Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon. J.S. Dawkins, M.P.)Chapter 6
Assessable Goods
A. Introduction
6.1 This chapter describes the class of goods that can be taxable. They are referred to as assessable goods. The chapter also describes the classes of goods that are not taxable. Assessable goods are dealt with in Part 2 of the Sales Tax Assessment Bill 1992.
B. Explanation and Commentary
6.2 The general framework of the new legislation is that assessable goods which are the subject of an assessable dealing will be taxable, unless an exemption applies. Assessable goods are the only goods which are taxable.
6.3 Assessable goods: These are defined as goods which either have been manufactured in Australia ( Australian goods or which have been imported ( imported goods , but do not include goods which have been applied to own use in Australia ( Australian-used goods . [clause 5, definition of 'assessable goods']
6.4 Australian-used goods: These are goods which have been applied to a person's own use in Australia. They can either be Australian goods or imported goods. They are the main class of goods which are not taxable, because they have passed the last taxing point for goods i.e. application to own use.
6.5 Australian-used goods - imported containers: There will be one case where goods will become Australian-used goods without first being assessable goods. This will happen with containers which are imported with contents in them. Under the new rules for containers, all containers will be taken to be applied to own use at the time that goods are first put into them. If the contents are exclusively assessable goods (and certain other conditions are satisfied), the container will be exempt from tax but its value will be included in the taxable value of the assessable goods when they are the subject of an assessable dealing. In the case of containers packed overseas, there would be some doubt about when the goods would be taken to be applied to own use in Australia. To remove that doubt, containers imported with contents in them will be taken to be Australian-used goods at the time of their importation.
6.6 Australian-used goods - special features: As a general rule, once assessable goods are applied to own use and become Australian-used goods, they will never again be assessable goods. There are two exceptions to this rule:
- Exception 1: Australian-used goods which are taken or sent out of Australia for alteration and are subsequently imported (after being altered outside Australia). When the goods are returned to Australia any application to own use of the goods before they left Australia is to be ignored. This means that they will once again be assessable goods. However, the goods will only be taxed on the value of the alteration. 'Alteration' will be defined to include any repair, renovation or upgrading.
-
Reason:
While Australian-used goods that are altered in Australia are not taxable, the materials used in the alteration are taxable. The purpose of the exception is to apply broadly the same tax treatment to goods altered in Australia and those which are sent out of Australia for alteration.
Note:This exception will make two changes to the existing law. First it will apply to both Australian-used and imported goods which are sent out of Australia. The existing law applies only to imported goods which are sent out of the country. Second the exception will extend to any goods sent overseas for any alteration (including repair, renovation or upgrading), whereas the existing law applies only to goods sent overseas for repair. [clause 5, definition of 'Australian-used goods' and clause 9]
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Exception 2:
Australian-used goods imported into Australia after previously having been exported, where:
- (i)
- the first application to own use of the goods was the grant of a lease; and
- (ii)
- the application to own use (AOU) was an assessable dealing which was exempted from tax by the special exemption for goods exported by the lessee.
- If this happens, the goods will once again be treated as assessable goods. [clause 5, definition of 'Australian-used goods' and clause 10 ]
- Reason: Under the new law, the granting of a lease is to be treated as an application to own use of the goods (referred to as a lease AOU and, therefore, in certain circumstances, an assessable dealing which will be taxable unless an exemption applies. Also under the new law, there will be an exemption for a lease AOU if the lessee has the intention of exporting the goods before using them. If the lease of the goods is exempted from tax by reason of the export exemption (or, if tax has been paid, and the lessor subsequently becomes entitled to a credit by reason of the lessee's export of the goods), no tax will be payable on the goods. Without the exception, if the leased goods were to be subsequently brought back to Australia, they would be Australian-used goods and not taxable. This would not be the correct result, particularly if the goods were only out of Australia for a short period. [clause 32 and CR19]
6.7 Definition of 'goods': Goods are defined to mean any form of tangible personal property (which would include things such as gases and electricity). There is one class of goods that is excluded from the definition:
-
Exclusion:
Property that is:
- (i)
- sold as second hand; and
- (ii)
- is manufactured principally from Australian-used goods which, as parts of the property, retain their character as such. Unlike 'Australian goods', which must be manufactured in Australia, manufacture in this context can occur anywhere in the world. [clause 5, definition of 'goods']
6.8 Definition of goods: application to newspaper inserts: Inserts to news-papers, magazines and certain other printed matter will be specifically treated as separate goods from the goods into which they are inserted. The purpose of the separation is to clearly distinguish the inserts, which are usually taxable, from the newspapers, magazines etc., which are usually exempt. The result will be that the inserts generally will be taxable while the newspaper etc. into which they are inserted generally will be exempt. [clause 5, definition of 'goods' and clause 12]
6.9 Summary of defined terms: Table 6A summarises the definitions of the key terms used in this chapter.
| TERM | MEANING |
|---|---|
| 1. Goods | Any tangible personal property, excluding second hand re-manufactured goods. |
| 2. Australian goods | Goods manufactured in Australia, excluding imported goods. |
| 3. Imported goods | Any goods imported into Australia, including goods that were manufactured in Australia and exported. |
| 4. Assessable goods | Australian goods and imported goods that are not Australian-used goods. |
| 5. Australian-used goods | Assessable goods that have been applied to own use in Australia (note: exceptions apply). |
C. Summary of Main Changes
6.10 The main changes to the existing law proposed by the measures discussed in this chapter are summarised below.
| CHANGE | REASON |
|---|---|
| 1. 'Application to own use' will replace 'gone into use or consumption' as the point at which goods will cease to be taxable. | Removes the uncertainty of having two very similar concepts in the law serving similar purposes. |
| 2. Containers imported with contents in them will not be assessable goods. | Consequential upon new rule that containers will be applied to own use when contents are put in them. |
| 3. The rules taxing imported goods sent overseas for repair, and re-imported, will be extended to include:
|
|
| 4. Assessable goods will include leased goods exempted from tax because they were exported, and which are brought back to Australia. | All assessable goods exempted from tax because they are exported will be liable to tax if they are returned to Australia. |
D. Transitional Arrangements
6.11 The Sales Tax Amendment (Transitional) Bill 1992 sets out the transitional arrangements that will apply to the new law. These arrangements are discussed in full in Chapter 23. They include provisions of general application as well as special provisions applicable to particular elements. There will be a special transitional provision in the Bill for Australian used goods.
6.12 Australian used goods: As mentioned in paragraph 23.7, the new law will be capable of applying to acts and omissions that occur before the first taxing day. Consequently, at the first taxing day, goods can be regarded as Australian-used goods because of an application to own use (as defined in the new law) that occurred before the first taxing day. However, if those goods have not been regarded as applied to own use (or have not gone into use or consumption) as defined in the existing law, then they will not be taxable under either the new law or the existing law.
6.13 To overcome this problem, a special transitional provision will apply to treat, as assessable goods, goods which were applied to own use (as defined in the new law) before the first taxing day. This rule will apply unless:
- •
- tax was imposed on the AOU under the existing law; or
- •
- tax would have been imposed on the AOU except that it was exempted under the Sales Tax (Exemptions and Classifications) Act 1935 or because the applier could not be taxed for any reason.
There will be one exception to this rule. Any packing AOU that occurred before the first taxing day will result in the container being Australian-used goods on the first taxing day. There will be no tax payable on that packing AOU. However, the normal taxable value rules will apply if any of the contents are assessable goods that are the subject of a later assessable dealing. In that case, the taxable value of the contents will include the value of the container.
Example:
Goods (as defined in the existing law) are packed into a container before the first taxing day and the goods, and their container, are sold by wholesale after the first taxing day. At the time of the sale the contents are assessable goods.
Result: The container will be treated as Australian-used goods on the first taxing day. When the contents are sold by wholesale, the taxable value of the contents will include the value of the container. [Clause 6 of the Sales Tax Amendment (Transitional) Bill 1992]
