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Summary of observations - Australian Bankers Association

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					Submission to ―Internationally
 benchmarking the Australian
        tax system‖:


 Towards an internationally
 competitive Australian tax
  system which positions
    Australia for growth



                             Compiled by
                       Tony Burke, Director
                           24 March 2006




           Australian Bankers‘ Association Inc. ARBN 117 262 978
     (Incorporated in New South Wales). Liability of members is limited.
                                           Table of Contents



1.           Introduction --------------------------------------------------------------------------------- 3

2.           Summary of observations -------------------------------------------------------------- 4

3.           Internationally competitive income tax arrangements----------------------- 6

3.1          Competitiveness of the system is critical .............................................6

3.2          The review needs to present an overall assessment not just data .......6

3.3          Competitiveness benchmarked against countries relevant to Australia
             ...............................................................................................................7

3.4    Several reports provide strong indicators of areas of
uncompetitiveness ...............................................................................................7

3.5     Optional, subject to ABA input - Legislative drafting and over
complexity .......................................................................................................... 10

3.6          Observations ....................................................................................... 10

4.     Progress toward abolition of state taxes under inter governmental
agreement ----------------------------------------------------------------------------------------------- 11

4.1          The progress of State and Territory reforms to date........................... 11

4.2          Ongoing State and Territory reforms .................................................. 11

4.3          Observations ....................................................................................... 12

5.           Remaining financial transactions taxes and duties and payroll tax -- 13

5.1          Observations: ...................................................................................... 14

5.2          Payroll tax – a highly inefficient source of State tax revenue ............. 14

5.3          Observation: Payroll tax is a highly inefficient source of tax revenue16

6.        Internationally competitive indirect tax arrangements - GST and
financial supplies ------------------------------------------------------------------------------------- 17

6.1          The current structure........................................................................... 17

6.2          Problems with the current structure ................................................... 17

6.3          Overseas approaches .......................................................................... 17

6.4          Observations ....................................................................................... 19
AUSTRALIAN BANKERS’ ASSOCIATION                                                                               II




7.          FBT ------------------------------------------------------------------------------------------- 19

Appendix A - State and Territory Taxes abolished since the IGA ------------------- 20

APPENDIX B - Proposed Timetable for Abolition of Other State and Territory
Taxes ------------------------------------------------------------------------------------------------------ 21

APPENDIX C - Financial Transactions Taxes and Insurance Levies Not Subject
to the IGA ------------------------------------------------------------------------------------------------ 22

APPENDIX D – Collection of GST on Financial Services ------------------------------- 33

APPENDIX E – GST on Financial Supplies – NZ Proportional Input Tax Credit 35
1.      Introduction

The Australian Bankers‘ Association (ABA) is pleased to provide this input1 to the international
benchmarking review of the Australian tax system being conducted by Mr Richard Warburton
and Mr Peter Hendy, supported by a Treasury Secretariat, announced by Federal Treasurer Mr
Peter Costello.

The ABA commends the Government and the Treasury for their commitment to the ongoing
process of reform of the Australian tax system.

Australia has already had an extensive period of tax reform. However, it is clear that more
needs to be done to ensure the competitiveness of the Australian economy. The purpose of
this submission is to provide input to the international benchmarking review from the
perspective of the banking industry and its customers.

The ABA supports the purpose of the benchmarking review. As stated by Treasurer Peter
Costello, the purpose is to ―enable a focus on the most important areas.‖ The benchmarking
study is clearly intended to provide a basis for appropriate Government action, and the ABA
would expect that the benchmarking survey will comment on the most important areas
deserving focus, from the point of view of international comparisons.

The primary view of the ABA is that the tax reform agenda should be focused upon improving
the efficiency of the tax system. Inefficiencies in the tax system impose a sunk cost of the
Australian economy. The inefficiencies can distort business decision making by imposing costs
on some activities and not upon others. Inefficiencies can also manifest themselves as
administrative complexity and cost.

The submission covers the following main points:

        (1)   Continued reform of the income tax rules is required. That reform should be
              focused on lowering the effective tax rate that applies to the taxation of income
              from labour, investment and savings. This should be achieved by a range of
              measures for individuals and companies. This is discussed at Section 3 of this
              submission.

        (2)   The program for the abolition of various transaction taxes that was commenced
              as part of the Inter-Governmental Agreement (IGA) at the time of the
              introduction of the Goods and Services Tax (GST) should be completed. This is
              discussed at Section 4.

        (3)   There are a number of other transaction taxes that remain in existence. These
              other inefficient transaction taxes should also be abolished. This is discussed at
              Section 4.

        (4)   In its current form payroll tax is an inefficient tax. A program for the reduction
              of the effective tax rate that applies to payroll taxes should be commenced. This
              is discussed at Section 5.




1
Prepared with the assistance of Ernst & Young
AUSTRALIAN BANKERS’ ASSOCIATION                                                   IV




        (5)   The GST treatment of business to business financial services supplies should be
              reformed. This is discussed at Section 6.

        (6)   Management of FBT and the RBS process is an inordinatel y complicated and
              inefficient process. This is discussed at Section 7.

The ABA would urge the benchmarking review to consider the implications of Australia‘s policy
settings not only in the business environment of the first quarter of 2006 but also, allowing for
the possibility of the strong growth in the resources sector slowing down, to ensure that the
review‘s product allows the Government to plan for the competitiveness of the Australian tax
system into the future and not just today.

2.      Summary of observations

        (1)   The ABA considers that international tax competitiveness in tax system settings
              is critical to Australia‘s growth.

        (2)   The ABA strongly supports the need to identify issues of efficiency and
              competitiveness. If the debate is conducted merely in terms of overall levels of
              tax as a percentage of GDP, that comparison will distort the debate and mislead
              the public and the Government in terms of action required. We look forward
              therefore to the review‘s report and its provision of judgment and overall
              assessment of the tax system.

        (3)   The ABA recommends that comparisons be presented against countries relevant
              to Australia not the entire OECD which contain less relevant or a ‗highly relevant
              group‖ as well as against the entire OECD, to enable the review‘s findings to
              achieve maximum acceptance and effectiveness.

        (4)   The ABA would urge the benchmarking review to use the BCA work and the
              Ernst & Young Taxation of Investment study as providing useful directional
              indicators of the most important areas for focus and to ensure that the data sets
              and comparative analysis from the benchmarking study enable attention to the
              issues raised in those studies.

        (5)   The ABA would urge the benchmarking review to consider the tradeoffs and the
              setting of an appropriate balance between efficiency and compliance issues
              associated with the way in which legislation is drafted.

        (6)   The IGA called for the Ministerial Council to review stamp duty on non-
              residential conveyances (i.e. on transfers of business assets and commercial
              real property) by 2005. Whilst all jurisdictions apart from New South Wales have
              since agreed to abolish duty on business conveyances, they have not done so in
              relation to dealings in commercial real property;

        (7)   The Commonwealth had hoped for the States and Territories to fast track reform
              of their tax bases. However, the States and Territories have taken a more long
              term approach, with the most significant changes occurring as late as 2011; and

        (8)   It should be noted that once the States and Territories completed reform their
              tax bases as presently agreed, stamp duty will continue to apply to all real
              property transactions.

        (9)   The ABA believes that the reform or abolition of the State taxes previously
              identified for be completed by all of the States and territories. The timetable for
AUSTRALIAN BANKERS’ ASSOCIATION                                                 V




             the reform and abolition should be reassessed so that they are completed before
             2011.

        (10) Even if the State and Territory governments remove all of the financial
             transactions taxes that are subject to the IGA, they would continue to raise
             revenue from a range of relatively inefficient financial transactions taxes and
             insurance levies.

        (11) Of these remaining financial transactions taxes and levies, it is the transfer
             taxes that are currently imposed on real property that are the most inefficient
             sources of revenue (i.e. stamp duty on non-residential and residential property).

        (12) Research suggests that there are significant gains in economic welfare, GDP and
             investment to be derived from reducing these remaining financial transactions
             taxes and insurance levies.

        (13) Contrary to popular belief, payroll tax is one of the most inefficient sources of
             State revenue and there are significant gains to be made from phasing out
             payroll tax.

        (14) We recommend that the New Zealand approach to the treatment of financial
             supplies in business to business transactions and between financial service
             providers be adopted in Australia.
AUSTRALIAN BANKERS’ ASSOCIATION                                                  VI




3.      Internationally competitive income tax arrangements

3.1     Competitiveness of the system is critical

The ABA strongly supports the need to identify issues of efficiency and competitiveness in
order to address the statement by the Federal Treasurer that ―it is important that Australia
build its competitiveness in all areas of policy.‖

Australians and Australian business are participants in international business, and the tax
system needs to properly position Australian businesses and individuals as outward looking
and engaged in global business activities. This is important because this global engagement
has the potential to develop Australia as a base for international business, and as a
headquarters location both for:

             international businesses with regional headquarters in Australia, and even more
              importantly,

             for Australian businesses which have a growth orientation.

The ABA considers that international tax competitiveness in tax system settings is critical to
Australia‘s growth.

3.2     The review needs to present an overall assessment not just data

The ABA notes the terms of reference which include provision of information on the overall
level of taxes, the tax mix, and the base and rates within each type of tax and that:

        “As appropriate, the study will also provide the information on the publicly stated
        rationales for different countries’ balances between efficiency, effectiveness and
        simplicity in the revenue raising effort of these countries.”

The ABA supports the need for the output of the benchmarking review to include:

        a) A description of the overall level of taxes and tax mix;

        b) competitiveness in order to address the statement by the Federal Treasurer that
           ―it is important that Australia build its competitiveness in all areas of policy;‖

        c) That the study address, as noted in the terms of reference, the balance between
           efficiency, effectiveness and simplicity in the revenue raising efforts.

The consideration of tax mix needs careful presentation in the report of the benchmarking
review, to ensure that issues of competitiveness and the overall assessment of the tax
system is not lost in the minutiae.

The ABA strongly supports the need to identify issues of efficiency and competi tiveness. If the
debate is conducted merely in terms of overall levels of tax as a percentage of GDP, that
comparison will distort the debate and mislead the public and the Government in terms of
action required.

This major report is clearly intended as a foundation for action by government, against a
general public acceptance of the issues for action. It would represent a significant lost
opportunity if the format of the report allowed readers to misunderstand the information and
jump merely to:

             Inappropriate headline indicators like the share of GDP from taxes or
AUSTRALIAN BANKERS’ ASSOCIATION                                                 VII




             Levels of tax in individual areas of tax

without seeing the full picture.

We look forward therefore to the review‘s report and its provision of judgment and overall
assessment of the tax system.

3.3     Competitiveness benchmarked against countries relevant to Australia

It is important that the benchmarking review ensure that its information represents
comparisons between Australia and the major other countries with which Australia is
competitive and with which Australia trades and interacts.

The OECD comparative data used in international tax comparisons can often be misleading
because of its inclusion of tax structures and tax levels from European, high-welfare and high-
taxing countries such as Scandinavian and some mainland European countries, with the result
that OECD midpoint and median comparatives are misleading. This has been recognised by
many commentators in the economic literature and in the media.

The comparison needs to benchmark Australia against:

        a) The countries with which Australia trades and interacts directly, so as to
           understand the relative competitiveness of Australia against its actual and
           potential competitors rather than countries which have minimal involvement with
           Australia; and

        b) To benchmark Australia against other locations in which foreign investment is
           made, to best understand Australia‘s competitiveness against other targets of
           foreign investment.

The key countries with which the most significant comparisons need to be made include the
OECD Americas Group, the OECD Asia and Pacific Group, and in relation to Europe in
particular UK, Belgium, Germany and France.

The ABA recommends that comparisons be presented against a ‗Highly relevant group‖ as well
as against the entire OECD, to enable the review‘s findings to achieve maximum acceptance
and effectiveness.

3.4     Several reports provide strong indicators of areas of uncompetitiveness

As stated by Treasurer Peter Costello, the benchmarking review is intended to ―enable a focus
on the most important areas.‖ The ABA would expect that the benchmarking survey will make
comments on the most important areas deserving focus. Even if the benchmarking study
does not provide formal recommendations to Government about its actions, the ABA expects
that the benchmarking study would be incomplete without a listing of the most important
areas requiring attention, as confirmed from the international comparisons and other material
available.

Numerous studies have identified key issues to be addressed in business taxation, in addition
to various reports focused only on personal taxation. Most recently the ABA specifically
acknowledges:

             the 2005 report by the Business Council of Australia ―Taxation Action Plan For
              Future Prosperity‖ (BCA Taxation Action Plan); and
AUSTRALIAN BANKERS’ ASSOCIATION                                                   VIII




             The 2006 Ernst & Young study ―Taxation of Investment in Australia: The Need
              For Ongoing Reform‖ (the Ernst & Young Investment Review)

which presented statistics and identified recommendations about problematical or inefficient,
or uncompetitive aspects of the Australian Tax System.

3.4.1   BCA Taxation Action Plan

The BCA Taxation Action Plan identified these key priorities:

             The highest steps in the personal tax rate scale should be substantially reduced
              and other changes need to be identified to the extent that they unavoidably and
              significantly weaken workforce participation.

             Temporary residents working in Australia need reform in relation to income from
              foreign workdays and the tax treatment of superannuation for temporary
              residents.

             The bias against dividends paid from foreign source income should be removed.

             A more competitive business taxation system should promote longer-term
              growth and productivity, focusing on the effective rates of tax on income from
              capital covering areas such as the capital allowance regime and consideration of
              the company taxation rate.

             The most highly inefficient State taxes, particularly on financial and insurance
              instruments, should be abolished.

             Emerging from a government review, tax uncertainty and compliance must be
              reduced and administrative tasks simplified, removing significant unnecessary
              costs on productivity.

             Biases and distortions against saving should be reduced.

             The efficiency and transparency of Commonwealth–State spending and revenue
              raising responsibilities must be improved with an aim to reduce the overall tax
              burden. This should include a review of Commonwealth State financial and tax
              sharing arrangements and the appropriateness of the tax mix across
              jurisdictions.

The Ernst & Young Investment Study analysed the effects of the tax system on investment in
Australia and outlined priorities for reform. It built on extensive research including
international comparisons to establish an effective cost of capital, allowing for taxes, for
Australian businesses which distribute their earnings to domestic Australian investors. It
identified these areas for action in relation to income tax issues:

             Australia‘s uncompetitively high personal tax rates tend to encourage alternative
              tax planning strategies rather than investment in equity in businesses because
              the cost of capital is higher than for other countries where dividends are
              distributed to individual investors. This needs action to reduce our high personal
              tax rates on income from capital and personal exertion).

             Australia‘s dividend imputation regime makes it relatively more difficult for
              Australian companies expanding their activities and investments offshore to
              raise the equity finance needed, as Australian investors receive no imputation
AUSTRALIAN BANKERS’ ASSOCIATION                                                   IX




             benefit for dividends from foreign earnings. This needs action to reduce the
             disincentive to invest offshore through Australian companies by introducing an
             internationally competitive process for domestic shareholder tax relief for
             unfranked dividends paid out of foreign source income. A partial credit, as
             recommended by Tax Board in 2002-3, would retain some advantage for
             Australian domestic earnings.

            Australia needs competitive tax recognition for Investment in physical assets.
             While Australia removed loadings in the Uniform Capital Allowances reform,
             other countries have retained concessional depreciation for capital expenditure,
             while also achieving a low corporate tax rate. This needs action to achieve more
             internationally competitive rules for investment in depreciable assets.

            Competitive tax recognition for intangible assets is needed. Australia‘s lack of
             write-offs for acquired business goodwill/intangibles results in comparative tax
             disadvantage for Australian companies to invest in intangible assets and lower
             scale, investment and Australian ownership of ideas developed in Australia.

            Australia needs more comprehensive tax recognition of business tax losses to
             encourage business vitality.

            As an alternative to the business base broadening relating to depreciable assets,
             intangible assets; and losses, reduce company tax rate to a more internationally
             competitive rate.

            Australia‘s high effective marginal tax rates on employment income reduce the
             ability of Australian businesses to attract and retain skilled labour and affect
             workforce participation.

            Temporary residents, even after desirable reforms in 2006, find Australian high
             effective marginal tax rates, no allowance for foreign workdays and inefficient
             treatment of temporary residents‘ superannuation, which add cost or deter
             individuals from working in Australia.

            Australia‘s limited tax treatment of child care discourages workforce
             participation.

            Australia‘s combination of welfare and tax issues needs attention to encourage
             individuals moving from welfare to the workforce.

            A more strategic and transparent approach to tax reform is needed because
             there is lack of public confidence in tax reform process due to a lack of a clear
             tax strategy for Australia and revenue forecasting processes are too narrowly
             focused, distorting public and even parliamentary perceptions.

The Ernst & Young Investment report was not targeted at state and indirect taxes or on
taxation of superannuation and savings.

These studies provide:

            useful directional indicators of the most important areas for focus and

            the areas for coverage in the data sets and comparative analysis from the
             benchmarking study.
AUSTRALIAN BANKERS’ ASSOCIATION                                                     X




3.5     Optional, subject to ABA input - Legislative drafting and over complexity

The benchmarking review should consider the legislative drafting approach adopted by the
various countries forming part of the review. In particular, the emphasis placed on efficiency
and simplicity in the revenue raising process should be assessed.

The ABA suggests that the tax drafting approach that has underpinned Australia‘s tax system
over the last decade pays insufficient regard to the need for efficiency and simplicity of the tax
legislation. The ABA notes in particular:

        a) The debt-equity measures contained known as Taxation Of Financial
           Arrangements (TOFA) Stage 1 are highly complex and which have generated
           various issues which have not been fully resolved to this day;

        b) The measures dealing with foreign currency transactions (TOFA Stage 2) are
           hugely complex and difficult to fully apply in practice; and

        c) The measures dealing with taxation of financial arrangements generally (TOFA
           Stages 3&4) contain a focus on coherent principle based drafting but where the
           current drafting approach will involve compliance costs and complexities for all
           taxpayers.

The ABA accepts that it is not realistic for a sophisticated economy with international
interactions to have completely simple tax legislation.   However, we would urge the
benchmarking review to consider the tradeoffs and the setting of an appropriate balance
between efficiency and compliance issues associated with the way in which legislation is
drafted.

3.6     Observations

        (1)   The ABA considers that international tax competitiveness in tax system settings
              is critical to Australia‘s growth.

        (2)   The ABA strongly supports the need to identify issues of efficiency and
              competitiveness. If the debate is conducted merely in terms of overall levels of
              tax as a percentage of GDP, that comparison will distort the debate and mislead
              the public and the Government in terms of action required. We look forward
              therefore to the review‘s report and its provision of judgment and overall
              assessment of the tax system.

        (3)   The ABA recommends that comparisons be presented against countries relevant
              to Australia not the entire OECD which contain less relevant or a ‗highly relevant
              group‖ as well as against the entire OECD, to enable the review‘s findings to
              achieve maximum acceptance and effectiveness.

        (4)   The ABA would urge the benchmarking review to use the BCA work and the
              Ernst & Young Taxation of Investment study as providing useful directional
              indicators of the most important areas for focus and to ensure that the data sets
              and comparative analysis from the benchmarking study enable attention to the
              issues raised in those studies.

        (5)   The ABA would urge the benchmarking review to consider the tradeoffs and the
              setting of an appropriate balance between efficiency and compliance issues
              associated with the way in which legislation is drafted.
AUSTRALIAN BANKERS’ ASSOCIATION                                                  XI




4.      Progress toward abolition of state taxes under inter governmental agreement

This section contains a stock take of the progress toward the abolition of various State based
taxes under the Inter-Governmental Agreement (IGA) entered into at the time of the
introduction of GST and an overview of whether the original agreement for abolition has been
achieved and the current status of these previously agreed reforms.

By entering the Inter-Governmental Agreement on the Reform of Commonwealth-State
Financial Relations (―IGA‖) commencing 1 July 1999 the Commonwealth and State and
Territory governments signaled their mutual desire for a new national tax system.

To achieve this new tax system, the Commonwealth pledged increased funding to the States
and Territories (using GST revenue). In response, the States and Territories agreed to abolish
a range of ―inefficient‖ taxes and gave an ongoing commitment to streamline their tax base.
The States and Territories‘ obligations in this regard are set out in Part 2 of the IGA.

4.1     The progress of State and Territory reforms to date

Under Part 2 Item (vi) of the IGA the States and Territories agreed to abolish the following
taxes:

             Bed taxes from 1 July 2000;

             Financial institutions duty (FID) from 1 July 2001;

             Stamp duties on quoted marketable securities from 1 July 2001; and

             Bank Account Debits (BAD) tax by 1 July 2005 (timeframe subject to review).

All jurisdictions met their obligations in relation to the above taxes in the agreed timeframe.
Some went further and abolished a number of additional duties. Of note are the following
(which are set out in Appendix A):

             unquoted marketable securities duty in Victoria, Tasmania, and Western
              Australia;

             lease duty in Victoria, Queensland, Western Australia, Tasmania and South
              Australia;

             mortgage duty in Victoria;

             hire of goods duty in Tasmania; and

             life and workers compensation insurance duty in Western Australia.

4.2     Ongoing State and Territory reforms

Under Part 2 Item 5 (vii) of the IGA, the Ministerial Council (comprising the Treasurer of the
Commonwealth and each State and Territory or their delegates) was to review the need for
the retention of stamp duty on a wide range of instruments/transactions including leases,
mortgages, cheques, and non-residential conveyances by 2005.

Following the Ministerial Council meeting of 23 March 2005, all States and Territories (apart
from New South Wales and Western Australia) agreed to abolish the following taxes by 2011:

             Stamp duty on unquoted marketable securities;
AUSTRALIAN BANKERS’ ASSOCIATION                                                   XII




             Stamp duty on leases;

             Stamp duty on mortgages, bonds, debentures and other loans securities;

             Stamp duty on credit arrangements, instalment purchase arrangements and
              rental arrangements;

             Stamp duty on cheques, bills of exchange and promissory notes; and

             Stamp duty on business conveyances other than real property (such as goodwill,
              supply rights of a business and intellectual property).

More recently on 21 March 2006, Western Australia announced its intention to abolish stamp
duty on mortgages, hiring transactions and business conveyances other than real property by
2010.

New South Wales has stated that it does not intend to embark on any further tax reform.

The timeframe for removing the above taxes varies across jurisdictions. A table showing the
relative timetables is included at Appendix B of this report.

4.3     Observations

        (1)   The IGA called for the Ministerial Council to review stamp duty on non-
              residential conveyances (i.e. on transfers of business assets and commercial
              real property) by 2005. Whilst all jurisdictions apart from New South Wales have
              since agreed to abolish duty on business conveyances, they have not done so in
              relation to dealings in commercial real property;

        (2)   The Commonwealth had hoped for the States and Territories to fast track reform
              of their tax bases. However, the States and Territories have taken a more long
              term approach, with the most significant changes occurring as late as 2011; and

        (3)   It should be noted that once the States and Territories completed reform their
              tax bases as presently agreed, stamp duty will continue to apply to all real
              property transactions.

        (4)   The ABA believes that the reform or abolition of the State taxes previously
              identified for be completed by all of the States and territories. The timetable for
              the reform and abolition should be reassessed so that they are completed before
              2011.
AUSTRALIAN BANKERS’ ASSOCIATION                                                     XIII




5.      Remaining financial transactions taxes and duties and payroll tax

As outlined in the Appendix C, it is important to note that the States and Territories
currently raise revenue from a range of financial transactions taxes and levies on insurers
that are not subject to the IGA including:

               financial transactions such as:

            -     Transfer duty – that is, contract and conveyances duty imposed on real
                  property (including both real residential and real commercial property).
                  The transfer duties applying to residential housing are reduced to some
                  extent by the assistance provided to first home buyers;

            -     Deeds of Settlement duty, which is payable in all States except Western
                  Australia and the ACT;

            -     Agreements duty, which is payable in Western Australia, South Australia
                  and the Northern Territory;

               levies on insurers such as:

            -     Insurance duties which are levied on general and life insurance
                  premiums;

            -     Insurance Protection Tax, which is a tax specific to NSW that was
                  introduced to set up a fund to help builders warranty and compulsory
                  third party policy holders affected by the collapse of HIH Insurance
                  Limited. This is levied on general insurers and policy holders taking our
                  general insurance policies with non-registered insurers; and

            -     Emergency Services Levy, which is levied on insurers to fund the
                  provision of emergency services.

These remaining financial transactions taxes are all relatively inefficient sources of
revenue that also need to be phased out and replaced by more efficient sources of
revenue (e.g. GST).

As noted by Access Economics, the greatest gains in economic welfare, GDP and
investment would be derived from eliminating the most inefficient sources of State
Government revenue – stamp duties on conveyances, which include both stamp duties
on non-residential conveyances (i.e. commercial property) as well as residential
conveyances (i.e. residential property). 2




2
  Access Economics (2000), The Economic Impact of Reducing State Taxes on Property,
Report prepared for the Real Estate Institute of Australia, p. ii.
AUSTRALIAN BANKERS’ ASSOCIATION                                                    XIV




In particular, Access Economic noted that:

        All industries would benefit from a reduction in stamp duties on non-residential
        conveyances. The largest beneficiaries would be the wholesale, retail and repair
        industry, the business services industry and the accommodation, restaurants and
        clubs industry.

        … Not all industries would benefit from a reduction in stamp duties on residential
        conveyances. The largest beneficiaries would be the ownership of dwellings and
        residential construction industries. Some industries would be slightly negatively
        affected as employment is drawn away from those industries to residential
        construction.

Similarly, Access Economics estimated that there were further, albeit somewhat smaller,
gains in economic welfare, GDP and investment to be made from reducing insurance
levies:

        Almost all industries would benefit from a reduction in insurance companies‘
        contributions to fire brigades, particularly the: wholesale, retail and repair;
        ownership of dwellings; and, insurance industries.

5.1     Observations:

        (1)   Even if the State and Territory governments remove all of the financial
              transactions taxes that are subject to the IGA, they would continue to raise
              revenue from a range of relatively inefficient financial transactions taxes
              and insurance levies.

        (2)   Of these remaining financial transactions taxes and levies, it is the transfer
              taxes that are currently imposed on real property that are the most
              inefficient sources of revenue (i.e. stamp duty on non-residential and
              residential property).

        (3)   Research suggests that there are significant gains in economic welfare,
              GDP and investment to be derived from reducing these remaining financial
              transactions taxes and insurance levies.

5.2     Payroll tax – a highly inefficient source of State tax revenue

The remaining financial transactions taxes and duties outlined above are not the only
highly inefficient forms of State taxation. Australian State governments also continue to
rely heavily on highly inefficient payroll tax regimes as a source of revenue.

Unfortunately, there is a widespread misconception at the moment that payroll tax is a
relatively efficient source of revenue. This misconception arises from the results of
analyses that consider the impact of an ‗ideal‘ payroll tax that is comprehensive (i.e. it is
applied to all labour) and is levied at a uniform rate. Analysis of such an ‗ideal‘ payroll
tax regime leads to the conclusion that it is a relatively efficient source of revenue. That
is, it is argued that the long-term impact of payroll tax on employment is similar to that
of other broad-based taxes such as income tax and a value added tax.3



3
  See, for example, Matthew Ryan (1995), What future for payroll taxes in Australia?,
Treasury research Paper No. 10, The Commonwealth Treasury, Canberra, and NSW
AUSTRALIAN BANKERS’ ASSOCIATION                                                   XV




In practice, however, the payroll tax regimes actually applying in Australian States differ
significantly from this ‗ideal‘ form:

             the payroll tax base in each of the States is far from comprehensive.
              Rather, small businesses are exempted from payroll tax. As a result,
              payroll tax is only applied to larger employers with payrolls above a
              specified threshold, and those exemption thresholds vary significantly
              across States and Territories (e.g. from $600,000 in NSW to $1.25 million
              in the ACT). Overall, this means that only around one-half of labour
              income is subject to payroll tax; and

             rates of payroll tax also differ across the States and Territories (e.g. from
              4.75% in Queensland to 6.85% in the ACT. Indeed, rather than seek to
              improve the efficiency of their payroll tax regimes by broadening their
              payroll tax bases and implementing much lower and more uniform rates of
              payroll tax, most State Governments have been lifting the thresholds at
              which payroll tax applied, thereby narrowing the base even further and
              making it more difficult for the States to reduce their rates of payroll tax.

This means that payroll tax is much more inefficient source of State tax revenue than is
commonly believed. Differences in the effective rates of payroll tax levied on Australian
businesses distort patterns of production and resource use in Australia, thereby reducing
the efficiency with which the economy operates and reducing the competitiveness of
Australian businesses in the markets for both the goods and services they supply, as well
as in the markets for the financial, physical and human capital they use to produce those
goods and services. In particular, since the amount of payroll tax increases as the value
of the payroll increases, payroll tax tends to adversely affect those businesses, such as
banks and financial institutions, which have to employ large numbers of relatively highly
skilled and paid labour, in relation to other business activities that are much less labour
intensive.

In fact, contrary to research papers prepared by both the NSW Treasury4 and the
Commonwealth Treasury5 which suggest that payroll tax is as efficient as a VAT,
research by Econtech (1998) concluded that the payroll tax regime was as inefficient as
the sales tax regime:

        … the case for either reforming or abolishing payroll tax has at least equal
                                                   6
        weight to the case for abolishing sales tax .



Treasury (1999), The Case for Payroll Tax, Treasury Research and Information Paper,
99-3, September 1999.


4
  NSW Treasury (1999), The Case for Payroll Tax, Treasury Research and Information
Paper, 99-3, September 1999.
5
  Matthew Ryan (1995), What future for payroll taxes in Australia?, Treasury research
Paper No. 10, The Commonwealth Treasury, Canberra.
6
  Econtech (1998), Payroll Tax: Is it as good as a VAT or as bad as a sales tax? Report
prepared for the Australian Chamber of Commerce and Industry, 23 June 1998, p 17.
AUSTRALIAN BANKERS’ ASSOCIATION                                                   XVI




Similarly, the Allen Consulting Group report on The Impact of Payroll Taxation and the
Benefits of its Abolition concluded that:

        … the imposition of payroll tax serves to directly distort costs for business,
        reduce Australia‘s level of output, and hence impinge on economic growth and
        employment. Further, the inconsistencies that arise because of the unequal
        treatment of different enterprises and industries result in a significant
        misallocation of Australia‘s resources, further affecting employment, output and
        economic growth. Labour and product markets, as well as international trade,
        are distorted and operate inefficiently because of payroll tax.

Recent modelling shows that the present payroll tax imposes welfare costs on the
economy which in relative terms are even larger than the costs imposed by the wholesale
sales tax.7

The misconception that payroll taxes are a more efficient source of revenue than other
State taxes stems from a failure to analyse the effects of the small business exemption
from payroll tax. For example, Access Economic‘s paper The Economic Impact of
Reducing State Taxes on Property (2000) appears to show that payroll tax is a relatively
efficient source of revenue in relation to other State taxes. However, it is important to
note the caveat included in the report:

        The results are likely to underestimate the gains to economic welfare from
        reducing State taxes. This is because it is not possible to model varying rates of
        tax at thresholds of value of the tax base for each tax. In the case of payroll
        taxes, for example, there may be substantial efficiency costs from having a tax-
        free threshold (which encourages businesses to stay small). These efficiency
        issues are not captured in the model.8

5.3     Observation: Payroll tax is a highly inefficient source of tax revenue

        (1)   Contrary to popular belief, payroll tax is one of the most inefficient sources
              of State revenue and there are significant gains to be made from phasing
              out payroll tax.




7
  Allen Consulting Group (1998), The Impact of Payroll Taxation and the Benefits of its
Abolition, Report to the Australian Chamber of Commerce and Industry, p. 1
8
  Access Economics (2000), The Economic Impact of Reducing State Taxes on Property,
Report prepared for the Real Estate Institute of Australia, p. 15.
AUSTRALIAN BANKERS’ ASSOCIATION                                                    XVII




6.        Internationally competitive indirect tax arrangements - GST and financial
          supplies

This section deals with double taxation / cascading arising as a result of the input
taxation of business to business financial supplies under the Australian GST regime. In
this section, references are made to A New Tax System (Goods and Services Tax) Act
1999 (―GST Act‖) and A New Tax System (Goods and Services Tax) Regulations 1999
(―GST Regulations‖).

6.1       The current structure

The Australian GST regime treats financial supplies as input taxed: Division 40 of the GST
Act. A financial supply is the provision, acquisition or disposal of an interest defined in
regulation 40-5.09 of the GST Regulations.

Where a financial supply is input taxed, the effect is as follows:

          a) The financial supplier does not pay GST on the supply;

          b) The financial supplier cannot claim input tax credits on acquisitions relating
             to the supply, except for ―reduced credit acquisitions‖9; and

          c) The recipient of the supply is not entitled to an input tax credit.

6.2       Problems with the current structure

6.2.1.1. The over-taxation of businesses / tax cascading

Diagram 1 of Appendix D illustrates the collection of GST in a business supply chain
containing a financial supply transaction. This diagram indicates that GST is incurred as a
cost with no input tax credit by Financial Intermediary B. Once this occurs there are only
three possible results:

          a) The GST is effectively borne by Financial Intermediary B or by Business C;

          b) The GST is passed on in the price to the Final Consumer, to which GST is
             then added (cascading); or

          c) Some combination of (a) and (b).

The above is clearly inconsistent with the overall intention of GST as a tax on final private
consumption that should be neutral in its impact on business to business transactions
(see contrast: Diagram 2 of Appendix D).

6.3       Overseas approaches

6.3.1     New Zealand

6.3.1.1. Business to business transactions

New Zealand took steps to address this situation in 2003,10 with amending legislation
coming into effect on 1 January 2005. The effect of the New Zealand change is


9
    Pursuant to Division 70 of the GST Act and Regulation 70 of the GST Regulations.
AUSTRALIAN BANKERS’ ASSOCIATION                                                   XVIII




illustrated in Diagram 3 of Appendix D. The financial supplier can claim full input tax
credits on its acquisitions relating to supplies to registered businesses, which in turn will
reduce any acquisition costs passed on to Business C. Issues with the over-taxation of
business / tax cascades are eliminated.

Section 11A(1)(q) of the New Zealand Goods and Services Tax Act 1985 (―NZ GST Act‖)
treats financial supplies between businesses as GST free, provided an election has been
made under section 20F. These amendments were made in response to the problems of
over-taxing businesses, tax cascades and issues in relation to self supply.11 In order for
the transaction between registered businesses to be GST free, there is a threshold test
for the recipient of the supply. This threshold test requires that the level of taxable
supplies made by the recipient represents 75 percent or more of the recipient‘s total
supplies in a twelve-month period.12

Where the recipient is part of a tax group, the threshold test requires that the level of
taxable supplies made by the tax group to non-members represents 75 percent or more
of the tax group‘s total supplies to non-members in a twelve-month period. Accordingly,
financial supplies made between financial suppliers will not be GST free, as the recipient
financial supplier will not meet the threshold test.

6.3.1.2. Supplies of financial services between financial intermediaries

As discussed above, financial supplies made between financial suppliers are not GST free.
However, New Zealand allows a proportional input tax credit for a financial intermediary
providing a supply to another financial intermediary (see Diagram 4 of Appendix D). The
formula for this proportional input tax credit is contained in Appendix E. This proportion
is calculated by two fractions: the first is the proportion of the total value of exempt
(input taxed) supplies made by Financial Intermediary A against the total supplies made
by that supplier in a period. The second is the proportion of the total taxable and GST
free supplies made by Financial Intermediary B against the total supplies made by
Financial Intermediary B in that period. This proportional input tax credit reduces the
over-taxation of businesses where Financial Intermediary B makes supplies to registered
businesses.

Diagram 4 of Appendix D also illustrates how the two New Zealand measures discussed
above interact to reduce / preclude over-taxation / tax cascading in this area.




10
     Taxation (GST, Trans-Tasman, Imputation and Miscellaneous Provisions) Act 2003.
11
  See New Zealand Government Discussion Paper ―GST and financial services‖ circulated
by The Honourable Dr Michael Cullen, Minister for Finance and Revenue (October 2002)
and Commentary on the Bill - Taxation (Annual Rates, GST, Trans-Tasman Imputation
and Miscellaneous Provisions) Bill circulated by The Honourable Dr Michael Cullen,
Minister for Finance and Revenue (June 2003).
12
   Whether an entity has the relevant proportion of its transactions as taxable is
determined in accordance with the ―GST guidelines for working with the new zero-rating
rules for financial services‖ Inland Revenue Department (October 2004).
AUSTRALIAN BANKERS’ ASSOCIATION                                                   XIX




6.3.2   European Union

The Sixth VAT Directive does not contain measures that treat financial supplies made in
business to business transactions as GST free. However, a consultation paper specifically
considering the treatment of business to business transactions has been issued by the
Directorate General Taxation and Customs Union of the European Commission in relation
to modernising Value Added Tax obligations for financial service and insurances.13 The
paper makes it clear that after many years of conceptual analysis the New Zealand model
is the only method currently in use to address this problem.

6.4     Observations

        (1)   We recommend that the New Zealand approach to the treatment of
              financial supplies in business to business transactions and between
              financial service providers be adopted in Australia.

7.      FBT

In relation to FBT, the measurement of the taxable value for a range of benefits means
that this tax no longer reflects an accurate assessment of the true value of benefits. The
most extreme example is the definition of the benchmark interest rate that applies for
loan benefits. The current definition is linked to a loan type that is extremely rare in the
current market, meaning that FBT is paid on a benefit value that in no way reflects its
true value.

In a similar vein there are many thresholds included in taxable value calculations that are
not indexed, again resulting in an unfair overstatement of the taxable value in real
terms.




13
  ―Consultation Paper on modernising Value Added tax obligations for financial service
and insurances‖ European Commission Directorate General Taxation and Customs Union,
Indirect Taxation and Tax Administration, VAT and other turnover taxes (March 2006).
AUSTRALIAN BANKERS’ ASSOCIATION                                                       XX




                             Appendix A - State and Territory Taxes abolished since the IGA


     NSW                VIC               QLD                WA                 SA               TAS               ACT                NT

Bed taxes         Lease duty        Quoted             FID 01/07/01      Quoted            Quoted            FID 01/07/01      FID 01/07/01
01/07/00          26/04/01          marketable                           marketable        marketable
                                    securities duty    Quoted            securities duty   securities duty   Quoted            Quoted
FID 01/07/01      Quoted            01/07/01           marketable        01/07/01          01/07/01          marketable        marketable
                  marketable                           securities duty                                       securities duty   securities duty
Quoted            securities duty   Credit card duty   01/07/01          FID 01/07/01      FID 01/07/01      01/07/01          01/07/01
marketable        01/07/01          01/08/04
securities duty                                        Lease duty        Cheque duty       Unquoted          BAD 01/07/05      BAD 01/07/05
01/07/01          FID 01/07/01      BAD 01/07/05       01/01/04          01/07/04          marketable
                                                                                           securities duty
BAD 01/01/02      Unquoted          Lease duty         Cheque duty       Lease duty        01/07/02
                  marketable        01/01/06           01/01/04          01/07/04
                  securities duty                                                          Lease duty
                  01/07/02          Credit business    Unquoted          BAD 01/07/05      01/07/02
                                    duty 01/01/06      marketable
                  Mortgage duty                        securities duty                     Hire of goods
                  01/07/04                             01/01/04                            duty 01/07/02

                  BAD 01/07/05                         Life insurance                      BAD 01/07/05
                                                       and workers
                                                       compensation
                                                       insurance duty
                                                       01/07/04

                                                       BAD 01/07/05
      AUSTRALIAN BANKERS’ ASSOCIATION                                                        XXI




                       APPENDIX B - Proposed Timetable for Abolition of Other State and Territory Taxes

             NSW          VIC             QLD               WA                         SA                          TAS               ACT                NT

2005 - 06   BAD        BAD           BAD 01/07/05      BAD 01/07/05     BAD 01/07/05                           BAD 01/07/05     BAD 01/07/05      BAD 01/07/05
            01/01/02   01/07/05      Lease      duty                    Part Mortgage Duty 01/07/05                                               Electronic  debit
                                     01/01/06                                                                                                     transaction duty
                                     Credit business                                                                                              01/07/05
                                     duty 01/01/06
2006 - 07              Hire     of   Hire of goods     1/2   Mortgage   Other minor duties covered by the      1/2   Mortgage   Non-realty        Unquoted
                       goods duty    duty 01/01/07     duty 01/07/06    IGA 01/07/06                           duty 01/07/06    conveyances       marketable
                       01/01/07      Unquoted                                                                                   01/07/06          securities    duty
                                     marketable                                                                                                   01/07/06
                                     securities duty                                                                                              Lease         duty
                                     01/01/07                                                                                                     01/07/06
2007 - 08                            1/2 Reduction     Hire of goods    1/3 Reduction in rental business       Remaining        Hire of goods     Hiring        duty
                                     in    mortgage    duty 01/01/07    duty 01/07/07                          mortgage duty    duty 01/07/07     01/07/07
                                     duty 01/01/08                      1/3   reduction   of   remaining       01/07/07
                                                                        mortgage duty 01/07/07
2008 – 09                            Remaining         Remaining        1/3 reduction of remaining rental      Non-realty
                                     mortgage duty     mortgage duty    business duty 01/07/08                 conveyances
                                     01/01/09          01/07/08         1/3   reduction   of   remaining       01/07/08
                                                                        mortgage duty 01/07/08
2009 - 10                            1/2   reduction                    Remaining   rental   business   duty                    Lease    duty     Non-realty
                                     in   non-realty                    01/07/09                                                01/07/09          conveyances
                                     conveyances                        Remaining mortgage duty 01/07/09                                          01/07/09
                                     01/01/10
                                                                        1/2    Non-realty      conveyances
                                                                        01/07/09
                                                                        1/2 Unquoted marketable securities
                                                                        duty 01/07/09
2010 - 11                            Remaining non-    Non-realty       Remaining non-realty conveyances                        Marketable
                                     realty            conveyances      01/07/10                                                securities duty
                                     conveyances       01/07/10         Remaining unquoted marketable                           01/07/10
                                     01/01/11                           securities duty 01/07/10
      AUSTRALIAN BANKERS’ ASSOCIATION                                                          XXII




                   APPENDIX C - Financial Transactions Taxes and Insurance Levies Not Subject to the IGA


     TAX                NSW                 VIC               QLD                 WA                  SA               TAS                NT                ACT

Deeds of           Declarations of    Declarations of    Duty imposed       Not imposed       $10 or transfer    $20 or transfer    $20 or transfer   Not imposed
Settlement         Trust over         Trust over         at transfer duty                     duty rates. To     duty rates if      duty rates if
                   property that is   property that is   rates on trust                       be abolished       applicable.        applicable.
                   not dutiable       not dutiable       creations where                      from 1 July
                   property- $200     property- $200     trust holds                          2006.
                   per declaration.   per declaration.   dutiable
                                                         property.
Insurance Duty-
General            Duty rate on       10% of             7.5% of the        10% of gross      $11 per $100 or    8% or              10% of            10% of gross
insurance -        certain policies   previous           premium for        premiums.         part thereof of    premiums.          premiums          premium.
levied on a        is 9%. A           month‘s            contracts of                         premiums.                             (including
variety of         concessional       premiums.          class 1 general                                                            indemnity
insurance                                                                   10% of                               6% flat on 3rd                       Exemptions:
                   duty rate of 5%    Exemptions: no     insurance.                                                                 insurance).
policies such as                                                            premiums of       (Including         party motor                          Amateur
                   applies to motor   duty on workers
private motor                                                               compulsory 3rd    compulsory 3rd     vehicle                              sporting and
                   vehicle and        compensation,
vehicle,                                                 5% of net          party insurance   party              insurance.         Exemptions:       commodity not-
                   aviation           transport, or
occupational                                             premium for        for motor         premiums).                            Policies          for-profit bodies
                   insurance, to      commercial
indemnity and                                            motor vehicle      vehicles.                                               covering          exempt from
                   professional       marine                                                                     Exemptions:
home and home                                            (other than                                                                workers           duty on public
                   indemnity,         insurance.                                              Exemptions: no     No duty on
contents. The                                            compulsory 3rd                                                             compensation,     liability
                   disability                                               Exemptions:       duty on workers    workers
duty is                                                  party),                                                                    transport of      insurance and
                   income and                                               policies          compensation,      compensation,
generally based                                          professional                                                               goods and         other
                   consumer credit                                          covering          commercial         no duty on
on the annual                                            indemnity                                                                  commercial        prescribed
                   insurance. A                                             transport of      marine             public liability
premium.                                                 insurance,                                                                 marine hulls      general
                   concessional                                             goods,            insurance,         insurance.
                                                         personal injury                                                            exempt.           insurance
                   rate of 2.5%                                             commercial        private
                                                         related to a                                                                                 required to hold
                   applies to crop                                          marine hulls,     guarantee
                                                         person‘s travel                                         Mortgage:                            a public event.
                   and livestock                                            health            fidelity
                                                         on an aircraft,
                   insurance.                                               insurance,        insurance and
                                                         home mortgage
                   Exemptions                                               workers           policy of          2% of the                            No duty on
                                                         that is a first
                   apply to                                                 compensation      insurance by a     premium on the                       workers
                                                         mortgage, and
                   workers                                                  insurance and     registered         policy.                              compensation,
                                                         life insurance
                   compensation,                                            life insurance.   medical benefits                                        compulsory 3rd
      AUSTRALIAN BANKERS’ ASSOCIATION                                                        XXIII



     TAX               NSW                VIC                QLD                WA                   SA             TAS                NT                ACT

                  CTP motor                            riders.                              organisation.                                           party motor
                  vehicle green                                                                               $20 is                                vehicle personal
                  slips and                                                                                   chargeable on                         injury
                                                       10c flat on
                  policies held by                                                                            an annuity                            insurance,
                                                       compulsory 3rd
                  registered                                                                                  issued by a life                      health
                                                       party motor
                  charities.                                                                                  company, or                           insurance and
                                                       vehicle.
                                                                                                              purchased by a                        international
                                                                                                              person from a                         trade
                                                       Exemptions:                                            life company.                         insurance.
                                                       Premiums paid
                                                       for policies of
                                                       public liability
                                                       insurance by
                                                       ―not for profit
                                                       organisations.‖


                                                       Insurance
                                                       premiums for
                                                       hull of
                                                       commercial
                                                       vessels, goods
                                                       in transit,
                                                       health
                                                       insurance and
                                                       reinsurance
                                                       between
                                                       insurers.
Insurance Duty:   $0-$2000: $1       $200-$2000:       $0-$2000:          No duty on life   $1.50 per $100    Up to $2000:       10c per $100 or    Life Insurance
Life insurance-                      12c per $200 or   0.05%              insurance         or part thereof   10c per $200 or    part thereof the   (other than a
based on the                         part.                                policies.         of net            part               sum insured.       temporary or
                  Over $2000: $1
sum insured                                                                                 premiums of                                             term insurance
                  +20c per $200                        Over $2000:
(except in SA).                                                                             previous year                                           policy, or
                  or part thereof    Over $2000:       $1+0.1% of                                             Over $2000:
                                                                                            paid as annual                                          disability
                  in excess of                         balance.                                               $1+20c per
                                     $1.20 +24c per                                         licence.                                                income
                  $2000.                                                                                      $200 or part in
                                     $200 or part                                                                                                   insurance)
       AUSTRALIAN BANKERS’ ASSOCIATION                                                        XXIV



      TAX                 NSW                VIC                 QLD                WA               SA         TAS             NT               ACT

                                        above $2000.                                                       excess of
                                                                                                           $2000.                          $0- $2000: $1


                                                                                                                                           Over $2000:
                                                                                                                                           $1 +20c per
                                                                                                                                           $200 or part
                                                                                                                                           thereof in
                                        Term insurance:                                                                    Term or
                                                                                                                                           excess of
                     Term or            5% of first year                                                                   Temporary: 5%
                                                                                                                                           $2000.
                     Temporary:         premium.                                                           Term or         of first year
                                                           Term or
                                                                                                           Temporary       premium.
                     5% of first year                      Temporary
                                                                                                           policy: 5% of                   Term or
                     premium.                              insurance: 5%
                                                                                                           first year                      Temporary: 5%
                     Life Insurance                        of the first year
                                                                                                           premium.                        of the first year
                     riders:                               premium.
                                                                                                                                           premium.
                     5% of first year                                                                                                      Life Insurance
                     premium on the                                                                                                        Rider: 5% of
                     life insurance                                                                                                        the first year
                     rider.                                                                                                                premium.




Insurance            Tax consists of    Not imposed.       Not imposed         Not imposed   Not imposed   Not imposed     Not imposed     Not imposed
Protection Tax-      an annual levy
the liability of     of $69m.
an insurer to        General
pay the tax is       insurers
calculated by:       registered with
A=B/C xD             APRA contribute
                     $65m, based on
Where :
                     an
                     apportionment
A is the liability   by market
of the insurer       share of
for the year         premiums. The
       AUSTRALIAN BANKERS’ ASSOCIATION                    XXV



      TAX                NSW             VIC   QLD   WA         SA   TAS   NT   ACT

                    balance is
B is the total      contributed by a
amount of all       1% ad valorem
premiums            tax imposed on
received by the     brokers to
insurer for         overseas
general             general insurers
insurance in the    and domestic
preceding year      general insurers
less the total      who are not
amount of any       registered with
refunds of          APRA.
premiums made
by it in relation
to general
insurance in the
preceding year


C is the total
amount of all
premiums
received by all
insurers for
general
insurance in the
preceding year
less the total
amount of any
refunds of
premiums made
by those
insurers in
relation to
general
insurance in the
      AUSTRALIAN BANKERS’ ASSOCIATION                                                         XXVI



     TAX                NSW                VIC              QLD                WA                    SA               TAS                NT               ACT

preceding year


D is the total
amount of tax
imposed.
Agreements         Abolished          Abolished        Not imposed        Upper hand:        Upper hand:        Abolished.         Under seal: $20   Not imposed.
Duty- a flat fee                                                          not imposed.       not imposed                           (if in deed
imposed on                                                                Under seal:        unless                                form).
legal deeds and                                                           $20.               specifically
agreements.                                                                                  charged under
                                                                                             another head of
                                                                                             duty. Under
                                                                                             seal: $10 (if in
                                                                                             deed form).
Emergency          Once the cost of   MELBOURNE        The Qld Fire       The Emergency      Flat fee $50       FIRE SERVICES      Not imposed       Abolished.
Services Levy      operating the      FIRE AND         and Authority is   Services Levy is   ($20 for special   LEVY
                   services are       EMERGENCY        funded through     property based     community use      Insurance:
                   determined, the    SERVICES         a fire levy that   and collected by   category and $0
                                                                                                                Loss by fire,
                   amount is          BOARD            is collected on    the local          if outside Local
                                                                                                                loss of profits,
                   allocated across   Insurance        behalf of the      government         Govt. Areas)
                                                                                                                Contractor‘s
                   the insurance      Industry: 75%,   State              authorities. The   plus variable
                                                                                                                risk, boiler
                   industry, Local    Local            Government         levy rates vary    Levy rate based
                                                                                                                explosion and
                   Councils and       Government       through            by property        on capital value
                                                                                                                other:
                   State Budget in    12.5%, State     municipal rates.   type and by        adjusted for
                   the following                       The levy varies    region.            location and       28% of gross
                                      Government
                   proportions:                        according to                          land use as        premium.
                                      12.5%.
                   NSW FIRE                            property type                         follows:
                                      COUNTRY FIRE
                   BRIGADES                            and location.                         $50 + variable     Marine and
                                      AUTHORITY
                                                       Community                             component          cargo:
                   Insurance          Insurance        Ambulance                             (Capital value X
                   Industry:          Industry:                                                                 2% of gross
                                                       Cover (CAC) is                        Area factor X
                   73.3%., Local      77.5%, Local                                                              premium.
                                                       collected                             Land use factor
                   Government:        Government       through a                             X levy rate).
                   12.3%, State       0%, State        payment of                                               Aviation:
                   Government         Government                                             Concessions:
                                                       25.356 cents                                             14% of gross
      AUSTRALIAN BANKERS’ ASSOCIATION                                           XXVII



     TAX              NSW               VIC        QLD              WA                  SA              TAS                NT            ACT

                 14%.            22.5%.       per day or                        Up to $40          premium.
                 RURAL FIRE                   $92.55 per year                   concession
                 SERVICE                      on electricity                    applies to
                                                                                                   Local Council:
                                              accounts (for                     recipients of
                 Insurance
                                              2005-06).                         specified
                 Industry:
                                              (Increased by                     pensions and       Minimum levy
                 73.3%, Local
                                              CPI each year).                   Government         of $25 applies.
                 Government
                                                                                allowances and     Rates are based
                 13.3%, State
                                                                                to qualifying      on assessed
                 Government
                                                                                self funded        annual value
                 13%.
                                                                                retirees.          (AAV) of
                                                                                MOBILE             properties.
                                                                                PROPERTY
                                                                                (Levy rates net    Motor Vehicles
                                                                                of remissions).
                                                                                                   Registration of
                                                                                Cars and larger    motor vehicle:
                                                                                capacity motor     $11 per vehicle.
                                                                                cycles: $24
                                                                                Smaller
                                                                                capacity motor
                                                                                cycles: $12
                                                                                Commercial
                                                                                fishing vessels:
                                                                                $12, Historic
                                                                                vehicles: $6
                                                                                (certain
                                                                                variations for
                                                                                country based
                                                                                mobile property
                                                                                apply).


Transfer Duty    For Non-        $0-$20000:   $0-$20000:        $0-$80000: 2%   $0-$12000: 1%      $0-$1300: $20      $0-$500000:   $0-$100000:
(also known as   Residential     1.4%         1.5%                                                                                  $20 or $2 per
Contracts and    Property                     $20001-                                                                               $100 whichever
       AUSTRALIAN BANKERS’ ASSOCIATION                                                     XXVIII



      TAX                NSW               VIC              QLD               WA                    SA          TAS                 NT              ACT

Conveyances                           $20001-          $50000:           $80001-           $12001-         $1301-$10000:    Duty calculated   is greater.
Duty)-(applying     $0-$14,000        $115000:         $300 +2.25%       $100000:          $30000:         1.5% of          by the formula:
to real             1.25% (min $2)    $280 plus 2.4%   of dutiable       $1600+3%          $120+2%         dutiable value   D=(0.065(VxV)     $100001-
property).                            of dutiable      value exceeding                                                      +21V              $200000:
Levied on the                         value that       $20000.
                    $14001-                                              $100001-          $30001-         $10001-          Where             $2000+$3.5
transfer of real                      exceeds
                    $30000:                                              $250000:          $50000:         $30000:          D= duty           per $100 or
property. The                         $20000.
duty is usually     $175+1.50%                         $50001-           $2200+4%          $480+3%.        $150+2% of       payable in $      part thereof.
paid by the                                            $100000:                                            dutiable value   V=(total
purchaser and                         $115001-         $975+2.75% of                                       exceeding        value/1000)
                    $30001-                                              $250001-          $50001-                                            $200001-
based on the                          $870000:         dutiable value                                      $10000
                    $80000:                                              $500000:          $100000:                                           $300000:
sale price (or                        $2560 plus 6%    exceeding
                    $415+1.75%                         $50000.           $8200+5%.         $1080+3.5%                       Over $500000:     $5500+$4 per
value, if higher)                     of dutiable                                                          $30001-
                                                                                                                            5.4% of total     $100 or part
of the property.                      value that                                                           $75000:
                                                                                                                            value.            thereof.
                    $80000-           exceeds          $100001-          Over $500000:     $100001-        $550+2.5% of
                    $300000:          $115000.         $250000:          $20700+5.4%       $200000:
Tax Scale:                                                                                                 dutiable value
                    $1290+3.50%       Over $870000:    $2350 +3.25%      of dutiable                                        Payments are      $300001-
Marginal rates                                                                             $2830+4%        exceeding
                                      5.5% of total    of dutiable       value exceeding                                    due within 60     $500000:
are applied per                                                                                            $30000
                                      value.           value exceeding   $500000.                                           days of           $9500+$5.5
$100 or part of     $300001-                                                               $200001-
                                                       $100,000.                                                            instrument        per $100 or
the excess          $1000000:                                                              $250000:        $75001-          being executed,   part thereof.
above the lower     $8990+4.5%                                                                             $150000:
                                                                                           $6830+4.25%                      except for
limit of the                                           $250001-
                                                                                                           $1675+ 3% of     eligible
range unless                                           $500000:                                                                               $500001-
                    Over                                                 Documents to                      dutiable value   conditional
explicitly                                             $7225+3.5% of                       $250001-                                           $1000000:
                    $1000000:                                            be lodged                         exceeding        agreements
specified.                                             dutiable value                      $300000:                                           $20500+$5.75
                                                                         within 3 months                   $75000           where payment
                    $40490+5.5%                        exceeding                           $8955+4.75%                                        per $100 or
                                                                         of execution                                       is due from the
                                      Payments are     $250000.          and payment                                        earliest of:      part thereof.
                                      due within 3                                                         $150001-
                                                                         required within   $300001-
                                      months of                                                            $225000:
                    For Residential                    Over $500000:     3 months of the   $500000:                                           Over
                                      execution of                                                         $3925+3.5% of    a)60 days upon
                    Property                                             issue of the                                                         $1000000:
                                      instrument.      $15975+3.75%                        $11330+5%       dutiable value   which all
                                                                         assessment
                                                       of dutiable                                         exceeding        relevant          $49250+$6.75
                                                                         notice.
                    Same as for                        value exceeding                                     $150000.         conditions are    per $100 or
                                                                                           Over $500000:
                    non-residential                    $500000.                                                             satisfied;        part thereof.
                                                                                           $21330+5.5%
                    property                                                                               Over $225000:
     AUSTRALIAN BANKERS’ ASSOCIATION                                                     XXIX



    TAX              NSW                VIC              QLD                WA                  SA             TAS                 NT                 ACT

                except:                                                                                   $6550+4% of        b)60 days from     If the value of
                                                    Payments are                         Payments due     dutiable value     date conveyee      business assets
                                                    generally due                       within 2 months   exceeding          has right to       is $1m or more
                Over
                                                    within 30 days                      of execution of   $225000.           possession of      than the duty
                $3000000:
                                                    of the date of                      instrument.                          property;          rate is $6000 +
                $150490+7%                                                                                                                      $5.5 per $100
                                                    assessment.                                           Payments due
                                                                                                                                                or part thereof
                                                                                                          within 3 months    c)60 days from
                Liability                                                                                                                       over $1m.
                                                                                                          of incurring the   a sub sale
                includes                                                                                  liability to pay
                contents of                                                                               duty.                                 If the value of
                buildings.                                                                                                   d)Date specified
                                                                                                                                                business assets
                                                                                                                             by written
                                                                                                                                                is less than
                                                                                                                             notice by the
                Various                                                                                                                         $1m, then the
                                                                                                                             Commissioner
                exemptions are                                                                                                                  rate of duty is
                available.                                                                                                                      $0.6 per $100
                                                                                                                             e) I) 24 months    or part thereof.
                                                                                                                             after execution
                Payments are                                                                                                 for off the plan
                due within 3                                                                                                                    Documents to
                                                                                                                             or subdivision
                months of when                                                                                                                  be lodged and
                                                                                                                             agreement; or
                a transfer of                                                                                                                   payment
                                                                                                                             II) 12 months
                dutiable                                                                                                                        required within
                                                                                                                             after agreement
                property occurs                                                                                                                 90 days of the
                                                                                                                             first executed.
                or within 3                                                                                                                     liability arising.
                months of
                execution of an
                instrument
                transferring
                dutiable
                property.


Home purchase   First Home Plus    For Concession   For first homes   The purchaser     For first homes   Duty on first      All first homes    Home Buyers:
assistance      Scheme             Card holders-                      of a small                          homes valued       (regardless of
                (Effective after   from 1 May                         business or                         $120000 or les     value) receive
                                                    From 1 May                          100%                                                    $20 duty for
                midnight on 3      2004, full                         principal place                     can be paid by     concession of
                                                                                        concession on                                           eligible home
AUSTRALIAN BANKERS’ ASSOCIATION                                                      XXX



TAX            NSW                 VIC                  QLD            WA                  SA               TAS                NT               ACT

          April 2004)        exemption for       2004             of residence      the purchase of   instalments        duty on first     buyers where
                             properties                           valued at less    a first home up   over a two year    $225000.          purchase price
                             valued up to                         than $100000 is   to $80000.        interest free                        or value of
          For first homes:                       In addition to
                             $250000 and a                        entitled to a                       period.                              property,
                                                 the homes                                                               For principal
                             partial                              concessionary                                                            whichever is
                                                 concession                         For first home                       place of
          Up to $500000:     exemption for                        rate of duty of                                                          the greater,
                                                 (below):                           purchases         From 20 May        residence (not
          nil                properties                           1.5%. The                                                                does not
                                                                                    between           2004, first        first home),
          $500001-           valued between                       concessional                                                             exceed
                                                                                    $80000 and        home owners        duty is reduced
          $600000:           $250000 and         Where the        rate phases out                                                          $285000.
                                                                                    $100000, the      that qualify for   by maximum of
          22.49% less        $350000.            unencumbered     between
                                                                                    concession rate   the First Home     $2500.
          $112,450                               value of home    $100000 and
                                                                                    reduces by        Owner Grant                          Graduated
                                                 is $250001-      $200000.
                             From 1 May                                             2.5% for each     Scheme                               concession
                                                 $500000 and
                             2004, first                                            $1000 increase    (FHOGS).                             where value of
                                                 consideration
                             homebuyers                           First home        in property                                            property falls
                                                 not less than
                             who qualify for                      buyers whose      value above                                            between
                                                 value: $2500                                         In relation to
                             the $7000 First                      home purchases    $80000.                                                $285000 and
                                                 rebate which                                         the purchase of
          For Vacant         Home Owner                           are below                                                                $385000- rate
                                                 reduces by                                           a property up to
          land:              Grant, will                          $250000 are                                                              of duty is
                                                 $100 for every                     For first home    the value of
                             qualify for a                        exempt from                                                              $14.18 for each
                                                 $10000 above                       purchases         $350000, will
                             $5000 First                          conveyance                                                               $100 or part
          Up to $300000:                         $250000.                           between           qualify for duty
                             Home Bonus                           duty. The                                                                thereof by
          nil                                                                       $100000 and       relief on
                             until 31                             exemption                                                                which value
          $300001-                                                                  $150000 the       transfer duty up
                             December 2005       Where            phases out                                                               exceeds
          $450000:                                                                  concession rate   to a maximum
                             (subject to a       unencumbered     between                                                                  $285000.
          10.49% less                                                               is 50%.           of $4000;
                             price cap of        value above      $250000 and
          $31470.            $500000). For       $500000- no      $350000.
                                                                                                                                           Land Buyers:
                             home purchases      additional                         Thereafter the    Or
          Full tax rates     between 1 Jan       concession                         concession
                                                                  First
          apply above the    2006 and 30         beyond home                        reduces by $24                                         $20 duty for
                                                                  homebuyers                          In relation to
          upper              June 2007, a        concession.                        for each $1000                                         eligible home
                                                                  who buy vacant                      the construction
          threshold.         $3000 First                                            of property                                            buyers where
                                                                  land valued at                      of a first home
                             Home Bonus                                             value in excess                                        purchase price
                                                 For homes (not   $150000 or less                     upon land
                             will be available                                      of $150000 and                                         or value of
                                                 first)           are exempt                          purchased with
                             (subject to a                                          phases out                                             land, whichever
                                                 From 1 August    from                                a dutiable value
                             price cap of                                           completely                                             is the greater,
                                                                  conveyance                          of up o
AUSTRALIAN BANKERS’ ASSOCIATION                                           XXXI



TAX            NSW                VIC          QLD              WA               SA                TAS           NT        ACT

                           $500000).    2004               duty. The     above $250000.      $175000, may             does not
                                        Concessional       exemption                         apply for a duty         exceed
                                        rate of 1% for     phases out                        refund of                $123100.
                                                                         A rebate of up
                                        values up to       between                           $2400.
                                                                         to $1500 is
                                        $300000 plus       $150000 and                       Land owners
                                                                         available in                                 Graduated
                                        scheduled          $200000.                          have two years
                                                                         respect of home                              concession
                                        transfer duty of                 units in the City   to complete the          where value of
                                        the excess.                      of Adelaide,        construction of          property falls
                                                                         regardless of       the first home           between
                                                                         the nature of       from the date of         $123100 and
                                                                         the title, but is   agreement to             $184500- rate
                                                                         restricted to       purchase the             of duty is $8.07
                                                                         new dwellings       land and a               for each $100
                                                                         on allotments of    subsequent               or part thereof
                                                                         350 square          three months to          by which value
                                                                         metres or less.     apply for the            exceeds
                                                                                             duty refund.             $123100.


                                                                                                                      Income
                                                                                             This assistance          threshold:
                                                                                             is in addition to        Gross
                                                                                             the $7000 grant          household
                                                                                             available under          income less
                                                                                             the FHOGS                than $100000
                                                                                                                      pa for all
                                                                                                                      applicants.


                                                                                                                      The threshold
                                                                                                                      increases by
                                                                                                                      $3330 pa for
                                                                                                                      each dependent
                                                                                                                      child to a
                                                                                                                      maximum of
                                                                                                                      $116,650.
      AUSTRALIAN BANKERS’ ASSOCIATION                                        XXXII



     TAX                 NSW            VIC              QLD        WA               SA            TAS              NT         ACT


Surcharge/Levy     Nil           Option for         $5 levy.   10% duty on   Yearly policy:   $6 per policy   Nil        Nil
on Motor                         eligible                      insurance     $60, 9 month
Vehicle Third                    concession card               premium.      policy: $45, 6
Party Vehicle                    holders to have                             month policy:
Insurance- a                     a six month                                 $30, 3 month
flat fee paid                    registration                                policy: $15.
before a vehicle                 period for their
is allowed to be                 vehicle
driven on public                 registration and
roads.                           compulsory
                                 third party
                                 insurance. 10%
                                 duty on
                                 insurance
                                 premium
                                 charge.
APPENDIX D – Collection of GST on Financial Services

   (1)   Australian GST Treatment: Supply chain with financial services by
         financial supplier



             GST                     Input                     GST
                                     taxed
Business A             Financial             Business C          Final Consumer
                    intermediary B


                     No input tax          No input tax           No input tax
                        credit               credit as               credit
                                             supply is
                                              exempt
                                          (input taxed)
   (2)   Standard rate business supply chain: Supply of taxable goods and
         services.



             GST                     GST                       GST
Business A            Business B             Business C          Final Consumer



                       Input tax             Input tax            No input tax
                         credit                credit                credit


   (3)   NZ GST Treatment: Supply of financial services by financial
         intermediary



             GST                      GST                      GST
                                      free
Business A             Financial             Business C          Final Consumer
                    Intermediary B



                        Input tax       No input tax            No input tax
                          credit         as GST is                 credit
                                       charged at the
                                        rate of zero
                                          percent
   (4)   NZ GST Treatment: Zero rated supply of financial services by
         financial intermediary B
AUSTRALIAN BANKERS’ ASSOCIATION INC.                                      34




                   Exempt                    Zero-rated            GST

     Financial                 Financial              Business C    Final Consumer
  intermediary A            intermediary B



                             No input tax           No input tax     No input tax
       New
                              credit (as              as GST is         credit
   proportional
                             input taxed             charged at
    input tax
                               supplies              the rate of
      credit
                              received)             zero percent
AUSTRALIAN BANKERS’ ASSOCIATION INC.                                                35




 APPENDIX E – GST on Financial Supplies – NZ Proportional
                    Input Tax Credit

20C.Goods and services tax incurred in making certain supplies of financial
services—

Subject to this section, a registered person who has made an election under
section 20F and who in respect of a taxable period supplies financial services to
another supplier of financial services (called in this section a ``direct supplier'')
may make for each direct supplier a deduction under section 20(3)(h) of an
amount given by the following formula:




where—



   a. is the total amount in respect of the taxable period that the registered
      person—

         a) would not be able to deduct under section 20(3) in the absence of
            this section; and

         b) would be able to deduct under section 20(3), other than under
            section 20(3)(h), if all supplies of financial services by the registered
            person were taxable supplies:]]

   b. bis the total value of exempt supplies of financial services by the
      registered person to the direct supplier in respect of the taxable period:


   c. is the total value of supplies by the registered person in respect of the
      taxable period:

   d. is the total value of taxable supplies by the direct supplier in respect of the
      taxable period, determined under section 20D:

   e. is the total value of supplies by the direct supplier in respect of the taxable
      period, determined under section 20D.

				
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