Senate

Explanatory Memorandum

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

Chapter 2 - Safes, musical instruments and ornaments

Overview

2.1 Schedule 1 to the Bills will modify the sales tax laws to ensure that freestanding safes, musical instruments and bric-a-brac are taxable at the general rate of sales tax (currently 21 per cent).

Summary of the modifications

Purpose of the modifications

2.2 The modifications will ensure that freestanding safes, musical instruments and bric-a-brac are excluded from the concessional treatment afforded to household furniture.

Date of effect

2.3 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

2.4 Furniture of a kind ordinarily used for household purposes is taxed at the concessional rate of 11 per cent under Item 1 of Schedule 2 to the Sales Tax (Exemption and Classifications) Act 1992 (the E & C Act). Pianos, organs, freestanding safes and ornamental objects in the nature of bric-a-brac have long been accepted as being subject to the general rate of sales tax.

2.5 A recent decision of the Federal Court found that certain safes were furniture of a kind ordinarily used for household purposes, and thus qualified for the concessional rate. This decision overturned the long-standing view that free-standing safes were not household furniture. With regard to musical instruments and bric-a-brac, some doubt has recently arisen as to whether they are also household furniture and taxable at the concessional rate. The long standing treatment of these goods has been to tax them at the general rate.

Explanation of the modifications

2.6 Subitem 1(3) of Schedule 2 to the E & C Act lists goods that are not intended to be covered by Item 1 and therefore do not qualify for the 11 per cent rate. Subitem 1(3) will be modified to include safes, musical instruments and bric-a-brac to ensure these goods cannot be classified as furniture. [Item 6 of Schedule 1]

2.7 The exclusion for safes specifies that both free standing safes and safes that are of a kind ordinarily installed as fixtures will be excluded from the concessional rate. The amendment will ensure, however, that safes used for storing food (such as meat safes) will not be excluded from the concessional rate.