should have a new average input tax credit fraction. This financial year is called the ‘determination year’.
The Treasurer is required to work out the ‘business vehicle use fractions’ for each CTP scheme using statistical information published by the Australian Bureau of Statistics (ABS) during the three financial years before the determination year. The ‘business vehicle use fraction’ is business vehicle use as a proportion of total vehicle use in the State or Territory in which the CTP scheme operates. The statistical information is that relating to business and total use of vehicles for the State or Territory in which the CTP scheme operates. Data from the Survey of Motor Vehicle Use series published by the ABS on 25 September 2003, 21 October 2004 and 19 September 2005 was used.
Having established the ‘business vehicle use fractions’ for each CTP scheme, the Treasurer must then work out the average of those fractions (the ‘new fraction’). If the Treasurer considers the new fraction is significantly different from the current average input tax credit fraction for the CTP scheme, subsection 79‑100(3) of the Act requires that he determine, in writing, the new fraction to be the average input tax credit fraction for that scheme from the ‘operative year’. The operative year is the financial year following the determination year.
The Minister for Revenue and Assistant Treasurer considers that the new fractions for the CTP schemes in Western Australia, the Australian Capital Territory and the Northern Territory are significantly different from the existing average input tax credit fractions for those schemes.
Explanation of the Determination
The Determination has three clauses.
Clause 1 of the Determination specifies the name of the Determination as the A New Tax System (Goods and Services Tax) (Average Input Tax Credit Fraction) Determination 2007.
Clause 2 of the Determination specifies that it commences on 1 July 2007.
Clause 3 of the Determination specifies that for subsection 79‑100(3) of the Act, the average input tax credit fraction for each CTP scheme mentioned in the table is the average input tax credit fraction for that scheme for the financial year that begins on 1 July 2007.
The table specifies the following average input tax credit fractions:
• for the compulsory third party insurance scheme under the Motor Vehicle (Third Party Insurance) Act 1943 (WA) — 33/100;
• for the compulsory third party insurance scheme under the Road Transport (General) Act 1999 (ACT) — 22/100; and
• for the motor accidents compensation scheme under the Motor Accidents (Compensation) Act (NT) — 43/100.
Consultation
Consultation on the proposed average input tax credit fractions was undertaken with representatives of the CTP insurance industry, CTP scheme regulators and the Insurance Council of Australia.
Overview
The A New Tax System (Goods and Services Tax) (Average Input Tax Credit Fraction) Determination 2007 was enacted to address the need for updating the average input tax credit fractions for compulsory third party (CTP) insurance schemes in certain jurisdictions. This was driven by the requirement under section 79-100 of the A New Tax System (Goods and Services Tax) Act 1999, which mandates the Treasurer to review and determine new average input tax credit fractions every third financial year, starting from the financial year beginning on 1 July 2006. The objective was to ensure that the fractions more accurately reflect the current business vehicle use proportions in each state or territory, as determined by the Australian Bureau of Statistics. The Determination was made under the authority of the Minister for Revenue and Assistant Treasurer and aims to provide precise average input tax credit fractions for CTP schemes in Western Australia, the Australian Capital Territory, and the Northern Territory, to be effective from 1 July 2007.
Scope and Application
The A New Tax System (Goods and Services Tax) (Average Input Tax Credit Fraction) Determination 2007 applies to compulsory third party (CTP) schemes in Australia, specifically those operating in Western Australia, the Australian Capital Territory and the Northern Territory. This Determination is an instrument under the A New Tax System (Goods and Services Tax) Act 1999, and it specifies the average input tax credit fractions for these CTP schemes to aid in calculating the decreasing adjustments for certain payments made under these schemes. The fractions are determined based on the business vehicle use fractions calculated from statistical data published by the Australian Bureau of Statistics. This Determination is effective from 1 July 2007, and it provides specific average input tax credit fractions for the CTP schemes in the mentioned territories, replacing the previously used fractions. The Act mandates the Treasurer to review and determine new fractions every third financial year, with the current review leading to the specified fractions in this Determination.
Key Provisions
The A New Tax System (Goods and Services Tax) (Average Input Tax Credit Fraction) Determination 2007 (the Determination) sets out the average input tax credit fractions for compulsory third party (CTP) schemes in Western Australia, the Australian Capital Territory and the Northern Territory for the financial year commencing on 1 July 2007. The Determination provides specific fractions for each of the mentioned schemes, which are to be used by CTP operators in calculating their decreasing adjustments (section 3). The fractions specified in the Determination are 33/100 for Western Australia, 22/100 for the Australian Capital Territory, and 43/100 for the Northern Territory.
The Determination imposes certain obligations on CTP operators. They must use the specified average input tax credit fractions for their respective schemes when making payments under the scheme (section 2). These fractions are to be applied to the amount of input tax credits available to the CTP operator, thereby determining the decreasing adjustment to be made in respect of the payments. This requirement ensures that the CTP operators can accurately calculate the GST implications of their activities under the scheme.
The Determination does not explicitly state penalties or civil/criminal consequences for non-compliance with the specified average input tax credit fractions. However, under the A New Tax System (Goods and Services Tax) Act 1999, non-compliance with the provisions of the Act, including the application of the incorrect input tax credit fraction, could lead to penalties. The penalties for GST non-compliance can include civil penalties, such as fines, as well as potential criminal penalties for serious or persistent breaches. The Act provides for maximum penalties that can be imposed depending on the nature and extent of the non-compliance, with fines and imprisonment possible for the most serious offences.