TAXATION RULING NO. ST 2321

ST 2321

SALES TAX : MACHINERY AND EQUIPMENT FOR USE IN THE EXCAVATION OR MOVEMENT OF EARTH, ROCK OR NATURAL DEPOSITS IN THE SOIL

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FOI status:

May be releasedFOI number: I 1210500

PREAMBLE

Item 78B exempts machinery and equipment for use exclusively or primarily and principally in the excavation or movement of earth, rock or natural deposits in the soil in the course of carrying out contracts for government departments and authorities, local municipal councils and shires, harbour boards constituted under a Commonwealth, State or Territory law and fire brigades established for public purposes. The item excludes from exemption road vehicles of a kind ordinarily used for the transport of persons or goods.

2. Prior to 1 January 1983 item 78B was little used because excavation equipment generally qualified for exemption under the former item 113F, First Schedule which was a wider provision than item 78B. Item 113F was repealed with effect from 1 January 1983 and excavation equipment formerly exempted by the item became taxable at the rate of 7.5% under item 7 of the Third Schedule. In the 1986 Budget item 7 was repealed with the result that all excavation equipment is now generally taxable at the rate of 20% unless it is for use in circumstances where exemption applies, e.g. as in item 78B.

3. Item 78B provides a narrower exemption than the former item 113F. Whereas item 113F exempted all excavation and construction equipment used for business or industrial purposes item 78B limits exemption to excavation and other equipment used to move earth, rock and natural deposits in the soil. Its major application would be equipment used to excavate dams, tunnels, trenches and other similar works and in the base construction of roads. A further restriction in item 78B is that exemption is limited to equipment used exclusively or primarily and principally on government and local council contracts and the like. Exemption does not extend to equipment used principally on private excavation work, e.g. construction of private roads or the digging of foundations for private buildings.

RULING

4. The following equipment qualifies for exemption under item 78B where it is for use exclusively or primarily and principally for the purposes of the item :-

Backhoes

Excavators

Face shovels

Front end loaders

Rammers used for consolidating earth during road and building construction

Road graders

Road rollers including multiwheeled rubber tyres for use in compacting earth during road construction

Scoops

Scrapers

Sheepsfoot rollers

5. The following equipment does NOT qualify for exemption under item 78B and is taxable :-

Road rollers used to compact the stone base of roads that is laid over the earth base

Bitumen spraying equipment

Road surfacing equipment such as hot mix spreading units

Road rollers used to compact hot mix and other asphalt and similar mixes

Equipment used to lay concrete roads

Water spraying tankers

Road vehicles generally including those used to transport or deliver earth and/or rock

Exclusively or primarily and principally

6. Whether equipment is for use exclusively or primarily and principally in exempt circumstances will require an examination at the time of purchase of the intended use of the equipment over what might be expected to be its normal working life. The normal working life of the equipment may vary from case to case depending upon the circumstances in which the equipment will be used. In harsh conditions equipment may have only a limited life while in average conditions the equipment would have a much greater life.

7. It is not necessary for the equipment to be used on one contract only for exemption to apply. Government and other contracts of the kind specified in item 78B vary in duration from short to long periods depending on the nature of the contract. For example excavation work for a dam may take two years or more to complete while the cutting of a channel or trench may only take a week. Government contracts can be linked together to satisfy the use test. The essential factor is not the number of contracts the equipment is used for but whether over its effective working life the equipment is to be used exclusively or primarily and principally in excavating or moving earth or rock in carrying out government and other contracts of the kind specified in item 78B.

Contractors and Sub-Contractors

8. Exemption is not limited to a principal contractor. Often the principal contractor will sub-let part of the contract to sub-contractors. A sub-contractor may also claim exemption under item 78B provided that he can establish that the equipment will be used exclusively or primarily and principally in carrying out contracts of the kind specified in item 78B. This may present some difficulties because sub-contractors often engage in a wider range of activities and may not be able to assess accurately the expected use of the equipment. In such cases the past history of the sub-contractors may provide some guidance. Sub-contractors or contractors may be able to satisfy the use test by pointing to the fact that the principal part of their work is excavating or moving earth or rock under government contracts.

9. Contractors and sub-contractors who are in doubt whether exemption or not would apply to their equipment should supply full details of the use of the equipment to the nearest Taxation Office for decision.

COMMISSIONER OF TAXATION
19 February 1987

References

ATO references:
NO ST 11/232

Date of effect:
1 Jan 1983

Subject References:
EXCAVATION EQUIPMENT FOR USE IN CARRYING OUT GOVERNMENT CONTRACTS

Legislative References:
SALES TAX (EXEMPTIONS AND CLASSIFICATIONS) ACT; ITEM 78B, FIRST SCHEDULE