House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon. J.S. Dawkins, M.P.)

Chapter 2 Swimming Pools

Re-imposition of Sales Tax on In Situ Swimming Pools

A. Introduction

This chapter describes how the new sales tax law will apply to swimming pool shells, including spa pool and hot tub shells, that are constructed in situ .

2.2 In February 1992 the High Court ruled that legislation purporting to impose sales tax on swimming pools constructed in situ was of no effect (Mutual Pools & Staff Pty Ltd v Federal Commissioner of Taxation (1992)
104 ALR 545 ) . The Court found that the legislation did not conform with the requirements of section 55 of the Constitution. One of the measures contained in these Bills is the re-imposition of sales tax on in situ pools at the rate of 20 per cent.

B. Sales Tax Imposition (In Situ Pools) Bill 1992

Explanation

2.3 This Bill will impose sales tax to the extent that the tax relates to in situ pools. [clause 3]

2.4 The pools and tubs on which the Bill imposes tax are those covered by new section 12A to be inserted in the Sales Tax Assessment Act 1992 by the other Bill in this package - the Sales Tax Laws Amendment Bill (No. 2) 1992.

2.5 Constitutional requirements for separate Acts to impose sales tax: For Constitutional reasons, sales tax payable from the first taxing day will be imposed by 4 Acts:

•

the Sales Tax Imposition (Excise) Act 1992 - to the extent that it is a duty of excise;

•

the Sales Tax Imposition (Customs) Act 1992 - to the extent that it is a duty of customs;

•

the Act proposed by this Bill - to the extent it is a tax on in situ swimming pools; and

•

the Sales Tax Imposition (General) Act 1992 - to the extent that it is not a duty of excise, a duty of customs or a tax on in situ swimming pools.

2.6 Property of a State will not be taxed: The Bill contains a provision to the effect that it will not impose a tax on property of any kind belonging to a State. The term 'property of any kind belonging to a State' will have the same meaning that the term has in section 114 of the Constitution. [clause 4]

2.7 Commencement: The Bill will commence on the day it receives the Royal Assent. [clause 2]

C. Amendments to the Sales Tax Assessment Act 1992

Summary

2.8 The Sales Tax Laws Amendment Bill (No. 2) 1992 will insert new section 12A in the Sales Tax Assessment Act 1992 . The new section will apply to swimming pool, spa pool and hot tub shells constructed in situ in Australia (in situ pools). The Bill will also amend the Sales Tax Imposition (General) Act 1992 so that tax is not imposed on in situ pools by that Act.

Explanation

2.9 Who will be liable to pay sales tax:

(a)

A pool builder who constructs or erects a pool shell in situ in Australia under a contract with a pool purchaser. [new paragraph 12A(1)(a) - clause 6 of the Sales Tax Laws Amendment (No. 2) Bill 1992]

(b)

In any other case the pool owner . The most common example of other circumstances in which a pool might be built in Australia is construction by the pool owner. A significant proportion of in situ pool construction is carried out by owner-builders . In such cases, instead of getting a builder to construct the pool, the owner takes on the role of organising the pool's construction. This can include constructing some or all of the pool herself or himself. [new paragraph 12A(2)(a) - clause 6 of the Sales Tax Laws Amendment (No. 2) Bill 1992]

2.10 Goods manufactured in Australia: The construction in situ of a pool shell by a pool builder or owner-builder will be taken to be the manufacture of goods under the new sales tax law. Broadly, the responsibilities and concessions that apply to manufacturers will also apply to pool builders and owner-builders. As is the case with manufacturers, for sales tax to apply it is not necessary for a builder to personally 'manufacture the goods' - organising others to undertake the work will be sufficient.

2.11 When will the liability occur: When the construction or erection of the walls and floor of the pool shell or container is completed. The usual requirements for payment of the tax will apply:

(a)

In the case of a pool builder: The pool builder will be taken to have sold the pool by retail, to the pool purchaser, immediately after the construction has been completed. This will be an assessable dealing subject to sales tax; [new subsection 12A(4) - clause 6 of the Sales Tax Laws Amendment (No. 2) Bill 1992]

(b)

In the case of an owner-builder: The owner-builder will be taken to have applied the pool to her or his own use immediately after construction has been completed. This will be an assessable dealing subject to sales tax. [new subsection 12A(5) - clause 6 of the Sales Tax Laws Amendment (No. 2) Bill 1992]

2.12 When does the construction of a shell begin and when is it complete: A pool shell is the walls and floor of the pool or the structure that is the container for the pool. Sales tax will not apply to:

(a)

any excavation, clearing, levelling, landscaping or other earthworks associated with a swimming pool, spa pool or hot tub constructed in situ ;

(b)

painting, tiling, treating or finishing the pool shell;

(c)

coping of any kind; or

(d)

installing any drainage, heating, lighting, power supply, water supply or filtering or pumping equipment in, or in connection with, the in situ pool. [new subsection 12A(9) - clause 6 of the Sales Tax Laws Amendment Bill(No. 2) 1992]

2.13 Construction of the shell will commence when the first steps are taken to build the floor and or walls of the shell. In most cases this will occur when the tying and shaping of the steel reinforcing cage commences. Another example would be when prefabricated wall or floor sections commence to be installed.

2.14 Construction will be complete when the shell is capable of holding water but not necessarily waterproof. For example, in the case of a shell constructed from poured concrete, when the concrete is dry.

2.15 For the purposes of this Bill, a pool shell would normally not include a pool liner. However in the case of some larger pools the liner is actually the container or walls and floor of the pool. These pools are built mainly of sand and liner with some concrete at one or both ends of the pool. Without the liner there would be no container for the water. In these cases the liner will form part of the shell for the purposes of new section 12A.

2.16 Small business exemption will not apply: The small business exemption will not be available to pool builders and owner-builders in relation to in situ pool assessable dealings. [new subsection 12A(6) - clause 6 of the Sales Tax Laws Amendment (No. 2) Bill 1992]

2.17 Taxable value of a pool shell: The taxable value that will apply to most in situ pools, i.e., those of a kind usually installed by or for householders, will be the price (excluding sales tax) for which the pool builder or owner-builder could purchase a comparable in-ground fibreglass pool shell by wholesale. [new subsection 12A(7) - clause 6 of the Sales Tax Laws Amendment (No. 2) Bill 1992]

2.18 However, fibreglass pool shells are not manufactured in very large dimensions such as olympic pools and the lagoon style pools used by resort complexes. The taxable value of pools of this kind will be the price for which the pool builder or owner-builder would pay another pool builder to build the pool. [new subsection 12A(8) - clause 6 of the Sales Tax Laws Amendment (No. 2) Bill 1992]

2.19 Commencement: Sales tax will be payable on pool shells constructed in situ in Australia by a pool builder if the contract is entered into on or after 1 January 1993. [new paragraph 12A(1)(c) - clause 6 of the Sales Tax Laws Amendment (No. 2) Bill 1992]

2.20 Sales tax will be payable on pools constructed in situ in Australia by an owner-builder if the construction begins on or after 1 January 1993. [new paragraph 12A(2)(c) - clause 6 of the Sales Tax Laws Amendment (No. 2) Bill 1992]

2.21 Amendment of the Sales Tax Imposition (General) Act 1992 : The sales tax on in situ pools will be imposed by the Sales Tax Imposition (In Situ Pools) Bill 1992. For Constitutional reasons the tax must be imposed under a separate Act. A related amendment to be made by the Sales Tax Laws Amendment Bill (No. 2) 1992 makes it clear that the Sales Tax Imposition (General) Act 1992 does not impose tax on in situ pools. [clause 20]