30-DAY COUNTDOWN UNTIL BANK TAX ABOLISHED FID goes on July 1, 2001 Sydney, 31 May, 2001; The Australian Bankers' Association (ABA) says customers should be counting down the days until July 1 when there will be no more government taxes on deposits. Chief Executive of the ABA, David Bell, said Financial Institutions Duty (FID), the State governments' tax on deposits, will be abolished as part of the reform of the tax system and will put most bank customers in the winning seat. "More than $1 billion in FID is paid by bank customers each year – so when it is abolished, customers will no longer be paying this amount and it will more than offset any rises in bank charges associated with the Goods and Services Tax (GST)," Mr Bell said. "Queensland bank customers are the exception as FID is not levied in that State, but they should receive relief from July 1 2005 when Debits Tax (BAD) is scheduled to be abolished." Mr Bell said deposits made from 1 July 2001 will no longer attract the tax, but if customers make deposits to their accounts before that date, the FID will be charged. Mr Bell added: "Whilst FID will not be levied on deposits made after 30 June 2001, FID charges will nevertheless continue to show-up on bank statements for all deposits made prior to 1 July 2001. "There are many different banks offering many different products and FID is often charged at different times. If you have any queries about your accounts then you should speak to your bank." Banks will communicate these changes to their customers by a variety of methods, including messages on statements. Background notes: Governments levy transaction taxes on financial institutions, which generally recover the tax from customers' accounts separate from other fees. Government transaction taxes appear as line items on your bank account statements: Financial Institutions Duty (FID) is a tax on deposits which will be abolished from 1 July 2001. It is a tax on deposits made to savings accounts, cheque accounts and credit cards " to name a few. It is a flat percentage of the deposit amount, up to a specified maximum. It exists in all States (except Queensland) and Territories. Rates vary from State to State. FID can also apply at a daily rate on a defined list of short-term deposits. Debits Tax (also called Bank Account Debits tax, BAD) is a tax on withdrawals. The tax is imposed on each debit from an account with a cheque facility. Note that you pay debits tax on all withdrawals from an account with a cheque facility - which means cash, ATM, EFTPOS as well as cheques. Rates are tiered according to the amounts withdrawn. Debits tax exists in every State and Territory in Australia. Rates vary from State to State. In Tasmania, this tax is known as Debits Duty, where it is subject to a separate threshold, and can also be applied to debits to non-cheque accounts. NSW has recently announced it will abolish debits tax as of 1 January 2002. BANK NOTES Australian Bankers' Association Tax on deposits abolished – good news for customers The good news for bank customers is that there will be no tax on deposits made from 1 July 2001. Financial Institutions Duty (FID) will be abolished as part of the reform of the tax system. Will the tax offset the costs associated with the GST? Yes – over $1 billion in FID is paid by bank customers each year – so when it is abolished, customers will no longer be paying this amount of tax, and this should more than offset any rises in bank charges associated with the GST. Queensland bank customers are the exception, as FID is not levied in that state. When the abolition of Debits Tax occurs on 1 July 2005, (1 January 2002 for NSW) this should similarly offset rises in bank charges for customers in Queensland. Will I still have to pay FID after 30 June 2001? Yes, but this charge will be the recovery of FID payable on deposits made to your accounts before 1 July 2001. Remember though, that deposits made from 1 July 2001 will no longer attract the tax. So when will I stop paying FID? This will depend upon a variety of factors such as with whom you bank, the type of account, when interest is next paid or when your next statement is due. There are many different banks offering many different products and FID is often charged at different times. If you have any queries about your accounts then you should speak to your bank. But in most cases, we expect the following will occur. Basic statement accounts including accounts with overdraft facilities FID will be levied on deposits made before 1 July 2001. But the final FID charge will be made to your account after 30 June 2001, most likely when you receive your next statement. That will depend on your statement cycle – it could be monthly, quarterly or six-monthly. But FID will not be charged on any deposits made from 1 July 2001. Passbook accounts FID will only be levied on deposits made before 1 July 2001, but is likely to be charged when interest is next paid on the account. Again this will depend on whether interest is paid monthly, quarterly or six-monthly. Loan accounts including credit cards and home loans FID will only be levied on deposits made before 1 July 2001, but the final FID charge will appear on your next statement. For example, the final FID on your credit card repayments will appear on your July 2001 statement. Home loans are often on six monthly statement schedules, so it is possible the final FID charge will not appear until your next statement in December 2001. But remember FID will not be charged on repayments made from 1 July 2001. Term deposits No FID will be charged on term deposits lodged or rolled over from 1 July 2001. A deposit made before 1 July 2001 will attract FID and this is often not charged until the first interest payment is made. For example: A customer takes out a 12- month term deposit on 15 June 2001, with interest paid at maturity. FID could be charged when the interest payment is made on 15 June 2002. This occurs even though the bank has paid FID on the deposit to the State Government in July 2001. Term deposits of $50 000 or more with a term of less than 186 days FID is calculated differently on these deposits with FID charged at a daily rate. If the term deposit spans the abolition date (30 June 2001), FID will only be charged based on the number of days before 1 July 2001. Lease and hire purchase: Lease rentals and hire purchase payments that include FID will be adjusted from July 2001. Customers should be advised of new payment arrangements from their bank in due course. Does this mean there won't be any taxes on my bank account? No – if you have an account with cheque access, Debits Tax will continue. It is due to be abolished 1 July 2005 saving customers another $1 billion. What are government transaction taxes? Government transaction taxes appear as line items on your bank account statements: Financial Institutions Duty (FID) is a tax on deposits which will be abolished from 1 July 2001. It is a tax on deposits made to savings accounts, cheque accounts and credit cards – to name a few. It is a flat percentage of the deposit amount, up to a specified maximum. It exists in all States (except Queensland) and Territories. Rates vary from State to State. FID can also apply at a daily rate on a defined list of short-term deposits. Debits Tax (also called Bank Account Debits tax, BAD) is a tax on withdrawals. The tax is imposed on each debit from an account with a cheque facility. Note that you pay debits tax on all withdrawals from an account with a cheque facility - which means cash, ATM, EFTPOS as well as cheques. Rates are tiered according to the amounts withdrawn. Debits tax exists in every State and Territory in Australia. Rates vary from State to State. In Tasmania, this tax is known as Debits Duty, where it is subject to a separate threshold, and can also be applied to debits to non-cheque accounts. Governments levy transaction taxes on financial institutions who generally recover the tax from customers' accounts separate from other fees. The Australian Competition and Consumer Commission ('ACCC') has powers under the Trade Practices Act in the transition to the New Tax System. This includes ensuring that customers receive the benefit of the abolition of FID. If you believe you have been incorrectly charged FID on deposits you make from 1 July 2001, you should ask your bank about it. If you are still concerned, you can call the ACCC GST Price Line on 1300 302 502, or visit the ACCC's GST website at www.gst.accc.gov.au For further information contact: Heather Wellard ABA PR Phone: 02 8298 0411 Mobile: 0409 830 439     ENDS