Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon. P.J. Keating, M.P.)NOTES ON CLAUSES
SALES TAX (EXEMPTIONS AND CLASSIFICATIONS) AMENDMENT BILL 1986
Sub-clause (1) of this clause provides for the amending Act to be cited as the Sales Tax (Exemptions and Classifications) Amendment Act 1986.
Sub-clause (2) facilitates references to the Sales Tax (Exemptions and Classifications) Act 1935 that is referred to in this Bill as "the Principal Act".
By reason of sub-section 5(1A) of the Acts Interpretation Act 1901, Acts come into operation on the twenty-eighth day after Royal Assent, unless otherwise specified in the Act. Under sub-clause 2(1), clauses 1 and 2 of the Bill will come into operation on the date of Royal Assent.
Under sub-clause 2(2), the amendments proposed by clauses 3, 4, 5 and 6 will be deemed to have come into operation on 20 August 1986 - these amendments relate to certain base broadening measures, a number of anomalies and rate changes for certain goods, which were announced in the 1986-87 Budget Speech and are to operate on and after that date.
This clause will amend section 3 of the Principal Act which is an interpretative measure that ensures any expression used in the Principal Act has the same meaning, unless the contrary intention appears, as in the relevant Sales Tax Assessment Act. Section 3 also contains a number of provisions to assist in the interpretation of the various Schedules to the Principal Act and of expressions used therein.
Sub-section 3(6) of the Principal Act defines the expression "beer" which is used in the First and Sixth Schedules to that Act. Sub-section 3(7) of the Principal Act explains, also for the purposes of the First and Sixth Schedules to that Act, how the expression "volume of alcohol" referred to in those Schedules is to be interpreted.
Sub-clause 5(2) of the Bill proposes the repeal of the Sixth Schedule to the Principal Act. Briefly stated, this will mean that alcoholic wine, cider and other similar fermented alcoholic beverages - that is, beverages that contain more than 1.15% by volume of alcohol - will become taxable at the general rate - 20% (currently 10%) : see notes on that sub-clause.
At the same time, non-alcoholic wine, cider and other similar low alcohol fermented beverages - that is, fermented beverages that contain less than 1.15% by volume of alcohol - that are presently exempt from sales tax under sub-items 36(2), (4) and (5) in the First Schedule to the Principal Act, are to be subject to tax at the 10% rate. This is achieved by omitting those sub-items from the First Schedule and including a new item in the Third Schedule to that Act to cover these beverages : see notes on schedule clause 7 and schedule clause 24 of the Bill.
As a consequence of these changes, clause 3 will omit references to the Sixth Schedule to the Principal Act from sub-sections 3(6) and (7) and insert references to the Third Schedule to that Act which will in future contain the expressions "beer" and "volume of alcohol".
Clause 4: Classification of goods
Containers for goods covered by the Sixth Schedule to the Principal Act are, by virtue of item 2 in that Schedule, subject to sales tax at the rate applicable to the goods covered by that Schedule, currently 10%. But for that item, containers for goods covered by the Sixth Schedule would be subject to tax at the 20% general rate.
This clause will amend sub-section 6B(2) of the Principal Act to ensure that the definition of "container" in that sub-section no longer applies for the purposes of the Sixth Schedule, which, as mentioned previously, is to be repealed : see notes on sub-clause 5(2). Containers for goods currently covered by the Sixth Schedule to the Principal Act will be subject to tax at the same rate as will apply to the goods, i.e., 20%.
Clause 5: Amendments relating to Schedules to Principal Act
Sub-clause 5(1) proposes that specific Schedules to the Principal Act be amended as set out in the Schedule to this Bill.
The Schedule to the Bill will amend the First, Second, Third, Fourth and Fifth Schedules to the Principal Act, with effect on and after 20 August 1986. The contents of the Schedule to this Bill are explained in detail later in this memorandum in the notes on clauses in the Schedule.
Sub-clause 5(2) proposes the repeal of the Sixth Schedule to the Principal Act.
Item 1 of the Sixth Schedule to the Principal Act presently covers Australian and imported alcoholic wine, cider, mead, perry, sake and other similar fermented alcoholic beverages.
The expression "other similar fermented alcoholic beverages" includes alcoholic fruit wines and alcoholic beverages fermented from plants such as vegetables, flowers and herbs and marketed as vegetable wine, etc. The expression does not include beer, spirits, liqueurs or spirituous liquors or beverages containing beer, spirits (other than spirits for fortifying wine or other beverages) liqueurs or spirituous liquors. The references to "alcoholic" beverages refers to beverages which contain more than 1.15% by volume of alcohol determined in accordance with sub-section 3(7) of the Principal Act.
The remaining item in the Sixth Schedule - item 2 - covers containers for alcoholic beverages to which item 1 applies.
Sub-clause 5(2) will repeal the Sixth Schedule with effect on and from 20 August 1986. As Australian and imported alcoholic wine and cider and other similar alcoholic fermented beverages presently covered by that Schedule, and containers therefor, will no longer be covered by any Schedule they will, by reason of paragraph 4(d) of the Sales Tax Acts (Nos. 1 to 9) and paragraph 6(c) of Sales Tax Acts (Nos. 11A and 11B), become subject to tax at the 20 per cent rate where those goods pass the taxing point on or after 20 August 1986.
Clause 6: Application of amendments
Clause 6 provides that the amendments of the Principal Act made by sub-clauses 5(1) and (2) apply in relation to transactions, acts or operations effected or done in relation to goods on or after 20 August 1986 - these amendments, as previously explained, concern the base broadening measures, the removal of classification anomalies and certain rate changes.
PART I : AMENDMENT OF FIRST SCHEDULE
Existing item 14 in the First Schedule to the Principal Act exempts "Machinery, implements and apparatus ... for use in the mining industry in carrying out mining operations or in the treatment of the products of those operations" (emphasis added). As presently expressed it could be argued that the wording of the item is not wide enough to exempt machinery, etc., for use in exploration on prospecting for minerals - under the income tax law, the expression "carrying out mining operations" has been held not to include prospecting.
Clause 1 will amend item 14 to make it clear that goods used in operations carried on by way of exploration or prospecting for minerals (including petroleum) are exempt from sales tax. The amendment will confirm the existing interpretation of the item that such goods qualify for exemption.
Item 18 in the First Schedule to the Principal Act, briefly stated, exempts piping, tubing, channelling and guttering when those goods are for irrigation, water supply, drainage or sewerage purposes. Fittings such as taps, cocks, valves, etc., are also exempt under this item. Sub-item 18(5) provides exemption for pumping equipment, but is limited to "pumping equipment for water supply purposes ..." only.
Clause 2 will amend sub-item 18(5) in two respects.
First, the clause will confirm existing administrative practice by extending the scope of the exemption to pumping equipment, and parts and fittings for such equipment, for sewerage purposes.
The clause will also make an amendment of sub-item 18(5) consequential upon clause 27 to this Schedule. Clause 27 will tax pumps of a kind used in household chemical sanitary systems at the 10% rate. This clause will ensure that pumps of this kind do not qualify for exemption under expanded sub-item 18(5).
Australian primary products which have not been subject to any process or treatment which alters their form, nature or condition are presently exempt from sales tax under sub-item 21(1) in the First Schedule to the Principal Act.
The amendment by clause 3 is consequential upon that being made by clause 4 to this Schedule to ensure that salt marketed exclusively or principally for non-culinary purposes (e.g., swimming pool salt) will become taxable at the 20% rate. This clause will ensure that salt recovered from mining operations and put up for sale or sold for non-culinary purposes will not qualify for exemption under sub-item 21(1) as a primary product.
Item 23 in the First Schedule to the Principal Act exempts food for human consumption, ingredients for such food and goods to be mixed with, or added to, food for human consumption, including condiments, spices and flavourings. The item does, however, specifically exclude, among other things, bicarbonate of soda marketed for use for non-culinary purposes - mainly as a chemical for the treatment of swimming pool water - which is taxable at the 20% rate. Salt is also used as a chemical in the treatment of swimming pool water but is presently, in contrast to bicarbonate of soda marketed for this purpose, exempt from sales tax under this item.
Clause 4 will ensure that salt, when marketed as a swimming pool chemical or for other non-food uses, will be taxable at 20%. Salt for use as a cooking aid or as a food additive will remain sales tax exempt.
Item 26 in the First Schedule to the Principal Act presently exempts the following goods -
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- milk, casein, milk powder, condensed or concentrated milk, skim milk, skim milk powder, condensed or concentrated skim milk butter milk and butter milk powder (sub-item 26(1));
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- whey, whey powder and whey paste (sub-item 26(3)); and
- lactose (sub-item 26(5)).
Sub-items 26(2) and (4) also exempt goods containing not less than 95% milk (including skim milk) or milk powder (including skim milk powder) or milk products and whey products. Savoury snacks, ice cream products or combinations of confectionery, biscuits or savoury snacks are specifically excluded from exemption under these sub-items.
The amendment being made by clause 5 is consequential upon clause 23 to this Schedule which will subject flavoured beverages that consist of not less than 95% milk, milk powder, whey, etc., to tax at the 10% rate. This clause will ensure that such beverages do not qualify for an exemption under sub-items 26(2) or (4).
Item 35A in the First Schedule to the Principal Act exempts a range of products for potable use. Broadly stated, sub-items 35A(2), (3) and (4) exempt coffee, cocoa and malted beverage products, respectively.
The amendment made by clause 6 is consequential upon clause 23 to this Schedule which, as mentioned in the notes on clause 5 to this Schedule, will bring flavoured beverages, e.g., flavoured milk, into the tax base at the 10% rate. This clause inserts a new sub-item - sub-item (4A) - in item 35A to ensure that the proposed taxable flavoured beverages do not qualify for exemption under sub-items 35A(2), (3) or (4). This will mean, for example that packaged coffee, chocolate and malt flavoured milk will be subject to tax at 10%. Powdered chocolate, etc., preparations for mixing with plain milk will, however, remain exempt.
Non-alcoholic fermented beverages
Sub-items 36(2) and (4) in the First Schedule to the Principal Act presently exempt Australian non-alcoholic cider and wine respectively, while sub-item 36(5) in that Schedule exempts Australian and imported non-alcoholic mead, perry, sake and other similar non-alcoholic fermented beverages : a beverage is taken to be "non-alcoholic" if it contains less than 1.15% alcohol by volume : see notes on clause 3.
Clause 7 will omit existing sub-items 36(2), (4) and (5) from the First Schedule and, when read with the amendments proposed by clause 24 in this Schedule, will result in these non-alcoholic fermented beverages being subject to tax at the rate of 10% - see notes on clause 24 in this Schedule. Imported non-alcoholic cider and wine and other similar imported non-alcoholic fermented beverages are presently taxable at the general rate of 20% and will continue to be so taxed.
Australian fruit juice products
Sub-item 36(3) in the First Schedule to the Principal Act presently exempts concentrates and cordials containing at least 25% Australian fruit juices and non-alcoholic beverages consisting wholly of juices of Australian fruits or vegetables. Non-carbonated beverages containing at least 25% Australian fruit juices are also treated as exempt under this sub-item.
Clause 7 will also omit existing sub-item 36(3) and, when read with the amendments proposed by clause 24 in this Schedule, will result in these Australian fruit juice or vegetable juice products being subject to tax at the rate of 10% - see notes on clause 24 in this Schedule.
Schedule clause 8 : Items 36A and 36B
Items 36A and 36B in the First Schedule to the Principal Act are complementary to sub-item 36(3) (see notes on clause 7 to this Schedule) in that together they provide exemption for fruit juice or vegetable juice products which would be exempt under sub-item 36(3) if the reference in that sub-item to Australian fruit and vegetable juice were a reference to such juices from New Zealand or Papua New Guinea, respectively.
Clause 8 will omit existing items 36A and 36B. When read with the amendments proposed by clause 24, this clause will ensure that these fruit juice products also become taxable at the rate of 10% - see notes on clauses 7 and 24 in this Schedule.
Item 63 in the First Schedule to the Principal Act exempts scientific instruments, apparatus and materials for use therewith, charts, wall sheets and diagrams, and examination papers, direction sheets and envelopes for use therewith, when used in universities and schools. The exemption not only covers such goods when purchased by the institution but also when purchased by individual teachers and students when for use in the institution. The exemption is widely used to purchase computers, calculators, etc., tax-free in circumstances where their use in schools , etc., is likely to be non-existent or minimal.
Clause 9 will omit item 63. This will mean that teachers, students and others will not be entitled to exemption from sales tax on and after 20 August 1986 for purchases of goods, e.g., calculators, computers, etc., purchased for use in schools, etc. However, non-profit universities and schools will continue to be able to purchase goods presently covered by item 63 tax-free under existing item 63A in the First Schedule to the Principal Act - that item confers a general exemption on such bodies for goods purchased for use by such universities or schools.
Sub-item 82(1) in the First Schedule to the Principal Act exempts bricks, blocks, shapes, tiles, etc., made of clay, marble, granite, cement, concrete, etc. The exemption is subject, however, to a number of exclusions. The exclusions include, cork tiles, linoleum tiles or other similar floor tiles, channelling used for slides or water slides and liners, panels and sheeting or other similar goods for swimming pools.
Clause 10 proposes consequential amendments of this sub-item to ensure that full effect is given to the amendments proposed by clauses 15 and 27 to this Schedule which together will result in spa baths of a kind installed as fixtures in domestic premises being taxable at the rate of 20%.
This clause will insert a reference to 'spa baths' in paragraphs (c) and (d) of sub-item 82(1) to ensure that fibreglass liners or similar liners or components of spa baths are not entitled to exemption under this item - see also notes on clauses 11, 12, 13, 14 and 15 to this Schedule. By reason of the proposed definition of "swimming pool" that is to be inserted in Sales Tax Assessment Act (No.1) - see notes on clause 4 of the Sales Tax Laws Amendment Bill 1986 - the expression "swimming pools" in this item and in items 82A, 83, 84 and 86 in the First Schedule to the Principal Act includes spa pools and hot tubs.
Sub-item 82A(1) in the First Schedule to the Principal Act exempts, subject to a number of exclusions, piping and tubing of a kind used exclusively or principally to form part of buildings, fixtures or other works. The exclusions include rubber hosing or tubing and piping and tubing of a kind used in connection with air conditioning systems, water slides and beer drawing plant.
Sub-item 82A(2) exempts fittings for goods covered by sub-item (1), including taps, valves, inspection boxes and doors, grates, gullies, traps, etc., but not including components for swimming pools or filtering appliances of a kind used in connection with swimming pools.
Clause 11 proposes amendments of these sub-items consequential on the amendments proposed by clauses 15 and 27 to this Schedule which together are designed to ensure that spa baths installed as fixtures in domestic premises are taxable at the rate of 20%.
This clause will insert in paragraphs (a) and (b) of sub-item 82A(2) a reference to 'spa baths' to ensure that goods covered by item 82A are not entitled to exemption when used in connection with spa baths - see notes on clauses 10, 12, 13, 14 and 15 in this Schedule.
Sub-items 83(2) and (3) in the First Schedule to the Principal Act exempt plaster products and boards, sheets and linings that are used to form part of buildings or other fixtures, subject to a number of exclusions. The exclusions include a variety of floor coverings, liners for swimming pools and duct work, channelling, fittings and accessories used in connection with air conditioning systems.
Clause 12 - which is similar in effect to clauses 10 and 11 - is also designed to give full effect to the amendments in clauses 15 and 27 to the Schedule. These latter clauses will, as mentioned earlier, make spa baths of a kind installed as fixtures in domestic premises taxable at the rate of 20%. This clause will amend paragraphs (2)(f) and (g) and paragraphs (3)(c) and (d) of item 83 to ensure that goods covered by the item when used in connection with the installation of spa baths are not entitled to a sales tax exemption - see also notes on clauses 10, 11, 13, 14 and 15 in this Schedule.
Sub-item 84(1) in the First Schedule to the Principal Act exempts metal building materials used in the construction or repair of buildings or fixtures, but not including building materials used for swimming pools, slides or water slides, air conditioning systems or piping or tubing.
This clause proposes a similar amendment to those proposed by clauses 10, 11 and 12 in that it will amend paragraph 84(1)(a) to ensure that components and other goods used in connection with spa baths, that are now to be taxable at 20%, are not entitled to exemption under item 84 - see also notes on clauses 10, 11, 12, 14 and 15 in this Schedule.
Sub-item 86(1) in the First Schedule to the Principal Act exempts materials made wholly of metal (other than precious metals), but not including materials insulated for electrical purposes, materials used for swimming pools, slides or water slides and air conditioning and fittings or accessories and components used in air conditioning systems.
This clause proposes a similar amendment to those proposed to items 82, 82A, 83 and 84 to ensure that such materials used for spa baths, that, as already mentioned, are to be taxable at 20%, are not exempt under item 86 - see notes on clauses 10, 11, 12, 13 and 15 in this Schedule.
Schedule clause 15 : Items 90D, 90DA and 90DB
This clause will omit items 90D, 90DA and 90DB from the First Schedule to the Principal Act. Briefly stated, these items presently exempt household fittings and sanitary ware such as baths, toilet pans, septic tanks and chemical sanitary units and pumps therefor, and movable toilet pans or chemical units and parts for those goods and chemicals for use in the operation of those goods. A complementary amendment is proposed by clause 27 to this Schedule (see notes on that clause) to include in the Third Schedule all the goods presently covered by items 90D, 90DA and 90DB, other than spa baths. Taken together, the practical effect of the amendments proposed by this clause and clause 27 to this Schedule will be that such goods and parts therefor will become taxable at the rate of 10%. As spa baths will be expressly excluded from the items to be inserted in the Third Schedule, they will no longer be included in any Schedule to the Principal Act and will fall to be taxed at the general rate of 20%.
Schedule clause 16 : Item 103A
Division XIV in the First Schedule to the Principal Act provides exemption from sales tax for goods manufactured by small businesses. The Division contains two provisions - sub-item 100(1) and item 103 - which set out different thresholds below which goods manufactured will be exempt. Sub-item 100(1) exempts goods manufactured and sold by a person whose average annual value of sales of all goods is not in excess of $12,000. Item 103 exempts goods manufactured by a person and either sold by him or applied to his own use, if the amount of sales tax which would otherwise be payable does not exceed $250 per annum.
Clause 16 will insert a new item - item 103A - in Division XIV. When read in conjunction with clause 4 of the Sales Tax Laws Amendment Bill 1986, new item 103A will ensure that the small manufacturers' exemption provisions contained in that Division will not operate to exempt the one-off construction in situ of a swimming pool by a private individual by paid or sub-contract labour. But for this amendment, such individuals may have escaped payment of sales tax on such swimming pools which are to become taxable at 20% on and from 20 August 1986 : see notes in Main Features of this memorandum, on clauses 22, 25 and 26 in this Schedule and clause 4 of the Sales Tax Laws Amendment Bill 1986.
Schedule clause 17 : Item 119A
Item 119A in the First Schedule to the Principal Act presently exempts aeroplanes, broadly when used for business or industrial purposes, including in a business of the carriage of passengers or goods.
Notwithstanding a general denial of exemption for aeroplanes for use exclusively or principally for private or recreational purposes, some aeroplanes used by passengers for private or recreational purposes may nevertheless qualify for exemption under item 119A, e.g., those used in a business which consists of the carriage for reward of passengers on joy flights, sight-seeing tours, etc.
The exemption is, however, confined to aeroplanes. Hot air balloons are not aeroplanes within the ordinary meaning of the word because they are not kept airborne by the action of air passing over fixed wings and are taxable, therefore, at the general rate (20%). This is the case even when such balloons are used in a business of providing sight-seeing flights in circumstances that would have given rise to exemption if they were within the scope of item 119A. Similar classification problems have arisen in relation to other aircraft such as air ships and dirigibles.
Clause 17 will amend item 119A so that all aircraft, including flying boats, seaplanes, helicopters, hot air balloons, air ships, dirigibles and gliders, will be entitled to sales tax exemption provided they satisfy the existing business use exemption tests contained in sub-item 119A(1).
Schedule clause 18 : Item 135A
Item 135A exempts motor vehicles (and parts therefor) for use in the transportation to and from gainful employment of a person who has lost the use of one or both legs to such an extent that he or she is permanently unable to use public transport.
Strictly interpreted, the reference to "parts" in item 135A means parts purchased by a person to whom the item applies are only exempt from sales tax if the motor vehicle for which the parts are intended was itself exempt under that item. Clause 18 will ensure that the exemption for parts under the item extends (as was intended) to parts for any motor vehicle, e.g., a second hand vehicle, used for the purposes described.
Item 144 in the First Schedule to the Principal Act exempts goods for use in replacing free of charge any defective part of other goods if warranty costs were included in the original wholesale price or if, after repair, the replacement part will be used in warranty repairs or as a component in the manufacture of further goods.
In the case of some goods, e.g., digital watches, electronic toys, cassettes, etc., it is common business practice to exchange, at no cost, the defective article for a new one.
Clause 19 will omit item 144 and substitute a new item 144 which will ensure that a replacement article is exempt from sales tax in circumstances which would under present law have given rise to an exemption if a part of the article had been replaced.
PART II : AMENDMENT OF SECOND SCHEDULE
Item 39 in the Second Schedule to the Principal Act covers photographs, including negatives, photographs coloured by hand, stereoscopic views produced by means of photography, transparencies and film strips. Goods covered by the Second Schedule are currently taxable at the top rate - 30%. Certain photographic products are excluded from this item. They are -
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- copies of documents, drawings or plans;
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- photographs, photographic negatives and diapositives for use in connection with the production of exempt printed matter; and
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- negatives, positives or reversals of motion pictures.
The developing of exposed photographic film to the negative stage is to become "manufacture" for sales tax purposes : see notes on clause 4 of the Sales Tax Laws Amendment Bill 1986. As a result negatives, transparencies or film strips produced from exposed film supplied by the person for whom those goods are manufactured are to be subject to tax, but at the 20% rate : see notes on clause 29 to this Schedule. However, these changes will not disturb the present sales tax treatment of surgical and dental x-ray films, which are presently exempt from sales tax under sub-item 43(1) in the First Schedule to the Principal Act. Developing of such films will continue to be exempt from sales tax.
This clause will amend item 39, consequential upon the insertion by clause 29 to this Schedule of item 2 in the Fourth Schedule, to exclude from its scope negatives, etc., which are to be taxable at the lower 20% rate.
Clause 21 will insert a new item - item 61 - in the Second Schedule. The new item describes certain "luxury" motor vehicles that are to be subject to sales tax at the top rate of 30%.
New sub-item 61(1) describes the motor vehicles to which the 30% rate is to apply as all motor cars or station wagons, including vehicles known as four wheel drive vehicles. However sub-item 61(2) narrows the range of motor cars or station wagons to which sub-item (1) will apply by specifying that sub-item (1) does not apply unless the sale value of the motor vehicle exceeds the amount ascertained in accordance with the formula -
(A)/((1)/(l-B) + C)
Component A is $29,646 in the case of a taxable dealing that occurs during the period 20 August 1986 to 30 June 1987, inclusive. This amount is the present motor vehicle depreciation limit determined under section 57AF of the Income Tax Assessment Act 1936 in relation to the 1986/87 year of income, i.e., 1 July 1986 to 30 June 1987. The amount will vary in each subsequent period of 12 months in line with the limit determined under that section for each income year.
Component B is stated to be the decimal fraction 0.225. In practical terms, this represents the 22.5% reduction in the tax-exclusive retail price, agreed between the Commissioner of Taxation and the motor vehicle industry, that is taken into account in determining the taxable uniform sale value of most motor vehicles. If a new percentage reduction should be agreed in the future the sub-item provides that component B may be such other decimal fraction as the Commissioner determines by notice in writing served on the taxpayer.
The final component in the formula is C which is calculated by reference to the rate of sales tax imposed by the Sales Tax Act (No.1) 1930 in respect of goods covered by the Fifth Schedule to the Principal Act, namely, 20%. Put simply, component C is the decimal fraction that represents the rate of sales tax in force for vehicles below the "luxury threshold" at the time of the sale or lease of the motor vehicle. For motor vehicles to which item 61 applies, component C will be 0.2 on 20 August 1986 and will remain so until the rate of sales tax changes.
In practical terms, a motor car or station wagon dealt with in a taxable manner on 20 August 1986 and until the value of any component in the formula changes will be subject to tax at the 30% rate if the wholesale sale value of the vehicle exceeds $19,892, i.e., the amount calculated using the components determined as at 20 August 1986. Schedule clauses 28 and 30 also ensure that such a motor vehicle is not within the classes of motor vehicles covered by the Fourth or Fifth Schedules to the Principal Act.
PART III : AMENDMENT OF THIRD SCHEDULE
Broadly, item 1 in the Third Schedule to the Principal Act covers goods of a kind ordinarily used for household or domestic purposes. These include furniture, crockery, glassware, cutlery, refrigerators, washing machines, vacuum cleaners, space heaters, stoves, toasters, jugs, kettles, electric fans, brooms, mops, incinerators, garbage cans, floor coverings, blinds, mattresses, pillows, sewing machines, knitting machines, spinning wheels, weaving looms and lighting appliances. Parts, fittings and accessories for goods in item 1 are, by virtue of item 2 in that Schedule, taxed at the same rate as the household goods, i.e., 10%.
Household type equipment and accessories used in connection with the cleaning of swimming pools such as brooms and pool vacuum cleaners are presently covered by item 1 and are taxable at 10%.
Paragraph (a) of clause 22 will amend item 1 to exclude from its scope all goods designed for use exclusively or principally in, or in connection with, swimming pools (including spa pools and hot tubs) or spa baths, as those goods are to become taxable at the general rate of 20% : see notes in Main Features of this memorandum and on clause 4 of the Sales Tax Laws Amendment Bill 1986.
Paragraph (b) of this clause proposes the inclusion of "carding equipment" in existing paragraph 1(o). This paragraph presently covers goods such as household or domestic sewing machines, knitting machines, spinning wheels and weaving looms. The proposed amendment will mean that the rate of tax imposed on similar goods, such as carding equipment, including drum carders, of a kind ordinarily used for household or domestic purposes, will be 10%, rather than the present 20% rate.
Clause 23 will insert a new item - item 4A - in the Third Schedule to the Principal Act. New item 4A covers beverages, not less than 95% of which consist of milk, milk powder, whey, whey powder and whey paste, or a combination of such goods, that contain flavouring. For the purposes of classifying these goods "flavouring" will mean any additive which imparts a distinctive taste or flavour to the beverage, including coffee, cocoa or malt, etc. These products are, by reason of their inclusion on the Third Schedule, to be taxable at the 10% rate. Flavoured beverages that consist of less than 95% milk, etc., will remain taxable at the 20% general rate: see also notes on clauses 5 and 6 in this Schedule.
Schedule clause 24 : Items 5, 6 and 7
Briefly stated, item 5 in the Third Schedule to the Principal Act covers hand tools of the kind used for industrial purposes, gardening hand tools and industrial abrasives, all of which are taxable at 10%. The 10% rate applies whether or not an industrial hand tool is actually put to industrial use, e.g., a hammer is taxed at 10% whether purchased by a carpenter or a home handyman.
Item 6 in the Third Schedule covers exhibition copies of certain picture films and pre-recorded video tapes sold for commercial or industrial purposes (other than those used for advertising) which are also presently taxable at 10%. Blank video tapes and advertising films and video recordings produced for an individual's private, domestic or personal use are, however, taxable at the general rate of 20%.
Finally, item 7 covers, also at the 10% rate, machinery, implements, apparatus and materials used for business or industrial purposes in -
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- servicing motor vehicles, aeroplanes, ships or trains;
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- retreading tyres;
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- constructing buildings, roads, dams or other works; or
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- repairing footwear.
Clause 24 will omit existing items 5, 6 and 7 from the Third Schedule, thus causing all of the goods presently covered by those items to become taxable at the general rate of 20%.
This clause will also substitute three new items - items 5, 6 and 7 - in the Third Schedule to the Principal Act.
New item 5 covers the same range of goods (basically Australian non-alcoholic wine, cider and other similar beverages and Australian fruit juice and vegetable juice products) that are currently exempt under sub-items 36(2), (3),(4) and (5) in the First Schedule to the Principal Act. New items 6 and 7 cover goods currently exempt under items 36A and 36B in that Schedule, i.e., New Zealand and Papua New Guinea fruit or vegetable juice products, respectively. Items 5, 6 and 7 when read in conjunction with the amendments proposed by clauses 7 and 8 in this Schedule will mean that the goods covered by them will become subject to tax at the 10% rate : see also notes on clauses 7 and 8 in this Schedule.
Item 11 presently subjects to tax at the 10% rate vinyl liners, fibreglass liners or other similar liners for fixed swimming pools and goods designed to form the walls or floors of fixed swimming pools, i.e., all in-ground pools and the larger above-ground pools.
Clause 25 will omit item 11. Goods presently covered by that item will then become subject to tax at the 20% rate : see notes on clauses 22 and 26 in this Schedule, clause 4 of the Sales Tax Laws Amendment Bill 1986 and in the Main Features of this memorandum.
Fixed domestic water heating equipment, including separate heating systems for spa baths and swimming pools (including spa pools and hot tubs), with the exception of solar heaters which are exempt, is taxable at 10% under item 12 in the Third Schedule to the Principal Act.
Paragraph (a) of clause 26 will insert a new sub-item - sub-item (1A) - in item 12 in the Third Schedule to the Principal Act which will have the effect of taxing at the general rate of 20%, water heating systems installed specifically for swimming pools or spa baths. Water heating systems for swimming pools or spa baths will therefore become taxable at the same rate as applies to softening, filtering, de-salting or sterilising equipment used exclusively or principally in connection with swimming pools or spa baths.
Paragraph (b) of clause 26 will omit the references to spa pools and hot tubs presently in sub-item 12(3). These words have become redundant due to the insertion, by clause 4 of the Sales Tax Laws Amendment Bill 1986, in section 3 of the Sales Tax Assessment Act (No.1) of a definition of swimming pool which includes a spa pool or hot tub : see notes in clause 4 of the Sales Tax Laws Amendment Bill 1986.
Schedule clause 27 : Items 14, 15, 16 and 17
Clause 27 proposes the omission of item 14 in the Third Schedule to the Principal Act and the substitution of four new items - items 14, 15, 16 and 17.
New item 14 will, with the exception of spa baths which will be taxable at 20%, tax, at the rate of 10%, household fittings and sanitary ware that are currently exempt under item 90D in the First Schedule to the Principal Act. New items 15 and 16 will tax at the 10% rate all goods that are currently exempt under items 90DA and 90DB in the First Schedule to the Principal Act. Briefly stated, these goods include movable toilet pans or chemical units, movable toilet seats for use by children, parts and chemicals, etc., for use in the operation of septic tanks and chemical sanitary units. Existing items 90D, 90DA and 90DB are being omitted from the First Schedule to the Principal Act by clause 15 to this Schedule : see notes on that clause.
Proposed new item 17 will cover containers for goods covered by the Third Schedule. The new item is in the same terms and to the same effect as the existing item 14.
PART IV - AMENDMENT OF FOURTH SCHEDULE
Broadly, item 1 covers commercial motor vehicles which are currently taxable at 20%.
Clause 28 will amend item 1 to ensure that certain "luxury" motor vehicles, which are to be taxed at the top rate of 30% under proposed item 61 in the Second Schedule, are not at the same time within the class of motor vehicles covered by item 1 in the Fourth Schedule - see notes on clause 21 in this Schedule.
This clause will introduce a new item - item 2 - in the Fourth Schedule. Goods to which item 2 applies will be subject to tax at the rate applicable to the Fourth Schedule, i.e., 20%. Goods to be covered by item 2 are negatives, transparencies and film strips that are developed from exposed film supplied for that purpose by the customer. Under a related amendment of the definition of "Manufacture" in sub-section 3(1) of the Sales Tax Assessment Act (No.1) 1930 (see notes on clause 4 of the Sales Tax Amendment Act 1986), the process of developing exposed film is to be treated as manufacture for sales tax purposes. To ensure that these negatives, etc., are only taxable at the 20% rate, they have been excluded from item 39 in the Second Schedule to the Principal Act : see notes on clause 20 in this Schedule.
PART V - AMENDMENT OF FIFTH SCHEDULE
Broadly, items 1 and 2 cover passenger motor vehicles and similar vehicles, e.g., station wagons and motor vehicles that are capable of being readily converted into passenger motor vehicles. These goods are currently taxable at 20%.
Clause 30 will insert a new item - item 3 - in the Fifth Schedule to the Principal Act to exclude from the scope of items 1 and 2 certain "luxury" motor vehicles that are to be taxed at the top rate of 30% - see notes on clause 21 in this Schedule.
SALES TAX LAWS AMENDMENT BILL 1986
This clause provides for the amending Act to be cited as the Sales Tax Laws Amendment Act 1986.
By reason of sub-section 5(1A) of the Acts Interpretation Act 1901, an Act comes into operation on the twenty-eighth day after Royal Assent unless otherwise specified in the Act. Under sub-clause 2(1), sections 1 and 2 of the Act will come into operation on the date of Royal Assent.
Under sub-clause (2), however, the amendments proposed by clause 17, sub-clause 20(2), clause 34 and sub-clause 37(2) are to come into operation on 1 July 1986. Briefly, these amendments correct a drafting oversight in the Taxation Boards of Review (Transfer of Jurisdiction) Act 1986 which came into operation on that date.
The remaining provisions of the Bill will, by virtue of sub-clause (3), be deemed to come into operation on 20 August 1986, the date on and from which those provisions are to apply.
PART II - AMENDMENT OF SALES TAX ASSESSMENT ACT (NO. 1) 1930
This clause facilitates the references to the Sales Tax Assessment Act (No. 1) 1930 which, in the Part, is referred to as "the Principal Act".
This clause will amend section 3 of the Principal Act, an interpretative provision, which ascribes particular meanings to words and expressions used in, or in part of, the Principal Act and contains a number of other measures to assist in its interpretation.
By paragraph (a) of clause 4, definitions of "Computer program" and "Construction" are to be inserted in sub-section 3(1) of the Principal Act. In each case, the expressions defined have their given meaning unless the contrary intention appears.
"Computer program" is defined to have the same meaning as it has in the Copyright Act 1968. Under sub-section 10(1) of that Act, a computer program is defined to mean -
"an expression, in any language, code or notation, of a set of instructions (whether with or without related information) intended, either directly or after either or both of the following:
- (a)
- conversion to another language, code or notation;
- (b)
- reproduction in a different material form,
At the time the definition of "computer program" was inserted in the Copyright Act, the then Attorney-General circulated an explanatory memorandum giving a detailed explanation of that definition. The following paragraphs reflect that explanation which will be useful in interpreting the definition in the context of the WST law.
The phrase "expression ... of a set of instructions" in that definition is intended to make clear that it is not, for example, an abstract idea, algorithm or mathematical principle which is covered but rather a particular expression of that abstraction. The word "set" indicates that the instructions are related to one another rather than being a mere collection.
The phrase "in any language, code or notation" covers not only high level (generally human intelligible) but also low level (generally only machine intelligible) and intermediate level means of expression. Thus it would cover a computer language such as FORTRAN, an assembly language and compiled or assembled machine code.
The phrase "whether with or without related information" ensures that the program may include material other than instructions for the computer (such as information for programmers or users of the program, or data to be used in connection with the execution of the program).
The phrase "intended ... to cause" covers the situation where the program, as written, may not operate for technical reasons such as the presence of a programming error.
The words "either directly ... material form" mean that a program need not necessarily be capable of execution in its existing form but may need first to be translated into another language (e.g., compilation of a FORTRAN program) or converted into a suitable machine readable form (e.g., keying a handwritten program onto magnetic disc).
The phrase "to cause a device ... to perform a particular function" makes it clear that the device is one the performance of which is ultimately controlled by the abovementioned "expression ... of a set of instructions".
Finally, the phrase "having digital information processing capabilities" is intended to make clear that the device is not a device which merely processes information by analogue methods (e.g., a radio) but does include devices which, though considered as a whole might not be information processors, nevertheless have some such capability. Examples would be computerised telephone switching equipment and computerised ignition systems.
Paragraph (a) of this clause also amends sub-section 3(1) of the Principal Act to insert a definition of "Construction".
This definition is relevant for the purposes of determining a person's liability to sales tax in relation to a swimming pool that is constructed in situ : see notes in the Main Features of this memorandum and on paragraph (f) of this clause.
The definition of "Construction" will ensure that the taxable good in relation to a swimming pool is, for practical purposes, only the container or shell. To achieve this, paragraphs (a), (b) and (c) of the definition set out those operations which are to be taken to be part of such construction and therefore the value of which will be included in the value of the goods deemed by new sub-section 3(1C) to be manufactured.
While paragraph (a) of the definition specifies certain building materials to which the definition applies e.g., concrete, metal or timber, etc., the reference to "other prescribed material" is to enable the inclusion of such other materials, by regulation, should technological developments warrant it.
Coping, i.e., the top of the walls, when used in other taxable swimming pools, is presently subject to sales tax. Paragraph (b) of the new definition will reflect this situation in relation to swimming pools constructed in situ.
Paragraph (c) will ensure that all surface treatment and finishing processes to the walls, floor and coping are included in the "construction" of a swimming pool for sales tax purposes. These processes usually enable the container or shell to satisfactorily perform the function for which it is designed. Such surface treatments applied to an existing swimming pool as a maintenance operation would not fall to be taxed except to the extent of any tax payable at the time of purchase of any taxable materials that may be used. Where such materials are for use in the construction of a pool they would be obtained tax-free by quotation as goods for incorporation in other taxable goods: see notes on clause 46.
Paragraphs (d) and (e) of the definition specify operations usually associated with the total installation of a swimming pool but which are not to be taken as "construction" for the purposes of the sales tax law. Costs associated with the installation of drainage, heating, lighting, power supply, water supply, filtering or pumping equipment or earthworks are, under paragraphs (d) and (e), excluded from the taxable value.
Paragraphs (b) and (c) of clause 4 will amend the definition of "Manufacture" by the addition of three new paragraphs which will extend the meaning of that word for sales tax purposes.
The developing of a film is part of the process usually undertaken in laboratories in ultimately producing a photographic print or a cinematograph print. The cost of the developing charge has not previously been subject to sales tax as that process is not under the present law considered to be "manufacture" for WST purposes.
As was mentioned earlier in this memorandum, the exclusion of the developing charge from a liability to sales tax has led to avoidance arrangements where some laboratories inflate the developing charge of a "develop and print order" to reduce their sales tax liability on the prints.
Paragraph (c) of this clause will insert a new paragraph - paragraph (d) - in the definition of "Manufacture" in sub-section 3(1) of the Principal Act to ensure that the processing or treatment of exposed photographic or cinematograph film to produce a negative, transparency or film strip is manufacture for sales tax purposes.
When read together with amendments proposed by the Sales Tax (Exemptions and Classification) Amendment Bill 1986, the result will be to tax the developing charge for customers who supply exposed film to a laboratory for development at the 20% rate.
Proposed paragraph (e) of the definition of "Manufacture" will include the copying or reproduction of a computer program as a process of manufacture. The new paragraph is not intended, however, to exclude by inference or otherwise from being manufacture, any process which is within the scope of the present definition. Nor will it include as manufacture, the "writing" of a program - the mere writing of an original program does not itself give rise to goods.
However, whenever a program is copied or reproduced from a carrying medium such a as magnetic tape or disc to another tape or disc, the copying or reproduction will be treated as manufacture. While technically the copying of a program from a carrying medium into a computer for a person's own use will be within the expanded definition of manufacture, no sales tax liability will arise by virtue of proposed sub-section 17(1A): see notes on clause 5.
The phrase "with or without related information" makes it clear the program may include material other than instructions for the computer (such as information for programmers or users of the program, or data to be used in connection with the execution of the program).
The phrase "whether the same material form ... language, code or notation" is intended to make it clear that the copy of the program may be in a different method of fixation to the original storage or reproduction on magnetic tape, read only or random access memory, magnetic or laser discs, bubble memories and any other form of storage which may be developed. It will also ensure that the copy may be in another language or converted into a suitable machine readable form.
Under new paragraph (e), however, the program must be copied by embodying the program in goods, e.g., the carrying medium. The carrying medium need not, however, be new goods - the copying of a program onto second-hand or used goods will also be manufacture.
New paragraph (f) of the definition of "Manufacture" provides that the copying or reproduction of visual images sounds or a combination of visual images and sounds will be manufacture for WST purposes. The sounds or visual images will, however, have to be embodied in some other goods to those which embody the sounds or visual images. In this way, the mere reproduction of sound, for example, by playing a record or cassette, will not be treated as manufacture.
As is to be the case with computer programs it will not be necessary for the copying of sounds or visual images to be done onto new goods. The reproduction of sounds or visual images onto second-hand goods or used goods will also be treated as manufacture.
The new paragraph is not intended to mean that any process which is at present manufacture for WST purposes, e.g., the making of a video recording by a television station, will cease to be treated as such.
Paragraph (d) of clause 4 will insert a definition of "Material form" in sub-section 3(1) of the Principal Act, which expression appears in proposed paragraphs (e) and (f) of the definition of "Manufacture". The new definition makes it clear that material form includes such methods of fixation of sounds, pictures and programs as the storage or reproduction on magnetic tape, compact disc, cinematograph film, read only or random access computer memory, magnetic or laser disc and any other form of storage that may be developed.
Paragraph (e) of clause 4 will insert in sub-section 3(1) of the Principal Act, a definition of "Swimming Pool". Under the new definition, a swimming pool will have the ordinary meaning attributed to that expression, usually an artificial pool for swimming or wadding in. It will also include, for the purposes of the sales tax legislation, including the Sales Tax (Exemptions and Classifications) Act, a spa pool or a hot tub.
Paragraph (f) proposes the insertion of four new sub-sections - sub-sections (1A), (1B), (1C) and (1D) - in section 3 of the Principal Act.
Under the existing definition of "Manufacturer", where a person supplies any materials to a manufacturer to have goods manufactured from those materials and the goods are for sale by the person, the person supplying the materials and not the manufacturer is deemed to be the manufacturer of the goods. The "deemed manufacturer" incurs a liability to tax on any subsequent taxable transaction concerning those goods.
If, however, instead of supplying materials to be incorporated into the finished goods the person supplied, for instance, a master tape to be copied and the copies are intended for sale, the person supplying the master would not, under the existing law, be treated as having supplied materials. That part of the definition of "Manufacturer" that deems a person to be a manufacturer would not therefore apply. The taxing point in this situation is the sale of the copies from the manufacturer to the person who supplied the master tape. The costs incurred in producing the master tape would, of course, be reflected in the retail selling price of the copies but would not be included in the taxable sale from the manufacturer to the person who supplied that tape.
It is a general principle of the sales tax law that all costs in manufacturing taxable goods, including costs of the master tape, should be reflected in the sale value of goods. To ensure that this principle is maintained, paragraph (f) of clause 4 proposes the insertion of new sub-section 3(1A) in the Principal Act.
The new sub-section will expand, for the purposes of the definition of "Manufacturer", the meaning in that definition of the reference to the supply of materials by a person. The result will be to include a person who supplies visual images, sounds or a computer program to another for the purpose of copying those visual images or sounds or that computer program onto goods. When the copies are for sale by the person who supplies the visual images, sounds or computer program, that person will be deemed to be the manufacturer of the goods and the manufacturer will be taken to be a wholesale merchant by virtue of sub-paragraph (a)(ii) of the existing definition of "Wholesale Merchant".
New sub-section 3(1B) explains the concept of the embodiment of visual images, sounds or computer programs in goods. That concept is reflected in proposed paragraph (e) and (f) of the definition of "Manufacture" and proposed section 18B - see earlier notes on this clause and notes on clause 7.
For goods to be embodied with visual images or sounds or a computer program the goods will have to be treated in such a manner that those visual images or sounds or that computer program will be able to be copied or reproduced from the goods. Examples of the treatment of goods that would give rise to the embodiment of visual images, sounds or computer programs include the recording of music on a cassette, recording of visual images on a video tape or the recording or embodiment of a program in "firmware", i.e., read only memory (ROM) or erasable programmable read only memory (EPROM). However, the mere playing of the cassette or video to listen to the music or view the picture thus produced would not give rise to the embodiment of those sounds or pictures in goods, nor would the display of a computer program on a visual display unit cause the program to be embodied in goods.
New sub-sections 3(1C) and (1D) are, in effect, the rules that apply, for purposes of the sales tax law, in relation to the construction of a swimming pool, spa pool or hot tub (in these notes subsequently referred to a swimming pool) in situ that commences after 19 August 1986. For the purposes of the commencement of construction after 19 August 1986, the undertaking of excavation or other earthworks or the clearing, levelling or landscaping of land in connection with the swimming pool will be treated as the commencement of construction.
Paragraphs (a) and (b) of proposed sub-section 3(1C) describe the persons to whom the provision will apply.
Paragraph (a) deals with a person who is carrying on a business. That business may be one of constructing swimming pools, but not necessarily so. Paragraph (b) deals with the case where a person, as principal, undertakes the construction of a swimming pool for the person's own use and the whole or principal part of the labour used to construct the container or shell is provided by paid labour or sub-contractors.
The remaining paragraphs of sub-section 3(1C) then operate, for the relevant purposes of the sales tax law, to deem a number of things to have happened in relation to the construction of the container or shell of the swimming pool. These are as follows -
- •
- the container or shell which is constructed is deemed to be manufactured goods (paragraph (c));
- •
- the construction of the container or shell is taken to be the manufacture of goods (paragraph (d)); and
- •
- the person referred to in paragraphs (a) or (b) of the sub-section is deemed to be the manufacturer of the container or shell (paragraph (e)).
By paragraphs (f) and (g) the taxing point for the purposes of section 19 of the Principal Act arises on the completion of the swimming pool.
Further, under paragraph (f), the goods, i.e., the swimming pool container or shell, are deemed to have been sold by retail by the manufacturer to an unregistered person at the time when the construction is completed, provided that the manufacturer does not have the right of exclusive occupation of the land containing the swimming pool. In other words, paragraph (f) looks to the situation where the person who constructs the swimming pool does so in the course of carrying on a business and the construction takes place on some other person's land.
Paragraph (g) will cover situations not dealt with by paragraph (f), e.g., where an individual builds a pool on his or her own land. In those cases, the manufacturer will, in keeping with an established concept in the sales tax law, be deemed to have applied the goods to his or her own use, at the time when the construction of the pool is completed.
New sub-section (1D) is an interpretative provision. It will ensure that, where a person constructs a swimming pool otherwise than as part of the person's business, any labour actually provided by the person will be taken to have been provided voluntarily and without remuneration. If that person then builds the whole or a principal part of the swimming pool shell these amendments will not apply in relation to that construction.
Paragraph (g) of clause 4 proposes the insertion of a new sub-section 3(3A) in Principal Act. This sub-section is essentially an anti-avoidance provision.
A common practice in the marketing of computer software is for the right to use computer programs to be licensed to customers and the carrying medium, the magnetic tape or disc, containing the program given free of charge to the licensee. Goods that are given away are treated, for WST purpose as applied to own use, in which case the marketers of computer software could, in the absence of proposed sub-section (3A), escape liability to sales tax. This is because "in-house" software (that is, software applied to own use) is excluded from the scope of these amendments. Proposed sub-section 3(3A) will ensure that where goods that contain visual images, sounds or computer programs are given (which may be as a gift,on short-term hire or on loan) to a person and valuable consideration passes in respect of the right to use those visual images, sounds or computer programs, a sale of goods will be deemed to have occurred. It is intended that deemed sales of goods will adopt the characteristic of being either a wholesale sale or a retail sale depending on the stage they occur in the marketing chain. For example, where goods are given to a person who will give or sell the goods to others, the deemed sale will be a wholesale sale. If the goods are given to an end user there will be a deemed retail sale.
New sub-section 3(3A) will only apply for the purposes of each of Sales Tax Assessment Acts (Nos. 2-4 and 6-9) by virtue of the operation of section 12 of those Acts-as the taxable transaction under Sales Tax Assessment Act (No. 5) is the entry for home consumption of imported goods, new sub-section 3(3A) is unnecessary in that Act.
Sub-section 17(1) of the Principal Act provides that sales tax imposed by Sales Tax Act (No.1) 1930 is payable on the sale value of goods manufactured in Australia by a person and either sold by that person, treated as stock for sale by retail by that person or applied to the person's own use.
Sub-section 17(2) describes the circumstances under which manufactured goods applied to the manufacturer's own use are liable to sales tax. Subject to certain anti-avoidance provisions, goods so applied must have been manufactured in the course of carrying on a business. Goods manufactured by a person other than in the course of carrying on a business and applied to his or her own use are not subject to sales tax under the existing sales tax law.
The amendments proposed by clause 5 are intended to maintain the status quo in relation to the development "in-house" of computer programs that are applied to the developer's own use. Where, for example, a large company develops its own programs and itself makes copies of them for back-up or use in branch offices, etc., proposed sub-section 17(1A) will ensure that, the goods will not be treated as being manufactured in Australia and applied to own use for the purposes of section 17.
Clause 6 will insert a new sub-section - sub-section 3A - in section 18 of the Principal Act. The new sub-section provides the sale value to be used in relation to the construction in situ of any swimming pool (including a spa pool or hot tub).
Simply stated, the sale value of a swimming pool container or shell is to be the amount which the person who constructs that container or shell could reasonably be expected to have paid another person who in the ordinary course of business constructs like swimming pools.
New sub-section (3A) has two conditions in determining this sale value. They are -
- •
- it has to be assumed that all the materials used in the construction of the swimming pool container or shell have been supplied by the other person, (paragraph (a)); and
- •
- the manufacturer and the other person are to be treated as dealing with each other at arm's length in relation to the notional construction of the swimming pool (paragraph (b)).
This sale value will apply to all swimming pools, spa pools or hot tubs constructed in situ to the exclusion of all other sale value provisions other than prescribed sale values, sale values agreed between a taxpayer and the Commissioner and the anti-avoidance provisions of section 18A.
Clause 7: Sale value of goods embodying certain information
Clause 7 proposes the insertion of a new section - section 18B - in the Principal Act which will specify a sale value for goods embodying certain information. The proposed section will stipulate a sale value for goods in which visual images or sounds or a computer program (embodied material) have been embodied where a licence fee is paid for the right to use the embodied material. The section will only operate, however, where the existing sale value provisions of the sales tax law do not impose sales tax on the value of the licence fee.
Generally speaking, the sale value will be equal the sum of to the sale value otherwise determined under section 18 (other than sub-section (5B), or 18A) and the value of the licence fee. The provision will apply to the sale of goods, to a deemed sale of goods (see notes on clause 4 concerning proposed sub-section 3(3A)) and to the treatment by a manufacturer of goods as stock for sale by retail.
Proposed paragraph 18B(1)(a) specifies both the goods and the transaction or acts to which the section will apply. The goods must be embodied with visual images, sounds or a computer program and after 19 August 1986 either sold (sub-paragraph 18B(1)(a)(i)) - (including a deemed sale) or treated by the manufacturer as stock for sale by retail - (sub-paragraph 18B(1)(a)(ii)).
New paragraph 18B(1)(b) will apply only in respect of a sale or deemed sale of the goods. Before section 18B can operate in respect of a sale or deemed sale, this paragraph requires that valuable consideration be given in connection with the supply of, or the right to use, the material embodied in the goods. The use of the expression "valuable consideration" rather than "price" means that the consideration need not be in money or its equivalent but could be a trade-in, forbearance of a debt, etc. The valuable consideration does not have to be given by the purchaser or paid to the vendor. It can be paid by or to any person, e.g., associates of either the purchaser or the vendor.
However, the valuable consideration must be given in "connection with, or as consideration for" the licence. Clearly, any amount paid directly for the right to use the embodied material would be covered, as would any amount paid for the development or installation of a custom made program or for material supplied in association with the embodied material, e.g., operating and training manuals for use with the program.
Under proposed paragraph 18B(1)(c), section 18B will only operate where the full value of the licence fee has not been included in the sale value of the goods under any other provision of the Principal Act.
Where the requirements of paragraphs 18B(1)(a), (b) and (c) have been satisfied then the sale value of the goods is determined under section 18B, unless the Commissioner of Taxation has reached an agreement with an individual taxpayer under sub-section 18(5B) of the Principal Act. Any agreement reached with a particular taxpayer as to the determination of the sale value of goods under that provision takes precedence over the operation of proposed section 18B.
If section 18B applies then the amount of the sale value is determined under paragraphs 18B(1)(d) and (e).
Paragraph 18B(1)(d) will specify the sale value where the goods are sold or deemed to be sold. In these cases, the sale value will be the sum of the amount that would otherwise be the sale value under either section 18 (other than sub-section 18(5B)) or 18A and the value of the licence fee.
Paragraph 18B(1)(e) will provide a sale value in circumstances where the goods are treated by the manufacturer as stock for sale by retail. If the goods are of a class which the manufacturer usually sells by wholesale, the sale value fixed by sub-paragraph 18B(1)(e)(i) is to be the sum of the amount that would otherwise be the sale value of the goods under section 18 (other than sub-section 18(5B)) and the amount of valuable consideration that could reasonably be expected to be given in connection with the licence of the right to use the embodied material if, in a hypothetical wholesale sale, the goods were sold by the manufacturer. The hypothetical sale must be considered to have occurred in similar circumstances and involve similar quantities of goods to those goods actually being treated as stock for sale by retail. Clearly, an actual sale by the manufacturer of similar goods at arm's length would be the best guide for determining a reasonable expectation of the amount under sub-sub-paragraph 18B(1)(e)(i)(B).
Where the goods are not of a class which the manufacture usually sells by wholesale, sub-paragraph 18B(1)(e)(ii) will fix the sale value. The sale value will be the sum of the amount that would otherwise be the sale value of the goods under section 18 (other than sub-section 18(5B)) and an amount equal to the valuable consideration that could reasonably be expected to be given in connection with a licence of the right to use identical visual images, sounds or a computer program, if the manufacturer had purchased identical goods embodied with those visual images, sounds or computer program from another manufacturer who had in the ordinary course of his or her business manufactured and sold the goods to the first mentioned manufacturer.
The intention of the provision is to arrive at a fair market value for any licence of the right to use the embodied material in the goods if the manufacturer had sold those goods by wholesale. The hypothetical "other manufacturer" is to be considered to have manufactured identical goods in similar quantities to the goods treated as stock for sale by retail and to have incurred all the development, manufacturing and wholesaling costs that the manufacturer could reasonably be expected to incur if he sold those goods by wholesale including, of course, a reasonable wholesale profit margin. The only costs that would not be included would be those incurred specifically in connection with the retail sale of the goods.
Sub-section 18B(2) will restrict the meaning of the expression the right to use embodied material to ensure that it does not include the right to perform, broadcast, televise or exhibit pictures or sounds. For example, any consideration for the right for a radio station to broadcast a sound recording or a club to show a video is excluded from the taxable sale value of the goods.
Sub-section 18B(3) is a drafting measure to avoid the extensive repetition of definitions of the expressions used in sub-section 18B(2) and to define the term "identical goods". In paragraph 18B(3)(a) expressions used in connection with copyright in sub-section 18B(2), that is, "work", "sound recording" and "diffusion service", will have the same meaning in that sub-section as in the Copyright Act 1968. In addition, the expression "cinematograph film" as used in that Act is extended to include within its meaning for the purposes of sub-section 18B(2), video tapes and video discs.
Paragraph 18B(3)(b) will explain that the expression "identical goods", which is used in proposed sub-paragraph 18B(1)(e)(ii), will mean goods that are identical in all material respects with the goods in relation to which the expression is used. The nature of the visual images, sounds or computer program embodied in the goods would, for example, be one matter that would need to be taken into account in determining whether the difference between the subject goods and other goods is material.
Section 21 of the Principal Act requires any manufacturer who undertakes any taxable transaction in a month to lodge a return of such transactions in the form prescribed within 21 days after the close of that month. The amendment proposed by paragraph (a) of clause 8 will extend the requirement contained in section 21 to also cover transactions falling within the scope of the new section 18B: see notes on clause 7.
Paragraph 8(b) amends section 21 to provide a more flexible approach for the lodgment of monthly returns by authorising the Commissioner to approve the form of the return to be lodged or to require further information without the need for those details to be prescribed by regulation. This revised approach follows more modern practice in the drafting of taxation laws.
PART III - AMENDMENTS OF THE SALES TAX ASSESSMENT ACT (NO. 2) 1930
PART IV - AMENDMENTS OF THE SALES TAX ASSESSMENT ACT (NO. 3) 1930
PART V - AMENDMENTS OF THE SALES TAX ASSESSMENT ACT (NO. 4) 1930
PART VI - AMENDMENTS OF THE SALES TAX ASSESSMENT ACT (NO. 5) 1930
PART VII - AMENDMENTS OF THE SALES TAX ASSESSMENT ACT (NO. 6) 1930
PART VIII - AMENDMENTS OF THE SALES TAX ASSESSMENT ACT (NO. 7) 1930
PART IX - AMENDMENTS OF THE SALES TAX ASSESSMENT ACT (NO. 8) 1930
PART X - AMENDMENTS OF THE SALES TAX ASSESSMENT ACT (NO. 9) 1930
PART XI - AMENDMENTS OF THE SALES TAX ASSESSMENT ACT (NO. 10) 1985
As the amendments proposed in each of Parts III-XI of the Bill are expressed in similar terms and are intended to achieve the same end, the corresponding clauses of each of these Parts are dealt with collectively in the following notes.
Clauses 9, 13, 17, 21, 26, 30, 34, 38 and 43 : Principal Act
These clauses facilitate references to the relevant Sales Tax Assessment Act which, in each Part, is referred to as "the Principal Act".
Clauses 10, 14, 18, 22, 27, 31, 35 and 39 : Sale Value
New section 4A in Sales Tax Assessment Acts (Nos. 5 and 9) and section 4B in Sales Tax Assessment Acts (Nos. 2 to 4 and 6 to 8), which are inserted in the relevant Assessment Acts by these clauses, are substantially to the same effect as proposed section 18B, in Sales Tax Assessment Act (No. 1) 1930. Each new section applies to transactions that are within the scope of the relevant Assessment. An explanation of section 18B may be found in the earlier notes on clause 7.
Clauses 11, 15, 19, 24, 28, 32, 36, 41 and 44 : Returns and Entries
The sales tax law generally requires that any person who deals with goods in a taxable manner during a month is to lodge a return with the Commissioner of Taxation within 21 days of the close of that month. In the case of imported goods entered for home consumption by an unregistered person or a registered person who does not quote his or her certificate, the requirement is to give an entry to a Collector of Customs in relation to the imported goods at the time of entry for home consumption.
Section 7 of the Sales Tax Assessment Acts (Nos. 2, 3, 6 and 7) deals with the requirement of registered persons who sell goods in taxable circumstances to furnish a return. The amendment proposed by paragraph (a) of clauses 11, 15, 28 and 32 will extend the requirements contained in section 7 of the Principal Acts to include sales specified in the new section 4B, (an explanation of which is given in the notes on clauses 10, 14, 27 and 31) in addition to the existing requirement to furnish a return in respect of goods specified in section 4 of those Acts.
The corresponding requirement in section 7 of Sales Tax Assessment Act (No. 5) 1930, for unregistered importers or registered persons who do not quote their certificate at the time of entry for home consumption, is for those persons to lodge an entry with a Collector of Customs on each occasion goods covered by section 4 of that Act are entered. The amendment proposed by paragraph (a) of clause 24 will have the effect of also requiring entries to be lodged in respect of goods specified in the new section 4A of the Principal Act: see notes on clauses 22 and 7.
The amendment proposed by paragraph (a) of clause 41 similarly provides for section 7 of the Sales Tax Assessment Act (No. 9) 1930 to require taxpayers to furnish returns in respect of goods specified in proposed section 4A of that Act in addition to the existing requirement to furnish returns in respect of goods specified in section 4 of that Act.
Clauses 19, 36 and 44 and paragraph (b) of clauses 11, 15, 24, 28, 32 and 41 propose amendments of section 7 of the relevant Principal Act essentially to provide a more flexible and uniform approach for the lodgment of monthly returns by authorising the Commissioner to approve the form of the return to be lodged, or the nature of the information required, without the need for those details to be prescribed by the Sales Tax Regulations. As noted earlier in the notes on clause 8, this approach is now traditionally adopted in the drafting of taxation laws.
Clauses 12, 16, 20, 25, 29, 33, 37 and 42 : Application of provisions of Sales Tax Assessment Act No. 1
Section 12 of Sales Tax Assessment Acts (Nos. 2-9) applies by reference a number of provisions of the Sales Tax Assessment Act (No. 1) 1930 that relate to the imposition, assessment and collection of the tax chargeable under each of the Principal Acts.
Proposed section 3(3A) of the Sales Tax Assessment Act (No. 1) 1930 will deem goods that contain sound, visual images or a computer program in respect of which valuable consideration is given for the right to use those sounds, visual images or that computer program, that are given to a person to be a sale of goods for WST purposes (see notes on paragraph (g) of clause 4). The insertion of new paragraph 12(aa), in Sales Tax Assessment Acts (Nos. 2 to 4 and 6 to 9) by clauses 12, 16, 29, 33 and 42 and sub-clauses 20(1) and 37(1) is a drafting measure designed to ensure that the references in new sub-section 3(3A) to section 18B is translated to section 4B in respect of Sales Tax Assessment Acts (Nos 2 to 4 and 6 to 8) and to section 4A in respect of Sales Tax Assessment Act (No.9).
As proposed section 3(3A) of the Sales Tax Assessment Act (No. 1) 1930 does not have any application in the operation of Sales Tax Assessment Act (No. 5) 1930, proposed paragraph 12(aa) has not been inserted in that Act: see notes on clause 4.
Paragraph 12(1)(d) of Sales Tax Assessment Acts (Nos.4 and 8) contain a reference to sub-section 10(1AA) in each of those Acts. However, the Taxation Boards of Review (Transfer of Jurisdiction) Act 1986 repealed that sub-section and substituted a substantially similar sub-section - sub-section 10(2) - with effect from 1 July 1986. Due to a drafting oversight the reference in each paragraph 12(1)(d) to former sub-section 10(1AA) was not changed. The amendments proposed by sub-clauses 20(2) and 37(2) are intended to correct this oversight and, by reason of sub-clause 2(2), will do so with effect from 1 July 1986.
Clauses 23, 40: Liability to Tax
Section 5 of the Sales Tax Assessment Act (No. 5) 1930 imposes a liability on a sale value specified in section 4 for payment of sales tax on persons who enter goods for home consumption, or are deemed to have entered goods for home consumption, and do not quote their sales tax certificate at the time of entry. Clause 23 proposes to amend section 5 to also include those circumstances where the sale value is determined by the new section 4A : see earlier notes on clause 22.
Similarly, existing section 5 of the Sales Tax Assessment Act (No. 9) 1930, which imposes a liability for payment of sales tax upon a lessor of goods on a sale value specified in section 4, will be amended by clause 40 to include the circumstances where the sale value is determined by the proposed section 4A (see also notes on clause 39).
PART VII - AMENDMENT OF SALES TAX REGULATIONS
Clause 45: Sales Tax Regulations
This clause provides for the Sales Tax Regulations to be cited in this Part as "the Regulations".
Clause 46: Cases in which certificates are to be quoted
Regulation 12 of the Regulations prescribes the circumstances in which a registered person is required to "quote a certificate". In particular, where such a person is a manufacturer the person is required under paragraph (b) of sub-regulation 12(1) to quote in respect of the purchase of goods, or the entry for home consumption of imported goods to be used in, wrought into or attached to goods to be manufactured by the person -
- •
- for sale or lease; or
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- applied to the person's own use.
This clause will, consequential upon amendments of the Sales Tax Assessment Act (No. 1) to deem a person who constructs a swimming pool in situ to be a manufacturer for WST purposes, amend paragraph (b) to include another circumstance in which a manufacturer is required to quote a certificate : see earlier notes in this memorandum.
Clause 46 will insert a new sub-paragraph - sub-paragraph (iii) - in paragraph (b) of sub-regulation 12. The result will be that, where a manufacturer of a swimming pool is deemed to have sold the swimming pool by retail or to have applied the swimming pool to the manufacturer's own use under proposed paragraphs 3(1C)(f) or (g) of Sales Tax Assessment Act (No. 1), the manufacturer will be required to quote a certificate in respect of the purchase of any taxable goods used in the construction of the swimming pool. It should be noted that, in this context, a swimming pool includes, under the proposed definition of that expression, a spa pool or hot tub : see notes on clause 4.
Clause 47: Delivery of goods on giving of security or undertaking for payment of tax
As was mentioned earlier in this memorandum, the customs law was amended recently to extend exemption from customs duty to goods imported into Australia on a temporary basis. Under sub-regulation 125A(2) of the Customs Regulations certain goods may be imported into Australia and entered for home consumption, subject to any general security or undertaking being given to the Comptroller-General of Customs, free of customs duty.
Goods currently able to be imported under this provision of the Customs law are goods for use in connection with an "event of national significance". Such an event is defined as an America's Cup yacht race held in Australia or the Australian bicentennial celebrations.
The sales tax law has complementary provisions to those in the customs law relating to temporary importations of goods. Clause 47 will amend regulation 57 of the Regulations to ensure that imported goods entered for home consumption under the customs temporary importation provisions for the above purposes are, subject to existing rules in relation to securities or undertakings, also freed from any sales tax liability.
Clause 48: Amendment or repeal of Regulations
As there is a need to ensure that the amendment of the Regulations proposed by clause 46 has effect on the same day as the changes to the Sales Tax Assessment Act (No. 1), the necessary amendment of the Regulations is being made as part of the package of sales tax measures of which this Bill is an element. The opportunity is also being taken, in clause 47, to bring the sales tax and customs laws into line in the area of temporary importations of certain goods.
Clause 48 is a formal provision that makes it clear that further amendment or repeal, by regulation, of the amended regulations to be enacted by this Part is not in any way prevented because the Parliament has amended the Regulations.
Clause 49: Avoidance of sales tax
The amendments of the sales tax law proposed by the Sales Tax (Exemptions and Classifications) Amendment Bill 1986, the Sales Tax Laws Amendment Bill 1986 and the Sales Tax Acts Amendment Bill 1986 were announced by the Treasurer and introduced into the Parliament on 19 August 1986. The amendments do not, however, as a general rule, come into operation until 20 August 1986.
If the proposed amendments had been made to operate at and after the actual time of the Treasurer's announcement, taxpayers in the marketplace would have been incurring a liability or higher liability to sales tax in relation to transactions effected after that time possibly without having any means of knowing of the proposed changes to the law. For this reason, the abovementioned changes are to come into effect the day following the Treasurer's announcement.
Despite the relatively short period of time between announcement of proposed changes to the sales tax law and their date of effect, there may be taxpayers who seek to take advantage of that delay by bringing forward certain transactions, acts or operations in relation to goods in order to avoid an anticipated liability to tax on those goods.
Clause 49 is an anti-avoidance provision that will apply to any transactions, acts or operations that have been brought forward by taxpayers for a purpose of avoiding a liability to sales tax in respect of goods that could reasonably be expected to arise in relation to those goods if the transactions, acts or operations had been entered into after the amendments of the law take effect. It does this by deeming any such transactions, etc., to have been entered into on 20 August 1986, i.e., after the amended provisions and new rates of sales tax are to take effect.
Any transactions in luxury motor vehicles, computer software or any of the other goods on which the above-mentioned package of Bills proposes to impose a liability or a higher liability, for tax will be deemed to be entered into on 20 August 1986 where any of the parties to the transaction entered into the transaction for a purpose of avoiding tax. The fact of abnormal or unusually high volumes of transactions between 8 o'clock (Eastern Standard Time) in the evening on 19 August 1986 and midnight that night would, prima facie, indicate a purpose of avoiding tax.
SALES TAX ACTS AMENDMENT BILL 1986
The main purpose of the Bill is to remove redundant references to the Sixth Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 that appear in each of the Sales Tax Acts (Nos.1 to 9) 1930 and the Sales Tax Acts (Nos.11A and 11B) 1985. The Sixth Schedule is to be repealed by sub-clause 5(2) of the Sales Tax (Exemptions and Classifications) Amendment Bill 1986.
As the provisions in each Part of the Bill, other than Parts I and XIII, are expressed in similar terms, the corresponding clauses of each are dealt with collectively in the following notes.
This clause provides for the amending Act to be cited as the Sales Tax Acts Amendment Act 1986.
By reason of sub-section 5(1A) of the Acts Interpretation Act 1901, Acts come into operation on the twenty-eighth day after Royal Assent, unless otherwise specified in the Act. Under sub-clause 2(1), sections 1 and 2 of the amending Act will come into operation on the date of Royal Assent.
By sub-clause 2(1) it is proposed that the remaining provisions of the amending Act come into operation immediately after sub-clause 5(2) of the Sales Tax (Exemptions and Classifications) Amendment Act 1986 comes into operation. The timing of the commencement of these provisions is a precaution to ensure that this Bill is not construed as imposing tax, customs duty or excise and thus contrary to section 55 of the Constitution.
Clauses 3, 5, 7, 9, 11, 13, 15, 17, 19, 21 and 23 : Principal Act
These clauses provide for the Sales Tax Acts (Nos.1 to 9) 1930 and the Sales Tax Acts (Nos.11A and 11B) 1985 to be referred to in Parts II, III, IV, V, VI, VII VIII, IX, X, XI and XII, respectively, as "the Principal Act".
Clauses 4, 6, 8, 10, 12, 14, 16, 18, 20, 22 and 24 : Rates of tax
These clauses will omit from section 4 of the Sales Tax (Nos.1 to 9) Acts 1930 and section 6 of the Sales Tax (Nos.11A and 11B) Acts 1985 references to the Sixth Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 consequent on the repeal of that Schedule by sub-clause 5(2) of the Sales Tax (Exemptions and Classifications) Amendment Bill 1986.
Clause 25 is a savings clause that will ensure that sales tax, at the rates already imposed by the Sales Tax Acts (Nos.1 to 9) 1930 and the Sales Tax Acts (Nos.11A and 11B) 1985 on goods covered by the Sixth Schedule to the Sales Tax (Exemptions and Classifications) Act, continues to be imposed on transactions, etc., that occurred before 20 August 1986 as if the references to that Schedule had not been removed. Effectively, it ensures that sales tax is still payable, at the rate of tax applicable before 20 August 1986, i.e., 10%, upon the sale value of goods to which the Sixth Schedule referred, broadly alcoholic wine, cider and similar fermented beverages, dealt with in taxable circumstances before that date.