Senate

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)

Chapter 1 - Passenger motor vehicles

Overview

1.1 Schedule 1 to the Bills will increase the rate of sales tax applicable to passenger motor vehicles. The rate increase requires consequential amendments to the calculation of the substitute taxable value for luxury motor vehicles. These changes are explained in the explanatory memorandum for the Taxation Laws Amendment (Budget Measures) Bill 1995.

Summary of the modifications

Purpose of the modifications

1.2 The existing sales tax rate for passenger motor vehicles is 16 per cent. The modifications will increase this rate to 21 per cent.

Date of effect

1.3 The modifications will apply to dealings after 7.30 pm, eastern standard time, on 9 May 1995. [Subclause 2(1) and clause 5]

Background to the legislation

1.4 Non-luxury passenger motor vehicles are currently classified under Item 1 of Schedule 3 to the Sales Tax (Exemptions and Classifications) Act 1992 (the E & C Act) and are therefore subject to sales tax at the concessional rate of 16 per cent. The 1993-94 Budget increased all WST rates by one percentage point with a further one percentage point increase scheduled for 1 July 1995. In accordance with this, the WST rate on passenger motor vehicles was increased from 15 per cent to its current rate of 16 per cent and is scheduled to increase to 17 per cent on 1 July 1995. This concessional rate is unique to passenger motor vehicles.

1.5 Passenger motor vehicles with a wholesale value in excess of the luxury threshold are taxed at the 16 per cent rate on the value of the vehicle below the luxury threshold, and at the special rate of 45 per cent on that part of their value that exceeds the threshold. Other motor vehicles (such as four wheel drive vehicles) with a wholesale value in excess of the luxury threshold are taxed at the general 21 per cent rate on the value of the vehicle below the luxury threshold, and at the special rate of 45 per cent on the amount above the threshold.

1.6 The luxury threshold for the purposes of sales tax is 67.1 per cent of the motor vehicle depreciation limit. For the year ending 30 June 1995 this figure is $51,271, therefore the luxury threshold for sales tax purposes is $34,403.

Explanation of the modifications

1.7 The Bills modify the E & C Act by repealing Schedule 3, with the result that passenger motor vehicles will be classified under Schedule 4 and subject to the general rate of 21 per cent rising to 22 per cent on 1 July 1995. [Items 7 and 8 of Schedule 1]

1.8 The increase in sales tax applicable to passenger motor vehicles coupled with the fact that that part of the wholesale value which falls below the luxury threshold will now be subject to the general rate, necessitates amendments to section 42A of the Sales Tax Assessment Act 1992 . These amendments are explained in detail in the explanatory memorandum to the Taxation Laws Amendment (Budget Measures) Bill 1995.