Explanatory Memorandum
(Circulated by authority of the T reasurer, the Hon Ralph Willis, MP)Sales tax - passenger motor vehicles
Overview
3.1 The Sales Tax (Exemptions and Classifications) Modification Bills increase the sales tax payable on passenger motor vehicles from 16 per cent to 21 per cent. This increase results in several consequential amendments to the Sales Tax Assessment Act 1992 and the Sales Tax (Deficit Reduction) Acts which are given effect to by Schedules 3, 4, 5, 6, 7 and 8 of the Taxation Laws Amendment (Budget Measures) Bill 1995.
Summary of the amendments
3.2 The Bill repeals section 42A and inserts a new section 42A to outline the method by which the substituted taxable value of a luxury motor vehicle is calculated. It also amends the five Sales Tax (Deficit Reduction) Acts to ensure that the legislated rate increase from 16 per cent to 17 per cent for passenger motor vehicles currently scheduled for 1 July 1995 is removed.
3.3 The amendments to section 42A will apply to dealings after 7.30 pm, eastern standard time, on 9 May 1995 [subclause 2(1) and item 4 of Schedule 3] . Further amendments apply to dealings on or after 1 July 1995 which is when the 21 per cent rate is scheduled to increase to 22 per cent [subclause 2(3) and item 6 of Schedule 3] . The amendments to the five Sales Tax (Deficit Reduction) Acts commence on 9 May 1995 [subclause 2(1)] .
Background to the legislation
3.4 Passenger motor vehicles with a wholesale value in excess of the luxury threshold are currently taxed at the 16 per cent rate on the value of the vehicle below the luxury threshold, and at the special rate of 45 per cent on the amount above the threshold. Other motor vehicles (such as four wheel drive vehicles) with a wholesale value in excess of the luxury threshold are currently taxed at the 21 per cent rate on the value of the vehicle below the luxury threshold, and at the special rate of 45 per cent on the amount above the threshold.
3.5 The luxury threshold for the purposes of sales tax is 67.1 per cent of the motor vehicle depreciation limit. For the year ending 30 June 1995 this figure is $51,271, therefore the luxury threshold is $34,403.
3.6 Section 42A of the Sales Tax Assessment Act 1992 (STAA) provides a method by which the substitute taxable value of a luxury motor vehicle is calculated. It does this by reducing the taxable value of the motor vehicle so that when the applicable rate of 45 per cent (the rate specified for luxury motor vehicles) is applied to the reduced value it will equal the amount worked out by adding:
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- 16 per cent of the motor vehicle's taxable value (or 21 per cent for motor vehicles that are not passenger motor vehicles) below the luxury threshold; and
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- 45 per cent of the taxable value above the luxury threshold.
3.7 As part of the 1993-94 deficit reduction budget package, the sales tax rate applicable to passenger motor vehicles rose 1 per cent to 16 per cent on 18 August 1993 and was to rise a further 1 per cent to 17 per cent on 1 July 1995.
3.8 The rate increase for sales tax on passenger motor vehicles contained in the Sales Tax (Exemptions and Classifications) Modification Bills will render the increase to 17 per cent redundant. The rate increase is explained in greater detail in the explanatory memorandum for those Bills.
Explanation of the amendments
3.9 The increase in sales tax applicable to passenger motor vehicles coupled with the fact that all motor vehicles will now be subject to the general rate, necessitates amendments to section 42A of the STAA to alter both the structure of the section and the formulae contained in the section.
3.10 Since the number of rates relevant to the calculation of sales tax on luxury cars is reduced to two, (ie. 21 per cent and 45 per cent), there is no longer any need for the distinction between passenger motor vehicles and other vehicles as is currently effected by subsections (2) and (3) of section 42A. Consequently, section 42A is repealed and replaced with a new 42A that contains only one formula for calculating the substitute taxable value for luxury motor vehicles. [Item 3 of Schedule 3]
3.11 The formula provides that to calculate the substitute taxable value of a luxury motor vehicle, the wholesale value of the vehicle is reduced by an amount equal to 35.787 per cent of the relevant motor vehicle depreciation limit.
3.12 The amendments to section 42A apply to dealings with goods after 7.30 pm eastern standard time on 9 May 1995. [Item 4 of Schedule 3]
3.13 On 1 July 1995 the general rate of sales tax increases to 22 per cent. To reflect this increase, the formula in the new section 42A will require further amendment to provide that to calculate the substitute taxable value of a luxury motor vehicle for 1 July 1995 and later, the wholesale value of the vehicle is reduced by an amount equal to 34.296 per cent of the relevant motor vehicle depreciation limit. [Items 5 and 6 of Schedule 3]
3.14 Item 2 of Schedule 2 of each of the Sales Tax (Customs) Deficit Reduction Act 1993 , the Sales Tax (Excise) Deficit Reduction Act 1993 , the Sales Tax (General) Deficit Reduction Act 1993 and the Sales Tax (In Situ Pools) Deficit Reduction Act 1993 all provide that the rate of sales tax applicable to passenger motor vehicles will increase from 16 per cent to 17 per cent on 1 July 1995. Since the rate of sales tax applicable to passenger motor vehicles is being increased to 21 per cent with effect from 9 May 1995, the increase to 17 per cent is now redundant. Consequently, the amendments contained in Schedules 4, 5, 6 and 7 omit each item 2 (item 1 of Schedules 4, 5, 6 and 7) . Schedule 8 contains a further minor technical amendment to the Sales Tax Assessment (Deficit Reduction) Amendment Act 1993 consequential on the above amendments to section 42A (item 1 of Schedule 8) .