Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 2 - Small business exemption
Overview
2.1 Item 1 of Schedule 1 to the Sales Tax Assessment Amendment Bill 1997 will amend the Sales Tax Assessment Act 1992 (the Act) to ensure that the increase in the rate of sales tax on alcoholic beverages does not affect the current small business exemption.
Summary of the amendments
2.2 The current sales tax law provides a small business exemption from sales tax. The amendments to the Act will ensure that the increase in the rate of sales tax on alcoholic beverages does not force taxpayers over the small business exemption threshold.
2.3 The amendments will apply from 6 August 1997.
Background to the legislation
2.4 Section 29 of the Act currently exempts small businesses from paying sales tax if the taxpayer's annual sales tax liability (described in the Act as the 'total tax liability') is $10,000 or less. The concession keeps small businesses out of the sales tax system. This provides a substantial reduction in compliance costs for the business and also results in reduced administration costs for the Australian Tax Office.
2.5 A consequence of the increase in the rate of sales tax on alcoholic beverages is that some liquor businesses, in particular small wine producers, which are currently not paying sales tax because of the small business exemption may now exceed the current $10,000 threshold.
Explanation of the amendment
2.6 Section 29 of the Act is to be amended to ensure that the additional 15% sales tax on alcoholic beverages is not included in the 'total tax liability' for determining whether a taxpayer satisfies the small business exemption. [Item 1 of Schedule 1 - new subsection 29(7)]
Example
Assume that a small wine producer has sales of $30,000 in a year. Currently the potential sales tax on that wine would be $7,800 (i.e., $30,000 x 26%). As the sales tax is less than $10,000 the wine producer would satisfy the small business exemption and would not be liable for sales tax.
As a result of the increase of 15 percentage points in the rates of sales tax on alcoholic beverages, the potential tax on the wine would be $12,300 (i.e., $30,000 x 41%) placing the wine producer over the small business exemption threshold. However, as the additional 15% on alcoholic beverages is not to be included in the total tax liability for the small business exemption, the total tax liability will be $7,800 which is less than the threshold. This ensures that the small business exemption continues to apply.