Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon. J.S. Dawkins, M.P.)Chapter 4 Miscellaneous changes to the Sales Tax Assessment Act 1992
Miscellaneous Changes to the Sales Tax Assessment Act 1992
This chapter discusses the miscellaneous changes proposed to the Sales Tax Assessment Act 1992 as part of the fine-tuning of the new sales tax law. The changes generally do not represent new policy. Rather, they are primarily technical amendments designed to ensure that the new provisions apply as intended.
4.2 The changes discussed in this chapter cover the following areas of the law:
- A.
- Use of goods as raw materials
- B.
- Containers for export
- C.
- Taxable dealings with goods that are the contents of a container
- D.
- Registration entitlement
- E.
- Credits
- F.
- Standard grounds for quoting a registration number
- G.
- Computer programs embodied on microchips
- H.
- Prescribed rules for export sales
A. Use of goods as raw materials
4.3 Goods will only be taken to be used as raw materials where:
- (a)
- in relation to manufactured goods, the goods are dealt with in such a way in manufacturing other goods that the goods become an integral part of the manufactured goods; and
- (b)
- in relation to property, the goods are dealt with in such a way in constructing or repairing property that the goods become an integral part of the property.
4.4 Under the present law, exemption for raw materials used in the manufacture of goods, or in constructing or repairing buildings, is limited to goods that are incorporated into the manufactured goods or buildings as part of the manufacturing, construction or repair process, as the case may be.
4.5 The amendments are of a technical nature and will ensure that the current treatment of raw materials is carried through to the new law. [Clause 8 of Sales Tax Laws Amendment Bill (No. 2) 1992]
B. Containers for export
4.6 Exemption will apply to new containers for export regardless of the nature of their contents.
4.7 Under the present law, all goods (including containers) that are exported, or are to be exported, are exempt from tax. Under the new law, the placing of contents into a new container is an application to own use of the container (referred to as a packing AOU ). There is an exemption from tax for the packing AOU if the container and its contents are intended for export. However, the exemption will only apply if the contents of the container consist of wholly assessable goods. If the contents of the container consist wholly or partly of Australian used goods, the exemption does not apply [section 31 of Sales Tax Assessment Act 1992] . A similar restriction applies to the related Credit ground for containers exported [Credit ground CR 13 in Table 3 of Schedule 1 to Sales Tax Assessment Act 1992].
4.8 The exemption should be available for all new containers for export regardless of the nature of the contents of the container.
4.9 The amendment will remove the condition that the contents of containers for export must consist wholly of assessable goods from both the exemption provision and the related credit provision. [Clauses 11 and 16 of Sales Tax Laws Amendment Bill (No. 2) 1992].
C. Taxable dealings with goods that are the contents of a container
4.10 The value of a container will not be excluded from the taxable value of an assessable dealing with its contents if:
- •
- the container has previously been the subject of a taxable dealing; and
- •
- a taxpayer has obtained a credit for the tax on that dealing.
Explanation
4.11 The general scheme of the new law is that containers for assessable goods will not be taxable in their own right. Instead, the value of the container will be included in the taxable value of the contents. However, the value of a container will not be so included if the container has previously been the subject of a taxable dealing in its own right (i.e. before it became a container). The purpose of the exclusion is to prevent double taxation of the container [subsection 35(4) of the Sales Tax Assessment Act 1992] .
4.12 There is a technical defect in that, while there may have been a previous taxable dealing with the container, a taxpayer may have subsequently obtained a credit for the tax payable on that dealing. If this happens, the new law would still exclude the value of the container from the taxable value of a dealing with its contents. As a result, no tax would ever be payable on the value of the container.
4.13 The amendment will ensure that the value of the container is excluded from an assessable dealing with its contents only if, at the time of the dealing, the taxpayer for that dealing 'has previously borne tax on the container'. [Clause 12 of the Sales Tax Laws Amendment Bill (No. 2) 1992]
D. Registration entitlement
4.14 A person will be excluded from an entitlement to register if that person's only qualifying activity involves the manufacture of goods on another manufacturer's premises, and the goods are identical to the goods manufactured by the other manufacturer.
4.15 Under the new law, a dealing with goods by the manufacturer is an assessable dealing only if the goods were manufactured in the course of a business. However, there is one situation where the new law will treat the manufacture as occurring in the course of a business, even if it does not. This is where, broadly, a person manufactures goods on another manufacturer's premises and the goods are identical to goods manufactured by the other manufacturer. The intention of the new law is that persons who manufacture goods only in these circumstances, and who are not carrying on a business, should not be entitled to register.
4.16 There are two general grounds for registration under which these persons could register if not specifically excluded. The new law only excludes them from one [Subsection 78 (4) of Sales Tax Assessment Act 1992].
4.17 he amendment will exclude these persons from registration under the second of the relevant general grounds for registration. [Clause 14 of Sales Tax Laws Amendment Bill (No. 2) 1992]
E. Credits
Clawback of CR9 credit on later sale of faulty goods
4.18 A minor technical amendment is required to section 58 of the Sales Tax Assessment Act 1992 .
4.19 The amount to be paid under this provision is calculated by reference to a formula set out in the Act. The formula is designed to clawback the amount of the original credit to the extent that the claimant has recouped some or all of the tax originally borne by later selling the faulty goods [Section 58 of Sales Tax Assessment Act 1992].
4.20 The formula contains a minor printing error and therefore delivers an incorrect result.
4.21 The "minus" sign in the formula will be changed to a "plus" sign. This will ensure that the correct proportion of the credit is recouped. Also the term 'faulty' as it appears in section 58 will be amended to read 'defective' to bring the terminology into line with that in Credit ground CR9 in Table 3. [Clause 13 of Sales Tax Laws Amendment Bill (No. 2) 1992]
Credits for registered persons who did not quote when entitled to quote
4.22 A credit will not be allowable (under Credit ground CR2) to a registered person who was entitled to quote in respect of an assessable dealing but did not quote, if the registered person:
- •
- has subsequently sold the goods; or
- •
- has applied the goods to own use ("AOU") and the AOU was either a taxable dealing, or would have been a taxable dealing if it was an assessable dealing.
4.23 The new law will allow a credit for a registered person who has borne tax in respect of an assessable dealing with goods, provided that the person was entitled to quote on that dealing and has not passed the tax on to some other person [Credit ground CR2 in Table 3 of Schedule 1 to Sales Tax Assessment Act 1992].
4.24 A credit would be available even though the claimant may have subsequently dealt with the goods in taxable circumstances before claiming the credit. The subsequent dealing will generally not be a taxable dealing, so that the goods would ultimately not bear tax even though they are dealt with in a taxable manner. While the credit would only be available to the extent that the claimant has not passed on the tax, the claimant could obtain a commercial advantage by selling (or leasing) the goods for a tax-exclusive price and then obtaining a credit from the Commissioner.
4.25 The amendment will exclude any entitlement to a credit under Credit ground CR2 if either of the following conditions is satisfied:
- •
- the claimant has sold the goods; or
- •
- the claimant has applied the goods to own use and the AOU was taxable (or would have been taxable if the AOU had been a taxable dealing). [Clause 16 of Sales Tax Laws Amendment Bill (No. 2) 1992]
Credits for Repairs under warranty
4.26 A credit will be available for tax borne on replacement goods used in repairs carried out under warranty, regardless of whether the repairer is the warranty giver, provided that the value of the warranty was included in the taxable value of the last assessable dealing with the original goods.
4.27 The new law will provide a credit for tax borne on goods that are used, while still assessable goods, as replacements for other goods that are found to be defective. The goods must be replaced under warranty [Credit ground CR9 in Table 3 of Schedule 1 to Sales Tax Assessment Act 1992].
4.28 The credit ground as currently drafted is restricted to cases where the replacement of the goods is carried out by the actual warranty giver. In many cases, however, warranty repairs are carried out by other persons on behalf of the warranty giver. Further, the credit ground does not require that the value of the warranty has been included in the taxable value of the original goods.
4.29 The amendment will ensure that credit ground CR9 will apply where warranty repairs are carried out by any person, provided that the value of the warranty has been included in the taxable value of the last assessable dealing with the original goods (or would have been included in the taxable value if the last assessable dealing with the original goods had been a taxable dealing). [Clause 16 of Sales Tax Laws Amendment Bill (No. 2) 1992]
Credits for Bad debts
4.30 A credit will be available where tax has been paid in respect of a local entry by a person who has later written off as a bad debt some or all of the amount for which those goods were subsequently sold.
4.31 The present law contains a credit provision for the tax component of bad debts written off in these circumstances. The corresponding credit ground in the new law refers only to tax paid on an assessable dealing that is a sale or AD4a [Credit ground CR21 in Table 3 of Schedule 1 to Sales Tax Assessment Act 1992] .
4.32 The new credit ground does not allow for a credit where tax has been paid at the time of local entry of goods by a retailer who later incurs a bad debt in respect of the sale of those goods.
4.33 The amendment will extend the coverage of credit ground CR21 to include amounts written off by retailers who have paid tax at the time of local entry of goods and who later incur bad debts in respect of the sale of those goods. [Clause 16 of Sales Tax Laws Amendment Bill (No. 2) 1992]
F. Standard grounds for quoting a registration number
4.34 Registered persons will be entitled to quote their sales tax registration number when acquiring goods specifically for sale to eligible Australian travellers.
4.35 Under the new law, persons who intend to sell assessable goods to eligible Australian or foreign travellers in accordance with the prescribed rules for export sales will be entitled to register for sales tax purposes [Paragraph 78 (1) (c) of Sales Tax Assessment Act 1992].
4.36 The corresponding quoting ground refers only to goods for sale to eligible foreign travellers [Paragraph 82 (1) (e) of Sales Tax Assessment Act 1992].
4.37 An extra quoting ground will be added to the standard quoting grounds for registered persons to allow registered persons to quote for goods intended for sale to eligible Australian travellers in accordance with the prescribed rules for export sales. [Clause 15 of Sales Tax Laws Amendment Bill (No. 2) 1992].
G. Computer programs embodied on microchips
4.38 The value of a computer program will not be subject to tax unless the program is embodied in a non-erasable microchip.
4.39 Under the present law, any computer program that is not embodied in a microchip is treated as a "tax advantaged computer program" . In any taxable dealing with a tax advantaged computer program , the value of the computer program is excluded from the taxable value of the goods. Tax is effectively payable only on the value of the carrying medium.
4.40 Under the new law, a similar concession has been extended to computer programs embodied on erasable microchips [Sections 5 and 14 of Sales Tax Assessment Act 1992].
4.41 The amendments to give effect to the new treatment of computer programs embodied on erasable microchips have had the unintended effect of removing the concessional treatment of some other computer programs. For example, as currently expressed, the new law would deny the concessional treatment of computer programs embodied permanently on a medium other than a microchip. These programs are tax advantaged computer programs under the present law.
4.42 The amendments will retain the existing taxable value concessions for tax advantaged computer programs as well as providing a similar concession to computer programs embodied on erasable microchips. [Clauses 7 and 9 of Sales Tax Laws Amendment Bill (No. 2) 1992]
H. Prescribed rules for export sales
4.43 The definition of prescribed rules for export sales will be amended to include a reference to the conditions that must be complied with in order for a credit to be available in respect of goods sold to eligible Australian or foreign travellers.
4.44 Under the new law, tax will not be imposed on dealings with goods that are exported, or intended to be exported, by persons travelling overseas provided that certain conditions are satisfied. These conditions will be contained in regulations made under the Sales Tax Assessment Act 1992 . If these conditions are satisfied:
- •
- in the case of a foreign traveller , a sale of the goods to the traveller will be exempt;
- •
- in the case of an Australian traveller , the sale will not be exempt but a credit will be available to the seller on proof of export by the seller.
4.45 The definition of the prescribed rules for export sales refers only to the conditions that must be satisfied in order for the goods to be exempt (i.e. the conditions to be satisfied in respect of sales to foreign travellers). It does not refer to the conditions that must be satisfied in order for a credit to be available in respect of sales to eligible Australian or foreign travellers.
4.46 The amendment will extend the definition of prescribed rules for export sales to include a reference to the conditions that must be satisfied in order for a credit to be available in respect of sales made to eligible Australian or foreign travellers. [Clause 7 of Sales Tax Laws Amendment Bill (No. 2) 1992]
4.47 The Bill will commence from the day on which it receives the Royal Assent. However, the changes to the Sales Tax Assessment Act 1992 that are made by this Bill will not apply to dealings before 1 January 1993. [clause 2 of the Sales Tax Laws Amendment Bill (No. 2) 1992]
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