Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 4 - Credit entitlement
Overview
4.1 Item 3 of Schedule 1 to the Sales Tax Assessment Amendment Bill 1997 will amend the Sales Tax Assessment Act 1992 (the Act) to limit the amount of sales tax credit which is available for alcoholic beverages subject to the increase in the rate of sales tax.
Summary of the amendments
4.2 The Act provides for sales tax credits in certain circumstances. The amendments to the Act will limit the entitlement to a credit so that a credit is not available for the additional 15% sales tax paid on alcoholic beverages.
4.3 The amendments will apply from 6 August 1997.
Background to the legislation
4.4 Part 4 of the Act provides that a person may obtain a credit for sales tax paid in certain circumstances. The increase in the rate of sales tax on alcoholic beverages is to protect States and Territories from potential lost revenue because of liquor franchise fees possibly being invalid under section 90 of the Constitution. Under the arrangements with the States and Territories, the Commonwealth will pass on the additional sales tax collected to the States and Territories. If a person is entitled to a credit under the sales tax law, they may seek that credit from the Commonwealth. However, the Commonwealth will have passed that revenue on to the States and Territories.
Explanation of the amendments
4.5 The Act is to be amended to limit the amount of credit which can be claimed in respect of alcoholic beverages subject to the 15 percentage point increase in the rate of sales tax. The credit limit will be determined using the formula:
Amount of credit x Rate of tax (excluding the 15%)/Rate of tax payable on the goods
In effect, a credit will not be available for the additional 15% sales tax paid on alcoholic beverages. [Item 3 of Schedule 1 - new section 58A]
Example
Assume a person seeks a sales tax credit for $410 which relates to the full amount of sales tax paid on wine. The person's credit entitlement will be limited to $260 (i.e., $410 x 26%/41%).