House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon. J.S. Dawkins, M.P.)

Quoting - General

A. Introduction

14.1 This chapter describes the general rules relating to quoting. The matters discussed in this chapter are dealt with in Part 7 of the Sales Tax Assessment Bill 1992. The grounds upon which a quote can be made are set out in Chapter 15.

14.2 Chapter 8, Exemptions, should be read before commencing this chapter.

B. Explanation and Commentary

What is quoting?

14.3 Quoting is a mechanism to relieve or defer tax on goods to a later assessable dealing, or to give effect to a complete exemption from tax for those goods. Quoting can have different effects, depending upon the circumstances:

(i)

a quote will allow an exemption on an assessable dealing;

(ii)

a quote will allow a vendor of goods who has already borne tax on those goods to sell them for a tax-exclusive price - the vendor would then be entitled to a refund from the Commissioner of the tax excluded from the sale price;

(iii)

a quote, or an entitlement to quote, will be a key pre-condition to several of the grounds for credits under the new law;

(iv)

a quote will impose a liability to tax on the quoter for any retail sale or application to own use of those goods (as assessable dealings with goods obtained under quote - ADs 2b, 3c, 12b and 13c), unless an exemption applies to that later dealing.

When will quoting be allowed?

14.4 Broadly, there will be four conditions governing when, and if, a person can quote, all of which must be satisfied:

Condition 1: A person can only quote for a sale or delivery of customer's materials goods, or a customs dealing (i.e. local entry or removal from a customs clearance area);

Note:

Quoting will not be available for an application to own use (because there would be no-one to quote to).

Condition 2: The quoter must be:

(i)

in the case of a sale - the purchaser;

(ii)

in the case of a delivery of customer's materials goods - the customer and not the deliveree, if a different person);

(iii)

in the case of a customs dealing - the person who makes the local entry or removes the goods from the customs clearance area

Condition 3: The quote must be made at or before the time of the dealing, and in the form and manner approved by the Commissioner;

Condition 4: The quoter must intend to satisfy one of the specified grounds for exemption applicable to the quoter's type of quote. Alternatively, the quoter makes the quote in special circumstances authorised by the Commissioner.

Types of quoting

14.5 There will be two types of quoting:

(i)

quote of a registration number by a registered person; and

(ii)

quote of an exemption declaration by an unregistered person. [clause 5, definition of 'quote']

14.6 Different rules and different quoting grounds will apply for each type of quote.

Quoting a registration number

14.7 As described in Chapter 13, each registered person will be allocated, on registration, their own separate registration number by the Commissioner of Taxation. The quote of a registration number will be essentially no more than that: the quoter will notify the other party to a dealing that the quoter is the holder of a particular registration number (which they will cite), and that the number is being quoted in respect of the particular dealing. [subclause 86(1)]

The grounds for quoting a registration number are set out in Chapter 15.

14.8 Quoting a registration number not compulsory: Under the new law, quoting a registration number will be optional. Registered persons entitled to quote their registration number may choose not to quote. This represents a change from the existing law, under which quoting is compulsory for registered persons. The reason for the change is that there is insufficient reason to continue to impose an offence of failure to quote. Optional quoting is linked to optional registration (see Chapter 13).

Quoting an exemption declaration

14.9 An exemption declaration will be a written statement given by a party to a dealing declaring that the giver (i.e. the quoter) intends to satisfy one of the quoting grounds set out in the law for exemption declarations. [clause 5, definition of 'exemption declaration' and subclause 86(1)]

The grounds for quoting an exemption declaration are set out in Chapter 15.

Restrictions on quoting

14.10 A registered person will not be entitled to quote an exemption declaration. An unregistered person will not be entitled to quote a registration number. [clause 87]

Effects of incorrect quoting

14.11 There are a number of situations in which a person may incorrectly quote. These are:

(i)

a registered person quotes an exemption declaration;

(ii)

an unregistered person purports to quote a registration number;

(iii)

a person quotes, but there is no entitlement to quote;

(iv)

a person quotes other than in accordance with the form and manner approved by the Commissioner (or the quote occurs after the dealing time);

(v)

a person makes a quote that is false or misleading.

14.12 The effects of a quote in any of these circumstances are:

(i)

the person will be treated as having acquired the goods under quote. Consequently, any sale or AOU by the quoter with the goods will be an assessable dealing; [paragraph 88(a)]

(ii)

if the supply of goods is an assessable dealing, the person receiving the quote (the supplier) will not be liable to tax. However, the supplier will not be exempted from liability if the supplier had reasonable grounds for believing that the quote was ineffective; [paragraph 88(b) and clause 89]

Note:

If the quote was made to a supplier of tax-paid goods, the supplier will be entitled to a credit for any tax excluded from the sale price as a result of the quote, unless the supplier had reasonable grounds for believing that the quote was ineffective. [CR8 and clause 89]

(iii)

if the supplier had reasonable grounds. or believing that the quote has been incorrectly made the quote will not exempt the supplier from liability on the dealing. Alternatively, if the supply of goods is from tax-paid stock (and is not an assessable dealing), the supplier will not be entitled to a credit on the supply; [clause 89]

Note:

In this case, a supplier may still be entitled to a credit if the supplier can establish that the quote was in fact a fully effective quote (i.e. a quote that is effective without the assistance of clause 88). [CR3]

(iv)

in any case where a person incorrectly quotes, they will also be guilty of an offence of improper quoting. [clause 91]

14.13 Reasonable grounds: A quote will not be effective if the person receiving the quote has reasonable grounds for believing any of the things set out in paragraph 4.11. This is an objective test. The only relevant consideration is whether or not there are reasonable grounds for the quotee to believe that the quote is improperly made. This means that the provision may apply even where the quote has in fact been made correctly. If that happens the person receiving the quote will be entitled to a credit for any tax paid, but excluded from the sale price on the strength of the quote. [CR3]

Example:

Reasonable grounds exist for believing that a quote is improperly made. Despite being fully aware of these grounds and believing the quote to be made improperly, a person accepts the quote. However, contrary to the person's belief, the quote was properly made. The quote will nevertheless be ineffective (although the quotee will be entitled to a credit under Credit Ground 3). [clause 89]

C. Summary of Main Changes

14.14 The main changes proposed to the existing law which are discussed in this chapter are:

D. Transitional Arrangements

14.15 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 for references in the new law to goods obtained under quote.

14.16 Goods obtained under quote: A key concept of the new law is 'obtaining goods under quote'. It is an element of several assessable dealings and of several credit grounds. The term is defined in the new law to mean a quote of:

•

an exemption number by a registered person; or

•

an exemption declaration by an unregistered person.

'Exemption number' and 'exemption declaration' are new concepts. In the existing law, the equivalent concept to quoting an exemption number is the quoting of a certificate of registration. There is no equivalent, in the existing law, to the quotation of an exemption declaration, although there are administrative arrangements in place which are broadly similar.

14.17 In the absence of a special provision, a person who obtained goods before the first taxing day by quoting a certificate of registration would not be taken to have obtained the goods under quote for the purposes of the new law. As a consequence, a sale or application to own use of those goods after the first taxing day would not be taxable under either the new or the existing law. In order to prevent this from happening, there will be a special provision in the new law which will treat goods obtained under quote of a certificate of registration under the existing law as obtained under quote for all purposes of the new law.

Example:

Company X purchases goods before the first taxing day and quotes its certificate of registration. After the first taxing day, X sells the goods by retail.

Result: The retail sale of the goods will be an assessable dealing by X (a retail sale of goods obtained under quote - AD2b).