Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

The Tax Laws Amendment (Simplified GST Accounting) Bill 2007 amends the act known as the A New Tax System (Goods and Services Tax) Act 1999—otherwise known as the GST act—to assist in reducing the compliance costs for small business. This bill streamlines compliance for small business entities with a turnover of less than $2 million and reduces cost.

The bill seeks to extend the class of entities to which the simplified accounting methods can apply. These amendments allow the Commissioner of Taxation to determine simplified accounting methods in writing. These can be made for small businesses and other entities with an annual turnover of less than $2 million that make a mix of taxable and GST-free supplies or that acquire a mix of supplies that are taxable and GST free for the suppliers, known as mixed inputs. As at present, the commissioner can continue to determine simplified accounting methods for retailers and charities. There are precedents for this sort of treatment.

The compliance cost impact is minor. There will be minor transitional compliance costs for eligible businesses as they initially adopt the new simplified accounting methods. However, on an ongoing basis the simplified accounting methods are expected to reduce their compliance costs.

By extending the classes of people who can access this accounting method, the bill could theoretically open the system to some abuse and it will therefore need to be monitored. The measure does not apply to small business entities which work out their income at the end of the year and who do not have to produce a quarterly BAS. These measures do reduce very marginally the revenue raised through the GST.

This bill will be very popular with small business owners, especially those who dislike doing the full BAS, and it may have the effect of reducing some of the paperwork the ATO has to put up with. The Australian Democrats support this bill.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Given the time pressures we are working under, I will make some preliminary comments and then I will seek leave to incorporate the rest of my contribution. We are dealing with the Tax Laws Amendment (Simplified GST Accounting) Bill 2007. The bill amends the A New Tax System (Goods and Services Tax) Act 1999 to extend simplified GST accounting methods to more small businesses and other entities with an annual turnover of less than $2 million that make a mix of taxable and GST-free supplies or that acquire a mix of supplies that are taxable and GST free for the suppliers.

Here we are in the year 2007 dealing with yet more amendments to the GST of 1999. Here we are seven years later dealing with amendments to the GST. I recall one particular occasion in the Senate: it was the end of the session and we were discussing the 1,652nd amendment to the GST at 6.30 in the morning. That was about 2½ years ago, and here we are eight years on. Frankly, I have given up counting the number of amendments we have had to make to the GST in this chamber, but it would now be well in excess of 1,700 amendments—so much for the GST’s ‘simplified tax system’!

Labor will be supporting these changes, and I have outlined in the speech that I am having incorporated the reasons why we will do so. Labor has announced and will be putting forward a policy with a much simpler approach for businesses making their superannuation contributions. At the moment, under the so-called choice of fund regime, the Liberal government has imposed a significant new additional form-filling and red-tape regime on employers. There are some 34 complex steps that an employer is required to go through, including passing out forms to employees, collecting the forms, checking them for details and making superannuation contributions to an ever-increasing number of superannuation funds. This is additional red tape imposed by a Liberal government on business.

Labor has announced a policy which will allow, as an option, employers to use a central clearing house to carry out these new red-tape requirements. Labor has announced that the clearing house will be contracted to a private-sector provider and will effectively transfer all the new red-tape form filling and possible legal liabilities from the employer to the clearing house. This is an example of Labor being proactive in seeking a practical solution to reducing new red-tape burdens on business introduced by this Liberal government. As I said, it will be optional for employers to use the new clearing house, a much simpler method. It has been widely welcomed by employer organisations. The Council of Small Business Organisations, for one, has welcomed Labor’s announcement of a clearing house to handle this new red tape.

Finally, in the context of yet more amendments to the GST, I remind my colleague Senator Murray from the Australian Democrats, who is sitting at the other end of the chamber, that he should bear partial responsibility for this very messy regime. Here we are, Senator Murray, seven years on from the GST, dealing with amendments that you, on behalf of the Democrats, signed up to.

Julian McGauran (Victoria, National Party) Share this | Link to this | Hansard source

The statutes are amended every day in this place. It is not a static book.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

It is not a static book? That is the inane interjection from Senator McGauran. I will stop there. I know we are under time pressures—yes, I am getting nods from the whips. I could respond to that interjection from Senator McGauran, but I will not be tempted on this occasion. Here we are, seven years on, dealing with amendments to the GST. Why didn’t you get this right, Senator Murray, on behalf of the Democrats, when you cut that deal with this government to introduce a GST? All these years later we are still cleaning up the mess. As I said, I know there are time pressures, although I have only spoken for five minutes. I seek leave to incorporate the rest of my contribution.

Leave granted.

The remainder of the speech read as follows—

This Bill amends the A New Tax System (Goods and Services Tax) Act 1999 to extend simplified GST accounting methods to more small businesses and to other entities with an annual turnover of less than $2 million that make a mix of taxable and GST-free supplies, or that acquire a mix of supplies that are taxable and GST-free for the suppliers.

Simplified accounting methods provide small businesses with the ability to obtain from the Tax Office a ratio for calculating GST obligations. This assists in reducing the GST compliance costs of small businesses.

Labor supports this Bill to reduce compliance costs for small business. Labor particularly supports it because it in principle implements Labor’s BAS Easy proposal. The government’s Bill is its response to BAS Easy.

This is yet another example of the Government implementing Labor policy. This week we also have the International trade integrity bill implementing Labor’s policy to align the definition of facilitation payment and just last week we had the Treasurer take up Labor’s plans to inquire into petrol prices.

Labor has been calling for a ratio method for mixed businesses for six years. Labor proposed a simple BAS at the 2001 and 2004 elections that used a ratio to calculate GST obligations.

BAS Easy gives all mixed small businesses under the $2 million revenue threshold the capacity to use simplified accounting methods.

BAS Easy was very well received, since GST bookkeeping would be reduced by up to 85 per cent.

The Council of Small Business Organisations of Australia (COSBOA) said:

“For all small businesses working under a revenue threshold of $2 million a year the BAS easy system is a simple and practical answer to the current red-tape.

Taking an opt-in approach will allow those businesses that are working with few or no staff to adopt the new BAS Easy system and save time and effort should they so wish.”

The Bill enables the small businesses to use a simplified GST accounting method and potentially apply a single ratio to their total sales or total purchases. This is the ratio method, or BAS Easy.

The Treasurer has attacked Labor’s ratio method during each of the last two parliamentary terms. He even attacked the policy in an article in the Australian Financial Review on 26 April: “Costello sour on Labor’s BAS sweetener”.

The government voted against BAS Easy in a second reading amendment to the Tax Laws Amendment (Small Business) Bill which read “Whilst not declining to give the bill a second reading, the House calls on the government to implement Labor’s BAS Easy option for simplifying GST bookkeeping requirements on small business with an annual turnover of less than two million dollars.”

Labor Leader Kevin Rudd set the challenge to the government in his National Press Club speech on 17 April to support the recommendation in the Banks Report Rethinking Regulation to increase GST registration from $50,000 to $75,000.

The government responded by agreeing in the Budget to increase the availability of simplified accounting methods and to raise threshold for compulsory GST registration from $50,000 to $75,000.

The GST Act allows the Commissioner to determine simplified accounting methods for:

• retailers that sell both taxable and GST-free food and have an annual turnover is not more than the relevant threshold ($1 million or $2 million, depending on the method used); or
• entities that make supplies that are GST-free under the GST concession for charities.

Currently, the Commissioner can only determine simplified accounting methods for retailers who sell food, or who make supplies that are GST-free under the GST concession for charities. Retailers that sell food include supermarkets, convenience stores, restaurants and cafes.

This Bill extends the range of eligible businesses for whom the Commissioner can determine simplified accounting methods to all small businesses (rather than just retailers) and to other entities (individuals, trusts, partnerships etc) with an annual turnover of less than $2 million that either make mixed supplies or have mixed inputs. The Commissioner can continue to determine simplified accounting methods for retailers and charities.

This constitutes a large broadening of eligibility to simplified accounting methods for GST to all business and entities that deal with GST mixed supplies and inputs with an annual turnover of less than $2 million.

Many businesses buy and sell products that are taxable as well as products that are GST-free. Others buy taxable and GST-free products and sell only taxable products. Accurately identifying and recording GST-free sales separately from those that are taxable can be difficult, which makes accounting for GST complicated.

The Commissioner can currently determine simplified accounting methods for retail businesses that sell food (taxable and non-taxable) to make it easier for them to account for GST. The Commissioner has so far developed five simplified methods to choose from depending on annual turnover, the nature of the business, and the nature of the point-of-sale equipment as set out in an ATO GST guide. These methods are the Business norms method, Stock purchases method, Snapshot method, Sales percentage method and Purchases snapshot method and are set out in ‘simplified GST accounting methods guide’.

Under the business norms method standard percentages are applied to sales and purchases. Under the Stock purchases method businesses take a sample of purchases and use this sample. Under the Snapshot method businesses take a snapshot of sales and purchases and use this. Under the Sales percentage method business work out what percentage of GST-free sales made in a tax period and apply this to purchases. Under the purchases snapshot method, business take a snapshot of purchases and use this to calculate GST credits.

The methods avoid the need for eligible retailers to identify and separately track GST-free and taxable sales. They will be able to calculate the percentage of their turnover that relates to taxable sales and calculate the GST on that basis.

Currently there are no simplified accounting methods specifically for charities. A retailer is defined as someone who supplies goods. Consequently charitable institutions, trustees of charitable funds and gift deductible entities that make non-commercial supplies of goods may be able to take advantage of the simplified GST methods.

At this point in time the Commissioner has not made a determination about simplified accounting methods for the charitable sector. Negotiations between several larger charities that run family stores or thrift shops and the ATO are currently underway and it is anticipated that a determination on a simplified accounting method for the sector will follow this process.

I am somewhat surprised no methods have been created for charities as the ability for the Tax Office to do so has existed for an number of years.

However, there are a range of GST concessions that are available to non-profit organisations.

This Bill, by extending the range of businesses eligible for simplified methods, provides the Commissioner with the power to develop more methods to suit these newly eligible businesses. Eligible small businesses will only be able to approach the Tax Office to seek a ratio.

While Labor is pleased that the Government is implementing this simplification measure. However, the Government needs to do a lot more to ease the regulatory burden on small business.

A special survey on red-tape released by MYOB in January 2007 found that over two-thirds (68 per cent) of the respondents reported the bookkeeping requirements of the BAS as being the most onerous red-tape burden they had to deal with.

The GST his been operating for six years and yet the government has failed to significantly reduce the GST compliance burden on small business.

The failure to reduce GST red-tape is part of a wider red-tape problem affecting the economy. Despite the government having committed to a reduction in red-tape of 50 per cent in 1997, the red-tape burden has increased in recent years with the burden falling most heavily on small business, according to the Productivity Commission.

The Audit Office has recently revealed that more than 600,000 small businesses and independent contractors owe in excess of $4 billion in GST to the Tax Office, indicating that small business is still struggling with the GST.

Labor also has a plan to harmonise state and territory legislation through incentive payments similar to the system of competition payments made available to the states by the Commonwealth to implement National Competition Policy reforms.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

I thank senators for their contributions to the debate on Tax Laws Amendment (Simplified GST Accounting) Bill 2007. In defence of the government and Senator Murray, I think we ought to remind Senator Sherry of the concept of continuous improvement. That is something that the government believes in, and we will continue to take that concept as one of our tenets. As we see improvements that can be made, we will continue to do that.

As announced in the 2007-08 budget, this bill expands the existing GST simplified accounting arrangements, reducing red tape and compliance costs for Australian small businesses. The Labor Party has claimed that the government is adopting Labor’s policy in this area, and I note that the changes in this bill simply expand on the government’s idea which has been in place since the inception of GST. Since GST began in July 2000, the GST law has enabled the Commissioner of Taxation to offer simplified accounting methods for use by eligible businesses. Over time, the government has expanded the availability of these simplified accounting methods to include a wider range of small businesses. From 1 July 2007 the simplified accounting methods will be available for businesses or entities such as charities that have an annual turnover of less than $2 million and either make a mix of taxable and GST-free supplies or have acquisitions of taxable supplies and GST-free supplies.

The government recognises that small businesses make a substantial contribution to our economy and to Australia and that they are a vital source of jobs, exports and innovation. The measure in this bill is part of the government’s commitment to helping the small business sector. The government has significantly reduced business compliance costs, including the costs of complying with their GST obligations. In particular, some of the types of businesses that are expected to benefit from this initiative include small businesses that export goods or services, optometrists, retirement village operators, childcare operators, chemists, educational institutions, travel agents and health retailers. This bill implements positive improvements to Australia’s taxation system and I commend the bill to the Senate.

Question agreed to.

Bill read a second time.