Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon. P.J. Keating, M.P.)Notes on Clauses
SALES TAX (EXEMPTIONS AND CLASSIFICATIONS) AMENDMENT BILL 1988
Subclause (1) of this clause provides for the amending Act to be cited as the Sales Tax (Exemptions and Classifications) Amendment Act 1988).
Subclause (2) facilitates references to the Sales Tax (Exemptions and Classifications) Act 1935 that is referred to in this Bill as "the Principal Act".
By reason of subsection 5(1A) of the Acts Interpretation Act 1901, Acts come into operation on the twenty-eighth day after Royal Assent, unless otherwise specified in the Act. Except for the amendment referred to in subclause 2(2), under subclause 2(1) the amending Act is to be taken to have commenced at 8 o'clock in the evening by standard time in the Australian Capital Territory on 23 August 1988.
Under subclause 2(2) the proposed amendment to sub-item 36(1) in the First Schedule to the Principal Act is to be taken to have commenced after 23 August 1988.
Clause 3: Amendments of Schedules to Principal Act
Clause 3 proposes that specific Schedules to the Principal Act be amended as set out in the Schedule to this Bill.
The Schedule to the Bill will amend the First, Second and Third Schedules to the Principal Act, with effect from 8 o'clock in the evening on 23 August 1988 except for the amendment to sub-item 36(1) in the First Schedule which will have effect after 23 August 1988.
The contents of the Schedule to this Bill are explained in detail later in the notes on the Schedule.
Clause 4: Application of amendments
By subclause 4(1) the amendments proposed by this Bill apply in relation to transactions, acts and operations effected or done in relation to goods after 8 o'clock in the evening on 23 August 1988 except for the proposed amendment to sub-item 36(1) in the First Schedule to the Principal Act.
Subclause 4(2) specifies that the amendment relating to sub-item 36(1) of the First Schedule applies in relation to transactions, acts and operations effected or done in relation to goods after midnight in the evening of 23 August 1988.
PART I: AMENDMENT OF FIRST SCHEDULE
Goods covered by the First Schedule to the Principal Act are exempt from sales tax.
Subclause 1(1) (definition of "confectionery")
Food for human consumption is exempt from sales tax by virtue of item 23 in the First Schedule to the Principal Act. Confectionery is excluded from this item and is taxed at the 10% rate.
Confectionery is defined in the First Schedule to the Principal Act to include goods marketed as confectionery or consisting principally of confectionery, popcorn, novelties, crystallised and glace fruit, crystallised or preserved ginger and edible cake decorations, but not candied peel.
This Part of the Schedule to the Bill will amend the definition of confectionery to include goods known as 'muesli bars' or 'health food bars', and similar foodstuffs. The amendment will have the effect of excluding 'muesli bars', 'health food bars' and similar foodstuffs from exemption making these goods taxable at the 10% rate.
As previously explained, existing item 23 in the First Schedule to the Principal Act exempts from tax food for human consumption.
Goods are specified to be excluded from the exemption by paragraphs (c) to (o) (inclusive) of item 23. Paragraphs (h) and (j) exclude ice cream and ice cream mixes or similar goods.
The Schedule to the Bill will insert a new paragraph - paragraph (ja) - to exclude from exemption under item 23 thick shake mixes or similar goods.
To give full effect to the proposal to tax all ice cream, ice cream mixes and thickshake mixes at 10%, the Schedule also amends the Third Schedule to the Principal Act (see notes on Part III: Amendment of Third Schedule), and item 26 in the First Schedule (see following notes on this Part)
Existing sub-items 26(2) and 26(4) of the First Schedule to the Principal Act exempt from tax goods, including some ice cream and thick shake mixes, that contain at least 95% milk or milk powder or similar products.
The Schedule to the Bill will amend paragraph (a) of sub-item 26(2) and paragraph (c) of sub-item 26(4), by inserting in each paragraph a reference to paragraphs (j) and (ja) of item 23. These amendments combined with the amendment of item 23 (see earlier notes on this Part) and the amendment to item 4 in the Third Schedule to the Principal Act (see notes on Part III: Amendment of Third Schedule) will ensure that all ice cream mixes and thick shake mixes (other than mixes for household use which will remain exempt) become taxable at the rate of 10%.
This Part of the Schedule to the Bill will insert a new item - item 26AA - in the First Schedule to the Principal Act. New item 26AA will exempt from tax beverages, that do not contain flavouring, consisting wholly or principally of soy milk.
A related amendment also made by the Bill will insert a new item (refer notes on Part III: Amendment of Third Schedule) in the Third Schedule to the Principal Act to tax at the 10% rate flavoured beverages consisting principally of soy milk.
These amendments will bring the taxation of soy milk and flavoured soy milk into line with plain and flavoured milk.
Item 35A in the First Schedule to the Principal Act exempts a range of products for potable use. Broadly, stated, sub-items 35A(2), (3) and (4) exempt respectively coffee, cocoa and malted beverage products.
Existing sub-item 35A(4A) is designed to ensure that flavoured beverages taxable at the 10% rate do not qualify for exemption under sub-items (2), (3) and (4). The flavoured beverages taxable at the 10% rate are those that contain at least 95% milk.
Flavoured beverages that contain less than 95% milk are intended to be taxable at the 20% rate. However, item 35A does not specifically exclude beverages that contain less than 95% milk.
This Part of the Schedule to the Bill omits existing sub-item 35A(4A) and replaces it with new sub-item 35A(4A) to make it clear that beverages which contain any quantity of milk, milk powder, milk substitute or any combination of those products are not exempt under sub-items 35A(2), (3) and (4).
Sub-item 36(1) exempts from sales tax beer manufactured in Australia that contains more than 1.15% by volume of alcohol. By the operation of sub-item 111(1), similar strength beers manufactured in New Zealand, Fiji, Papua New Guinea, Norfolk Island and the Territories of Christmas Island or Cocos (Keeling) Islands and imported into Australia are also exempt.
In this Part, the Schedule to the Bill omits sub-item 36(1) with the effect that all beer manufactured in Australia or manufactured in New Zealand, Fiji, Papua New Guinea, Norfolk Island or the Territories mentioned above and imported into Australia will be subject to tax at the 20% rate.
It is not necessary to amend sub-item 111(1) to give effect to this proposal.
Sub-items 82(1), 84(1) and 84(2)
Sub-items 82(1), 84(1) and 84(2) in the First Schedule to the Principal Act exempt a range of building materials.
Existing item 14 and proposed new item 14A (refer notes on Part III - Amendment of Third Schedule) in the Third Schedule of the Principal Act, tax at the rate of 10% household fittings and sanitary ware of a kind installed in buildings so as to become fixtures.
Part I of the Schedule to the Bill will amend sub-items 82(1), 84(1) and 84(2) so that goods covered by existing item 14 or proposed item 14A in the Third Schedule of the Principal Act are not exempt under the First Schedule of the Principal Act.
Sub-item 91(1) of the First Schedule to the Principal Act provides an exemption from sales tax for containers used in marketing goods that are exempt from sales tax.
Sub-item 93(1) of the First Schedule to the Principal Act provides an exemption from sales tax for boxes, cases and crates manufactured in Australia for use in marketing goods manufactured in Australia that are exempt from sales tax.
These sub-items require amendment consequent upon amendments proposed by this Bill that will make certain containers and wrapping materials taxable by omitting item 96 from the First Schedule to the Principal Act (refer to notes on item 96 in this Part), and by inserting a new item - item 18 - in the Third Schedule of the Principal Act (refer notes on item 18 in Part III - Amendment of the Third Schedule).
Part I of the Schedule to the Bill will amend sub-items 91(1) and 93(1) to ensure that goods made taxable by the omission of item 96 from the First Schedule and the insertion of new item 18 in the Third Schedule are no longer exempt under these sub-items.
Item 96 of the First Schedule to the Principal Act operates to exempt certain specified goods used to wrap or secure goods for marketing or delivery (but not for household use). Goods that have been classified as exempt wrapping materials include paper and plastic bags, and twine and adhesive tape used by retailers, courier envelopes and padded postal bags.
Part I of the Schedule to the Bill omits item 96 so that those goods now covered by this item will fall to be taxed at the general rate of 20% (see also notes on item 13 in Part III - Amendment of the Third Schedule).
A new item - item 108A - is inserted, by this Part, after item 108.
New item 108A will exempt from tax food for aquatic or marine animals farmed for commercial purposes. This item will not apply to food for fish kept for sale as pets or kept as pets.
Sub-item 119A(1) of the First Schedule to the Principal Act operates to exempt from tax aircraft used for business purposes.
By Part I of the Bill the sub-item is omitted and replaced by a new sub-item 119A(1) that will exempt from tax all aircraft, irrespective of whether the aircraft is used for business or recreational purposes, except for gliders (including motorised gliders) and hang gliders (including motorised hang gliders).
Aircraft that will be exempt under this proposal include ultralight aircraft
PART II - AMENDMENT OF SECOND SCHEDULE
Goods covered by the Second Schedule to the Principal Act are taxed at the 30% rate.
Items 19 to 30 (inclusive) Items 39, 40 and 42
Items 19 to 30 (inclusive) in the Second Schedule to the Principal Act cover personal care products such as toiletries, perfumes and cosmetics.
Items 39,40 and 42 cover photographs, slides and photographic materials respectively.
This Part of the Schedule to the Bill omits these items from the Second Schedule to the Principal Act, effectively reducing the rate of tax that applies to personal care products from 30% to the general rate of 20%.
PART III - AMENDMENT OF THIRD SCHEDULE
Goods covered by the Third Schedule to the Principal Act are taxed at the 10% rate.
Item 4 in the Third Schedule to the Principal Act covers certain foodstuffs taxable at 10% that are excluded from the exemption for goods for human consumption provided by item 23 in the First Schedule to the Principal Act.
Part I of the Schedule to the Bill amends item 23 in the First Schedule to remove exemption for thick shake mixes (refer notes on item 23 in Part I - Amendment of First Schedule).
To give effect to the proposal to tax thick shake mixes at the same rate as comparable ice cream, and ice cream mixes, i.e., 10%, Part II of the Schedule to the Bill will amend item 4 in the Third Schedule by inserting a reference to new paragraph (ja) (item 23, First Schedule).
This Part will insert a new item - item 4AA - in the Third Schedule. New item 4AA covers beverages consisting principally of soy milk which contains any flavouring. These products are, by reason of their inclusion in the Third Schedule, to be taxable at the 10% rate. This will equate the sales tax treatment of flavoured soy milk products with flavoured milk products (see also notes on new item 26AA in this Schedule).
Item 13 covers wrapping materials marketed exclusively or principally for household purposes.
The Schedule omits item 13 from the Third Schedule to the Principal Act. Consequently goods now covered by item 13 (taxable at the 10% rate) will fall to be taxed at the general rate of 20% (see also notes on item 96 in Part I - Amendment of First Schedule).
Existing item 14 in the Third Schedule to the Principal Act covers household fittings and sanitary ware installed in buildings so as to become fixtures therein. Some doubt exists as to whether or not the item covers all the bathroom fittings and sanitary ware that is intended to be taxable at the 10% rate.
To ensure that all bathroom fittings and sanitary ware are taxable at the 10% rate, the Schedule will insert a new item - item 14A - in the Third Schedule to the Principal Act.
New item 14A will apply to all bathroom fittings and sanitary ware, except spa baths, installed in buildings so as to become fixtures therein, that are not covered by item 14 (see also notes on sub-items 82(1), 84(1) and 84(2) in Part I - Amendment of First Schedule).
The Schedule will insert a new item - item 18 - in the Third Schedule to the Principal Act covering containers for use in marketing:
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- biscuits and ice cream manufactured on retail premises for sale by the retailer direct to the public; and
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- take-away beverages and foodstuffs irrespective of where the food is consumed.
Such containers are, by reason of their inclusion in the Third Schedule, to be taxable at the 10% rate.
SALES TAX ASSESSMENT (NO.1) AMENDMENT BILL 1988
Subclause 1(1) provides for the amending Act to be cited as the Sales Tax Assessment (No.1) Amendment Act 1988.
Subclause 1(2) provides for the Sales Tax Assessment Act (No.1) 1930 to be referred to in this Act as "the Principal Act".
By this clause the Bill will be taken to have commenced at 8 o'clock in the evening on 23 August 1988.
Clause 3: Amendments relating to sale value of goods
Clause 3 proposes that the Principal Act be amended as set out in the Schedule to the Bill.
Clause 4: Application of amendments
Clause 4 provides that the amendments of the Principal Act made by clause 3 apply in relation to transactions, acts or operations effected or done in relation to goods after 8 o'clock in the evening on 23 August 1988.
AMENDMENTS RELATING TO THE SALE VALUE OF GOODS
Paragraphs 18(1)(b), 18(1B)(a) and 18B(1)(e); Subparagraph 18(1A)(a)(ii); Subsections 18(1C), 18(2), 18(3) and 18A(4)
Sections 18, 18A and 18B of the Principal Act specify sale values in respect of goods sold by a manufacturer, goods treated by a manufacturer as stock for sale by retail, goods applied to a manufacturer's own use and goods licenced by a manufacturer that embody certain information.
As explained earlier in these notes the broad scheme of WST is for tax to be paid on the final wholesale selling price of goods. Where a manufacturer does not sell goods by wholesale but only sells goods by retail, the existing sale value provisions provide, generally, that tax is payable on the price for which the manufacturer could reasonably be expected to have purchased identical goods from another manufacturer.
This Bill will amend the sale value provisions so that where a manufacturer does not sell goods by wholesale and sells goods only by retail, the sale value on which tax is payable will be the amount for which the goods could reasonably be expected to have been sold by the manufacturer by wholesale, i.e., on a value which reflects the manufacturer's own costs and profit - not the costs and profit of another manufacturer of identical goods sold by wholesale as is currently the case. In cases where the manufacturer's retail price and wholesale price are the same, the sale value under the new provisions would be that price. In other cases, in determining the wholesale sale value, it would be appropriate to exclude costs which are clearly of a retail nature.