Sales Tax Bulletin - No. 7

STB 7

Photography

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Date of Issue: 1 September 1998

Valid from 1 September 1998

Replaces Sales Tax Bulletin No. 7 - Photography issued on 1 January 1997

About this bulletin

This bulletin explains how the sales tax law affects people who are in business in the photographic industry. It is a public ruling for the purposes of section 77 of the Sales Tax Assessment Act 1992 and may be relied upon by any person to whom it applies. It replaces any previous private or public rulings, if they are inconsistent with this bulletin, and is current as at 1 September 1998.

Warning: We regularly revise our publications to take into account changes in the law so if you are seeking to rely on anything contained in this bulletin, you should make sure that this edition is the latest.

If, after reading this bulletin, you need more information on how the sales tax law affects the photographic industry, contact your local Tax Office on 13 28 66 for the cost of a local call.

Personal computer goods and related equipment

Certain information contained in this bulletin may not apply to dealings with personal computer goods and related equipment (Part 7A goods). Legislation, which has received the Royal Assent, introduced new rules for dealing with these goods.

Broadly, these new rules include:

• • applying to the Tax Office for accreditation before you can buy Part 7A goods tax free for resale. This accreditation process will need to be supplemented by a requirement for a quotation of a sales tax registration number to be authorised by the Tax Office;

• • lodging sales tax returns and paying tax monthly on your dealings with Part 7A goods although you may still be entitled to pay sales tax on a quarterly basis in respect of your other goods;

• • not being able to claim the Small Business Exemption (SBE) on your dealings with Part 7A goods although you can still qualify for the SBE on your dealings with other goods; and

• • the procedure for quoting a sales tax registration number or an exemption declaration when buying Part 7A goods for your own use.

A Helpline, telephone number 1 800 634 905, has been set up to answer questions about the new legislation and the administrative arrangements. Further information on Part 7A goods is also available at the Tax Office Internet website at www.ato.gov.au

How does sales tax affect me?

If you are in business as a manufacturing photographer or photographic laboratory, you're liable for sales tax on any taxable goods you manufacture which you sell or apply to your own use, unless an exemption applies. Under the sales tax law, a manufacturing photographer or photographic laboratory can choose to be registered for sales tax purposes and receive a sales tax registration number.

Although you can choose whether or not to be registered, your choice will affect your entitlement to obtain some goods free of sales tax. If you do register, you will be entitled to obtain free of sales tax, certain goods used in your manufacturing activities by quoting your sales tax registration number to your supplier.

Who can register for sales tax?

You can apply for registration if you are in business and carry out any of the following activities (or intend to do so):

• • manufacture goods;

• • sell goods by wholesale (this generally covers sales to people who resell goods);

• • sell goods (not of your own manufacture) by indirect marketing, e.g. through commission agents;

• • sell raw materials to a manufacturer;

• • sell goods to eligible Australian or foreign travellers in accordance with prescribed export rules; and

• • carry out certain activities on behalf of manufacturers.

How do I register for sales tax?

To register for sales tax purposes, just complete an Application for Registration - Sales Tax form. These forms are available from the Tax Office or on our Internet website at www.ato.gov.au. If you don't have a tax file number (TFN), you must either apply for a TFN or provide sufficient proof of identity documents as listed in the Proof of Identity Documents Information Sheet (also available from the Tax Office). Send us this identification with the completed application form.

How do I quote my sales tax registration number?

Once registered, you can quote your sales tax registration number in the following form to buy certain business inputs free of sales tax:

Do I have to quote every time I buy goods free of sales tax?

No. You can now give your suppliers a single quotation of your sales tax registration number to cover all your tax free purchases in a period where that period does not exceed one year (called a periodic quotation), in the following form:

What happens if I don't register?

If you choose not to register, you won't be able to buy your business inputs including raw materials or, in some cases, trading stock free of sales tax. You may be able to claim a credit for sales tax paid on such goods, but you will have to wait until you have produced goods from those raw materials, or have used those business inputs and have sold the goods or applied them to your own use before you can claim a credit.

For example, an unregistered photographic laboratory cannot buy processing equipment free of sales tax. When that equipment has been used in the manufacture of photographs and the first of those photographs is sold, a refund of the sales tax paid on the equipment becomes available by applying to the Tax Office.

Is there any small business exemption?

The sales tax Small Business Exemption (SBE) is available to those people who:

• • were liable for $10,000 or less sales tax during the last 12 months; and

• • expect to be liable for $10,000 or less sales tax during the next 12 months.

If you choose to use the SBE, you must pay sales tax to your suppliers when buying your business inputs or trading stock. You then do not have to charge sales tax to your customers when you sell goods, nor do you have to pay sales tax when you apply goods to your own use.

If, at any stage, you exceed the $10,000 limit, you will have to calculate and collect sales tax on the current transaction. For more information, contact the Tax Office on 13 28 66 for a copy of Sales Tax Bulletin Number 18 - Small Business Exemption.

What goods can I buy free of sales tax?

If you're registered, you can buy certain business inputs free of sales tax by quoting your sales tax registration number. Business inputs includes goods such as:

• • raw materials;

• • machinery, apparatus, tools, etc. used mainly in a manufacturing activity, e.g. processing equipment used mainly to perform manufacturing operations; and/or

• • machinery, apparatus, tools etc. used mainly in an activity which directly supports the manufacturing activity, e.g. lighting within the manufacturing area.

You can also buy your trading stock free of sales tax by quoting your sales tax registration number if you intend to sell it mainly (more than 50% by dollar value) by wholesale or by indirect marketing sale. You can also buy goods to be sold to eligible Australian or foreign travellers under the prescribed rules for export sales free of sales tax.

These prescribed rules for export sales are explained in the booklet titled Sales Tax - How to make export sales to overseas travellers and in Sales Tax Bulletin Number 33 - Tax free sales to tourists, both of which are available from the Tax Office.

What goods can't I buy free of sales tax?

Not all goods that you buy for your business qualify for sales tax exemption. You can normally only buy business inputs and in some cases, trading stock free of sales tax.

When you buy goods that don't qualify for sales tax exemption you must not quote your sales tax registration number. Your supplier must then charge you sales tax. You may wish to tell your supplier that you're not claiming exemption on that purchase.

Some examples of goods you can't buy free of sales tax are:

• • general-purpose road vehicles except in certain limited circumstances;

• • mobile phones used mainly for general business or private purposes;

• • staff amenities (such as tea and coffee making equipment, toilet paper etc); and

• • goods for use mainly in connection with administrative or selling activities (such as general stationery, fax machines, certain computers etc).

What if I've already given my supplier a periodic quotation?

Where you've given your supplier a periodic quotation, but you're buying goods for which you're not entitled to quote, you must tell your supplier that you are not claiming exemption. The notice should be in the following form:

If you buy goods free of sales tax and then use them in such a way that they don't qualify for exemption, you will have to pay sales tax to the Tax Office.

When must I charge sales tax?

Unless an exemption applies to the transaction, you will have to charge sales tax if you:

• • manufacture goods using materials supplied by your customer;

• • sell goods by wholesale;

• • sell goods through indirect marketing arrangements;

• • sell goods you have manufactured in the course of any business;

• • sell by retail goods that you bought or obtained free of sales tax by quoting a sales tax number; or

• • apply to your own use goods that you have manufactured in the course of a business or obtained free of sales tax (e.g. if you manufacture photographs for use in your business, you must account for sales tax as if the goods were sold).

When don't I charge sales tax?

You don't have to charge sales tax when:

• • the goods themselves are exempt;

• • the person buying the goods quotes an exemption declaration (e.g. a non-profit school, a government department or a public benevolent institution declares that the goods are intended to satisfy an exemption Item);

• • the person buying the goods quotes their sales tax registration number;

• • the small business exemption applies to you;

• • the goods are second-hand; or

• • the goods are sold by retail and you have already paid tax when you bought the goods.

The procedures for quoting sales tax registration numbers and exemption declarations are outlined in Sales Tax Bulletin Number 13 - Buying goods free of sales tax, which is available from the Tax Office.

Which activities involve manufacture?

The following activities when carried out, in their entirety, by individual photographers/photographic laboratories involve the manufacture of goods:

• • the processing of exposed photographic film to produce a negative or transparency;

• • the production of prints from negatives;

• • the production of prints from prints;

• • the production of prints as proofs;

• • the production of prints from transparencies;

• • the production of transparencies from prints;

• • the production of duplicate transparencies, duplicate negatives, inter-negatives and copy negatives;

• • the exposure of negative film in a camera and developing it to the negative stage;

• • the exposure of negative film in a camera, developing it to the negative stage and producing prints or proofs from it;

• • the exposure of reversal film in a camera and processing it to a positive image;

• • the production of enlargements, mural prints, Polaroid or instant prints, contact prints, film strips and television slides;

• • the production of photographs by coin operated machines;

• • the capturing of images with a digital camera, loading that data onto computer and producing prints therefrom; and

• • the production of prints, reprints, enlargements, compact or floppy discs by duplicating digital images which have been transferred onto computer.

If you carry out any of the above activities you can choose to register for sales tax.

Which activities don't involve manufacture?

The following activities, do not in themselves, involve the manufacture of goods:

• • the mere exposure of negative or reversal film in a camera;

• • the mere capturing of images with a digital camera;

• • the electronic transfer of digital images over the Internet;

• • retouching of negatives, prints or transparencies;

• • hand colouring or tinting of prints;

• • the insertion of a photograph in a frame;

• • fixing of prints in photographic mounts;

• • placing of photographs in an album;

• • mounting of transparencies; and

• • laminating, spraying and heat bonding of photographs.

How do I calculate sales tax payable on my transactions?

When a taxable product which you manufacture is sold or applied to your own use and no exemption applies, you calculate sales tax by multiplying an amount known as the taxable value of the goods by the rate of tax applicable. The rates of sales tax for various photographic products are included at the end of this bulletin.

Where parties are not dealing at arm's length and this affects the price of the goods, the sales tax law requires that the taxable value of the goods reflects a price for which the goods could reasonably be expected to have been sold under an arm's length transaction. This bulletin must be read as subject to this rule.

Taxable value - photographers/laboratories who sell by wholesale

A wholesale sale is a sale to a person who is purchasing goods to resell them, such as a retailer. The taxable value of a wholesale sale is the price (excluding sales tax) for which the goods were sold. As a general rule, this will include all amounts you charge the purchaser, up to the point when the purchaser owns the goods.

Taxable value - photographers/laboratories who sell by retail

A retail sale is a sale to an end user. When you sell by retail, the taxable value is the price for which you could reasonably have been expected to sell the goods by wholesale under an arm's length transaction. This is known as the notional wholesale selling price.

The taxable value is readily determined when you sell similar goods by wholesale in significant quantities to arm's length retailers in Australia in comparable circumstances as your retailed goods.

However, in the photographic industry, there are also some special taxable values which are either specifically provided for in the law or have been arrived at by agreement with the Tax Office. Some examples follow of how the taxable value is calculated in particular photographic industry activities. If you are not sure of how to calculate the correct amount of sales tax payable you should contact the Tax Office on 13 28 66.

Professional Photographers

If you merely expose film in the camera and deliver it to a commercial developer to have it processed and prints made, you are not a manufacturer in respect of those goods. You are not entitled to sales tax registration and therefore are not able to get your business inputs free of sales tax. The following situations assume that you carry out activities that involve manufacture, i.e. you do your own developing or printing.

If you sell photographs that were manufactured by you to the order of a particular customer (other than a reseller) by:

• • exposing the negative film in the camera;

• • printing from the negative; and

• • finishing the photograph in the condition which it is supplied to the customer,

the taxable value is 40% of the amount payable by the customer (excluding sales tax).

The amount payable by the customer is the gross amount payable before any deduction for model fees, travelling expenses, mounting, framing and tinting charges etc. These charges may or may not be charged separately.

The following example shows how the sales tax is calculated:

Some professional photographers may only have a retail price that includes sales tax and may therefore have difficulty in using the above calculation. If you know only the tax-inclusive amount payable by the customer, then the sales tax payable represents 8.09% of the total tax-inclusive amount payable by the customer.

In the above example, the tax-inclusive amount payable by the customer is $108.80. The sales tax payable is calculated as 8.09% of $108.80 which equals $8.80.

Because the above taxable value is specifically provided for in the law, it applies irrespective of whether you sell similar prints by wholesale. The same taxable value applies when you reproduce or copy from a print or transparency supplied by a customer (other than a reseller) by exposing the negative in the camera, developing the film and printing from it.

In the following situations, a taxable value of 40% of the total amount payable by the customer (excluding sales tax) may be adopted if you do not sell significant quantities of similar goods by wholesale in Australia in comparable circumstances and have difficulty in working out a notional wholesale selling price:

• • where you expose reversal film in a camera and process that film yourself to produce transparencies to the order of a particular customer;

• • where you produce duplicate transparencies to the order of a particular customer by exposing reversal film in a camera;

• • where you produce prints to the order of a particular customer by using an instant film camera (including operators of photo booths); and

• • where you expose reversal film in a camera, send the exposed film to an independent processing laboratory and use the resultant transparency to produce a cibachrome print to the order of a particular customer.

Digital photography

Some professional photographers use a digital camera to capture images, load that data onto computer where they may enhance it and then produce prints to the order of a particular customer. This activity involves the manufacture of prints.

Provided the photographer does not sell significant quantities of similar goods by wholesale in Australia in comparable circumstances, a taxable value equivalent to 40% of the total amount (excluding tax) payable by the customer may be adopted if you have difficulty in arriving at a notional wholesale selling price.

Photo booths and instant film cameras

Photographers and photo booth operators who use instant film to produce photographs are regarded as manufacturers and must charge sales tax on such prints. You can calculate sales tax on these prints on a taxable value equal to 40% of the total amount (excluding tax) payable by the customer.

Proofs

Proofs produced by home study, studio, portrait or wedding photographers (who subsequently manufacture prints to the order of particular customers) are generally sold to the customers and included in the price charged for the prints. You can satisfy your liability in respect of both prints and proofs by charging sales tax on a taxable value equal to 40% of the total amount (excluding tax) payable by the customer.

People who engage in street or candid photography expose film in the hope of securing orders. The proofs produced by them are usually not sold but kept by the photographer. When applied to own use, the proofs are assessable goods and you should pay sales tax on the notional wholesale selling price of those goods.

Photographers' portfolios

Prints which are manufactured and kept by photographers for display purposes, are assessable goods. You should pay sales tax on a taxable value equal to the notional wholesale selling price of the prints.

Professional laboratories

Where professional laboratories manufacture goods for sale by wholesale, e.g. to photographers who will resell the goods, the taxable value of those goods is the price (excluding sales tax) for which the goods were sold. The taxable value of goods manufactured and sold by retail is the notional wholesale selling price of those goods.

However, where only negatives or transparencies are produced from exposed film supplied by a customer, the law says that the taxable value is:

• • the amount (excluding sales tax) charged for making those goods up; and

• • the value of any exempt materials which may have been supplied by the customer.

Amateur laboratories

Because amateur laboratories (e.g. mini-labs) charge one tax-inclusive price for both prints and negatives (developing and printing) processed for amateur photographers, difficulty is often experienced in calculating the amount of sales tax payable in connection with this work.

Agreement with the Tax Office

The Tax Office, in association with the Photo Marketing Association International, some of the larger amateur film laboratories and representatives of the smaller amateur film laboratories have agreed on a basis for the determination of a taxable value for developing and printing of customers' films. This agreement, under section 43 of the Sales Tax Assessment Act 1992 (the agreement), which operates from 1 October 1998, provides that amateur film laboratories which do not sell significant quantities of similar goods by wholesale in Australia in comparable circumstances, may meet their sales tax liability by paying sales tax on amateur developing and printing of all size films with machine prints at the rate of 10.1% of the total tax-inclusive price charged to the customer.

All other amateur film laboratories are now invited to enter into the agreement with the Commissioner of Taxation on similar terms for the purpose of meeting their sales tax liability in respect of amateur developing and printing. You should contact the Tax Office on 13 28 66 if you are seeking more information about the agreement.

Amateur film laboratories which are signatories to the agreement must also calculate sales tax at 10.1% of the total tax-inclusive price charged to the customer in respect of:

• • two for one orders with machine prints;

• • machine reprints;

• • enlargements to the order of particular customers from specific negatives; and

• • developing only of negative film.

The following example shows how the sales tax is calculated:

Amateur laboratories have until 31 December 1998 to decide whether to become a signatory to the agreement. After that date, any amateur laboratories which are not signatories to the agreement will have to determine taxable values in respect of retail sales of prints manufactured by them and developing customers' exposed negative film in accordance with the general provisions of the law. However, any amateur laboratory commencing business after that date will be given reasonable time (three months from the date of commencing business) to decide whether to become a signatory to the agreement.

The taxable values under the general provisions of the law are:

• • where prints are manufactured and sold by retail, the taxable value is the notional wholesale selling price; and

• • where negatives are produced from exposed film supplied by a customer, the taxable value is the amount (excluding sales tax) charged by the laboratory to the customer in respect of the goods plus the value of any exempt materials which may have been supplied by the customer.

When looking at the meaning of notional wholesale selling price, the Tax Office would expect that you would normally sell by wholesale at a price reflecting the sum of manufacturing cost, any research and development costs, wholesale selling expenses and a fair wholesale profit.

A simplified formula (known as a Safe Harbour) for finding this figure is available for manufacturers of photographs who sell goods by retail but do not sell significant quantities of similar goods by wholesale in Australia in comparable circumstances. It is calculated easily by taking the manufacturing cost plus one third of the difference between that amount and the retail selling price (excluding tax) of the goods. A Safe Harbour is a statement of how to calculate taxable value that the Tax Office accepts as completely discharging a taxpayer's liability.

Manufacturing cost means the sum of:

• • the cost of materials used to manufacture the particular goods;

• • the cost of labour used directly in the manufacturing operations; and

• • production, manufacturing or factory overheads.

The terms of the agreement replace all previous private or public rulings in connection with the taxable value of developing and printing by amateur laboratories.

If amateur laboratories process transparencies out of exposed reversal or transparency film supplied by a customer sales tax is payable at the Schedule 4 rate, currently 22%, on a taxable value equal to the amount (excluding sales tax) charged to the customer. In some cases, transparency film is sold with processing included. Although the film is generally sold through a retailer to the customer, the price of the film includes a processing fee. Where the film is sold with processing included, sales tax is payable on the processing fee.

Duplicating digital images

Some amateur laboratories engage in the production of prints, reprints, enlargements, compact or floppy discs by duplicating digital images which have been transferred onto computer from negatives, transparencies, compact discs etc supplied by amateur photographers.

This process involves the manufacture of a print, enlargement or 'photos on disc' as the case may be. Where the laboratory sells these goods by retail but does not sell significant quantities of similar goods by wholesale in Australia in comparable circumstances, tax is payable at the Schedule 4 rate, currently 22%, on a taxable value equivalent to the notional wholesale selling price of the goods.

However, where amateur laboratories are signatories to the agreement mentioned earlier, they may meet their sales tax liability by paying tax at the rate of 10.1% of the total tax-inclusive price charged to the customer.

Exempt photographic products

Subitem 24(2) in Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992 exempts photographic negatives and diapositives for use in connection with producing printers blocks, lithographic and offset plates which are, in turn, used to produce exempt or taxable printed matter.

Subitem 24(3) in Schedule 1 provides for the exemption of final artwork, photographs, reproduction proofs and other goods which are for use in connection with producing:

• • photographic negatives and diapositives of the kind mentioned in subitem 24(2); or

• • lithographic or offset plates and silk screens for use in printing by the silk screen process.

Before allowing exemption for photographs etc. under these sub-items, commercial photographers or processing laboratories should get, from the customer, a quotation of:

• • a sales tax number if the customer is registered; or

• • an exemption declaration in a form and manner approved by the Commissioner of Taxation (if the customer is unregistered).

What are the rates of sales tax?

The following schedule shows the current rates of sales tax for various photographic goods and materials. The Schedule 4 rate is currently 22% while the Schedule 5 rate is currently 32%.

How do I pay sales tax to the Tax Office?

You can pay your sales tax by a number of convenient methods:

• • electronic funds transfer (call 1 800 815 886 for more information)

• • mail payments

• • at Australia Post

• • at the Tax Office

You will receive a booklet of return forms each year if you are required to lodge either monthly or quarterly remittances on a regular basis. In other cases, return forms are available from the Tax Office.

Can I pay my sales tax quarterly?

If you had an annual sales tax liability of less than the quarterly remitter threshold and you have no sales tax payments outstanding, you can lodge returns and pay sales tax on a quarterly basis. The relevant quarters are the three months ending 31 October, 31 January, 30 April and 31 July.

The current quarterly remitter threshold may be obtained by contacting the Tax Office on 13 28 66 for the cost of a local call.

When is the return and payment due?

The return with full payment is due 21 days after the end of the month or quarter in which the transaction(s) took place.

What if I can't pay the tax?

The law requires you to lodge a sales tax return and make payments when they are due. Otherwise, penalties may be imposed.

If, for some reason, you can't pay the sales tax owing, you must still lodge your return at the correct time and contact the Tax Office as soon as possible to arrange for payment.

Do you need more information?

If you have any questions or need more information about how the sales tax law applies to you, please contact the Tax Office:

• • by phone on our national enquiry number 13 28 66. You can ring this number from anywhere in Australia for the cost of a local call; or

• • in person by visiting the enquiry counter at the Tax Office. Addresses for the Tax Office are listed in TaxPack, as well as in the White Pages telephone directory or

• • by A Fax from Tax, our 24 hour fax information service. Simply call 13 28 60 (local call cost) on your phone or fax and follow the voice prompts; or

• • at our Internet website, at www.ato.gov.au

ATO references:
NO NAT1765.9.98