Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 12 - Sales tax - telecommunication and audio visual equipment
Overview
12.1 The amendment made by Schedule 12 of the Bill will ensure that goods of a kind ordinarily used in providing telecommunication and audio visual services will not be exempt from sales tax as electrical fittings.
Summary of the amendments
12.2 The amendment proposes to ensure that the sales tax exemption offered by Item 43 of Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992 (E & C Act) does not extend to goods of a kind ordinarily used in the provision of telecommunication and audio visual services.
12.3 The amendment will apply to dealings with goods after 7.00 pm Australian Eastern Summer Time on 7 November 1996. [Item 2]
Background to the legislation
12.4 The Full Federal Court in
Telstra Corporation Ltd v FC of T
1996 ATC 4805
held that certain items of equipment used in its telephone exchanges were not subject to sales tax under the former Item 90C of the
Sales Tax (Exemptions and Classifications) Act 1935
(current Item 43 of Schedule 1 to the E
&
C Act).
12.5 Item 43 provides a sales tax exemption for certain electrical fittings, accessories and materials.
12.6 The Court decided that the words of the Item do not have any trade or technical meaning so that telephonic equipment, provided it can carry or store electricity, can be considered electrical equipment. Therefore the equipment, provided it is used as part of, or in connection with, 'fixed electrical installations' in consumers' premises can be exempt from sales tax.
12.7 The Government considers that this decision has the potential to erode the wholesale sales tax base by exempting goods that are effectively key elements of a telecommunication provider's business inputs when its outputs are not taxable.
12.8 In line with its stated policy of preventing erosion of the sales tax base, the Government announced, through Treasurer's Press Release No. 109 on 7November 1996, that it would amend Item 43 to exclude from its coverage goods used in the provision of telecommunication and audio visual services.
Explanation of the amendments
12.9 The proposed amendment inserts a new subsection (4) in Item 43 to specifically exclude from the exemption provided by that item, goods which are of a kind ordinarily used in the provision of telecommunication or audio visual services. The exemption will qualify all of Item 43. [Item 1]