Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 2 - Industrial safety equipment - transitional provisions
Outline of Chapter
2.1 This Bill provides transitional measures for the modifications made to Item 20 in Schedule 1 to the ST (E & C) Act by the following modification Bills:
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- Sales Tax (Customs) (Industrial Safety Equipment) Bill 2000;
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- Sales Tax (Excise) (Industrial Safety Equipment) Bill 2000; and
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- Sales Tax (General) (Industrial Safety Equipment) Bill 2000.
The measures relate to credit claims that were lodged before 5 October 1999 and also to liabilities for certain dealings that occurred before 5 October 1999.
Background to the legislation
2.2 On 5 October 1999 the Government announced that it would amend the sales tax law to ensure that exemption from sales tax for industrial safety equipment will only apply to equipment which is of a kind mainly used to protect persons engaged in industrial operations.
2.3 The Government's announcement followed decisions of the Federal Court that have meant that goods which would not ordinarily be regarded as industrial safety equipment, have been held to be exempt from sales tax.
2.4 The Government's announcement also indicated that the sales tax law would be amended to deny credit claims made on or after 5 October 1999 that do not meet the 'mainly' test. In addition, credit claims that were made before 5 October 1999 that do not meet the 'mainly' test would only be allowed where the benefit of the credit will be passed on to the end consumer.
2.5 The Government's intention was that these measures would restore the sales tax law to the position that the Parliament always intended. The measures would prevent the possibility of refunding large amounts of sales tax already paid for items that were always intended to be taxed.
2.6 The modification made to Item 20 by the modification Bills applies to dealings made on or after 1 January 1993. This means that, in effect, any dealings made on or after 1 January 1993 will only be exempt from sales tax under Item 20 if they meet the 'mainly' test. Any credit claims lodged after 5 October 1999 in respect of dealings before that date will now have to satisfy the 'mainly' test. The provisions contained in this Bill ensure that the Government's announcement in respect of credits relating to dealings prior to 5 October 1999 is also implemented.
Detailed explanation of new law
Credit claims made before 5 October 1999
2.7 Item 5 ensures that the modifications made by the modification Bills do not apply to certain credit claims made before 5 October 1999, in relation to dealings that satisfied the requirements of Item 20 before the modification. Item 5 imposes an additional requirement on credit claims made before 5 October 1999 in respect of these dealings before that date. The Commissioner must be satisfied that the benefit of the credit has been, or will be, passed on to the end user of the goods that were the subject of the dealing, before the credit can be paid.
Example 2.1
A wholesaler lodged a claim before 5 October 1999 for a sales tax credit in respect of goods sold that it believes are of a kind that satisfy the requirements of Item 20. The goods were sold to a retailer for a price that included sales tax. The retailer has subsequently sold the goods to end consumers. The normal requirement for the wholesaler claiming a credit in these circumstances is that it must show that the sales tax has not been passed on to the retailer. To obtain a credit the wholesaler will have to refund the sales tax to the retailer. For goods that satisfy the 'ordinarily' test but do not satisfy the 'mainly' test, the wholesaler will now have to ensure that the benefit of the credit passes to the end consumers before a credit can be paid by the Commissioner.
2.8 Where the goods that are the subject of a credit claim have lost their identity as goods because they have become an integral part of property, the end user is taken to be either the lessee of the property or the owner of the property. The person claiming the credit can choose either the lessee or the owner as the end user.
Example 2.2
Alfred sells electrical goods including extractor fans mainly by wholesale. He claims a credit in respect of the sale of a fan made before 5 October 1999 to an electrical contractor. The fan was subsequently installed in a restaurant. Alfred claims a credit on the basis that the fan is of a kind that satisfies the requirements of Item 20, including the 'ordinarily' test. As the extractor fan is not of a kind that satisfies the 'mainly' test, Alfred must satisfy the additional 'passing on' requirement before the credit can be claimed. Alfred determines that the electrical contractor dealt directly with the restaurant owner who leases the premises in which the fan was installed. Alfred chooses the restaurant owner as the appropriate person to benefit from the credit claim and ensures that the benefit is passed through the electrical contractor or directly to the restaurant owner.
Credit claims made after 5 October 1999
2.9 As this Bill does not deal with credit claims lodged after 5 October 1999 they will be determined in accordance with the provisions of the STAA 1992 and the modification made to Item 20 by the modification Bills. As the modification to Item 20 will apply to dealings made on or after 1 January 1993, a claim for credit made after 5 October 1999 must meet the 'mainly' test regardless of whether the dealing occurred before or after that date. While the normal passing on provisions must be satisfied, there is no requirement that the benefit of the credit has been passed on to the final consumer.
Dealings that occurred before 5 October 1999
2.10 Item 6 operates to ensure that dealings that occurred before 5 October 1999 which met the conditions of Item 20 before modification, but which would now not meet the 'mainly' test, are not subject to sales tax as a result of the modification Bills. This will include dealings before 5 October 1999 where sales tax was not paid or where credits were subsequently paid, on the basis that the dealings satisfied the requirements, including the 'ordinarily used' test, of Item 20.
Example 2.3
As a result of the Federal Court decisions a wholesaler commenced treating particular goods as being exempt from sales tax on the basis that the goods were exempt under Item 20. The goods were sold by the wholesaler at prices that did not include sales tax. As a result of the modification these goods sold on or after 5 October 1999 will be subject to sales tax if they do not meet the 'mainly' test in Item 20. However, the modification will not impose a sales tax liability on the goods that were sold prior to 5 October 1999. These dealings will continue to be treated as exempt from sales tax providing that they were covered by Item 20 before the modification. Item 6 ensures that the modification does not apply to these dealings.
2.11 Where sales tax was paid on dealings before 5 October 1999 that do not satisfy the 'mainly' test but which may have satisfied the requirements of Item 20 following the Court decisions, credits cannot be claimed. In these cases the amounts that were paid in purported payment of a liability that did not actually exist at the time, but that now exists because of the modification, are taken to have been applied against that liability and cannot therefore be claimed back.