TAXATION RULING NO. ST 2191

ST 2191

SALES TAX : MANUFACTURE AND PRIMARY PRODUCTION

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FOI status:

May be releasedFOI number: I 1205604

PREAMBLE

Questions have arisen about the classification of computer systems and hand tools purchased for use by primary producers in their primary production operations and also on the classification of goods used in the repair or maintenance of agricultural machinery, implements or apparatus.

FACTS

2. As indicated in paragraph 798 of Australian Sales Tax, 1984, one of the principal objects of defining "manufacture" to include "production" for sales tax purposes was to ensure that the sales tax law applied to goods derived from operations in "primary production", whether as a result of physical labour, mechanical power or natural growth.

3. Activities such as the rearing of livestock, poultry, fish, etc. for sale, the maintenance of a dairy herd for the production of milk and cream for sale, the maintenance of hens for the production of meat and eggs for sale and the maintenance of bees for the production of honey for sale, the growing of crops, fruit, plants, herbs, flowers, etc. for sale are all manufacture for sales tax purposes.

4. Consequently, goods for use primarily and principally in these and other primary production manufacturing operations will qualify for sales tax exemption as "aids to manufacture" when used in appropriate circumstances as specified by item 113A, First Schedule.

5. Because Division I of the First Schedule to the Sales Tax (Exemptions and Classifications) Act exempts most items of agricultural machinery, implements, equipment and materials the "aids to manufacture" provisions will only have relevance to goods which are not covered by items in that Division, e.g. computers and computer systems, hand tools and various goods used in the repair or maintenance of agricultural machinery, implements or apparatus covered by the "aids to manufacture" provisions.

RULING

6. Computer systems purchased by primary producers will qualify for conditional exemption under item 113A, First Schedule, when they are used exclusively, or primarily and principally, and directly, in primary production activities that involve manufacture.

7. In the dairying industry a computer system has been developed to record, analyse and provide information as to milk yields of each cow as the cows are being milked. The information is recorded at milking time by the use of identification neck-band transponders for each cow, an automatic identification control unit, a milking shed keyboard and display, manger coils, a feed control unit, milk meters and a weighbridge.

8. As well as the milk yields of each cow (for each milking and daily total), the system provides the following information for use by the dairy farmer :-

(i)

total milk produced from all cows

(ii)

feed used and feed required during milking

(iii)

identification of cows that have been milked and to divert milk, where necessary, from particular cows

(iv)

the extent of feed each cow is getting from the paddock

(v)

the quantity of feed concentrate which can be given to each cow to ensure maximum milk production without causing nutritional stress

(vi)

identification of cows due for service, cows due to calve, cows due for treatment, cows missed at milking, cows with abnormally high or low milk production, cows not eating their full feed ration and cow body weights.

9. On the other hand, computer systems used by a dairy farmer for financial accounting and record keeping (including stock control, cash flow, forecasting, budgeting and farm management costings), for farm physical record keeping (including the keeping of general herd records) and for farm management decision-making are not used for applications which come within the scope of the exemption for "aids to manufacture". Computers purchased for such uses are taxable.

10. Where hand tools are used primarily and principally by primary producers in the kinds of activities outlined in paragraph 3 above they will also qualify for exemption under item 113A, First Schedule as "aids to manufacture".

11. Machinery, implements, apparatus and materials for use exclusively or primarily and principally in repairing and maintaining "aids to manufacture", qualify for conditional exemption under item 113E, First Schedule. Radiator corrosion inhibitors, paint, self-adhering and sticky back tapes, refrigerant hose, heavy rubber sealers, window rubbers, etc. when purchased by primary producers for use with tractors, headers, ploughs, scarifiers, etc. actually used in their primary production manufacturing operations would qualify for exemption under item 113E.

12. Exemption does not apply to goods used to repair or maintain passenger vehicles, farm trucks, utilities, four wheel drive vehicles and other equipment used by primary producers which do not come within the defined meaning of "aids to manufacture".

COMMISSIONER OF TAXATION
7 January 1986

References

ATO references:
NO 84/5903-7

Date of effect:
Immediate

Related Rulings/Determinations:

ST 2405

Legislative References:
SALES TAX (EXEMPTIONS AND CLASSIFICATIONS) ACT; ITEMS 113A
AND 113E, FIRST SCHEDULE