EXPLANATORY STATEMENT
Issued by authority of the Assistant Treasurer
A New Tax System (Goods and Services Tax) (Average Input Tax Credit Fraction) Determination 2010
Purpose
The purpose of the A New Tax System (Goods and Services Tax) (Average Input Tax Credit Fraction) Determination 2010 is to specify the average input tax credit fractions for a particular compulsory third party (CTP) scheme.
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, released in the three years prior to the ‘determination year’. Data from the Survey of Motor Vehicle Use series published by the ABS on 7 September 2006, 19 October 2007 and 28 August 2008 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 Assistant Treasurer considers that the new fraction for the CTP scheme in New South Wales is significantly different from the existing average input tax credit fraction for that scheme.
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 2010.
Clause 2 of the Determination specifies that it commences on 1 July 2010.
Clause 3 of the Determination specifies that for subsection 79‑100(3) of the Act, the average input tax credit fraction for the CTP scheme under the Motor Accidents Act 1988 (NSW) and the Motor Accidents Compensation Act 1999 (NSW) is 32/100.
Consultation
Consultation was not undertaken on this determination as it was a minor and mechanical measure in relation to which no discretion was permitted.
Overview
The A New Tax System (Goods and Services Tax) (Average Input Tax Credit Fraction) Determination 2010 was enacted to address the need for periodically updating the average input tax credit fractions for compulsory third-party insurance schemes, as required under section 79-100 of the A New Tax System (Goods and Services Tax) Act 1999. The determination was introduced by the Assistant Treasurer, following the statutory requirement to review and, if necessary, adjust these fractions every three years. The policy objective is to ensure that CTP operators accurately calculate decreasing adjustments when making payments under their scheme, which is essential for maintaining the integrity of the goods and services tax system as it relates to CTP insurance. This measure was not subject to consultation as it was considered a minor, mechanical adjustment with no discretionary elements.
Scope and Application
The A New Tax System (Goods and Services Tax) (Average Input Tax Credit Fraction) Determination 2010 applies to entities and persons involved in Compulsory Third Party (CTP) insurance schemes in New South Wales, specifically under the Motor Accidents Act 1988 (NSW) and the Motor Accidents Compensation Act 1999 (NSW). It operates within the Commonwealth jurisdiction and is enacted under the authority of the Assistant Treasurer, as required by section 79‑100 of the A New Tax System (Goods and Services Tax) Act 1999. The Determination sets out the average input tax credit fraction for the CTP scheme in New South Wales as 32/100, effective from 1 July 2010. This fraction is used by CTP operators to calculate the amount of decreasing adjustments when making certain payments under their CTP scheme. The Determination is based on statistical information published by the Australian Bureau of Statistics and does not apply to other states or territories, nor does it require consultation as it represents a minor, mechanical adjustment.
Key Provisions
The A New Tax System (Goods and Services Tax) (Average Input Tax Credit Fraction) Determination 2010 is a legislative instrument that sets out the average input tax credit fraction for a compulsory third party (CTP) scheme in New South Wales, as stipulated in section 79-100 of the A New Tax System (Goods and Services Tax) Act 1999. The key provision of this Determination, detailed in clause 3, specifies that the average input tax credit fraction for the CTP scheme under the Motor Accidents Act 1988 (NSW) and the Motor Accidents Compensation Act 1999 (NSW) is 32/100. This fraction is used by CTP operators to calculate the amount of decreasing adjustments when making certain payments under their scheme. The determination is effective from 1 July 2010, as specified in clause 2 of the Determination.
The Act imposes specific obligations on the parties governed by it, primarily the CTP operators. These operators are required to use the specified average input tax credit fraction when calculating the decreasing adjustments for their scheme. This requirement ensures that the CTP operators can accurately determine the GST credits they are entitled to and the GST liabilities they must account for, aligning their calculations with the statutory provisions. The Treasurer, in accordance with subsection 79-100(3) of the Act, is responsible for determining the average input tax credit fraction for each CTP scheme every third financial year, starting from the financial year beginning on 1 July 2006. This involves calculating the 'business vehicle use fractions' for each CTP scheme based on statistical information published by the Australian Bureau of Statistics (ABS) and then determining if these fractions warrant a new average input tax credit fraction.
The Determination outlines the consequences of non-compliance with its provisions. While the Explanatory Statement does not specify explicit penalties for breaches of the Determination, it is reasonable to infer that any failure by CTP operators to adhere to the specified average input tax credit fraction could lead to incorrect calculations of decreasing adjustments. This, in turn, might result in either over or under-claiming of GST credits, leading to potential discrepancies in tax reporting and possible audits by the Australian Taxation Office (ATO). The ATO has the authority to impose penalties for incorrect GST claims, which can include fines and interest on unpaid GST. The severity of the penalties would depend on the nature and extent of the non-compliance, but it is clear that adherence to the statutory requirements is critical to avoid financial and legal repercussions.