Chapter 1: Terms of Reference and Recommendations

Date

Background to the Committee

On 13 August 1998 the Prime Minister announced a wide ranging reform to Australia’s taxation system. The reforms were documented in the publication Tax Reform: not a new tax, a new tax system. The Government’s goals were as follows:

  • significant reductions in personal income tax through an increase in the tax free threshold and decreases in all marginal tax rates except the top rate. This measure is estimated to be worth around $13 billion a year and means 80 per cent of taxpayers will have a top marginal tax rate of 30 per cent or less;
  • a better interaction between the tax and social security systems so that there are increased work incentives. This is to be achieved through a combination of reduced personal income tax rates on additional private income and a substantial easing in the income test for family payments as private income is increased;
  • increases in family assistance combined with a simpler structure and delivery of family assistance; and
  • replacing wholesale sales tax and nine State and Territory Government taxes with a GST which will be locked in at a rate of 10 per cent.

The package foreshadowed a targeted consultation process, to be undertaken by a Tax Consultative Committee, to assist in determining the final design of five key matters in the GST.

Terms of reference

The Tax Consultative Committee was appointed by the Treasurer, the Hon Peter Costello MP, on 26 October 1998. The Treasurer announced the Committee’s terms of reference on 27 October 1998 as follows:

  1. The Government announced, in Tax Reform: not a new tax, a new tax system, that a distinguished Australian would be appointed to chair a Tax Consultative Committee to assist the Government in targeted consultation on outstanding GST design issues.

  2. The design issues the Government requires assistance with are determining the scope of four of the GST-free areas as follows:

  • health;
  • education;
  • religious services; and
  • non-commercial activities of charities.

3. The Committee will also consult on specified transitional arrangements relating to motor vehicles.

  1. In framing its recommendations to the Government, the Tax Consultative Committee will need to:
  • take into account the policies laid down in Tax Reform: not a new tax, a new tax system and other Government announcements in these areas;
  • ensure the tax system minimises any discrimination between private and public provision of goods and services in the GST-free areas;
  • ensure business and charitable organisations are treated on an equivalent basis where they provide similar goods and services on a commercial basis to consumers;
  • ensure the recommended scope of the GST-free areas are as simple and clear as possible;
  • ensure the resulting compliance and administrative costs of its recommendations are kept to a minimum; and
  • ensure its recommendations do not have significant adverse revenue impacts.

5. Given the Government’s proposed implementation timetable for tax reform, the Tax Consultative Committee will report its recommendations to the Government by 13 November 1998 in a form readily transferable into legislation.

6. The Committee may invite submissions and seek information from any persons or bodies to assist in reporting to the Government. Policy and implementation issues raised with the Committee that fall outside the scope of this consultation process will be immediately referred to the Government’s Taxation Reform Task Force.

Summary of recommendations

The Committee’s recommendations are as follows:

Health

Medical (health) services

Recommendation 1

GST-free treatment should apply to:

  • Clinically relevant health services provided by a registered medical practitioner (as defined in section 3 of the Health Insurance Act 1973).
  • Including those services provided on behalf of a medical practitioner such as nurses, audiologists, radiographers as outlined in paragraph 12.2 of the Medicare Benefits Schedule and section 3AA of the Health Insurance Act 1973).
  • Excluding certain medical procedures (primarily cosmetic surgery such as tattoo removal) specified in paragraphs 13.2.4 and 13.1.2 of the Medicare Benefits Schedule.
  • Commonly used health services as listed in ‘Tax Reform: not a new tax, a new tax system’ together with the additional services below:
  • osteopathy;
  • chiropody;
  • speech pathology;
  • audiology, audiometry;
  • ambulance;
  • paramedical;
  • nursing;
  • aboriginal health services;
  • social work services;
  • pharmacy; and
  • psychology.
  • Listed services must be clinically relevant and be of the type normally supplied in that profession. The practitioner must also be a member of a relevant professional body subject to State government professional registration or uniform national professional self-regulation.
  • Services, such as coordination services, funded through Commonwealth and State Government programs that are integral to the delivery of qualifying health services for patients.
  • Such services should be GST-free where they are approved by the Minister for Health and Aged Care as essential for patient welfare.
  • Ambulance subscription fees should also be GST-free.
  • GST-free treatment should also extend to goods provided as part of the service and administered on the premises where the service is performed.

Hospital services

Recommendation 2

GST-free treatment should apply to:

  • Public hospital services as defined in the Australian Health Care Agreements 1998-2003 (and subsequent agreements) between the Commonwealth and States; or replacement agreements, except for those services defined under paragraphs 13.2.4 and 13.1.2 of the Medicare Benefits Schedule; and
  • Hospital treatment as defined in section 67 of the National Health Act 1953 delivered to private patients (whether covered by private health insurance or self-insured) by a private hospital (as defined in subsection 3(1) of the Health Insurance Act 1973) or by day hospital facility (as defined in subsection 4(1) of the National Health Act 1953) except for those services defined under paragraphs 13.2.4 and 13.1.2 of the Medicare Benefits Schedule.
  • GST-free treatment should also extend to goods provided as part of the service and administered on the premises where the service is performed.

Residential care

Recommendation 3
  • The supply of goods and services listed in the Quality of Care Principles (subordinate legislation to the Aged Care Act 1997) and provided by ‘qualifying institutions and projects’ should be GST-free.
  • Goods and services listed under the Quality of Care Principles are broad ranging and include accommodation and maintenance of buildings and grounds, personal care services, treatments and procedures, recreational therapy, a limited range of furnishings, and bedding. These services do not include additional items such as television hire and hair dressing.

Qualifying institutions and projects are those:

  • Funded under the Aged Care Act 1997.
  • Funded under the Disabilities Services Act 1986 or complementary State or Territory legislation.
  • Funded privately, but assessed by the Commonwealth as providing services similar in nature and objective to Aged Care Act 1997.
  • Decisions on assessment arrangements, and whether cost recovery should be part of any Commonwealth a
    ssessment, to be decided by the Minister for Health and Aged Care.
  • Funded under annual appropriations through the Health and Aged Care and Family and Community Services portfolios or equivalents in the States and Territories, and approved by the Minister for Health and Aged Care, as providing services similar in nature and objectives to facilities funded under the Aged Care Act 1997.

Community care

Recommendation 4

GST-free treatment should apply to:

  • services funded under the Home and Community Care (HACC) program;
  • services provided to a person residing at home under the Aged Care Act 1997;
  • services provided to a person residing at home and funded under the Health and Aged Care or Family and Community Services portfolio and approved by the Minister for Health and Aged Care as being similar in nature and objectives to HACC services;
  • services provided to a person residing at home and funded through State and Territory budgets and approved by the Minister for Health and Aged Care as being similar in nature and objectives to HACC services; and
  • daily living activities assistance services purchased from the private market, as set out at item 2.1 of Schedule 1 of the Quality of Care Principles and provided in the person’s own accommodation.

Disability services

Recommendation 5
  • The Government should not extend GST-free treatment for disabled services beyond its recommendations regarding residential care and community care.

Medical appliances and aids

Recommendation 6
  • The committee recommends that the list of appliances and aids (as set out on pages 41 45) should be given GST-free treatment where they are specifically designed for people with an illness or disability and are not of a kind ordinarily used in the wider community.

Drugs and medicines

Recommendation 7

GST-free treatment should apply to:

  • drugs and medicines that can only be provided on prescription (S4 and S8 items on the Standard for the uniform scheduling of drugs and poisons);
  • drugs and medicines that can only be sold within a pharmacy under the advice of a pharmacist (S3 on the Standard for the uniform scheduling of drugs and poisons); and
  • Schedule of Pharmaceutical Benefits (PBS) and Repatriation Schedule of Pharmaceutical Benefits (RPBS) products provided on prescription.

Education

Recommendation 8
  • That courses and institutions qualifying for GST-free treatment be determined by reference to, but not limited to, the Education Minister’s Determination of Education Institutions and Courses under Subsections 3(1) and 5(D) of the Student Assistance Act 1973.
  • In accordance with the Determination, GST-free treatment to apply to:
  • recognised secondary schools;
  • recognised special schools;
  • recognised Technical and Further Education institutions;
  • recognised Higher Education institutions;
  • recognised Non-government Higher Education institutions;
  • recognised Non-government Registered Training Organisations;
  • approved Secondary or Tertiary courses conducted in approved educational institutions. In general, the approved courses rely on accreditation by the relevant State or Territory registration authority;
  • accredited vocational educational and training courses excluding recreation leisure and personal enrichment courses activities, or ‘hobby’ courses;
  • English as a Second Language, Adult and Community Education, bridging, preparatory and remedial literacy and numeracy courses provided they are accredited with the relevant State or Territory accreditation authority and are not classified as ‘hobby’ courses.
Recommendation 9
  • In addition to those institutions and courses identified by the Determination, additional legislative provisions should be made so that GST-free treatment apply to:
  • recognised kindergartens, pre-schools and primary schools;
  • private-for-profit schools delivering curriculums recognised by the relevant State/Territory Education Department;
  • recognised special education centres;
  • recognised Masters and Doctoral level courses; and
  • English language courses for overseas students, or combination English language and other courses for overseas students provided by an approved provider accredited to provide English language courses to overseas students by the designated State or Territory authority.
Recommendation 10
  • The GST legislation needs to reflect the notion that ‘tuition’ provided by an educational institution extend to include any activity undertaken by the educational institution which occurs during the delivery of the course and is directly related to the curriculum. This would include:
  • teaching the course;
  • activities associated with the course, such as library and computer access;
  • course materials such as photocopied educational materials, taped lectures, lecture notes;
  • the supply by the institution of goods that are necessarily consumed or transformed as part of the course;
  • the assessment and issuing of qualifications relating to the course;
  • curriculum related field trips and excursions;
    • This would apply to payments for primary and secondary school excursions (including travel but excluding the food component) and to tertiary excursions (excluding the food and short-term accommodation components). Both must directly relate to the curriculum being undertaken.
  • compulsory administrative charges, including general service fees (other than fees for membership to an association); and
  • the assessment and issuing of qualifications by an organisation or education institution that is registered by the relevant State or Territory training recognition authority in accordance with the Australian Recognition Framework to provide skill recognition (assessment only) services.
Recommendation 11
  • That private tuition be taxed except where a recognised institution, including a University College, engages private tutors, for example music or sports specialists, to provide tuition on behalf of the institution.
Recommendation 12
  • In terms of accommodation:
  • the supply of accommodation by an educational institution on its premises to students of the institution, provided the institution is a recognised primary or secondary school, be GST-free;
  • accommodation provided by tertiary institutions to students undertaking a tertiary course or a post-graduate course is to be treated as residential accommodation (that is, input taxed);
    • educational and religious services should remain GST-free where provided by a University College.
Recommendation 13
  • If boarding school accommodation or university accommodation is provided to a person who is not undertaking a GST-free education course, then this accommodation should be treated on the same basis as that applying to ordinary short-term or long-term residential accommodation.
Recommendation 14
  • The GST-free status of rural student hostels to be:
  • as for boarding schools, the boarding school element of boarding costs at an accredited rural student hostel should enjoy GST-free status in respect of students attending schools primary and secondary schools recognised under the Determination and who reside in the hostel in school term time.
    • A rural student hostel might be defined as a hostel in a State or Territory that is conducted by a government or non-government body and whose primary purpose is to provide accommodation for students from rural areas who are undertaking an educational course.
    • If the hostel provides accommodation to a person who is
      not undertaking a GST-free education course, then this accommodation should be treated on the same basis as that applying to other commercial accommodation.
Recommendation 15
  • In terms of equitable treatment with the business sector for which the Government has earmarked some $500 million, the Committee recommends that the education sector should share in these funds.
Recommendation 16
  • In the case of institutions which have a mix of taxable and non-taxable activities, the Government should consider introducing a simple apportionment rule whereby the institution claims credits based on the proportion of its total activities which are not input-taxed.
Recommendation 17
  • To help minimise the compliance costs of the GST, the Committee recommends that where an organisation has no income tax liability, such organisations be allowed to account for the GST on the same basis as they maintain their accounts.
Recommendation 18
  • Independent non-profit research institutes be entitled to the same treatment as universities with regard to their research activities.

Religious services

Recommendation 19

GST-free treatment should apply to a service provided by a religious institution:

  • which is integral to the practice of that religion; and
  • is not of a kind ordinarily delivered by a non-religious organisation.

Non-commercial activities of charities

Recommendation 20

The Government should adopt an approach that defines a ‘non-commercial’ supply by a tax deductible body as:

  • a supply of donated second-hand goods; or
  • a supply that is for nominal or insubstantial consideration.

‘Nominal or insubstantial consideration’ is a payment of a price that is less than 50 per cent of the normal market value of the supply.

Motor vehicles – transitional arrangements

Recommendation 21
  • The Committee has considered a range of options to mitigate the transitional effects on the motor vehicle industry. The Committee believes that any transitional arrangements should be considered in the context of the substantial long term benefits to the motor vehicle industry in Australia.
  • The Committee acknowledges the claims being made by the industry that there will be significant disruption as a result of the Government’s proposed transitional arrangements. The Committee does not believe it is in a position to fully assess the precise validity of these claims. Indeed the Committee believes that the nature of the available data is such that it may be impossible to form definitive conclusions about the precise impact on various sectors of the motor vehicle industry. The Committee is also aware that industry participants have already begun to plan purchases and generally modify their behaviour in response to the Government’s announced policy.
  • Against this context, the Committee believes that, on the basis of the information available to it, the Government’s announced policy is not an unreasonable response to the difficult issues faced by the motor vehicle industry in the transition period. However, the Committee believes that the Government should fully satisfy itself that the sectoral impacts are acceptable.
  • Finally, the possibility of allowing a deferred input tax credit in respect of purchases of motor vehicles post 1 July 2000 would help to clawback the reduction in business costs effective from that time. It would also allow businesses the time to adjust to the overall impact of price reductions of motor vehicles on a net/net basis.

Review mechanism

Recommendation 22
  • The Government should establish a formal and ongoing review Committee whose role it would be to provide periodic advice to the Treasurer in relation to the various issues or anomalies that will inevitably arise; and
  • that the legislative implementation of its recommendations on GST-free activities should be flexible enough to accommodate correcting these anomalies at short notice.

Compliance costs

Recommendation 23
  • The Committee recommends that the Government ensure that entities dealing with largely GST-free activities be entitled to participate in GST implementation funding. The Committee believes this would be appropriate given that the extra compliance costs due to the start-up phase of the GST will apply to all those in the GST system and not just those who will be net remitters of tax.