Senate

Explanatory Memorandum

(Circulated by the authority of the Treasurer the Hon Ralph Willis, M.P.)

CHAPTER 13 - SALES TAX - CHILD CARE CONCESSIONS

Overview

13.1 The Bill contains two measures in respect of the sales tax exemption for child care services. The first will limit the existing exemption with regard to luxury motor vehicles and the second will be a new credit ground.

Summary of the amendments

Limitation of exemption for luxury motor vehicles for exempt child care bodies

Purpose of the amendments

13.2 To limit the value of the exemption for luxury motor vehicles for use mainly in providing certain child care services. The portion of the taxable value of the vehicle below the luxury vehicle threshold will still be exempt, but tax will be paid on the balance of the taxable value at the rate of 45%. [Paragraph (a) of clause 121]

Date of effect

13.3 The amendments will apply from 1 July 1994 (the day after the date of introduction of the Bill into Parliament). [Subclause 2(4) and clauses 125 and 128] .

Credit for exempt child care bodies

Purpose of the amendments

13.4 There will be a credit for tax paid by certain exempt child care bodies before they became eligible for exemption. The credit will apply to child care bodies which are providing care for the first time and which have borne the tax within a year before becoming exempt. [Paragraph (b) of clause 121]

Date of effect

13.5 The amendment will apply to dealings after 23 December 1993. [Clause 124]

Background to the legislation

13.6 Since 24 December 1993, exempt child care bodies have been entitled to sales tax exemption for certain goods under Item 144A of Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992 (E & C Act).

13.7 Under Item 144A, an exempt child care body can currently purchase or lease a motor vehicle, including a luxury motor vehicle, free of sales tax if it will be used in providing the specified child care services.

13.8 Luxury motor vehicles, in this context, are motor cars and station wagons with a taxable value above 67.1% of the motor vehicle depreciation limit set by section 57AF of the Income Tax Assessment Act 1936 (referred to here as the luxury vehicle threshold). For the financial year commencing on 1 July 1994, luxury vehicles have a taxable value over $34,403.

13.9 A child care body only qualifies for sales tax exemption if it is eligible to receive child care funding from the Commonwealth or a State or Territory government, or if it has been approved by the Minister for Family Services for sales tax purposes (section 3B E & C Act). In practice, most child care bodies rely on eligibility for government funding to establish that they are entitled to exemption.

13.10 In many cases, a child care body is only eligible for government funding, and sales tax exemption, after a child care centre run by the body has been licensed by a State or Territory government. The licence is not granted until the centre has been fully fitted out and is ready to begin operating. Consequently, there is no exemption for the equipment acquired before the centre is licensed, although these goods are for use in the provision of child care.

Explanation of amendments

Luxury motor vehicles

13.11 There are two amendments in relation to luxury motor vehicles for child care bodies. The combined effect of both amendments will be that most luxury motor vehicles purchased or leased by exempt child care bodies will be taxable, but that the part of the taxable value of a vehicle up to and including the luxury threshold will be exempt. The rate of tax on the taxable value of the vehicle over the luxury threshold will be 45%.

13.12 The first of these amendments will amend Item 144A in Schedule 1 to the E & C Act to exclude most luxury motor cars and station wagons from the exemption for exempt child care bodies.

13.13 Some luxury vehicles, however, will still be exempt. These are vehicles which are specially equipped to carry disabled people in wheelchairs and which are not covered by subitem (1) of either Item 96 or 97 in Schedule 1 to the E & C Act. Items 96 and 97 apply to motor vehicles for certain disabled people. The exclusion for goods covered by these Items is necessary to prevent persons who could claim exemption under either Item 96, 97 or 144A from using Item 144A to by-pass the exclusions to Items 96 and 97. [Clause 127]

13.14 The other amendment is to section 49 of the Sales Tax Assessment Act 1992 (Assessment Act). It is this amendment which will exempt from tax the taxable value of the luxury vehicle up to and including the luxury threshold. Section 49 already has this effect with regard to motor vehicles excluded from Items 96 and 97 because they are over the luxury vehicle threshold. The operation of section 49 will be extended to luxury motor vehicles for exempt child care bodies. [Clause123]

13.15 These two amendments will apply from the day after the date of introduction of this Bill into the Parliament. [Subclauses 2(4) and clauses 125 and 128]

13.16 A new credit ground, CR20A, will be inserted into Table 3 in Schedule 1 to the Assessment Act to overcome the problem of child care bodies not being entitled to sales tax exemption until they have purchased most of their capital equipment. The credit ground will allow an exempt child care body to claim credits for tax borne on certain goods before the body became eligible for exemption. [Clause 124]

13.17 The credit will only apply to exempt child care bodies whose principal function is the provision of either long day care, outside school hours care, vacation care and/or occasional care. It will not extend to family day care co-ordination units.

13.18 There are four conditions which will have to be satisfied before the entitlement to the credit will arise:

•

the claimant qualified for sales tax exemption (became eligible for government funding or was approved by the Minister for Family Services) within 3 months of starting to provide the relevant kinds of child care (long day care, outside school hours care, vacation care and/or occasional care). This is to restrict access to the credit to child care bodies which are opening child care centres for the first time;

•

the dealing for which the credit is claimed took place after 23December 1993;

•

the dealing occurred up to 12 months before the child care body became exempt. For many child care bodies, this will be the period when a child care centre is being fitted-out, before it is licensed and opened for business; and

•

the goods the subject of the credit claim would have been exempt under Item 144A if the child care body had been an exempt child care body at the time of the dealing. These are goods which are for use mainly in providing long day care, outside school hours care, vacation care and/or occasional care.

13.19 The amount of the credit will be the tax borne on the relevant dealings. The time for payment of the credit will be after the claimant has become an exempt child care body.

13.20 The credit ground comes into effect on the date the Bill receives Royal Assent, but applies to dealings after 23 December 1993. [Subclause2(1) and clause 124]