Dear Senator
I refer to our discussions this morning regarding the Government's
tax package and the Government's commitment to the outcomes reached.
Education
The Government will write to the Commissioner of Taxation to seek
a ruling on the definition of education services that are to be GST
free.
The ruling will address all instruction for students directly or indirectly
related to the school curriculum, excursions supervised by schools
and school camps. However, it is not intended that GST free treatment
be extended to activities that are predominantly social in nature.
The Government's letter to the Commissioner of Taxation will
include as an attachment your letter to me of 21 June 1999 on this
matter as items which should be covered in the ruling.
The Arts
You will recall that the Government had previously agreed to review
the need for additional assistance to the arts in the light of the
Nugent Review of arts funding with a view to ensuring that the arts
are not adversely effected by the impact of the GST. As the first
step in that process, the Government agrees to fund a study to develop
an appropriate methodology for measuring the likely impact of the
GST and related measures on the arts and a preliminary assessment
of the likely impact of the GST on various sectors of the industry.
The method will serve as the basis for an assessment of the impact
of the GST on the arts. This study will be concluded no later than
31 December 1999 and the review will be completed by September 2001
at the latest.
Charities
The Government reaffirms that non-commercial charitable activities
will be GST free. The Government is not disposed to extend the definition
of a charitable institution to advocacy and other groups. In practice
many community groups such as neighbourhood centres should be not
be subject to GST because they are operated by charities or are below
the $100,000 registration threshold. However, given the important
community service role of neighbourhood centres the Government will
review the impact of the GST on their operations in the context of
the previously foreshadowed consultations between the Government and
the Australian Democrats on the GST impact on charities.
It has been agreed that these consultations will now be brought forward
and will occur no later than 31 December 1999. These consultations
will also canvass the application of rulings regarding the divide
between commercial and non-commercial charitable activities.
The Government confirms that relationship counselling will be GST
free where it is provided by an appropriately accredited psychologist
or social worker.
As recommended by the Vos Committee, the Government will monitor the
possible impact of the GST on sheltered workshop services and will
give careful consideration to providing additional compensation if
necessary.
The application of the GST to membership fees payable by charities
and tax-deductible bodies will be examined in the context of the consultations
on charities.
In relation to emergency relief payments the Government confirms that
where a charity pays for goods or services on behalf of a client,
the charity would be able to claim a credit. As discussed at our meeting,
where charities provide cash as emergency relief it would not be appropriate
to give input tax credits because there is no control over how the
money is spent by the client.
Food
Salads and savoury bread will be GST free. Muesli bars but not breakfast
bars and the like will be subject to GST. Fruit and vegetable juices
of at least 90% by volume will be GST free. Cordials and flavoured
milk will be subject to GST. Products consisting of milk not less
than 95% by volume will be GST free. Beverages consisting principally
of soy milk or rice milk, but not including flavoured beverages, will
be GST free. Bottled (still) natural water without any other additives
will also be GST free.
Books
The Government has received your proposal regarding assistance for
book writing and production and remains committed to developing a
scheme that meets our shared objectives. However, it will take time
to develop an appropriate scheme and the Government undertakes to
consult the Democrats and agree on a scheme before the resumption
of Parliament in August 1999. The scheme will pay particular regard
to the educational objectives underpinning the Democrat proposal,
particularly in respect of the price of text books.
Wine Equalisation Tax (WET)
Historically rebates for cellar door sales have been a State responsibility.
The Government and the Australian Democrats agree on the importance
of maintaining cellar door arrangements. The Government undertakes
to ensure that the States keep arrangements which provide a tax exemption
for cellar door and mail order sales up to $300,000.
The Government will also examine a number of definitional issues arising
from the WET bill, which you have advised, and the scope for concessional
treatment of low alcohol wine and intends that these be dealt with
in a Bill to be introduced in the Spring sittings. As a consequence
of these commitments the Government and the Australian Democrats are
agreed that the WET legislation will be passed by 30 June 1999.
Boarding Houses and Caravan Parks
A separate note on the Government's proposed treatment under
the GST of boarding houses and caravan parks will be provided in due
course.
It continues to be the Government's intention that the full GST
will not apply to long term residents.
GST Assistance Scheme for Low Income Persons
The Government is developing a scheme to provide assistance to low
income persons who identify themselves as outside the income tax and
social security systems and therefore ineligible for the compensation
provided in this package. Particular attention is being given to identifying
the groups to which the scheme will apply. The purpose of the scheme
is not to provide a new, generally available income-related entitlement
but to catch those who may otherwise slip through the income tax and
social security net. The Government's intention is to develop
a scheme in consultation with the Australian Democrats.
Disability Services
An amendment will be introduced so that any service funded under the
Disability Services Act 1986 (or similar State/Territory legislation)
will be GST free.
Rent Assistance
In addition to the previously agreed compensation package, Rent Assistance
will be increased by a further 3 per cent in respect of eligible private
renters at a cost of around $33 million per annum with effect from
1 July 2000. This will bring the total increase in Rent Assistance
up front to 7 per cent.
Yours sincerely
(John Howard)