TAXATION RULING NO. ST NS3001

STNS 3001

SALES TAX THE PRINTING INDUSTRY: MANUFACTURE AND CLASSIFICATION OF PRINTED MATTER.

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FOI status:

May be releasedFOI number: I 1012097

PREAMBLE

1.1 This Ruling is designed to be a guide to Sales Tax liability for manufacturers of printed matter ('printers'). For ease of use an index of keywords and phrases is attached at Appendix A.

1.2 If anyone is in doubt as to how this Ruling applies to their particular circumstances, or requires any further information, they should contact their local branch of the Australian Taxation Office for further advice. However, an individual need not seek a private ruling on any matter dealt with here, except where this Ruling indicates that one is required.

INTRODUCTION TO LIABILITY AND OBLIGATIONS

2.1 Generally speaking, manufacturers and wholesale merchants of taxable goods have a liability for sales tax.

2.2 A person who carries on a printing business is a 'manufacturer' as defined in sub-section 3(1) of the Sales Tax Assessment Act (No. 1) 1930, as amended ('Assessment Act'). This definition reads in part as follows:

'Manufacturer means a person who engages, whether exclusively or not, in the manufacture of goods, and includes a printer, publisher, lithographer or engraver...'

2.3 In the Commissioner's view, persons who manufacture printed matter in the course of conducting a business, whether printing is their business or they print solely for their own use as part of another business ('in-house printers'), are 'manufacturers'. However, in a recent decision, FCT v. Totalisator Administration Board of Queensland 89 ATC 4877; 20 ATR 1173 the Full Court of the Supreme Court of Queensland agreed with the trial judge (88 ATC 5025; 20 ATR 94) that the Queensland TAB, which printed material solely for its own use and not for sale, was not a 'manufacturer'. The Commissioner has been granted special leave to appeal from this decision to the High Court and will review his interpretation once that appeal process has been finalised.

2.4 Printers may have a liability for sales tax in respect of taxable goods manufactured by them. In addition to general printing, processes in the printing industry which may be manufacture include:

•

photocopying.

•

duplicating, roneoing, multigraphing.

•

plate making - this includes the production of final art-work and photographic goods for use in plate making.

•

silk screening - the production of printed matter by the silk screen process is manufacture when a new commercial article is brought into existence. For example, the silk screening of shaped or cut pieces of material to produce articles such as pennants, banners, sashes or flags is manufacture. On the other hand, the silk screening of patterns on textile piece goods does not result in the production of different commercial articles and is not in itself manufacture.

•

overprinting - where it adds a feature to the printed matter already in existence. In such cases where the printed matter is taxable, tax must be accounted for on the charge for this overprinting. However, alterations and cancellations which are confined to printed matter which, until the alteration and cancellation became necessary was regarded as complete and, does not supplement or add to the matter already in existence, are not manufacture.

•

book binding - where the binding is an integral part of producing the printed matter. However the binding or re-binding of used documents (for example, invoices, journal sheets, insurance proposals, law reports) and second-hand publications is not manufacture where the identity or character of the publication is not altered.

•

punching, eye letting, laminating and/or cutting to size of paper or printed matter - although these processes do not constitute manufacture in themselves where they are performed as an integral part of producing printed matter they form part of that manufacturing process.

(Where book binding, punching, eyeletting, laminating and/or the cutting to size of paper or printed matter are performed as an integral part of the manufacture of taxable printed matter, the cost involved forms part of the sale value of the finished goods.)

2.5 It is not unusual for a printer to proceed with or complete an order which may be cancelled or abandoned by the customer before completion. In such instances, provided that property in the goods has not passed to the customer, no sale has been made and consequently no sales tax is payable.

2.6 A printer is obliged to be registered as a manufacturer (section 11 of the Assessment Act). A person registered under the Sales Tax legislation as a manufacturer (or wholesale merchant) of goods is referred to as a 'registered person'. Printers who manufacture goods which qualify for exemption under items 100 or 103 in the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935, as amended ('Exemptions and Classifications Act') may have the registration revoked or dispensed with, although they should apply in the first instance.

2.7 Item 100 in the First Schedule of the Exemptions and Classifications Act provides exemption from sales tax for:

'Goods manufactured and sold by a person if the Commissioner is of the opinion that the average annual value of that person's sales of all goods is not, or would not be, in excess of $50,000 ...'

2.8 Similarly, item 103 provides exemption from sales tax in some circumstances where the total sales tax payable per annum would not exceed $1,000.

2.9 A printer must pay sales tax on goods manufactured by him unless the goods are exempt under the Exemptions and Classifications Act, or he is in receipt of a valid quotation (see paragraph 2.18).

2.10 The types of printed matter which are exempt from sales tax are specified in Division IX of the First Schedule to the Exemptions and Classifications Act. This Division is dealt with at paragraphs 4.1 to 4.53.

2.11 Some other items in the First Schedule provide that goods will be exempt when used in certain ways or by certain, usually non-profit, organizations. Goods for use and not for sale, by some schools, public hospitals, public benevolent institutions, and government departments are examples. Government authorities such as the Australian Telecommunications Commission (Telecom), Australian Postal Commission and Qantas Airways Ltd are non-exempt organizations. It should be noted that there is no general provision to exempt goods used by charitable organizations.

2.12 Printers should not sell goods free of tax to these organizations unless:

(a)

the organization provides a certificate of exemption in the approved form, (refer paragraph 2.13 for details of the approved form),

(b)

the goods are covered by an item in the First Schedule to the Exemptions and Classifications Act when used for the purpose as stated in the certificate, and

(c)

the printer has no reason to doubt that the goods will be used for the purpose stated.

2.13 The certificate of exemption mentioned in paragraph 2.12 may be handwritten, printed or typed. The approved form, requires the following information: Heading - Sales Tax (Exemptions and Classifications) Act Address - To the Commissioner of Taxation and the Commonwealth of Australia. Certificate - I hereby certify that the .......... (description of purchased from .......... (name of vendor) ..... on . .... (described use) .... and exemption is accordingl .......(item number) ..... in the First Schedule to t (Exemptions and Classifications) Act. Claimant's signature and details - Name in Full .................. Signature ..................... Status of signatory ........... Address ....................... Date ..........................

2.14 A printer is liable to pay sales tax on the sale value of taxable goods when they are:

•

sold to an unregistered person or to a registered person who does not quote his certificate in respect of the sale;

•

treated as stock for sale by retail; or

•

applied to his own use.

(Section 19 of the Assessment Act)

2.15 Principles for determining the sale value of printed matter are dealt with at paragraphs 5.1 to 5.20. Where printed matter is taxable, the rate of sales tax which will generally apply is 20% ('the general rate'). In some cases the rate will be 10% (see paragraphs 4.10 to 4.14 for examples).

2.16 A registered printer is required to lodge a sales tax return each month. The sales tax return and the sales tax owing for any month must be lodged and paid within twenty one days after the close of that month in which the taxable transactions occurred.

2.17 A registered printer is issued with a numbered certificate of registration. He is required to use this number to quote his certificate on the purchase or lease of goods where the goods are :

•

to be used in, wrought into or attached to goods to be manufactured by him (these are often referred to as raw materials);

•

to be used as 'aids to manufacture' or 'auxiliaries to aids to manufacture' (dealt with below);

•

raw materials used in making aids and auxiliaries;

•

to be sold by him by wholesale; or

•

certain types of containers (for example, boxes for delivery of manufactured printed matter).

(Section 12 of the Assessment Act; Regulation 12 of the Sales Tax Regulations)

2.18 By quoting a certificate a printer obtains the goods free of sales tax. All quotations should be made in the following form: I hereby certify that..............(a)................ (b) am/is/are the holder/holders of.........(c)....... Sales Tax Certificate No...........(d)................ .......................................... (Signature of certificate holder(s))

(a)

name of registered holder

(b)

strike out words which do not apply

(c)

name of State in which certificate was issued if quoting in another State

(d)

sales tax certificate number

2.19 It is an offence to quote a certificate other than as set out in the prescribed circumstances (Section 12(2) of the Assessment Act).

2.20 Registered printers must advise the Commissioner, in writing, within seven days of ceasing to be manufacturers or wholesalers.

2.21 Further information about a printer's liability to sales tax is set out under the headings following.

FACTURE

General

3.1 A printer is entitled to exemption from sales tax on certain equipment used in producing the manufactured goods. The exemption extends to goods defined as 'aids to manufacture' and 'auxiliaries to aids to manufacture'.

3.2 The legislation defines these terms separately for registered and unregistered persons. For the complete definition, a registered person should refer to sub-regulation 4(1) in the Sales Tax Regulations. An unregistered person should refer to sub-clause 1(1) in the First Schedule to the Exemptions and Classifications Act.

3.3 For most practical purposes the definitions referred to contain identical elements and need not be distinguished here.

3.4 Aids to manufacture include machinery, implements and apparatus applied exclusively, or primarily and principally, to manufacturing uses, including:

•

processing or treating materials which are to be incorporated into the manufactured goods

•

maintaining manufactured products in the form or condition in which they are to be marketed or used

•

packaging or labelling the goods manufactured, but not if the packaging or labelling is carried out exclusively, or primarily and principally for delivery purposes

•

testing or checking the quality and specifications of the goods manufactured

•

disposing of waste which results from manufacturing operations

•

moving the manufactured goods within factory premises, including moving them during the processes of manufacture

•

storing partly processed goods in the manufacturing premises

•

operating and cleansing manufacturing plant

•

carrying out scientific research relating to the manufacturing operations

•

constructing manufacturing equipment on site.

3.5 Parts for any of the above goods and consumables used during manufacturing operations as described above may also qualify for exemption as 'aids to manufacture'. Consumables include, for example, cleaning rags used for removing excess ink from machinery.

3.6 Goods used in processing or treating any of the above 'aids to manufacture' may be exempt as 'auxiliaries to aids to manufacture'.

3.7 Some goods are specifically excluded from exemption as aids to manufacture or auxiliaries. These are:

•

road vehicles of the kind ordinarily used for transporting people or transporting or delivering goods

•

vending machines

•

office equipment other than equipment used directly in the manufacture of goods

•

containers, pallets and other goods for storage or delivery of manufactured goods

•

dies, jigs, printing blocks and other manufacturing aids that are sold with the manufactured goods

•

lubricants

•

parts for the above goods.

3.8 This broad outline is not intended to replace the definitions referred to in paragraph 3.2, but to provide a guide to the general types of goods which will qualify for exemption as aids or auxiliaries. Paragraphs 3.9 to 3.14 provide some further guidelines in relation to specific goods used by printers in the course of manufacture.

Printers' Proofs

3.9 Materials (for example, paper and ink) used by printers, blockmakers, lithographers, electrotypers and stereotypers in taking proofs or trial impressions for use for correction or examination purposes (for example, checking layout, set-up, separation etc.) are materials which have been used in the production of printed matter. The manufacturer is entitled to obtain these materials free of tax by quoting his certificate of registration.

3.10 Traditionally, printers have demonstrated the need for up to a dozen galley proofs to check typeset etc., for a particular undertaking. These proofs, when used in testing or checking the quality or specifications of goods, qualify for exemption under paragraph (a)(v) of the 'aids to manufacture' provisions.

3.11 Similarly, chemical or pre-press proofs used by a manufacturer to check the specifications of photographic negatives produced by him in the printing process, will also qualify for exemption.

Stencils

3.12 Stencils used exclusively, or primarily and principally in producing printed matter or in the branding of manufactured goods or containers prior to sale, will qualify for exemption as 'aids to manufacture'. Stencils used to brand or address goods or containers after sale are taxable at the general rate (see paragraph 2.15).

Computers

3.13 The Commissioner's view as to whether exemption applies to computers has been previously expressed in Taxation Ruling ST 2105.

3.14 The question of whether and in what circumstances computers qualify as 'aids to manufacture' is contentious and is currently under review.

EXEMPTIONS AND CLASSIFICATIONS

4.1 In addition to the aids to manufacture provisions, there are several items in the First Schedule to the Exemptions and Classifications Act which exempt certain types of printed matter and goods used in printing.

Item 51 - sub-item (1)

4.2 Sub-item 51(1) exempts:

'Books, pamphlets, leaflets, periodicals, magazines and printed music....'

other than the printed matter specifically excluded by that sub-item. Paragraphs 4.5 to 4.29 deal with the types of printed matter excluded from exemption.

4.3 Apart from 'periodicals' these terms are not defined in the Exemptions and Classifications Act. 'Periodicals' means publications issued at regular intervals, not exceeding three months. The other terms must be interpreted according to their ordinary or common meanings.

4.4 The current ordinary meanings of these terms are:

BOOK -

a collection of sheets of paper or other substance, blank, written on or printed, especially such a collection fastened together and protected by covers.

(Loose leaves containing additional information for insertion into exempt books will usually be exempt. Where they are supplied under an agreement to purchase an 'up-to-date' reference source, they will form an integral part of the book purchased and not therefore require a separate exemption. In other cases, they may be leaflets in their own right.)

PAMPHLET -

(a)

a small book of a few sheets, stitched but not bound, usually of some subject of current interest, and

(b)

small, usually unbound, treatise especially in prose on a subject of current interest.

LEAFLET -

a small sized leaf or a sheet folded but not stitched and containing printed matter, chiefly for gratuitous distribution.

(Leaflets will normally be complete and comprehensible in themselves. They will usually be for general distribution to the public and associated with canvassing public opinion or support, but this is not an essential requirement.

Material marketed in card systems, such as cooking recipes, do not qualify for exemption as leaflets or pamphlets.)

MAGAZINE -

a periodical publication containing miscellaneous articles by different persons.

Sub-item 51(1) - exclusions

4.5 The specific exclusions from exemption in sub-item 51(1) can be divided into four broad groups -

(i)

stationery in book form (paragraph (a)),

(ii)

programmes etc. of entertainments, amusements etc. (paragraph (b)),

(iii)

books of maps other than those marketed exclusively or principally for use in schools, colleges or universities (paragraph (ba)),

(iv)

printed matter relating to the conduct or promotion of business enterprises (paragraphs (c), (d), (e) and (f)).

4.6 Paragraph (a) excludes:

'books of account; books of receipts, cheques, deposit slips, bank withdrawal forms, tickets, dockets, labels or order forms; books of blotting paper, books of blank sheets, or of sheets ruled or printed, for writing notes, letters, exercises, accounts or for record purposes, or for sketching, drawing, colouring or painting (not being children's books containing printed illustrations for copying or colouring or for copying and colouring); albums, books of samples, menus or calendars; booklets of printed matter conveying greetings or sympathy; diaries; other stationery in book form;'

4.7 'Other stationery in book form' is a broad term and includes legal stationery (for example, pro forma wills, statutory declarations, powers of attorney and the like) in book form.

4.8 Paragraph (b) excludes:

'programmes, schedules, syllabuses, guides or souvenirs of entertainments, amusements, exhibitions, competitions or sporting events;'

4.9 The application of this paragraph was considered by the High Court in Downland Publications Ltd v. FCT 83 ATC 4137; 14 ATR 122. This case concerned the publication 'Best Bets' (a racing guide) which was held to be a programme of a sporting event, and thus excluded from exemption. The following points can be gleaned from the decision:

(1)

Whether a publication is a programme or guide etc. must be determined objectively.

(2)

It is sufficient if the publication is prepared for use at or in connection with the event to which it relates even though it is not an official publication produced by or on behalf of those organizing the function.

(3)

A publication may be a programme or guide etc. even though it may contain other material closely related to the events mentioned in the publication. What is important is the overall impression given.

4.10 Paragraph (ba) excludes:

'books covered by sub-item (3) of item 3 in the Third Schedule;'

4.11 Sub-item (3) of item 3 in the Third Schedule specifies:

'Books consisting wholly or principally of maps (including road and tourist maps and navigators' charts), but not including books marketed exclusively or principally for use in schools, colleges or universities.'

Goods covered by the Third Schedule are taxed at the rate of 10%.

4.12 Read together, paragraph 51(1)(ba) in the First Schedule and sub-item 3(3) in the Third Schedule result in books consisting wholly or principally of maps and marketed exclusively or principally for use in schools, colleges or universities being exempt from sales tax. All other books consisting wholly or principally of maps are taxable at the rate of 10%.

4.13 The decision of the Federal Court in Universal Press Pty Limited v. FCT 89 ATC 5234 confirmed that the phrase 'books consisting wholly or principally of maps...' covers street and road directories, even where they contain substantial indices. Atlases would also fall within this description.

4.14 The term maps is not limited to road, topographical and other similar maps. It includes cadastral plans (which depict a particular area of a town or district in detail), and aerial photographs which have been re-touched to show up topographical features (as opposed to aerial photographs taken for their pictorial value).

4.15 Paragraph (c) excludes:

'catalogues or price-lists'.

4.16 While this expression, read in isolation, appears to be very wide, in a recent court decision the majority of the Federal Court adopted a restricted meaning. In FCT v. Thompson Australian Holdings Pty Ltd & Ors 89 ATC 4696; 19 ATR 1896 publications containing information regarding liquor pricing and motor vehicle market values, used by wholesalers and retailers in the liquor and motor vehicle trades, were held not to be catalogues or price-lists. In this case the court held that the meaning of the word 'catalogue' is narrowed by the linking of it with the expression 'price-list'. For a document to be a catalogue within the meaning of this paragraph it should be directed at activities in trade and commerce.

4.17 Paragraph (d) excludes:

'memoranda of association, articles of association, balance sheets, statements of account or prospectuses of trading or other concerns carried on for the profit of individuals or associated reports'.

4.18 Paragraph (d) excludes the specified printed matter where it relates to organizations carried on for the profit of individuals.

4.19 Specified printed matter relating to organizations not carried on for the profit of individuals are not excluded from exemption. Any profit derived by such an organization should be applied to promote its aims and must not be for the benefit or gain of members individually or severally.

4.20 Further, the Crown which is the head of government, and used representationally to mean the people of Australia is not considered to be an individual for the purposes of this sub-item. Therefore, any profit or gain which ultimately benefits the people of Australia, as a whole is not considered to be profit or gain of an individual.

4.21 Paragraph (e) excludes:

'advertising matter'.

4.22 There have been a number of cases in which the term 'advertising matter' has been interpreted. In D.F.C. of T. v. Rotary Offset Press Pty Ltd 71 ATC 4170; 2 ATR 411 Gibbs J. stated (p. 4175; 416) that:

'The word "advertise" means to make generally or publicly known, or to give public notice of, but the phrase "advertising matter" in the context of Item 51 must have a somewhat more limited meaning, and must be restricted to published announcements of a business kind.'

4.23 Whether or not a publication is advertising matter is determined by an objective consideration of the form and content of the publication as a whole, viewed in the light of all the surrounding circumstances. It does not matter if the publication contains some material which viewed by itself is not advertising matter or serves some purpose other than advertising, provided that the character of the publication as a whole is not altered.

4.24 Advertising supplements inserted into newspapers or magazines may not be 'advertising matter' where they are an integral part of the publication. This characterisation issue is discussed at paragraph 4.44 to 4.46. However, such supplements for letter box distribution are advertising matter.

4.25 Paragraph (f) excludes:

'books, pamphlets, leaflets, periodicals, magazines or printed music published or to be published for the purpose or as a means of advertising the business or the products of the publisher or of the person or persons for whom they are or are to be published'.

4.26 The exclusion will not apply merely because material is published in the interests of a party if it was not published for that party. A distinction can also be drawn between publications which advertise the products or services of an entity and those which merely promote its image or describe its activities. The latter will usually fall within the category of public relations material rather than advertising. In exceptional cases, however, promotion of image may be enough to be considered to be a means of advertising the product. For example, where a company is so strongly identified with its product that the promotion of its image is advertising its product.

4.27 Where it is not clear whether printed matter is of an advertising or public relations character it will be necessary to look at the nature of the material, the reasons for its publication, and the classes of persons to whom the publication is to be distributed (for example, whether they are consumers of products referred to in the publication).

4.28 Instruction manuals in the form of pamphlets and/or leaflets often accompany goods such as electrical appliances. Where these instruction manuals merely guide or instruct the consumer to the product's proper usage, they are not excluded from exemption pursuant to sub-paragraph (e) or (f). This is so even though the name of the product (including model number and specifications) and its manufacturer are mentioned.

4.29 Similarly, travel literature which merely depicts and describes tourist attractions and places of interest and provides maps, guides and lists of tourist information centres and accommodation is generally not excluded from exemption pursuant to sub-paragraphs (e) or (f). It would however be excluded from exemption where it advertises the activities or facilities offered by a particular business. In addition, advertising material with absolutely no 'business' connection would not be excluded from exemption by these provisions.

Item 51 - sub-item (2)

4.30 Sub-item 51(2) exempts:

'Books, pamphlets, leaflets, periodicals or magazines issued or to be issued by or on behalf of an organization which is not carried on for the profit of individuals, for the purpose of advertising tourist resorts or disseminating information concerning tourist traffic'.

Item 51A

4.31 Under this item imported manuscripts are exempt. Manuscripts produced in Australia are taxable at the general rate (see paragraph 2.15).

Item 52

4.32 Item 52 exempts certain goods which are, or were, commonly used in the manufacture of printed matter. The item reads as follows:

'52(1) Goods for use in, or in connection with, the production of printed matter to which an item in this Schedule, other than item 100 or 103, applies, namely:-

(a)

compositions produced by Linotype, Intertype, Monotype, Ludlow, Elrod and similar machines;

(b)

stereotypes, matrices, electrotypes and electrotype moulds;

(c)

printers type, printers borders, printers ornaments, printers spacing materials and printers rules;

(d)

blocks;

(e)

lithographic plates, lithographic stones, offset plates and letterset plates;

(f)

etched plates, etched sleeves and etched printing cylinders for use in photogravure, rotogravure and other similar processes of printing;

(g)

silk screens for use in printing by the silk screen process.

(2)

Photographic negatives and diapositives for use in connexion with the production of goods of any of the kinds specified in paragraph (d), (e), (f) or (g) of sub-item (1)

(3)

Drawings, sketches, cartoons, paintings, pictures, photographs, printed matter and combinations of any of those goods for use in connexion with the production of goods of any of the kinds specified in paragraph (e) or (g) of sub-items (1) of this item or of goods to which sub-item (2) applies'.

4.33 Sub-item 52(1) has application only to specified goods used in the production of exempt printed matter (see paragraphs 4.1 to 4.31 and 4.42 to 4.53) other than that covered by items 100 and 103.

4.34 Items 100 and 103 refer to 'manufactures of small businesses' (see paragraphs 2.6 to 2.8). As a result, goods of the kinds referred to in sub-item 52(1) must be purchased at tax inclusive prices by 'small manufacturers'.

4.35 Exemption under sub-item 52(2) effectively applies to photographic negatives and diapositives used to produce blocks, plates, etched sleeves and printing cylinders or silkscreens.

4.36 Artwork, photographs and printed matter used in the production of photographic negatives and diapositives, printing plates or silk screens gain their exemption by virtue of sub-item 52(3).

4.37 Sub-items 52(2) and 52(3) differ from sub-item 52(1) in that exemption can apply to the specified goods whether the printed matter produced is of an exempt or taxable nature.

4.38 In many cases, graphic artists or commercial artists are commissioned to produce artwork for use in the production of printed matter. Graphic artists or commercial artists who produce final artwork are manufacturers for sales tax purposes as they are producing goods (rather than merely providing a service).

4.39 Like other manufacturers, graphic artists etc., will be entitled to claim exemption on 'raw materials' and 'aids to manufacture' used in the production of final artwork. Exemption, however, does not extend to goods used in preliminary drawings and sketches etc., since they are generally not used in 'processing or treating ' the final artwork. Only goods used to manufacture the final artwork will qualify for sales tax exemption.

4.40 Where a person purchases artwork directly from a commercial artist for the purposes of having printed matter produced, exemption from sales tax is obtained by the person furnishing the appropriate certificate of exemption to the commercial artist (see paragraph 2.13 for the approved form). In some cases, however, the printer or plate maker is asked to arrange for the artwork to be produced in addition to the blocks, plates and printed matter. Where artwork is supplied in this latter situation and there is no separate sale of the artwork, its cost will form part of the sale value of the printed matter produced, where the printed matter is taxable. This applies whether or not the artwork is invoiced separately.

4.41 There may, however, be a separate agreement or other evidence to support the separate sale of the artwork (for example, where a printer effectively acts as agent by arranging to have the artwork produced by another person on behalf of the customer and the artwork needs to be approved by the customer before printing proceeds). In such situations the artwork will not form part of the sale value of the taxable printed matter.

Item 54

4.42 This item exempts 'Newspapers'. 'Newspaper' is not defined in the Act, but several Court cases have given guidance as to what is meant by the term.

4.43 A newspaper is currently understood to be a printed, daily or weekly publication that contains news, that is, a narrative of recent events. It may also contain a large proportion of other material, for example, literary and dramatic criticisms, notices of public and private interest, advertisements and the like.

4.44 As mentioned at paragraph 4.21 'advertising matter' is expressly excluded from exemption by paragraph (e) of sub-item 51(1) of the Exemptions and Classifications Act. However, in one recent Court case John Fairfax and Sons Ltd v. FCT; Mirror Newspapers Ltd v. FCT 88 ATC 5033; 20 ATR 121 self-contained advertising material inserted into a newspaper was found to be an integral part of the newspaper, rather than retaining an identity as separate 'advertising matter'.

4.45 Accordingly, where an advertising supplement is manufactured by the newspaper publisher and is inserted into the newspaper by the publisher, the inserts will form an integral part of the newspaper. The supplements will therefore qualify for exemption as goods to be 'used in, wrought into or attached' to form part of the newspaper. Where an insert is to become an integral part of a newspaper and it has been purchased by the newspaper publisher from another printer, the publisher would be able to obtain the inserts free of sales tax either by quoting a certificate of registration (if the publisher is a registered person), or if unregistered, by claiming conditional exemption under item 113 as materials 'to be used in, wrought into, or attached to, so as to form part of' the newspaper.

4.46 Similarly, where advertising supplements are inserted into magazines or journals and the supplements contain material which is apt to be found as an integral part of such publications they will also qualify for exemption from sales tax.

Item 59

4.47 Item 59 exempts:

'(1) Trade catalogues not imported for sale or distribution

(2) Imported goods consisting of calendars, catalogues, price lists or other printed matter, being goods to which paragraph (d) of item 32 in Part II of Schedule 4 to the Customs Tariff applies, but not including calendars, catalogues, price lists or printed matter designed to advertise the sale or hire of goods by, or the services of, any person in Australia, or overseas travel literature or other printed matter relating to overseas travel.'

4.48 Paragraph (d) of item 32 in Part II of Schedule 4 to the Customs Tariff covers calendars, catalogues, overseas travel literature, price lists and other printed matter which is not designed to advertise the sale or hire of goods or services offered in Australia.

Item 60

4.49 Item 60 exempts:

'(1) The following goods, if all the paper in the goods is recycled paper:

(a)

writing, drawing or printing paper (including paper for use in cash registers, calculators, typewriters, computer printers, photocopiers or similar machines), where the paper is blank, or is blank apart from any or all of the following:

(i)

printed parallel lines to serve as a guide for writing or typing;

(ii)

printed lines to serve as a guide for drawing graphs, diagrams or similar matter;

(iii)

in the case of paper for use in computer printers - printed lines (whether or not numbered);

(iv)

a printed trade mark, logo, letterhead or similar matter;

but not including paper that is treated so as to react to heat or electromagnetic energy;

(b)

pads or books of paper covered by paragraph (a), if the covers consist wholly of recycled paper or recycled cardboard and the covers are blank, or are blank apart from a printed trade mark, logo or similar matter;

(c)

paper for use in accounting ledgers or accounting journals where the paper is blank apart from printed lines to serve as a guide for the making of entries in the ledgers or journals;

(d)

envelopes consisting wholly of paper or consisting wholly of paper apart from either or both of the following:

(i)

a fastener;

(ii)

a transparent or translucent address window;

where the envelopes are blank, or are blank apart from a printed return address, postage paid mark, trade mark, logo or similar matter;

(e)

toilet tissue;

(f)

facial tissue;

(g)

bags consisting wholly of paper, being bags marketed exclusively or principally for either or both of the following:

(i)

household purposes;

(ii)

use in marketing goods sold by retail.

(2)

For the purposes of sub-item (1), the cardboard or paper in goods is to be taken to be recycled if, and only if, all the fibre in the cardboard or paper has previously been used, as fibre, in the manufacture of other goods.'

4.50 The provisions of sub-item (2) mean that cardboard or paper may be exempt where it is made from any fibre (not just pulped waste paper or cardboard), provided that fibre has been used previously, as a fibre, as:

-

a raw material in manufactured goods (e.g. hemp fibre from rope or cotton lint from shirting material) or;

-

a processing material in the manufacture of goods.

4.51 The exemption is effective for transactions, acts or operations occurring on or after 5 October 1989.

Item 60A

4.52 Item 60A exempts:

'Printed matter, including printed award ribbons and printed badges made of cloth or felt, for use, and not for sale, by a society, institution or organization established and maintained for the advancement of agriculture and not carried on for the profit of an individual'.

This exemption is conditional on the goods being used as described in the item.

Item 72B

4.53 Certain promotional printed matter commissioned by a national tourist organization accredited by the government of a foreign country and distributed free of charge may be exempted under this item.

SALE VALUE OF PRINTED GOODS

General

5.1 Sales tax liability is calculated by applying the appropriate rate of tax to the sale value.

5.2 Where a printer sells goods to a registered person under a valid quotation there is no liability to charge sales tax. The form of a valid quotation is set out at paragraph 2.18.

5.3 The main sections of the Assessment Act determining sale values for manufacturers are listed below. They apply in situations where:

•

a manufacturer sells by wholesale other than to a registered person under quotation (paragraph 18(1)(a));

•

a manufacturer sells by retail (paragraph 18(1)(b));

•

a manufacturer treats goods as stock for sale by retail (sub-section 18(2));

•

a manufacturer applies goods manufactured to his own use (sub-section 18(3));

•

the Commissioner has entered into an agreement as to sale value with a taxpayer (sub-section 18(5B)). (In this case the agreed value becomes the sale value.)

(Sub-sections 18(2) and 18(3) have provisos to their operation which are rarely relevant to printing).

5.4 There are a number of provisions in the Sales Tax legislation determining sale values in special circumstances. Examples of these special circumstances include, where

•

the manufacturer and the supplier of materials are not dealing with each other at arm's length;

•

a manufacturer sells to an associated wholesaler at less than an arm's length price;

•

the goods are sold in connection with collateral agreements for the reduction in sale value.

5.5 Whether a particular sale value provision applies is a question of fact. In the above examples, the Commissioner has the power to alter the sale value. The provisions referred to are complex, as they have often been framed to counter an avoidance of sales tax, and will not be dealt with further here.

5.6 In certain circumstances, book bounty will affect the sale value of taxable printed matter. As receipt of the book bounty decreases the tax exclusive selling price, the amount of bounty should not be included in the sale value.

Sale by wholesale

5.7 A printer may sell goods by wholesale to retailers, wholesalers, print brokers, advertising agents and other printers. Where there is a taxable sale, the sale value is the amount for which the goods were sold. Delivery charges will form part of the amount for which goods are sold where the contract is for 'delivered' goods (that is, free-into-store) irrespective of whether the delivery charge is separated on the invoice. However, where property in the goods passes prior to delivery, (for example, the goods are sold on an ex-factory basis), such charges will not form part of the taxable sale value.

Sale by retail

5.8 Where a manufacturer sells goods by retail, the sale value is 'the amount for which the goods could reasonably be expected to have been sold by the manufacturer by wholesale'. Determining this amount causes little difficulty where the manufacturer sells the same or sufficiently similar goods by wholesale.

5.9 Where a printer sells goods by retail and the same or similar goods are sold by him by wholesale in similar circumstances (having regard to such matters as the terms and conditions of the sale) at a wholesale price, that price will be accepted as the sale value of the retail sales. An example of similar goods would be business cards of equivalent style and quality.

5.10 Where a printer has a range of prices for the sale of similar goods by wholesale, he should determine from within that range a particular price which it is reasonable to apply to the retail sale in question. The price selected should relate to a wholesale sale made under the same terms and conditions as the retail sale to which it is applied.

5.11 Where a printer sells goods by retail and does not sell similar goods by wholesale, then the wholesale value is to be determined. A wholesale value should include all manufacturing costs, direct and indirect, a value for administration and selling costs at the wholesale stage, and a wholesale profit margin.

5.12 Some manufacturers may find that calculating a wholesale value in relation to each retail transaction is time-consuming and inconvenient. As an alternative, where similar goods are not sold by wholesale, the Commissioner will accept as a standard wholesale sale value, tax exclusive retail selling price less 7.5% provided this results in an amount greater than the cost of manufacture.

Stock for sale by retail

5.13 Under sub-section 18(2), the primary test for sale value is, as in paragraph 18(1)(b), 'the amount for which those goods could reasonably be expected to be sold by the manufacturer by wholesale'.

5.14 Accordingly, the considerations discussed under 'Sale by Retail' will also be relevant under this heading.

5.15 What constitutes 'treatment as stock for sale by retail' was examined in FCT v. York Motors Pty Ltd (1946) 73 CLR 459. In that case, Dixon J said, at page 484 :

'The legislation evidently means that if the taxpayer devoted goods to his retail stock, he shall then and there be taxable. 'Treat' in the statutes covers, I think, any measure taken in the conduct of business with reference to the goods unequivocally referable to a present intention or decision that the goods shall then and there be retail stock'.

5.16 Goods placed on consignment with another retailer or for sale under an agency agreement have been 'treated' as stock for sale by retail. However, where a printer sells goods on a sale or return basis, the goods shall not be treated as stock for sale by retail. Goods sold on this basis are regarded as being treated as stock for sale by wholesale and therefore are not subject to tax at the time of their placement with another retailer.

Goods applied to own use

5.17 In some instances, goods applied to own use may also qualify as 'aids to manufacture'. In such cases no liability will arise.

5.18 Under sub-section 18(3), the sale value of taxable goods applied to a manufacturer's own use is 'the amount for which goods could reasonably be expected to be sold by wholesale'. Again the considerations discussed under 'Sale by Retail' will be relevant.

5.19 Where a person does not sell the goods manufactured either by retail or wholesale, such as in the case of 'in-house' printers, it may be difficult to determine the amount for which the goods could reasonably be expected to be sold by wholesale. For this reason, the Commissioner has for some time accepted that the sale value of 'in-house' printed matter may be calculated on the basis of fully absorbed costs plus 10%.

5.20 Given that this has been the approach for a number of years and, having regard to the state of the fundamental question of whether these persons are manufacturers at all, this long-standing practice will not be altered at this stage.

DOCUMENTS, DECISIONS AFFECTED BY THIS RULING

6.1 This Ruling will affect previously issued documents and decisions in the following manner:

(1)

Documents on the Freedom of Information Index; All the Sales Tax related documents listed at Appendix B, which appear in the index published under section 9 of the Freedom of Information Act 1982, will be superseded.

(2)

Australian Sales Tax - A.G.P.S. Canberra, 1984; All the paragraph's listed at Appendix C will no longer be applicable.

(3)

Sales Tax Exemptions and Classification - A.G.P.S. Canberra 1983; All rulings relating to the items in the First Schedule of the Exemptions and Classifications Act listed at Appendix C are amended to the extent that they are inconsistent with this Ruling and will be withdrawn from publication.

(4)

Private Rulings; All private rulings previously issued in relation to the printing industry are amended to the extent that they are inconsistent with this Ruling.

COMMISSIONER OF TAXATION
5 April 1990

APPENDIX

ATTACHMENT

APPENDIX A

INDEX OF KEYWORDS AND PHRASES

PREAMBLE

APPENDIX B

PRINTING INDUSTRY

DOCUMENTS ON F.O.I. INDEX SUPERSEDED

APPENDIX C

PRINTING INDUSTRY

PARAGRAPHS SUPERSEDED IN AUSTRALIAN SALES TAX

A.G.P.S. CANBERRA 1984

SALES TAX - EXEMPTIONS AND CLASSIFICATIONS

A.G.P.S. CANBERRA 1983

RULINGS SUPERSEDED

Item 51(1)

Item 51(2)

Item 51A

Item 52(1)

Item 54

Item 59

Item 60A

References

BO Adel/R.P.1.

Date of effect:
Immediate

Date original memo issued:
VALID AT: 5 April 1990

Related Rulings/Determinations:

ST 2008
ST 2079
ST 2105
ST 2128
ST 2133
ST 2155
ST 2192
ST 2195
ST 2207
ST 2210
ST 2224
ST 2225
ST 2239
ST 2257
ST 2300
ST 2303
ST 2358
ST 2409
ST 2442

Subject References:
LIABILITY AND OBLIGATIONS
AIDS TO MANUFACTURE
CLASSIFICATION OF PRINTED MATTER
SALE VALUE OF PRINTED MATTER

Legislative References:
SALES TAX ASSESSMENT ACT (No. 1); S. 3,
11,
12,
18,
19.
SALES TAX (EXEMPTIONS AND CLASSIFICATIONS) ACT; CLAUSE 1, ITEMS 51,
51A,
52,
54,
59,
60,
60A,
72B,
100,
103,
113A; FIRST SCHEDULE;
SUB-ITEM 3(3) ; THIRD SCHEDULE.
SALES TAX REGULATIONS; REGULATION 4,
12.

Case References:
D.F.C. of T. v. Rotary Offset Press Pty Ltd
71 ATC 4170
2 ATR 411

Downland Publications Ltd v. FCT
83 ATC 4137
14 ATR 122
FCT v. Thompson Australian Holdings Pty Ltd & Ors
89 ATC 4696
19 ATR 1896
FCT v. Totalisator Administration Board of Queensland
89 ATC 4877
20 ATR 1173
FCT v. York Motors Pty Ltd
(1946) 73 CLR 459
Federal Court in Universal Press Pty Limited v. FCT
89 ATC 5234
John Fairfax and Sons Ltd v. FCT; Mirror Newspapers Ltd v. FCT
88 ATC 5033
20 ATR 121