Senate

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 2 - Imports

Outline of Chapter

2.1 This Chapter explains the amendments contained in Schedule 2 to this Bill that relate to importation of goods. Schedule 2 contains a number of minor policy changes and technical amendments to the GST Act, LCT Act, WET Act and the Customs Act. These amendments will:

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ensure that the conversion rate used for the international transport and insurance component of a taxable importation or re-importation is the same rate used for the customs value of the importation or re-importation;

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ensure that the re-importation of goods that were acquired prior to 1 July 2000 and are returned to the original owner, without having being subject to any change since their export, are not subject to GST;

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ensure that re-imported breeding livestock is only subject to GST on the increase in value;

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exempt certain goods, imported temporarily into Australia without payment of Customs duty, GST and LCT from having to be exported from Australia; and

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ensure that the re-importation of goods that have been previously subject to WET or LCT is not subject to WET or LCT a second time.

Detailed explanation of new law

Conversion rate for international transport and insurance on taxable importations and re-importations

2.2 Subsection 13-20(2) of the GST Act provides that the value of a taxable importation is the customs value of the goods plus the cost of bringing those goods into Australia.

2.3 The customs value is defined in section 195-1 of the GST Act by reference to Division 2 of Part VIII of the Customs Act. Section 161J of this Division stipulates that the customs value of the goods are to be expressed in Australian currency based on the ruling rate of exchange on the day of exportation of the goods.

2.4 The customs value is basically the value of imported goods for customs duty. Customs duty is currently related to the free on board value of the goods. That is the value of the goods, excluding the cost of bringing those goods into Australia. The cost of bringing goods into Australia is the cost of transport, the cost of insurance and the cost of the customs duty.

2.5 Division 117 of the GST Act sets out the value of a taxable importation of goods that were exported for repair or renovation. The Division ensures that the value of a taxable importation of goods that have been sent overseas for repair or renovation, or that are part of a batch repair process, is not the entire value of the goods. GST will only apply to the increase in value of the goods. The increase in value of the goods is the sum of:

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the cost of the repair or renovation;

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the amount paid or payable for the international transport and insurance of the goods; and

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any customs duty, other than GST, payable on the importation.

2.6 In order to determine the cost of the repair or renovation of re-imported goods, the customs value of the goods is ascertained (see paragraphs 20 and 2.4

2.7 It is common for the cost of international transport of goods and the cost to insure the goods for that transport to be expressed (and often paid for) in a foreign currency. Where this is the case, it is not clear what conversion rate should be used to convert the amounts to Australian dollars as there is no link to the exchange rate referred to in the Customs Act.

2.8 Item 1 inserts new subsection 13-20(2A) into the GST Act and item 8 inserts new subsection 117-5(1A) . These new subsections ensure that the rate used to convert the cost of international transport of goods and the cost to insure the goods for that transport is calculated using the same rate used to convert the customs value of the goods imported or re-imported.

2.9 The rate to be used to convert the transport and insurance components of a taxable importation or re-importation to Australian dollars is ascertained in the way provided in section 161J of the Customs Act. That is, according to the ruling rate of exchange on the day of exportation of the goods. The Australian Customs Service provides a list of the ruling rate of exchange for each currency for each day.

Re-importation of goods acquired prior to 1 July 2000

2.10 The GST Act (section 42-10) allows goods originally purchased in Australia, which are exported by their owners, to be re-imported into Australia by their owners as non-taxable importations where the goods were originally acquired as a taxable supply or a taxable importation. However, goods acquired prior to 1 July 2000 would have been subject to WST or some other similar tax at the time of their acquisition. The re-importation of these goods will not be a non-taxable importation under the current legislation because the acquisition of these goods was not a taxable supply or a taxable importation as required by section 42-10 of the GST Act.

2.11 Item 5 inserts new subsection 42-10(2) to provide that the re-importation of goods acquired prior to 1 July 2000 is a non-taxable importation where the following conditions are met:

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the importer manufactured, acquired or imported the goods prior to 1 July 2000;

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the ownership of the goods has not changed;

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the goods have been exported and then imported without alteration; and

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the importer did not and was not entitled to claim a refund under the tourist refund scheme when the goods were exported.

2.12 This amendment ensures that goods owned by an entity prior to 1 July 2000 which are exported and then re-imported in the same condition will not be subject to GST. The goods were subject to the taxation system in existence prior to 1 July 2000 and should not also be subject to GST where there is no change in ownership.

Re-importation of breeding live-stock

2.13 Where goods are exported from Australia and re-imported, GST is only payable where the goods have been altered (e.g. subject to repair or renovation). Division 117 provides that where goods have been subject to repair or renovation, GST only applies to the value of the repair or renovation and not the full value of the goods. This is on the basis that GST was paid in Australia when the owner originally acquired the goods.

2.14 In the case of breeding animals that are sent overseas and serviced (e.g. brood mares) the current GST legislation treats the re-importation as fully taxable because the animal is re-imported in an altered state (i.e. in foal). However, such a breeding service does not fit within the scope of repair or renovation currently in the law. In accordance with the principle of Division 117, only the increased value of the horse (i.e. the value of the foal carried by the horse) should be subject to GST.

2.15 Item 9 inserts new subsection 117-10 to ensure that animals such as horses which are exported for the purpose of being serviced at stud and re-imported in a pregnant state are only subject to GST on the increased value of the horse (i.e. the value of the foal carried by the horse) provided the animal is re-imported by the same owner/owners who exported it. [Item 9]

2.16 In some circumstances the value of the re-imported live animal may change after importation. An example is where a mare in foal does not produce a live foal. In some cases it may be appropriate for a refund to be made to the amount of GST paid at the time of re-importation. Item 9 inserts new subsection 117-15 which allows regulations to specify circumstances where a refund of the GST paid on importation should be refunded. Items 2 to 4 are consequential amendments to the tables in sections 13-99 and 37-1. Items 6 and 7 replace the heading for Division 117. Item 12 amends the definition of value in section 195-1 to include reference to new section 117-10 .

Temporary importation concessions

2.17 The temporary imports amendments will:

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amend sections 162 and 162A of the Customs Act to provide that the regulations may specify conditions and circumstances whereby goods that have been imported temporarily without payment of Customs duty do not need to be exported from Australia if those conditions or circumstances apply to those goods;

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amend section 171-5 of the GST Act to provide that goods that have been imported temporarily without payment of GST need not be exported from Australia if the conditions or circumstances prescribed for the purposes of sections 162 and 162A of the Customs Act apply to the goods; and

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amend section 13-25 of the LCT Act to provide that luxury cars that have been imported temporarily without payment of LCT need not be exported from Australia if the conditions or circumstances prescribed for the purposes of sections 162 and 162A of the Customs Act apply to the cars.

2.18 Sections 162 and 162A of the Customs Act allow the Collector of Customs to give permission to an importer to take delivery of goods being temporarily imported into Australia, if the importer gives a security or undertaking for the payment of duty on the imported goods.

2.19 Under those sections the duty is not payable if the conditions set out in the regulations are complied with and the goods are exported within a specified period. Otherwise, the security may be enforced or, if an undertaking was given, the amount of the duty may be recovered in a court of competent jurisdiction.

2.20 The amendments to sections 162 and 162A of the Customs Act will allow further conditions and circumstances to be prescribed, which will exempt the importer from the export requirement. For example, the destruction of temporarily imported goods while the goods are in Australia (where that destruction is beyond the control of the person who took delivery of the goods) may be such a circumstance. Hence, if a car is temporarily imported into Australia without payment of duty and the car is destroyed while in Australia, duty will not be payable on the car.

2.21 These amendments to section 162 will mean that if a Collector of Customs has granted permission to a person to take delivery of goods upon the giving of security or undertaking, the duty is not payable if:

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the provisions of the regulations are complied with; and

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the goods are either exported from Australia within the relevant time period or one or more of the circumstances or conditions that will be specified in the regulations applies to those goods.

2.22 If both those conditions are met no duty is payable, otherwise, duty will be payable. [Items 21 and 22]

2.23 The amendments to section 162A will mean that duty will not be payable on goods delivered under that section unless:

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the goods have been dealt with in contravention of the regulations; or

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the goods are not exported within the relevant time and none of the circumstances or conditions specified in the regulations apply in relation to the goods. [Items 23 and 24]

2.24 Subsection 171-5(1) of the GST Act provides that GST is not payable on a taxable importation if:

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a security or undertaking described in section 162 of the Customs Act has been given;

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the provisions of the regulations mentioned in paragraph 162(3)(a) of the Customs Act are complied with; and

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the goods are exported within the relevant period.

2.25 Subsection 171-5(1) of the GST Act will be amended to provide that GST will not be payable if the first 2 conditions set out in paragraph 20 are met and the goods are either exported within the relevant period, or one or more of the circumstances or conditions that will be specified in the regulations mentioned in paragraph 162(3)(b) of the Customs Act, apply in relation to the goods. [Item 10]

2.26 Similarly, subsection 171-5(1A) of the GST Act provides that GST is not payable on a taxable importation if:

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a security or undertaking described in section 162A of the Custom Act has been given;

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the goods are not dealt with in contravention of the regulations made for the purposes of section 162A; and

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the goods are exported within the relevant period.

2.27 Subsection 171-5(1A) of the GST Act will be amended to provide that GST will not be payable if the first 2 conditions set out in paragraph 20 are met and the goods are either exported within the relevant period, or one or more of the circumstances or conditions that will be specified in the regulations mentioned in paragraph 162A(5)(b) of the Customs Act apply in relation to the goods. [Item 11]

2.28 Subsections 13-25(1) and (1A) of the LCT Act are being amended in the same way. [Items 16 and 17]

Re-importation of luxury cars and wine

2.29 Goods that would be subject to LCT or WET that are exported before they have passed a taxing point for the LCT or WET can, in some cases, currently be reimported as non-taxable importations and evade the application of LCT or WET. A similar issue arose in respect of the GST Act which was addressed by inserting section 42-10 which limits non-taxable importations for the GST to goods that were acquired by way of a taxable supply or taxable importation where there has been no refund of GST. A similar restriction is necessary under the LCT and WET to ensure that non-taxable importations for re-imported goods are limited to those goods where LCT or WET has been paid and no refund subsequently allowed.

2.30 Item 13 removes the reference to item 17 in Schedule 4 to the Customs Tariff Act from paragraph 7-10(3)(c) in the LCT Act. This item in the Customs Tariff Act provided too broad an exemption that was not appropriate for LCT. The new subsection 7-20(1) reflects the aspects of item 17 that are appropriate for non-taxable importations.

2.31 Item 15 inserts new subsection 7-20(1) in the LCT Act which is similar to section 42-10 of the GST Act and ensures that the re-importation of a luxury car is a non-taxable re-importation only if the importer manufactured the car or acquired the car through a taxable supply or taxable importation. The car must be returned to Australia in an unaltered state.

2.32 Paragraph 20 deals with the application of GST to re-imported goods that were owned by the importer prior to 1 July 2000. The same issue is relevant for cars owned prior to 1 July 2000 that are exported by the owner and re-imported in an unaltered state. Without a particular provision these cars may be subject to LCT even though the owner previously paid WST.

2.33 Item 15 inserts new subsection 7-20(2) in the LCT Act to ensure that the re-importation of a car acquired before 1 July 2000 will be a non-taxable re-importation where it is re-imported in an unaltered state by the person who owned the car prior to 1 July 2000. Item 14 amends subsection 7-10(3) of the LCT Act to provide than an importation is not taxable if it is a non-taxable re-importation. Item 18 inserts a definition of non-taxable re-importation in section 27-1.

2.34 Item 19 removes the reference to item 17 in Schedule 4 to the Customs Tariff Actfrom section 7-15 in the WET Act. This item in the Customs Tariff Act provided too broad an exemption that was not appropriate for WET. The new subsection 7-25(1) reflects the aspects of item 17 that are appropriate for non-taxable importations.

2.35 Item 20 inserts new subsection 7-25(1) in the WET Act which is similar to section 42-10 of the GST Act and ensures that the re-importation of wine is not taxable only if the importer manufactured the wine or acquired or imported the wine through a taxable dealing. The wine must be returned to Australia in an unaltered state and the importer must not have claimed or be entitled to claim a refund of WET through the tourist refund scheme.

2.36 Paragraph 20 deals with the application of GST to re-imported goods that were owned by the importer prior to 1 July 2000. The same issue is relevant for wine owned prior to 1 July 2000 that is exported by the owner and re-imported in an unaltered state. Without a particular provision wine imported in these circumstances may be subject to WET even though the owner previously paid WST.

2.37 Item 20 inserts new subsection 7-25(2) in the WET Act to ensure that the re-importation of wine acquired before 1 July 2000 will not be taxable where it is re-imported in an unaltered state by the person who owned the wine prior to 1 July 2000. The importer must also not have claimed or be entitled to claim a WET refund through the tourist refund scheme.

Application and transitional provisions

2.38 The temporary import amendments will apply to any goods imported on or after 1 July 2000. The measures relating to conversion rates for transport and insurance [items 1 and 8] apply to importations into Australia on or after the date the Bill is introduced into the House of Representatives. The other measures apply to importations into Australia on or after 1 July 2000. [Item 25]