Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 1 - Exemption for space objects
Overview
1.1 The amendments in Schedule 1 will provide a sales tax exemption for certain items of space equipment. Schedule 1 also contains amendments to exempt from sales tax goods imported into Australia by certain non-Australians connected with the Sydney 2000 Sydney 2000 Olympic Games and associated events. Chapter 2 contains an outline of those amendments.
Summary of the Amendments
1.2 These amendments will insert a new exemption item into Chapter 15 (Miscellaneous) of Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992 (the Exemptions and Classifications Act). [Item 2] Under this exemption item, the following types of space equipment will be exempt from sales tax:
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- space launch vehicles which can, or are intended to be able to, carry a payload into or back from outer space;
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- payloads, or other goods, that a launch vehicle is to carry into or back from outer space;
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- goods marketed as or for use as parts for any of the goods above; and
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- goods for use exclusively as raw materials in constructing or repairing space launch vehicles, payloads or other goods to be carried into or back from outer space.
1.3 The exemption will apply to dealings after the date of Royal Assent. [Item 3]
1.4 The amendments will also introduce a new transitional ground into Table 3A of Schedule 1 to the Sales Tax Assessment Act 1992 (the Assessment Act). [Item 1] This transitional credit ground will ensure that taxpayers who are liable to pay sales tax on dealings in relevant goods on or after 23 June 1998 and before these amendments receive Royal Assent will be able to claim a sales tax credit for the amount of tax.
Background to the legislation
1.5 By media release dated 23 June 1998, the Government announced that from that date, satellites, space launch vehicles and other goods intended for launch would be exempt from sales tax.
1.6 The exemption of such equipment from sales tax is intended to:
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- facilitate the establishment of a viable commercial space industry in Australia; and
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- establish access to the expanding world demand for satellite launch facilities.
Explanation of the amendments
1.7 The amendments to the Exemptions and Classifications Act will provide exemption from sales tax for the following goods:
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- space launch vehicles which can, or are intended to be able to, carry a payload into or back from outer space;
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- payloads or other goods intended to be carried into or back from outer space;
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- goods marketed as or for use as parts for any of the goods above; and
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- goods for use exclusively as raw materials in constructing or repairing space launch vehicles, payloads or other goods to be carried into or back from outer space.
1.8 The exemption will be enacted by adding a new item, item 196, to Schedule 1 to the Exemptions and Classifications Act. [Item 2]
1.9 To qualify for exemption under new item 196 , it is essential that the goods be either:
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- intended for launch from the earths surface and to proceed towards outer space; or
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- be brought back from outer space.
1.10 The term payload includes satellites and extends to payloads which are not being launched on a commercial basis. Examples of such payloads include loads launched for testing purposes or on a non-profit basis. [Item 2, subitem 196(3)]
1.11 Goods will be considered exempt even if they are only to go some of the way towards or back from outer space. An example of such a good is a fuel tank which is discarded during the launch vehicles ascent into outer space.
1.12 Goods which are connected with the items listed above but which are not themselves intended to be launched will not be covered by the exemption. This is because the exemption only applies to goods which are themselves intended to leave the ground and proceed towards or into outer space or which have been brought back from outer space.
1.13 Examples of goods which will not be covered by this exemption include:
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- goods for use in the construction, maintenance or repair of a space launch vehicle or payload which do not themselves form an integral part of the launch vehicle, payload or other goods intended for launch;
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- goods for use in the land-based transport of payloads or space launch vehicles;
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- launch platforms;
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- goods for use in connection with the storage or housing of payloads or space launch vehicles.
1.14 The exemption will apply to both re-useable and expendable space launch vehicles.
1.15 To qualify for an exemption under this item, it is not necessary that the payload be successfully launched into space or that the launch vehicle successfully reach outer space.
1.16 The amendments to the Assessment Act will introduce a new transitional credit ground, TCR4, into Table 3A of Schedule 1 to that Act. This is to allow relief from sales tax paid on dealings in space equipment which occur on or after 23 June 1998 and before these amendments receive Royal Assent. [Item 1]
1.17 The provision of such relief gives effect to the Governments announcement that from 23 June 1998 satellites, space launch vehicles and associated equipment will not bear sales tax.
1.18 The credit will apply to dealings that:
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- occur on or after 23 June 1998; and
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- would have been exempt if the exemption item for space equipment had been in operation at the time of the dealing.
1.19 The amount of the credit will be the tax borne on the dealing to the extent that the claimant has not passed it on.
1.20 A taxpayers entitlement to a credit will arise on the commencement of these amendments, ie. on receiving Royal Assent.
Application
1.21 The amendments to the Exemptions and Classifications Act will apply to dealings on or after the day on which these amendments receive Royal Assent. [Item 3]
1.22 The amendments to the Assessment Act will apply to dealings which occur on or after 23 June 1998 and before these amendments receive Royal Assent. [Item 1]
Regulation Impact Statement
1.23 The policy objective of this measure is to introduce a sales tax exemption for space launch vehicles, payloads and other goods which are, or are intended to be, launched into outer space.
1.24 The exemption of these goods from sales tax is intended to:
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- facilitate the establishment of a viable commercial space industry in Australia; and
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- establish access to the expanding world demand for satellite launch facilities.
1.25 To give effect to this policy objective it will be necessary to include an additional sales tax exemption item in Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992 .
1.26 This item will operate to exempt the following goods from sales tax:
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- space launch vehicles which can, or are intended to be able to, carry a payload into or back from outer space;
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- payloads and other goods intended to be carried into or brought back from outer space;
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- goods marketed as or for use as parts for any of the goods above; and
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- goods for use exclusively as raw materials in constructing or repairing space launch vehicles, payloads or other goods to be carried into or back from outer space.
1.27 The item will only cover goods which are, or are intended to be, launched into, or which have been brought back from, outer space.
1.28 By joint media release dated 23 June 1998, the Treasurer and the Minister for Industry, Science and Tourism announced that the exemption would apply from 23 June 1998.
1.29 Under the sales tax legislation, it is ineffectual to make a sales tax exemption retrospective. The reason is that until an exemption item becomes law, taxpayers must pay tax on any taxable transactions.
1.30 In order to give effect to the joint media release of the Treasurer and the Minister for Industry, Science and Tourism, it will be necessary to rely on a legislative mechanism which allows relief from sales tax for dealings in space equipment which occur on or after 23 June 1998 but before the date of Royal Assent.
1.31 The inclusion of a new transitional credit ground in Table 3A of Schedule 1 to the Sales Tax Assessment Act 1992 will provide such relief.
1.32 This credit will apply to dealings that:
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- occur on or after 23 June 1998, the date of the joint media release, and before the date of Royal Assent; and
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- would have been exempt if the exemption item for space equipment had been in force at the time of the dealing.
1.33 The amount of the credit will be the amount of sales tax borne to the extent that the claimant has not passed it on.
1.34 The time the credit arises will be on the commencement of the amending legislation, ie. the date of Royal Assent.
1.35 The groups most likely to be affected by this option are:
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- space industry participants; and
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- the Government.
1.36 Within government the groups most likely to be affected are:
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- the Federal Government, through a loss to the general revenue;
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- the Australian Taxation Office (ATO), which will have to administer the exemption and the transitional credit ground; and
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- the Australian Customs Service (ACS), which collects sales tax on relevant goods at the point of importation.
1.37 Entities conducting space launch operations within Australia are likely to deal with a mixture of exempt and non-exempt equipment. It is likely that they would need to verify whether particular goods can be considered exempt under the proposed exemption item. This is likely to result in low compliance costs for such entities.
1.38 Limited costs may also be incurred by entities claiming a sales tax credit on the basis of the proposed transitional credit ground.
1.39 The revenue loss resulting from the exemption of space launch and related equipment is unquantifiable at present. However the sales tax that would otherwise be payable on importing a launch vehicle would be about $60 million.
1.40 Administering the exemption is unlikely to attract further ongoing costs for the ATO, as administrative requirements will be similar to those applying to current exemption items.
1.41 Administration of the transitional credit ground may result in a negligible increase in the ATOs administrative costs.
1.42 The space launch industry will enjoy the benefit of not having to pay sales tax on space launch vehicles, payloads and associated equipment.
1.43 The transitional credit ground also provides the industry with a straightforward means of ensuring that dealings in these goods which take place during the period from 23 June 1998 to the date the exemption commences do not bear sales tax.
1.44 The exemption and transitional credit should be straightforward to administer because they are consistent with the current legislative framework and administrative practice for sales tax exemptions.
1.45 This measure has been developed in consultation with commercial launch operators and Australian satellite manufacturers and operators.
1.46 The proposed amendments will implement the sales tax exemption for space launch and related equipment foreshadowed by the Government in its announcement of 23 June 1998.
1.47 The amendments will ensure that the exemption operates from the date of Royal Assent, the earliest practicable date. Furthermore, they will provide a straightforward and effective mechanism to ensure that any dealings in space launch and related equipment between 23 June 1998 and Royal Assent do not bear tax.