House of Representatives

Explanatory Memorandum

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

ERRATUM ADVICE

BROAD FRAMEWORK OF SALES TAX LAW

The following broad framework of the sales tax law is provided to assist in an understanding of the changes being made by this package of 6 Bills.

Sales tax is a single stage tax levied on goods. In general, it is designed to fall at the wholesale level, but is payable by manufacturers and importers, as well as by wholesalers, the tax in each case being based on a sale value equivalent to the wholesale value of the goods. The overall intention is that goods that are produced in, or imported into, Australia for use or consumption here will bear the tax unless they are specifically exempted from it. Second-hand goods that have been used in Australia are not ordinarily taxed, but imported goods that have been used overseas are normally taxable on a basis corresponding with that applicable to new goods.

The levy is not limited to sales. Where goods have not already borne tax it could, for example, fall on leases of those goods or on the application of those goods to a taxpayer's own use. It may also fall on importations of goods where they are not imported for sale by a wholesaler, e.g., where they are imported by retailers or consumers.

Manufacturers and wholesalers are required to register with the Taxation Office, unless they deal only in exempt goods. When registered they are issued with a certificate of registration and by quoting the certificate number when purchasing or importing goods they can acquire the goods free of tax. The system of quoting certificates is designed to defer payment of the tax until the last wholesale sale.

Registered manufacturers and wholesale merchants are required to furnish monthly returns of their transactions to the Taxation Office. The tax is basically a self-assessment one and persons furnishing returns are required to calculate the tax payable on transactions for the month, and to forward payment of tax with each return. Importers are required to pay tax when clearing goods through Customs unless they are registered persons who quote their certificates for the goods.

Reflecting the fact that sales taxpayers are obliged to pay tax to the Taxation Office in this way they, in turn, when selling goods to a retailer or other customer, charge to the customer an amount equal to the tax that they are liable to remit when forwarding a sales tax return for the month. In that way the tax is passed on to the consumer.

The sales tax legislation is contained in a number of separate Acts. There are presently nine Sales Tax Acts that specify the rates at which tax is payable and each Sales Tax Act has a complementary Sales Tax Assessment Act providing the machinery for assessment, collection and administration of the tax imposed by the related Sales Tax Act. The subjects of taxation and the various Assessment Acts and Rates Acts are set out in the following table -

A further Act, the Sales Tax (Exemptions and Classifications) Act, contains a First Schedule that lists the classes of goods that are exempt from tax and specifies the circumstances in which that exemption applies. Further Schedules list the classes of goods that are taxable at specified rates. Goods not listed in any of the Schedules are taxable at what is called the general rate - currently 20%. Exemptions from tax set out in this Act extend to otherwise taxable goods that are for use by specified organisations or in particular industries or production processes.

GENERAL OUTLINE

Sales Tax Laws Amendment Bill 1985

This Bill will amend the Sales Tax Assessment Acts (Nos. 1 to 9) 1930 and the Sales Tax Procedure Act 1934 and make consequential amendments of several other Acts:

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to counter sales tax avoidance arrangements under which a wholesaler sells goods by retail under an agency arrangement or from the premises of a retailer;

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to strengthen the sales tax registration procedures by increasing to $25,000 the maximum amount of security that the Commissioner may, where the revenue is at risk, require from a registered person or a person required to be registered;

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to authorise the Commissioner to refuse or revoke a sales tax registration where the application for registration is false or misleading;

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to authorise the Commissioner to prohibit a registered person for a specified period from quoting that person's sales tax certificate where the Commissioner has reason to believe that the quotation procedures have been used by the person to defeat the various Commonwealth sales tax laws;

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to provide -

•.

where a vendor of goods has reasonable grounds for believing that a purchaser's quotation of a sales tax certificate is not bona fide; and

•.

the vendor nevertheless sells the goods sales "tax-free",

that the vendor will be liable to pay the tax;

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to allow a Collector of Customs to retain goods until sales tax is paid, in circumstances where the Collector has reasonable grounds to believe that a quotation of a sales tax certificate in respect of the goods is not bona fide;

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to bring the provisions relating to returns and payment of sales tax on imported goods into line with the customs law and procedures by applying the rate of tax applicable at the time the goods are entered for home consumption under the customs law (proposal announced by former Treasurer on 20 August 1981);

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to amend the definition of "manufacture" to remove a possible unintended result with effect in relation to goods the manufacture of which commenced after 20 August 1981 (date of former Treasurer's announcement of this proposal);

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to authorise the Commissioner to cancel a sales tax registration where the registered person is no longer carrying on a manufacturing or wholesale business (proposal announced by former Treasurer on 20 August 1981);

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to provide a cut-off date of 20 August 1981 (date of former Treasurer's announcement of this proposal) to the operation of the transitional provisions applicable to certain anti-tax avoidance amendments made in 1978; and

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to extend the present information gathering power to include a power of access to, and the right to examine and to take samples of, goods (proposal announced by former Treasurer on 20 August 1981).

Sales Tax (No. 5) Amendment Bill 1985

This Bill will:

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formally impose sales tax on imported goods at the rate in force at the time when the goods are entered for home consumption; and

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declare the rates of tax on such goods to be the rates currently specified in the law.

Sales Tax Assessment Bill (No. 10) 1985

This Bill will:

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ensure, where the sales tax law does not bring a royalty in respect of goods into the sales tax base, that sales tax will be payable by the person who actually pays the royalty (proposal announced by former Treasurer on 6 January 1982); and

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provide the machinery for assessment, collection and administration of the tax on royalties imposed by the three related taxing Bills.

Sales Tax Bill (No. 10A) 1985

This Bill will:

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formally impose the sales tax, being a duty of excise, payable under the Sales Tax Assessment Bill (No. 10) 1985 on the amount of royalty paid or payable in respect of goods; and

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declare the rates of tax on such royalty to be the rates of tax applicable to the goods in respect of which the royalty is paid or payable.

Sales Tax Bill (No. 10B) 1985

This Bill will:

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formally impose the sales tax, being a duty of customs, payable under the Sales Tax Assessment Bill (No. 10) 1985 on the amount of royalty paid or payable in respect of goods; and

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declare the rates of tax on such royalty to be the rates of tax applicable to the goods in respect of which the royalty is paid or payable.

Sales Tax Bill (No. 10C) 1985

This Bill will:

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formally impose the sales tax, being neither a duty of excise nor a duty of customs, payable under the Sales Tax Assessment Bill (No. 10) 1985 on the amount of royalty payable in respect of goods; and

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declare the rates of tax on such royalty to be the rates of tax applicable to the goods in respect of which the royalty is paid or payable.

FINANCIAL IMPACT

The proposed legislation will:

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curtail certain sales tax evasion practices (presently estimated as costing the revenue up to $200m annually) that have developed by the misuse of the procedure whereby a registered person may purchase goods sales tax free by quoting a sales tax certificate number;

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ensure that wholesalers who technically become retailers under agency or similar retail selling arrangements thereby avoiding sales tax on their wholesale profit margins and any royalties payable in respect of their goods, pay sales tax at a fair wholesale market value of goods sold under such arrangements (estimated to involve revenue of at least $200m annually);

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enable the Commissioner to recover up to $1m in sales tax avoided by manufacturers who, since 20 August 1981 (date of former Treasurer's announcement), have sought to take advantage of a weakness in the present definition of "manufacture";

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put an end to avoidance schemes under which royalties payable in respect of goods are excluded from the sale value of the goods. The cost to the revenue in relation to goods sold under arrangements other than indirect marketing arrangements has been approximately $25m and the legislation will prevent indeterminate future revenue losses; and

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provide a cut-off date to the operation of transitional provisions applicable to certain anti-avoidance amendments to prevent further indeterminate loss to the revenue.

MAIN FEATURES

Sales Tax Laws Amendment Bill 1985

Sales Tax (No. 5) Amendment Bill 1985

As indicated above, the Sales Tax Laws Amendment Bill is the main Bill in a package of 6 Bills that is designed primarily to prevent revenue losses from certain sales tax evasion and avoidance practices.

Indirect marketing arrangements (Clause 4)

The sales tax law is structured on the traditional approach to the marketing of goods - a manufacturer/ importer sells either directly to a retailer or to a wholesaler who generally on-sells to a retailer. The sale to the retailer (the taxable sale) is for a price that includes all of the costs incurred by, and the profit margins of, each party in the distribution chain, up to, but not including, the retailer.

Indirect marketing arrangements, however, seek to eliminate the wholesaler's profit margin from the sale value of goods by technically changing the status of the wholesaler for sales tax purposes to that of a retailer.

Under one arrangement - an agency arrangement - the wholesaler appoints the normal retailer as agent with the result that the wholesaler, as principal, technically becomes the retailer. Simply stated, the effect of an agency arrangement is to move back the point in the marketing chain at which the taxable sale takes place, i.e., the taxable sale is the sale to the wholesaler (now the retailer for sales tax purposes). This arrangement eliminates the wholesaler's profit margin from the sale value of the goods sold by retail, and the sales tax payable is accordingly that much lower.

There is another equally artificial retail marketing arrangement that could produce essentially the same sales tax reduction. The wholesaler could acquire an interest in, or obtain permission to use (e.g., lease) a section of a traditional retailer's store from which goods might be sold direct to the public, in fact by the wholesaler, but ostensibly by the retail store operator. Again, the wholesaler technically acquires the mantle of a retailer and the wholesaler's profit margin is not subject to sales tax as it should be.

In practice, indirect marketing arrangements mean that goods can be sold to the public at a considerable savings in sales tax in circumstances where, from the customer's point of view, the purchase of the goods is one at the retail level from a traditional retail store. The savings in sales tax can be reflected, wholly or in part, in a price lower than that at which a competitor's comparable goods are being sold. Those who engage in these arrangements can therefore achieve an unfair competitive advantage in the market-place to the detriment of the revenue and those taxpayers who, on principle, choose not to be a party to such arrangements.

On the other hand, some businesses have for many years and for genuine commercial reasons sold their goods to the public through indirect marketing arrangements such as agency arrangements. Although sales tax reduction is not a motive for these agency sales, the revenue is affected in precisely the same manner and to the same extent.

For this reason it will not be a condition precedent to application of the indirect marketing provisions that a sales tax avoidance purpose be present. Rather, where any person (not being the manufacturer of goods) sells goods by retail under an indirect marketing arrangement after the date of Royal Assent to this Bill, that person will, under the new definition of "Wholesale Merchant", be deemed to be a wholesaler.

Under provisions in the present law, a person deemed to be a wholesaler will have 28 days to become registered with the Commissioner. By this mechanism, the existing sales tax law dealing with retail sales by registered wholesalers will ensure that the wholesale profit margin is brought into the tax base. In the case of a manufacturer of goods who sells those goods directly by retail, the existing law applies to bring into the value on which sales tax is payable the manufacturer's usual wholesale profit margin.

Some changes to the Sales Tax Regulations will be necessary to fully achieve the objective sought and these will be effected on the amendments becoming law.

Quotation of sales tax certificates (Clauses 4,6,7,8,9,10,13,14,16 and 34)

The pivotal feature of the single stage sales tax system is the procedure of quotation of certificate numbers by registered persons (manufacturers and wholesalers) at intermediate points of sale in the marketing chain. The quotation procedure is designed to ensure that sales tax is payable usually on the last wholesale sale of goods and depends for its effectiveness on two requirements. These are:

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that those who are entitled to quote and obtain goods free of sales tax account to the Commissioner for the sales tax they collect when on-selling the goods at tax inclusive prices; and

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that persons who are not entitled to quote do not obtain goods tax-free.

Certain sales tax evasion practices are occurring in circumstances where persons not entitled to quote when purchasing goods are doing so. On the part of vendors of these goods it is more often than not a case of complicity by studied indifference to these false quotations, with the vendors claiming that, under the present law, they need not be concerned about the genuineness of a purchaser's quotation.

A typical evasion of sales tax using this method involves an unregistered person quoting a bogus certificate number, giving a false or fictitious name and address to the vendor and tendering a substantial purchase price in banknotes or by bank cheque. The goods are sold tax-free and the purchaser is not able to be traced. Under the present law there is doubt whether the vendor is liable to make good the evaded sales tax in these circumstances. Sometimes, the number quoted is a genuine certificate number obtained, for a modest payment, from a registered person. In yet other cases, a registered person may quote in circumstances that are not permitted under the sales tax law with the intention of evading sales tax on the goods.

Measures contained in this Bill will strengthen the sales tax registration and quotation procedures in several ways to counter these methods of evasion.

First, the level of security for compliance with the conditions of registration is to be increased to a maximum of $25,000 - the present level of $2,000 was set in 1930. The Commissioner will be authorised to call for security where he considers the revenue is at risk.

Secondly, a power is to be given to the Commissioner to refuse or revoke a sales tax registration where the application for registration was false or misleading, or where security is not provided when required by the Commissioner. The quotation procedures are also to be strengthened by authorising the Commissioner to withdraw permission for a registered person to quote where the Commissioner has reason to believe that the quotation procedures have been abused by the person in the past or that the person has aided or abetted others to abuse those procedures.

The Commissioner is also to be authorised to publish in the Gazette, or to provide vendors with, details of cancelled revoked or withdrawn sales tax certificate numbers. This will, for example, allow the Commissioner to circulate cancelled, revoked or withdrawn certificate numbers to wholesale vendors generally or vendors of particular classes of goods along the lines at present in use by some credit card organisations.

Under arrangements being put in place by this Bill, a vendor will not after the date of Royal Assent be able to rely simply on the fact that a purchaser has quoted a sales tax certificate number in the correct form. Before the vendor will be authorised to sell goods tax free on the basis of the quotation, it will be necessary for the vendor to be satisfied that -

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the purchaser is a registered person;

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the quotation is authorised by law;

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the quotation is not false or misleading; and

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the Commissioner has not notified the certificate number as being one that has been cancelled, revoked or withdrawn.

If a vendor sells goods tax-free and has reasonable grounds to believe that any of the above requirements are not met in respect of the quotation, the vendor will be liable to pay the tax.

It is, of course, quite possible that even though a vendor may have reasonable grounds to doubt the bona fides of a purchaser's quotation, the Commissioner may subsequently be satisfied that the quotation was, in fact, lawful. In these cases, the Commissioner will be able to refund or remit the tax paid or payable by the vendor.

Where the Commissioner makes a decision to refuse or revoke a person's registration, to seek an amount of security from a person or to withdraw a registered person's entitlement to quote, the person affected by the decision will have a right of objection against the decision. A person dissatisfied with the outcome of an objection will, subject to the Administrative Appeals Tribunal Act 1975, be able to make an application to the Administrative Appeals Tribunal for review of the decision.

Definition of "Manufacture" (Clause 4)

By paragraph (b) of the present definition of "manufacture" the combination of parts or ingredients whereby an article or substance is formed that is commercially distinct from those parts or ingredients is specifically brought within the expression. There is, however, an exception to paragraph (b) that excludes any combination of parts or ingredients that it is customary or reasonably practicable for users or consumers to undertake.

This exclusion has been exploited by some manufacturers in an unintended way, thus resulting in a substantial reduction in the sales tax payable on the sale of the finished goods.

One example is a firm that had previously been importing particular articles that were taxable at the highest rate of tax. Arrangements were made to import the articles in unassembled component form instead of fully manufactured. The separate components carried a lower rate of tax as can occur under the existing rate schedules.

The firm then assembled the components in Australia and sold the completed articles to an associated company, claiming that there was no liability to sales tax as a manufacturer of the articles, because the associated company also had employees with the necessary expertise to carry out the assembly of the components and it was therefore reasonably practicable for it to do so.

A re-drafted exception to paragraph (b) of the definition, that will have effect in relation to goods manufactured after 20 August 1981 - the date on which the former Treasurer announced the proposed change in the law - will make it clear that the exception will only apply where the combination of parts or ingredients is of a kind customarily undertaken by persons who ultimately use or enjoy the articles or substances so formed. In this regard, the use or enjoyment of the articles or substances will mean for the purpose for which the articles or substances were formed. The re-drafted exception is designed to ensure that goods derived for commercial purposes from component parts that are purchased unassembled are treated as manufactured goods for sales tax purposes. However, goods that are often sold to the public by way of unassembled components (e.g., children's play equipment, some kinds of furniture, etc) will not treated as being manufactured simply if pre-assembled by the vendor.

Sales Tax on Imported Goods (Clauses 24 to 33 and 35 to 38 inclusive)

The Sales Tax Assessment Act (No. 5) 1930 relates to the imposition and collection of Sales tax on imported goods. Sales tax on imported goods is generally collected by Customs when the goods are entered for home consumption.

At present, the liability for, and rate of, sales tax on imported goods is determined at the date of importation of the goods into Australia, although payment of the tax is not due until the goods are entered for home consumption under the Customs Act. Where a change in the rates of sales tax occurs between the date of importation and the date of entry for home consumption, administrative difficulties arise for Customs.

To overcome these administrative difficulties, this Bill proposes to bring the sales tax provisions into line with the Customs Act so that the rate of sales tax applicable to goods entered for home consumption will be the rate fixed by the Parliament on the date that the goods are so entered. It will also remove an anomalous situation that has arisen in the past when compensating changes are made to the rates of sales tax and the Customs Tariff.

The Operation of Certain Anti-avoidance Amendments (Clauses 11, 12 and 54 to 56 inclusive)

The Sales Tax Assessment (No. 1) Amendment Act 1978 introduced certain anti-avoidance measures including provisions designed to secure payment of sales tax on the full value of goods manufactured for a person out of exempt materials supplied by that person to the manufacturer. Prior to this, tax was payable on the manufacturer's charge only, and thus did not reflect the value of the exempt materials.

Those amendments had effect after 20 September 1978. To avoid any retrospective operation in relation to contracts entered into before that date the amendments were expressed to apply only in respect of goods manufactured under an agreement to manufacture the goods entered into after 20 September 1978. Further, transitional provisions in the amending Act provided that the amendments did not apply to goods that were deemed to have been sold (the manufacturer who did not own the materials was deemed to have sold the manufactured goods to the owner of the materials) after 20 September 1978 under a contract to manufacture the goods entered into before that date.

These provisions can have an effect beyond their intention as transitional provisions. For example, in one particular case under long-standing but unwritten arrangements between two closely associated companies, one company manufactures articles made with timber for the other company out of exempt timber supplied by that other company. These arrangements were operating before 20 September 1978 and are likely to continue indefinitely. There are no fixed contractual prices. These are adjusted from time to time as costs increase. These were the types of manufacturing arrangements that the amendments were aimed at, but because of the transitional provisions, goods manufactured under these arrangements are not caught by the 1978 amendments.

This Bill will provide a cut-off date of 20 August 1981 - date of announcement by former Treasurer of this proposal - to the operation of transitional provisions applicable to the 1978 anti-avoidance amendments, to prevent further losses of revenue.

Information gathering power (Clauses 17 and 59)

Section 71 of the Sales Tax Assessment Act (No. 1) 1930 which applies as appropriate in each of the other Sales Tax Assessment Acts, provides that the Commissioner, or any duly authorised officer, has full and free access to all buildings, places, books, documents and other papers for any purpose of the sales tax law and may make extracts from or copies of any such books, documents or papers.

It is, however, often necessary for the Commissioner or his authorised officers to examine goods to determine the appropriate sales tax classification of them. The most obvious example of the need to have a power of access to, and examination of, goods is at the time of entry of goods at Customs, but it occurs daily in the administration of the sales tax law. This Bill will provide a power of access to goods by ensuring that the Commissioner or his authorised officers are able to examine, remove or take samples of any goods.

The Bill will also remove the necessity for the Commissioner to specify the Assessment Act(s) under which the information gathering power is being exercised before ascertaining the nature of the transactions into which enquiries are being made to ascertain the liability of a taxpayer to tax. The Bill will achieve this by repealing section 71 and inserting a similar but expanded section (proposed section 12E) in the Sales Tax Procedure Act 1934.

Sales Tax Assessment Bill (No.10) 1985

Sales Tax Bill (No. 10A) 1985

Sales Tax Bill (No. 10B) 1985

Sales Tax Bill (No. 10C) 1985

Sales Tax on Royalties

It is a general principle of sales tax to levy tax on wholesale values that reflect all costs attributable to the production, wholesale distribution and sale of goods. To this end, the sales tax law has, since its enactment in 1930, contained a provision designed to include in the taxable sale value of goods all "royalties" paid in connection with the manufacture, purchase, sale, etc. of those goods.

Arrangements have developed, particularly in the recording industry, whereby responsibility for payment of various royalties is assumed by a company that is technically the retailer of the goods. The retailer engages a manufacturer to manufacture goods to order and the retailer sells the goods either by mail order or direct to the public, or through large retail stores under indirect marketing arrangements (see earlier notes).

As sales tax is payable on the sale price (exclusive of royalties) of the goods by the manufacturer to the retailer, royalty costs are, under these arrangements, effectively excluded from the sale value of the goods.

Under the provisions being put in place by this Bill to counter sales tax avoidance through indirect marketing arrangements, royalties paid by a retailer who sells goods under such arrangements will be subject to tax under the present scheme of the sales tax law. However, retailers who continue to sell their goods by mail order or direct to the public, or who arrange for the royalties to be paid by an associated company, would still be able to effectively exclude the royalties from the sale value of the goods.

This Bill (together with 3 associated Taxing Bills) will therefore ensure that, in cases where the present law (as proposed to be amended by clauses 4,5,19,21,23,39,44,47,49 and 53) does not bring any royalties into the sales tax base, the person who actually pays the royalty will have a sales tax liability on the royalty payment.

A new Sales Tax Assessment Act (No. 10) and 3 Taxing Acts are necessary for constitutional reasons, and will apply to royalty payments made after the date of introduction in respect of goods including those that have gone into use and consumption in Australia. This latter inclusion will ensure that the new provisions cannot be circumvented by structuring the royalty arrangements in a way that technically imposes the royalty after the retail sale has taken place. The Assessment Bill contains machinery provisions for the assessment, collection and administration of the new tax. Taxpayers affected by the new Act will be required to be registered with the Commissioner and to pay sales tax on royalty payments under the same rules that now apply to other registered sales taxpayers.

More detailed explanations of the clauses of each of the Bills are contained in the notes that follow.

NOTES ON CLAUSES

SALES TAX LAWS AMENDMENT BILL 1985

PART I - PRELIMINARY

Clause 1: Short title

This clause provides for the amending Act to be cited as the Sales Tax Laws Amendment Act 1985.

Clause 2: Commencement

By reason of sub-section 5(1A) of the Acts Interpretation Act 1901, Acts come into operation on the twenty-eighth day after Royal Assent unless otherwise specified in the Act. Under sub-clause 2(1), the Bill will, subject to the remaining sub-clauses, come into operation on the date of Royal Assent.

By sub-clause 2(2), however, the amendments proposed by clause 3, sub-clause 4(2), clauses 11 and 12 and Part XI are to come into operation on 21 August 1981. Briefly, these amendments concern the revised definition of "manufacture" and the termination of the transitional provisions applicable to certain anti-tax avoidance amendments made in 1978. The proposals to amend the law in these respects were announced on 20 August 1981.

Under sub-clauses 2(3) and (4), clauses 5, 18, 20, 22 and 24, sub-clause 28(2) and clauses 39, 40, 45, 48, 50, 51 and 53 and the amendments made by paragraphs 19(a), 21(a), 23(a), 44(a), 47(a), 49(a) and 58(d) and (e), are to come into operation or take effect on the date of introduction of the Sales Tax Assessment Bill (No. 10) 1985. These provisions are complementary to those contained in that Bill and will ensure that royalties paid in respect of goods are brought within the sales tax base.

By sub-clause 2(5) the amendments made by paragraphs 19(b), 21(b), 23(b), 44(b), 47(b), 49(b) and 58(a), (b) and (c), are to take effect on the day on which the Bill when enacted comes into operation, i.e., the date of Royal Assent.

PART II - AMENDMENT OF SALES TAX ASSESSMENT ACT (No. 1) 1930

Clause 3: Principal Act

This clause facilitates the references to the Sales Tax Assessment Act (No.1) 1930 which, in the Part, is referred to as "the Principal Act".

Clause 4: Interpretation

This clause will amend section 3 of the Principal Act, an interpretative provision, which ascribes particular meanings to words and expressions used in, or in parts of, the Principal Act and contains a number of other measures to assist in its interpretation.

By paragraph (1)(a) of this clause, a definition of "Arrangement", is to be inserted in sub-section 3(1) of the Principal Act. The form of the definition is now common in taxation laws and is expressed in the broadest terms to mean any formal or informal agreement, arrangement or understanding whether expressed or implied and whether or not enforceable, or so intended, by legal proceedings.

Paragraph (1)(b) of this clause will omit the definitions of "Manufactured" and "Manufactures" from sub-section 3(1) of the Principal Act. It is no longer necessary to specifically define these words as section 18A of the Acts Interpretation Act 1901 ensures that both "Manufactured" and "Manufactures", being grammatical forms of "Manufacture", have corresponding meanings.

Paragraph (1)(c) will substitute a new definition of "Wholesale Merchant". The new definition of "Wholesale Merchant" is identical to the existing definition with the addition of a new paragraph (b) to include as wholesale merchants (for the purposes of the sales tax law) persons who sell goods by retail under an indirect marketing arrangement (see notes on paragraph 4(1)(e)).

Sub-section 3(2) and (3) of the Principal Act are, by paragraph (1)(d), to be replaced with two new sub-sections.

New sub-section 3(2), which replaces the existing sub-section 3(2), is a reference provision to assist in interpreting the phrase "has (not) quoted his certificate" that occurs numerously throughout the various Sales Tax Assessment Acts. Existing sub-section 3(2) performed a similar function, but its language was open to a possible misconstruction that could be relied upon by a vendor who accepted a false quotation of a certificate that, prima facie, was in the correct form, but nevertheless was clearly not bona fide. The re-drafted sub-section 3(2) is designed to overcome this possible unintended result. New sub-section 3(2) is subject to the operation of the new anti-evasion provision - sub-section 3(3).

Under new sub-section 3(3) of the Principal Act a purported quotation by a person will be deemed not to be a quotation if the vendor to whom it is made has reasonable grounds for believing that the quotation is not bona fide. A vendor of goods will no longer be able to rely simply on the fact of quotation to sell goods "tax-free". Where the vendor has reasonable grounds for believing that -

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the purchaser is not registered (sub-paragraph (a)(i));

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the purchaser is quoting otherwise than in a manner or under such circumstances as are prescribed by the sales tax law (sub-paragraph (a)(ii));

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the purchaser is prohibited from quoting by virtue of having received a prohibition notice (see notes on clause 6) - sub-paragraph (a)(iii);

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the quotation is false or misleading in a material particular or is misleading by the omission of particulars (paragraph (b)); or

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the Commissioner has published or provided information to the effect that the certificate is no longer valid for quotation (paragraph (c)) - see also notes on clause 10;

then the purchaser is to be deemed not to have quoted the certificate.

Where the vendor sells the goods "sales tax free", despite being satisfied as to any of the above conditions, the vendor will be liable to pay sales tax on the goods. The Commissioner will, however, be able to remit or refund the tax (see notes on clause 13) in circumstances where, notwithstanding the vendor's refusal to accept a quotation, the quotation is, in fact, valid. A vendor could have reasonable grounds for believing that a quotation is not bona fide where, for example, the usual trading arrangement of the vendor is such that he deals with his customers regularly on credit and an unknown purchaser attempts to purchase goods using a wholesaler's certificate number for a large sum in cash. Another example might be where a person unknown to the vendor attempts to purchase a substantial quantity of goods for cash and is unable to provide proof of identity or of sales tax registration.

Paragraph 4(1)(e) will insert new sub-section 3(4A) in the Principal Act. This sub-section is another referential provision that identifies a person who is selling goods by retail under an "indirect marketing arrangement". The effect of sales of goods under these arrangements is, broadly, to avoid payment of tax on the wholesale profit margin of the vendor. These persons are, as noted earlier, to be deemed to be "wholesale merchants" for the purposes of the sales tax law and, thus, be liable for sales tax on the fair wholesale selling price of the goods sold under these arrangements.

There are, basically, two types of indirect marketing arrangements. They are -

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agency arrangements, that is, arrangements based on the common law principle of "principal and agent"; and

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floor plan arrangements.

Paragraph (a) of proposed sub-section 3(4A) describes the indicia of the principal and agent relationship, but excludes the case of an employee. Paragraph (b) describes floor plan arrangements as those under which goods are sold by retail by a person from premises that are used and held out by any other person principally for the sale of goods by retail by that other person. In both of these cases, the vendor will be deemed to have sold goods under an indirect marketing arrangement. As a deemed wholesale merchant, such a vendor will be required to register with the Commissioner, and pay sales tax on these retail sales based on a sale value of the goods that represents the fair wholesale market value of the goods. In other words, the wholesale margin will be brought into the taxable value of the goods.

Sub-clause 4(2) proposes the substitution of the definition of "Manufacture" in sub-section 3(1) of the Principal Act. In practical terms, the only change in the definition is a revision of paragraph (b).

Under the existing paragraph (b) of the definition of "Manufacture", the combination of parts or ingredients, for example, the assembly in Australia of imported components to produce a finished product, comes within the meaning of the term "Manufacture". Under the existing exclusion to paragraph (b), the assembly of the finished product would not be taken to be "Manufacture" if it was customary or reasonably practicable for a user or consumer to undertake that assembly. The intention of this exclusion was to exclude from the definition of manufacture the assembly of such products by the final consumer.

Some firms have taken an unintended advantage of the language in the present law by arranging for associate companies, that are technically users of the assembled product (as lessor or hirer), to engage employees who have the necessary expertise to carry out the assembly of imported components for certain kinds of machinery. It is argued that the firm assembling the component parts is covered by the exclusion to the definition of "Manufacture" simply because it was reasonably practicable for the associate company to have carried out the assembly.

The new definition of "Manufacture" restricts the exclusion to combinations of components that are customarily performed by persons who ultimately use the finished articles or substances for their intended purpose. By this revised exclusion to paragraph (b) it is intended to restore the provision to its original purpose. Thus, articles that are frequently purchased in a "knocked down" form will not be manufactured by consumers who purchase and assemble the components. On the other hand, the fact that a particular person or firm has the expertise to put together complex machinery that it uses commercially would not thereby operate to exclude such assembly operations from the definition of "Manufacture".

The amendments of the definition of "Manufacture" will apply in relation to goods manufactured after 20 August 1981 - date of an announcement of the measure.

Clause 5: Royalty

Sub-section 3(3) of the Principal Act provides that the amount for which goods are sold will (where the goods are sold subject to the payment of a royalty) be deemed to include such amount as, in the opinion of the Commissioner, is the value of the royalty. That sub-section has been the only basis for subjecting royalty payments to tax since 1930. Certain deficiencies have, however, been exposed in its intended effect.

Accordingly, clause 6

will replace existing sub-section 3(3) of the Principal Act with a new section - section 3A. The new section will clarify the application of the existing sales tax law to payments of royalties and act as an interpretative aid for the proposed Sales Tax Assessment Act (No. 10) 1985 and the three complementary Taxing Bills - see later notes in this memorandum on those Bills.

Sub-section 3A(1) will restrict the meaning of a payment of a royalty in respect of goods to a payment made when the goods are neither excluded nor exempt goods; broadly to new taxable goods: see notes on proposed sub-section 3A(8). Sub-section (2) is an anti-avoidance measure designed to counter arrangements that might be entered into for the purpose of avoiding sales tax by ensuring the payment of the royalty is made at a time when goods in respect of which the royalty is paid are excluded or exempt goods. Where such arrangements are entered into, the payment of the royalty is deemed to have been made at a time when the goods were new taxable goods.

Sub-section (3) will allow for the apportionment of a royalty payment where the payment is made in respect of goods and another matter (for example, as an inflated franchise payment) and deems that part of the royalty that is attributable to the goods to be paid in respect of the goods for the purposes of sub-sections (1) and (2).

Another anti-avoidance measure is sub-section 3A(4). This concerns the payment of a royalty by a non-resident, where the payment is made under an arrangement with a resident who would, but for the arrangement, have paid the royalty and be liable for tax on the amount of it. Where this occurs the royalty will be deemed to be paid by the resident.

New sub-section (5) describes those payments that are to be treated as royalties for purposes of the sales tax law. The term "royalty" is broadly defined to include any amount paid by way of royalty or like payment, however that payment is described, computed or paid.

Paragraph (a) includes as royalties, any payments for the doing of anything that would infringe copyright if done without the authority of the owner of the copyright. There are, however, a number of exceptions (sub-paragraphs (a)(i) to (vi)). The exceptions are to ensure that royalties paid in respect of the performance, broadcasting, televising or exhibiting of works, films or articles are not included in the statutory definition. For example, a royalty paid by a radio station for the broadcasting of a record or royalties paid for the performance of a song or play are excluded from the definition - see notes on paragraph 3A(7)(a).

Paragraph (b) will include in the meaning of royalty, a payment made in respect of patents. In this way, a payment for the right to make, use, exercise or sell an invention are included in the meaning of royalty - see notes on paragraph 3A(7)(b).

By paragraph (c), a payment for the use of, or right to use, any design, trade mark, confidential information or any machinery, implements, apparatus or other equipment are caught by the definition - see notes on paragraph 3A(7)(c).

Payments made for the supply of knowledge or information including any scientific, technical, industrial or commercial knowledge or information are, by virtue of paragraph (d), to be taken to be royalty payments.

Paragraph (e) includes as royalties, payments made for assistance to enable the application or enjoyment of any of the earlier inclusions in the definition of royalty.

Finally, paragraph (f) will operate so as to prevent avoidance of tax by arrangements under which, instead of amounts being paid for the right to use any matter mentioned in the previous paragraphs, the payments are described as being for an undertaking that rights to use any of those matters will not be granted to anyone else. In practical terms, this leaves the nominated person with the right of sole enjoyment.

Sub-section 3(3) of the Principal Act includes in the sale value of goods the amount of a royalty paid in respect of the goods where the goods are sold subject to the payment of the royalty. The sale value of the goods is, in that sub-section, expressed in terms of the amount for which the goods are sold. There are, however, a number of the sale value provisions of the sales tax law that do not refer specifically to the amount for which the goods are sold. To this extent existing sub-section 3(3) is deficient.

Paragraph (6)(a) to (g) are technical amendments that refer to the various expressions used throughout the sales tax law by which sale values may be determined. For example, where the sale value of goods is to be determined by reference to an amount of wages paid in respect of the manufacture of goods (a proviso to sub-section 18(2) of the Principal Act), a royalty paid in respect of those goods will be subject to tax, notwithstanding, that the sale value is not based on the sale of the goods.

Paragraph (e), for example, which refers to a value of goods, includes such concepts as "a fair and reasonable wholesale value of the goods" (sub-section 18(3A) of the Principal Act) and other references to a particular "value" of goods.

Paragraph (6)(h) will ensure that the sale value of goods sold subject to the payment of a royalty will include the value of the royalty paid unless paragraphs (j) or (k) of sub-section (6) apply.

Paragraph (j) deals with cases coming within the first provisos to sub-sections 18(2) and (3) of the Principal Act that provide special sale values where goods are sold by retail or applied to own use and sales tax has been paid on the raw materials used to manufacture those goods. The special sale value that is applicable in these cases is the amount of wages paid to manufacture the goods increased by a specified percentage. Where a royalty is payable the amount of wages paid is to be increased by a specified percentage (57% and 83% respectively) of the value of the royalty which, when the amount of wages and royalty are increased by the specified percentage, (75% and 20% respectively), the amount of the royalty included in the sale value is equal to 100 per cent of the royalty paid.

Paragraph (k) is to the same effect as paragraph (j) but concerns the second proviso to sub-section 18(2) of the Principal Act. In this case, 75% of the royalty is to be added to the amount payable by the taxpayer before increasing the total by 33 1/3% to determine a sale value of the goods.

Proposed sub-sections 3A(7), (8) and (9) together contain a number of measures to assist in the interpretation of the section.

Paragraphs 3A(5)(a) and (b) contain references to a number of expressions used in relation to copyright or an invention. Sub-paragraph 3A(5)(c)(i) contains references to a design or trademark.

Sub-section 3A(7) is a drafting measure to avoid the extensive repetition of definitions of the expressions used to in sub-section (5). In paragraph 3A(7)(a) expressions used in connection with copyright in paragraph (5)(a), that is, "licence", "diffusion services", "sound recording" and "work", will have the same meaning in that paragraph as in the Copyright Act 1968. In addition, the expression "cinematograph film" as used in that Act is extended to include within its meaning in paragraph (5)(a), video tapes and video discs.

Similarly, "invention" where used in paragraph (5)(b), has the same meaning, by virtue of paragraph 3A(7)(b), as in the Patents Act 1952. Also, in paragraph 3A(7)(c), the word "design"' will have the same meaning as it has in the Designs Act 1906. That paragraph, however, extends the meaning of design in paragraph (5)(c) to include a design, whether or not it is registered, that is capable of registration. This is to ensure that tax properly payable in respect of a royalty cannot be avoided by simply failing to register a design under the Designs Act 1906.

Paragraph 3A(7)(d) gives the expression "'trade mark", as used in paragraph (5)(c), the same meaning as applies to that expression under the Trade Marks Act 1955. This paragraph also extends the meaning of trade mark to include a trade mark whether or not it is registered under that Act.

Excluded from the meaning of the expression "trade mark" in paragraph 3A(7)(d) is a trade mark that relates to a service. By this exclusion, a payment made for the right to trade under a trade mark would not generally be a royalty for the purposes of the sales tax law. However, to the extent that the trade mark in respect of which the payment is made is in respect of goods, it would be treated as a royalty and therefore subject to sales tax by virtue of proposed sub-section 3(3).

Sub-section 3A(8) defines various expressions used in the section -

"excluded goods" is defined to mean goods referred to in paragraphs (a) and (b) of the definition of "goods" in sub-section 3(1) of the Principal Act. These paragraphs refer to goods that have, either through a process of retailing or otherwise, gone into use or consumption in Australia or which are sold as secondhand goods. Sales of secondhand goods and goods that have previously gone into use or consumption in Australia are generally not subject to sales tax. The term "excluded goods" therefore embraces goods that are neither exempt goods nor taxable goods for the purposes of the sales tax law.

"exempt goods" is defined as goods that are exempt from sales tax by virtue of the Sales Tax (Exemptions and Classifications) Act 1935. The First Schedule to that Act lists the goods that are exempt from sales tax.

"payment" is defined to include the incurring of a liability to pay an amount and the crediting of an amount. The expression "payment" will therefore apply both to amounts that have actually been paid, and to amounts in respect of which there is an unsatisfied liability to pay. Moreover, where a debt is satisfied by a book entry, the crediting of the amount will be treated as a payment.

"resident" in relation to a royalty payment is defined to mean a natural person who is either a resident of Australia or whose domicile is in Australia unless, in the latter case, the person's permanent place of abode is outside Australia. A company that is either incorporated in Australia, carries on business in Australia or holds property in Australia, is also to be a resident.

"scheme" is broadly defined in a form adopted from the general anti-tax avoidance provision of the income tax law - Part IVA of the Income Tax Assessment Act 1936. Scheme will mean any agreement, arrangement, understanding, promise or undertaking, whether formal, whether express or implied and whether or not legally enforceable. Also included is any scheme, plan, proposal, action, course of action, conduct, whether unilateral or otherwise. It will make no difference, therefore, whether there is one or more than one party to the arrangement.

Proposed sub-section (9) is necessary because the sales tax avoidance scheme that may bring sub-section (2) into operation could have been entered into by the taxpayer or some other person for a number of purposes only one of which may have been to avoid sales tax. Sub-section (9) will cater for this possibility by treating a scheme entered into by any person for numerous purposes, one of which is a sales tax avoidance purpose as a scheme entered into for that sales tax avoidance purpose.

Clause 6: Issue of certificates

This clause will amend section 11 of the Principal Act to strengthen in a number of respects the procedures governing the registration of sales taxpayers and the issue of certificates of registration. Sub-section 11(1) presently requires every person who is a manufacturer or a wholesale merchant to be registered with the Commissioner of Taxation within 28 days after becoming a manufacturer or wholesale merchant. Any person carrying on business as a manufacturer or wholesale merchant who fails to become registered within the specified time is liable to a penalty of $250 for each day during which the failure continues (section 13). The Commissioner may under sub-section 11(3A) of the Principal Act dispense with the registration of any person whose manufacturing and/or wholesaling activities are confined to goods that are exempt from sales tax, subject to the person becoming registered if taxable transactions are undertaken and the arrangement operating to the Commissioner's satisfaction.

Sub-sections 11(3) and (4) presently provide that a certificate of registration issued to a manufacturer or wholesale merchant shall remain in force until the death or bankruptcy or liquidation of the person.

The liability to pay sales tax is imposed not only on registered persons, but also on persons required to be registered. Hence, the failure of a manufacturer or wholesale merchant (or a deemed manufacturer or wholesale merchant) to become registered does not relieve the person of any liability to pay sales tax.

Paragraph 6(a) of the Bill will omit sub-sections 11(1), (3), (3A) and (4) of the Principal Act and insert several new sub-sections in their place.

New sub-section 11(1) will maintain the present requirement of the sales tax law that a person who is (by definition) a manufacturer or a wholesale merchant is to be registered.

Under proposed sub-section 11(2), any person who is so required to be registered is to apply to the Commissioner for registration. Under amendments to be made by clause 10 to section 16 of the Principal Act certain persons may also be required to be registered under that section (see notes on that clause). New sub-section 11(2) therefore requires these persons to also apply for registration.

At present, an application for sales tax registration must be in the prescribed form. To this end, Sales Tax Regulation 5 provides that an application for registration must be made in accordance with prescribed Form A to the Deputy Commissioner for each State in which the applicant has a place of business as a manufacturer or wholesale merchant. The requirement that an application be in a prescribed form does not allow for the flexibility needed to keep abreast of changing conditions and the existing prescribed form is out of date.

New paragraph 11(3)(a) reflects the modern approach in provisions relating to taxation forms by allowing the application for registration form to be one provided by the Commissioner.

Paragraph (b) of sub-section 11(3) will replace Sales Tax Regulation 5. Simply stated, a manufacturer or wholesale merchant will lodge an application for registration with a Deputy Commissioner responsible for -

•

the part of a State in which the principal place of business as a manufacturer or wholesale merchant is carried on (sub-paragraph (i)); and

•

in each other State where such business is carried on (sub-paragraph (ii)).

(also see notes on paragraph (h) of this clause)

.

As part of the overall improvements in the registration procedures, paragraphs 11(3)(c) and (d) recognise the desirability that the Commissioner be authorised to call on applicants to furnish further information to that required by the form, to enable the Commissioner to be satisfied that a person is required to be registered. Such additional information might also be useful in forming an opinion under sub-section 11(8A) in relation to the provision of security - see notes on paragraph (c) of this clause.

Finally, there are different circumstances under which a person will be required to be registered. Under paragraph (e) of sub-section 11(3), an application by such a person must be made within the time period specified in new sub-section 11(3F) - that time varies depending on the particular circumstances but is generally 28 days after becoming required to be registered.

New sub-section 11(3A) formally requires the Commissioner to register a person who has applied for registration provided that -

•

the person's application to the Commissioner meets the requirements of new sub-section 11(2) and (3);

•

the Commissioner does not decide to refuse to register the person under new sub-section 11(3B) - see notes on that sub-section; and

•

the Commissioner does not dispense with the need for a person to be registered because sales tax is not payable in respect of the person's manufacturing or wholesaling business - see notes on new sub-section 11(3C).

As noted earlier in this explanatory memorandum, a number of evasion practices have developed around the procedure of quotation of sales tax certificate numbers. The right to quote a sales tax certificate number is one of the privileges of registration that has, in recent times, been abused by some registered persons. In the past the Commissioner has been unable to refuse to register a person, notwithstanding that the Commissioner may have substantial grounds for believing that a registration number (if issued to the applicant) would be used to evade, or facilitate the evasion of, sales tax - a recent decision of the Federal Court (Bayford Wholesale Pty Ltd v Boucher (F.C.T.) and McTique (DCT) confirmed that the Commissioner has no discretion to refuse to register a person if all conditions for registration under the present law exist.

Proposed sub-section 11(3B) is therefore an innovation in the sales tax law and will authorise the Commissioner to refuse to register a person in either of two circumstances. They are -

•

where the application for registration

•.

is false or misleading (sub-paragraph (a)(i)); or

•.

omits some information that makes the application misleading (sub-paragraph (a)(ii)); or

•

where the Commissioner, for the protection of the revenue, requires the applicant to provide security under sub-section 11(8A) of the Principal Act and person refuses or fails to give the security (see notes on paragraph (c) of this clause).

Where the Commissioner refuses to register a person under this sub-section the Commissioner will be required to notify the applicant in writing of his decision. It is important to note that a person who is denied registration on the basis of a false or misleading application or for refusal to provide security is, by virtue of this sub-section, still required to be registered. In other words, the person is still liable to pay sales tax without the privilege of being registered and able to quote to obtain goods free of sales tax.

A person affected by a decision of the Commissioner under sub-section 11(3B) will have a right of objection and review (see notes on clauses 15 and 16).

New sub-sections 11(3C), (3D) and (3E) essentially replace existing sub-section 11(3A) of the Principal Act (see earlier notes on this paragraph).

Sub-section 11(3C) will authorise the Commissioner, subject to sub-sections 11(3D) and (3E), to dispense with or revoke a person's registration if that person engages only in non-taxable transactions. However, by virtue of sub-section 11(3D), such a person will be required to be registered from the time any taxable transactions for sales tax purposes are engaged in.

Finally, new sub-section 11(3E) will allow the Commissioner to require certain persons to become registered (within the period specified in a notice) where the dispensation agreed to under sub-section 11(3C) is no longer operating in a particular case to the satisfaction of the Commissioner. The persons who can be required to register are wholesale merchants (as defined in section 3 of the Principal Act), other than trustees who are in the course of carrying on, winding-up or realizing the business of a wholesale merchant or manufacturer.

Sub-section 11(3F) specifies the various time periods within which persons required to be registered under proposed section 11 or 16 of the Principal Act must register.

Paragraph (a) allows 28 days for persons who are manufacturers or wholesale merchants to become registered. Paragraphs (b) and (d) allow 14 days for persons to whom proposed sub-section 11(3D) and sub-section 16(3), respectively, apply to become registered. Paragraph (c) ensures that the time specified by the Commissioner on a notice issued under sub-section 11(3E) requiring registration is the time for compliance with the notice.

Paragraphs (a) and (b) of new sub-section 11(4) restate in more precise language the position that currently applies in relation to the validity of a certificate of registration issued to a person by the Commissioner. A certificate will remain in force under those paragraphs until the death or bankruptcy of a natural person or the dissolution of a corporate person, as the case may be.

New paragraphs (c) and (d) are technical measures to ensure that, where the Commissioner revokes or cancels (respectively) a person's registration, the certificate issued to the person ceases to be in force.

Paragraph (b) of this clause will amend sub-section 11(4B) of the Principal Act that relates to certificates of registration issued before 30 June 1931 to achieve the same result in relation to the continuation in force of such certificates as that proposed by new sub-section 11(4) - see notes on preceding paragraph.

Authority is, under existing sub-section 11(8A) of the Principal Act, vested in the Commissioner to require lodgment of securities by registered persons in any case where, in the Commissioner's opinion, that course is necessary for the protection of the revenue. Paragraph (c) of clause 6 will insert a new sub-section 11(8A) that differs from the present sub-section in two important respects.

First, the maximum level of security that the Commissioner may presently require is $2,000 - this amount was set when the sales tax law was enacted in 1930 - and, in keeping with the recent increase in the general level of taxation penalties and money values, new sub-section 11(8A) will increase this to $25,000.

The second important change concerns the limited scope of existing sub-section 11(8A) in that the Commissioner can only require security from registered persons. The new sub-section will also apply to persons who are required to be registered and, where such a person refuses to give security to the satisfaction of the Commissioner, the Commissioner may refuse to register the person (see notes on proposed new paragraph 11(3B)(b)).

Paragraph (d) will make a drafting improvement to sub-section 11(8B) of the Principal Act to include a reference to the person who has given security under sub-section 11(8A).

As explained in the notes on proposed sub-section 11(8A), that new sub-section will apply to persons required to be registered as well as to registered persons. Paragraphs (e) and (h) of this clause will effect consequential amendments of paragraph 11(8B)(a) and sub-section 11(11) respectively to reflect this extension of the scope of the security provision.

As has been noted in the notes on sub-section 11(3), it is now usual practice for taxation forms to be approved or provided by the Commissioner to provide a greater degree of flexibility. In the light of this, paragraph (f) will omit sub-section 11(9) of the Principal Act that currently specifies both the manner and form of security to be prescribed in the Sales Tax Regulations. As a consequence, regulation 21, which deals with this matter, will in due course be repealed.

Paragraph (g) makes a technical amendment to ensure that sub-section 11(10) of the Principal Act that exempts security documents from State stamp duties also applies in relation to the stamp duty laws applicable in a Territory of Australia.

Paragraph (j) of this clause will insert a new sub-section - sub-section (13) - in section 11 of the Principal Act. New sub-section (13) is a drafting measure to reflect administration practices in relation to registration of sales taxpayers. Simply stated, for the purposes of paragraph 11(3)(b) the Australian Capital Territory is to be deemed to be part of the State of New South Wales and the Northern Territory is deemed to be a separate State. A person carrying on business in these Territories as a manufacturer or an wholesale merchant would apply for registration with the Deputy Commissioner exercising powers in those Territories. In other words, the Deputy Commissioner in the Australian Capital Territory or the Deputy Commissioner in South Australia who has responsibility for Northern Territory taxpayers.

New sub-section 11(13) is not, however, to apply to existing sub-section 11(10) of the Principal Act where it would not be appropriate to treat the Territories as part of any State.

Clause 7: Quotation of certificates

This clause will amend sub-section 12(1) of the Principal Act to make the requirement, contained in that sub-section, to quote a certificate in the manner and circumstances prescribed in the Sales Tax Regulations, subject to a notice issued by the Commissioner under proposed sub-section 15A(6) to the effect that the holder of the certificate is prohibited from quoting it - see notes on clause 9.

Clause 8: Wrongful quotation of certificate

Section 15 of the Principal Act makes it an offence for a person to falsely represent that the person is registered or to falsely quote a certificate. The section carries a maximum penalty of $2,000. Clause 8 effects a technical correction to make it clear that the offence provision can operate notwithstanding that sales tax may not be payable on the particular transaction, act or operation in respect of which the false representation or quotation is made. As the sales tax law is structured, there is no sale value in relation to goods where a quotation is accepted and existing section 15 is therefore technically deficient as presently drafted.

Clause 9: Prohibition of quotation of certificate

Earlier in these notes, it was explained that where a registered person quotes a certificate (whether or not lawfully), the vendor was generally not liable for any tax evaded as a result of that quotation - see notes on clause 4.

This clause will insert a new section - section 15A - that will allow the Commissioner to step in and take preventative action where a registered person is abusing, or assisting others to abuse, the quotation procedures in the law. As section 15A is essentially an anti-evasion measure, substantial penalties are provided for offences occurring under the section.

New sub-section 15A(1) is the operative provision. Under this sub-section, the Commissioner is to be authorised to withdraw a registered person's right to quote (for a specified period) where the Commissioner establishes that the person has quoted any certificate (paragraph (a)) or assisted another person to quote any certificate (paragraph (b)), otherwise than in accordance with the law, with the intention of defeating the purposes of the sales tax law. The requirement that there be an intention to defeat the purposes of the sales tax law means that no prohibition could be applied where no more than an honest mistake occurred in connection with a quotation.

A decision of the Commissioner to withdraw a registered person's right to quote a certificate will be subject to rights of objection and review by the Administrative Appeals Tribunal - see notes on clause 16.

The Commissioner is required to serve a notice on a person prohibited from quoting under sub-section (1) and sub-section 15A(2) will permit more than one notice to be served on a person under that sub-section should the need arise. Under sub-section (3). a person who has received a prohibition notice is required to return the sales tax registration certificate issued to the person to the Commissioner within 7 days of receipt of the notice. Failure to comply with this requirement will render the person, on conviction by a court, liable to a maximum fine of $500.

Sub-section 15A(4) is a technical provision that requires the Commissioner to cancel a certificate that has been returned to him by a registered person under sub-section (3).

As mentioned earlier, the Commissioner may withdraw a person's right to quote a certificate for a specified period. Provided that the registered person has not ceased to be required to be registered (paragraph 15A(5)(a)) and the period specified in the certificate has expired (paragraph 15A(5)(b)), the Commissioner may issue a fresh certificate to the person upon receipt from the person of an application for a certificate. A taxpayer dissatisfied with a decision of the Commissioner under sub-section 15A(5) will also have a right of objection and review - see notes on clause 16.

Although a registered person may have been prohibited from quoting a certificate for a specified period, the Commissioner would be authorised by sub-section 33(3) of the Acts Interpretation Act 1901 to shorten that period should it eventuate that the person satisfies the Commissioner that further breaches of the sales tax law would be unlikely to occur if the privileges of registration were restored earlier than originally intended.

Sub-section 15A(6) will make it an offence for a person to contravene, i.e., to refuse or fail, to comply with a prohibition notice that the person has received under this section. Where this occurs the person is to be liable to a penalty, on conviction, of up to $2000 for each occasion on which a contravention occurs.

A registered person may receive a prohibition notice after the time the certificate has been quoted to a vendor in respect of some transaction, e.g., a purchase of goods and before the time that transaction is completed, e.g., before delivery of, or payment for, the goods. Under sub-section 15A(7), such a person will be required to notify the vendor that the prohibition notice has been received.

In these circumstances, the vendor would be required to ignore the registered person's quotation, in accordance with proposed sub-section 3(3) of the Principal Act, and to collect sales tax on the goods. Should the registered person fail to notify the vendor, as required, the registered person would be guilty of an offence punishable, on conviction, by a fine not exceeding $2,000.

The fact that a registered person who has received a prohibition notice under this section is liable to a $2,000 court imposed fine may not of itself, be sufficient deterrent to persons minded to engage in evasion practices where substantial amounts of tax are concerned. For example, a purchase of $200,000 worth of goods where the applicable rate is 32.5 per cent involves tax of $65,000 where there is no quotation in respect of the purchase.

As such, new sub-section 15A(8) provides that, where a person is convicted of an offence under sub-section 15A(6) or (7), the court may impose by way of further penalty an amount equal to double the amount of sales tax payable or, in a case where the quotation is deemed to be valid by virtue of the operation of proposed sub-section 3(2), double the amount of tax that would have been payable but for the quotation. Any penalty imposed under this sub-section is to be paid to the Commissioner. Imposition of a fine or further penalty does not relieve any person from payment of the sales tax properly payable (see section 8ZH of the Taxation Administration Act 1953).

New sub-section 15A(9) recognises that a person who has received a prohibition notice under this section is still a registered person, i.e., liable to pay sales tax. Accordingly, that person is to continue to comply with the conditions to which the certificate of registration related, notwithstanding its surrender. The stipulated conditions of issue of a certificate are that the person will -

•

keep proper books or accounts for the purposes of the sales tax laws;

•

render true statements of all sales made by the person; and

•

duly pay all tax required to be paid under the law.

Clause 10: Registrations

Existing section 16 of the Principal Act provides that a manufacturer or wholesale merchant who is registered for sales tax purposes but who ceases to carry on business to which the registration relates is to notify the Commissioner in writing of the cessation and to forward the registration certificate to the Commissioner. If satisfied that the conditions of the certificate have been observed the Commissioner would then cancel the certificate of registration.

There is, however, no specific provision under which the Commissioner may initiate action himself where it comes to his notice that a registered person has ceased to carry on business as a manufacturer or wholesale merchant. In many cases, taxpayers fail to notify the Commissioner and there is currently no legislative authority for the Commissioner to cancel those registrations. This means that a person may continue to hold a certificate notwithstanding that the person has ceased to be entitled to quote it. This facilitates abuse of the quotation system.

More importantly, there are other circumstances in which the Commissioner should be able to revoke a person's registration. For example, a person may have provided false information at the time of registration in order to obtain registration that would, had the true position been known, not have been granted.

Clause 10 will insert two new sections - sections 16 and 16A - in the Principal Act which, taken together, will complete the strengthening measures in relation to the registration and quotation procedures designed primarily to curtail evasion practices.

New section 16 will empower the Commissioner to revoke a sales tax registration on his own initiative but subject to certain conditions being satisfied.

Under sub-section 16(1), any manufacturer or wholesale merchant who ceases to carry on a manufacturing or wholesaling business (as the case may be) is required to notify the Commissioner in writing to that effect. A maximum fine of $500 is provided for non-compliance with this sub-section.

New sub-section (2) will mean that, notwithstanding that a registered person has not notified the Commissioner under sub-section (1), the Commissioner may revoke that person's registration, once satisfied that the person need no longer be registered on account of having ceased to be a manufacturer or wholesale merchant.

Sub-section 16(3) is one of the more significant changes being put in place by this clause. It specifies two situations where the Commissioner is to be empowered to revoke a person's registration. They are -

•

if the person's application for registration was false or misleading or omitted some information that made it misleading (paragraph (a)); or

•

if the person refuses or fails to provide security to the satisfaction of the Commissioner under sub-section 11(8A) (paragraph (b)).

If either of these situations occurs the Commissioner will be authorised to revoke the person's registration, but the person will not, by virtue of having that registration revoked, cease to be required to be registered. The person, therefore, would remain liable to tax under the existing sales tax law.

Sub-sections 16(4), (5) and (6) are machinery provisions that are to apply in respect of revocations of registrations under this section and also those under sub-section 11(3C) - see earlier notes on clause 6.

Under paragraph 16(4)(a) the Commissioner will be required to serve notice in writing on a person whose registration has been revoked and the person's registration will be taken to be revoked at the time of service of the notice. In the absence of the contrary being established, this time would, by reason of section 29 of the Acts Interpretation Act 1901 be at the time the notice would be delivered in the ordinary course of the post. The person will then have 7 days to return the certificate to the Commissioner - paragraph 16(4)(b). Where a person fails to comply with paragraph (b), the person is to be, under sub-section (6) liable to a maximum fine of $500.

Sub-section (5) is a technical measure that requires the Commissioner to cancel a certificate returned to him under sub-section (4).

New section 16A is the final provision in the measures being introduced to counter sales tax evasion practices. The significance of section 16A lies in its connection with proposed sub-sections 3(2) and (3) - see notes on clause 4. Under this section, the Commissioner will be authorised to provide to any registered person, or to publish in the Government Gazette, details of certificates -

•

in respect of registrations that have been revoked, cancelled or withdrawn (paragraph (a)); and

•

in respect of which a prohibition notice is in force (paragraph (b)).

It is expected that the Commissioner would, in reliance on this section, circulate details of revoked, cancelled or withdrawn certificate numbers to registered vendors either generally or to those dealing in high rate goods, e.g., video recorders, video tapes, etc. or in goods where evasion practices have been detected, e.g., liquor.

Vendors of goods who have received information provided by the Commissioner under section 16A would, under sub-section 3(3), need to take account of that information in deciding whether or not to be satisfied of the bona fides of a purported quotation. Failure to do so, would result in the vendor being liable to make good any tax evaded as a result of a quotation of such certificate.

Clause 11: Goods deemed to be sold

The amendments being proposed to section 17A of the Principal Act by this clause are consequential upon amendments to be made by Part XI of the Bill to the Sales Tax Assessment (No.1) Amendment Act 1978: see later notes on that Part.

Briefly stated, Part XI of the Bill will provide a cut-off date of 20 August 1981 to the operation of transitional provisions applicable to certain anti-avoidance amendments enacted in 1978. Sub-clause 11(1) will complement this termination by ensuring that section 17A is not limited (as it presently is) to goods manufactured under an agreement entered into after 20 September 1978 - the date of commencement of the 1978 anti - tax avoidance amendments.

The amendments proposed by sub-clause (1) will, by virtue of sub-clause (2), operate in respect of goods the manufacture of which commenced on or after 21 August 1981, the date on which these particular changes were announced.

Clause 12: Sale value of goods

This clause will make almost identical amendments of section 18 of the Principal Act to those to section 17A contained in clause 11. The amendments are to the same effect and will also apply to goods commenced to be manufactured on or after 21 August 1981 - see notes on clause 11 and Part XI of the Bill.

Clause 13: Refunds and remission of tax

Section 26 of the Principal Act 1930 provides that, where the Commissioner finds that tax has been overpaid, the Commissioner may, subject to certain conditions, refund or offset the amount overpaid. The essential conditions are that the tax overpaid -

•

has not been passed on by the taxpayer to the customer; or

•

if so passed on, has been refunded to the customer (see also sub-section 11(1) of the Sales Tax Assessment Acts (Nos. 2 to 9) 1930 and the notes on clause 11 of the Sales Tax Assessment Bill (No.10) 1985).

Overpayments of tax may also arise in respect of bad debts or in circumstances where a registered person has failed to quote a certificate when required to do so.

As a result of the operation of proposed sub-section 3(3) (see notes on clause 4) the occasion for a refund or remission of tax payable in respect of a transaction might arise. For example, a registered person may quote in the manner and circumstances prescribed in the Sales Tax Regulations - the quotation is a valid quotation - but the vendor has reasonable grounds to believe that the quotation is suspicious in terms of sub-section 3(3). This could occur, for example, where a purchaser unknown to the vendor tenders a substantial amount of cash for goods and, on enquiries being made by the vendor, is unable to establish that he or she is the holder of a sales tax registration certificate that is in force. In this situation, a vendor would quite properly seek to collect sales tax from the purchaser in respect of the transaction.

New sub-section 26(3A) will, in circumstances where the bona fides of the purchaser is subsequently established, operate to relieve a vendor of a liability for tax or, subject to the usual condition applicable to refunds under section 26, provide for an appropriate refund of tax.

Before sub-section (3A) can apply, the Commissioner must be satisfied that -

•

a quotation in respect of goods was, but for proposed sub-section 3(3), validly made under the sales tax law (paragraph (a)); and

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by reason of the vendor's rejection of the quotation under that sub-section, the quotation was technically deemed not to be a quotation (paragraph (b)).

To the extent that tax is payable in these cases, but has not been paid and has not been charged to the purchaser or, if charged, has been refunded, the Commissioner may remit the tax payable by the vendor (paragraph (c)). Paragraphs (d) and (e) together reflect the requirement explained earlier, namely, that any refund is conditional upon the recipient not having passed on the tax or, if passed on, having refunded it, that is necessary before any refund of tax can be made by the Commissioner.

Clause 14: Heading to Part VII

Sub-section 13(1) of the Acts Interpretation Act 1901 deems the headings of Parts of an Act, inter alia, to be a part of the Act. In view of proposed section 44B which is to give a right of review to the Administrative Appeals Tribunal of certain decisions of the Commissioner rather than a right of appeal to a Board of Review, clause 14, will insert a reference to 'Reviews' in the title of Part VII of the Principal Act that presently deals with Objections and Appeals.

Clause 15: Objections

This clause proposes a technical amendment of sub-section 41(4) of the Principal Act to remove a reference to service of notice "by post" and substitute a reference to service "as prescribed". The Sales Tax Procedure Regulations prescribe that the Commissioner may serve any communication by posting it - regulation 29.

Clause 16: Review of certain decisions

Clause 16 will insert a new section - section 44B - in Part VII of the Principal Act to allow a person affected by certain decisions relating to registration and certificates to apply to the Administrative Appeals Tribunal for a review of the decision of the Commissioner, but only after internal review by way of an objection has been pursued.

Sub-section 44B(1) contains two definitions to assist in the interpretation of the section.

Under sub-section (1), the word "decision" will have the same meaning as it has in the Administrative Appeals Tribunal Act 1975. In that Act, a decision, so far as is relevant. includes -

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making, suspending, revoking or refusing to make an order or determination;

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giving, suspending, revoking or refusing to give a certificate, direction, approval, consent or permission;

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issuing, suspending, revoking or refusing to issue a licence, authority or other instrument; or

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imposing a condition or restriction.

The expression "reviewable decision", also defined in sub-section (1), describes the decisions of the Commissioner to which section 44B will apply. They are decisions -

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to refuse to register a person (proposed sub-section 11(3B);

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to require a registered person, or a person required to be registered, to give security (sub-sections 11(8A) and (11));

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to prohibit a registered person from quoting a certificate (proposed sub-section 15A(1));

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to refuse to issue a fresh certificate to a person who has been prohibited from quoting a certificate (proposed sub-section 15A(5)); and

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to revoke a registered person's registration under proposed sub-section 16(3).

A person who is aggrieved by a reviewable decision of the Commissioner may object to the decision. The objection must be in writing and state fully the grounds upon which the person relies. The person must lodge the objection with the Commissioner within 42 days after being notified by the reviewable decision - sub-section 44B(2) - that being the usual period allowed for objections against sales tax matters.

Upon receipt of a person's objection, the Commissioner is required to consider the objection and may affirm, revoke or vary the decision - sub-section 44B(3). Written notice of the Commissioner's decision is, under sub-section (4), to be given to the objector.

Sub-section (5) will allow an objector who is dissatisfied with a decision of the Commissioner on an objection to affirm or vary a reviewable decision to apply to the Administrative Appeals Tribunal for a review of the original decision.

The Commissioner is required, when giving notice to a person of a reviewable decision, to inform the person affected -

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of the right to object (paragraph (6)(a)); and

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subject to the Administrative Appeals Tribunal Act 1975, of the right to apply to the Administrative Appeals Tribunal for review of the decision if dissatisfied with the outcome of the objection (paragraph (6)(b)).

Further, sub-section 44B(7) requires the Commissioner, when giving an objector a notice of his decision on the objection, to notify the objector of the right to seek a review of the original decision by the Administrative Appeals Tribunal.

Sub-section (8) is a technical measure to ensure that an inadvertent failure by the Commissioner to comply with sub-sections 44B(6) or (7) will not invalidate the Commissioner's decision.

Clause 17: Access to books, &c

This clause will repeal section 71 of the Principal Act. Briefly stated, section 71 provides the Commissioner, or his duly authorised officers, with full and free access to all buildings, places, books, documents, etc. for the purposes of administering the Principal Act.

A modified provision replacing section 71 is to be included in the Sales Tax Procedure Act 1934 - see notes on clause 59.

PART III - AMENDMENTS OF SALES TAX ASSESSMENT ACT (No. 2) 1930

PART IV - AMENDMENTS OF SALES TAX ASSESSMENT ACT (No. 3) 1930

PART V - AMENDMENTS OF SALES TAX ASSESSMENT ACT (No. 4) 1930

Clauses 18, 20 and 22: Principal Act

These clauses facilitate the references to the relevant Sales Tax Assessment Act as the Principal Act.

Clauses 19, 21 and 23: Application provisions

Each of these clauses proposes an amendment of sub-section 12(1) of the relevant Principal Act. Under that sub-section certain provisions of the Sales Tax Assessment Act (No. 1) 1930 are applied, with appropriate modification, in the Principal Act. By these clauses, references to new section 3A (royalties) (paragraph (a) of each clause) and new sub-section 26(3A) (refunds of tax) (paragraph (b) of each clause) will also be applied for the purposes of each Principal Act.

PART VI - AMENDMENT OF SALES TAX ASSESSMENT ACT (No. 5) 1930

This Part of the Bill proposes a number of amendments of the Sales Tax Assessment Act (No. 5) 1930 to bring the provisions relating to the liability to, and the time for payment of sales tax and the lodgment of entries, into line with the customs law and procedures. It will do this by applying to imported goods the rate of sales tax in force at the time the goods are entered for home consumption under the customs law.

Clause 24: Principal Act

This clause facilitates references to the Sales Tax Assessment Act (No. 5) 1930 which, in this Part, is referred to as "the Principal Act".

Clause 25: Title

This clause will alter the long title of the Principal Act to identify the Act as relating to goods that have been both imported and entered for home consumption. The long title will now read: "An Act relating to the Importation, Assessment and Collection of a Tax upon the Sale Value of Goods Imported into Australia and Entered for Home Consumption, and for other purposes.".

Clause 26: Interpretation

Clause 26 proposes the repeal of section 2A of the Principal Act and the substitution of new sections 2A and 2B that together will define certain expressions used in the Principal Act and a number of other measures to aid in its interpretation.

The new section 2A of the Principal Act contains certain definitions which are, unless the contrary intention appears, to have the given meaning:

"Collector" will have the same meaning as it has in the Customs Act 1901. Under sub-section 8(1) of that Act, "a Collector" is to be construed as a reference to any principal officer of customs or any officer doing duty in the matter in relation to which the expression is used.

"Comptroller" will have the same meaning as in the present definition, i.e., the Comptroller-General of Customs.

"Customs", which is defined to have the same meaning as it has in the Customs Act 1901, refers to the Department of Customs.

(Ed. Note: Erratum Advice, omit the explanation of the definition of "Customs" and substitute the following explanation: "Customs", which is defined to have the same meaning as it has in the Customs Act 1901, refers to the Department with the responsibility for the administration of that Act, presently the Department of Industry, Technology and Commerce. However, under amendments of the Customs Act currently before the Parliament, "Customs" will mean the Australian Customs Service: see Schedule to the Customs Administration (Transitional and Consequential Amendments) Bill 1985.)

"Customs Act" will mean the Customs Act 1901 and is a drafting measure to allow abbreviated references to that Act.

"customs duty" will refer only to duties of Customs imposed by either the Customs Tariff Act 1982 or the Customs Tariff (Anti-Dumping) Act 1975. Duties of Customs demanded or collected in pursuance of either a Customs Tariff Proposal introduced into the House of Representatives or a notice published in accordance with section 273EA of the Customs Act 1901 are also included in the definition. The latter two measures relate to provisions in the Customs Act 1901 that facilitate the imposition and collection of duty between the date a change in rate is to be effective and the date the enabling legislation receives the Royal Assent.

"import" will mean import into Australia and facilitates shortened references to the full expression throughout the Principal Act.

"owner" is to be broadly defined to enable the collection of sales tax in respect of goods from the same person or persons who will be liable to customs duty in respect of those goods under the Customs Act 1901. The definition, in relation to any goods, includes any person being or holding himself out to be the owner, importer, exporter, consignee, agent, or person possessed of, or beneficially interested in, or having any control of, or power of disposition over, the goods. In relation to a ship or aircraft "owner" also includes every person acting as agent for the owner or to receive freight or other charges payable in respect of the ship or aircraft.

The existing sales tax law does not contain any definition of the expression "entry for home consumption". New section 2B is an interpretative provision that provides, for the purposes of the Principal Act, the time at which goods are entered, or taken to be entered, for home consumption and includes a number of situations that are to be deemed to be entries for home consumption where those goods may not, under the existing sales tax law, have previously been considered to have been entered for home consumption.

Where goods are entered for home consumption under section 36 of the Customs Act 1901, paragraph 2B(1)(a) specifies, for the purposes of the Principal Act, the time at which the goods are entered for home consumption as being the time when the entry is given in accordance with section 36 of the Customs Act 1901.

An entry for home consumption in respect of goods that are intended to be imported can, under the Customs law, be given before the goods have been imported. Under paragraph (1)(b) these goods are to be taken, for the purposes of the Principal Act, to be entered for home consumption when they are taken to be entered under section 37 of the Customs Act 1901. Goods are taken to be entered under that section when the goods arrive at the first port or airport at which goods are intended to be discharged from the ship or aircraft on which they are being imported.

Sub-section 2B(2) deals with circumstances where goods go into use or consumption in Australia without being formally entered for home consumption under section 36 or 37 of the Customs Act 1901, although they may be deemed entries under that Act.

Paragraphs (a) to (j) identify the circumstances and time when goods are to be deemed to be entered for the purposes of the Principal Act and paragraphs (k) to (p) will specify the person who is deemed to have entered the goods at that time.

Paragraph (a) (in conjunction with paragraph (k)) will deem goods, in respect of which an approval for delivery is given under section 71A of the Customs Act, to be entered for home consumption at the time the approval for delivery is given.

Paragraph (b) (in conjunction with paragraph (k)) will deem the goods, that are delivered under section 71B(1) of the Customs Act, to be entered for home consumption at the time when the approval for delivery is given. The exclusion of goods forfeited by virtue of paragraph 229(1)(g) of the Customs Act from this paragraph is to prevent the imposition of sales tax on goods that are, in fact, the property of the Crown.

Paragraph (c) (in conjunction with paragraph (m)) will deem goods, that are sold in pursuance of section 72, 87, 96, 111A, 206 or 207 of the Customs Act, to be entered for home consumption by the person who was the owner of the goods immediately before the time the goods are sold at the time of the sale of the goods. These sections of the Customs Act 1901 deal broadly with sales of goods that have been seized by Customs. Section 111A of the Customs Act (inserted in that Act by the Customs & Excise Amendment Act 1982) is yet to come into operation. It will do so on such a date to be fixed by Proclamation.

Paragraph (d) (in conjunction with paragraph (k)) will deem goods, that are delivered to a person in pursuance of authority given under sub-section 208(1) or (2) of the Customs Act (sub-sub-paragraph (i)(A)) or an order of a court (sub-sub-paragraph (i)(B)), to be entered for home consumption by the person to whom they are delivered and at the time they are delivered. Goods seized under section 203 of that Act, provided that they are not forfeited goods, i.e., they have not become the property of the Crown, will also be deemed to be entered for home consumption by the person to whom they are delivered (sub-paragraph (ii)).

Paragraph (e) (in conjunction with paragraph (k)) will deem goods, the delivery of which is authorised under sub-section 209(6) of the Customs Act, to be entered for home consumption by the person to whom the goods are delivered and at the time delivery is authorised.

Under the customs law, duty may be payable on goods in cases where the person entrusted with custody of the goods fails to keep the goods safely (section 35A of the Customs Act 1901), or goods included in any report of any ship or aircraft cannot be produced to Customs (section 149 of the Customs Act 1901).

Paragraph (f) (in conjunction with paragraph (n)) will deem goods, in respect of which a demand is made in pursuance of section 35A or 149 of the Customs Act 1901 to be entered for home consumption by the person to whom the demand is made and at the time the demand is made.

Under sub-section 96A(12) of the Customs Act 1901, where goods have been delivered to a traveller by the proprietor of a duty free shop and proof that the goods were exported cannot be produced, the proprietor is deemed to be the owner of the goods and to have entered them for home consumption on the day they were delivered.

Paragraph (g) (in conjunction with paragraph (o)) will deem goods, that are to be deemed by virtue of sub-section 96A(12) of the Customs Act, to be entered for home consumption for the purposes of the Principal Act by the proprietor of the duty free shop at the time they are deemed to be entered under the Customs Act. Section 96A of the Customs Act as inserted in that Act by the Customs and Excise Amendment Act 1982 is not yet in force. It will come into operation on such date as is fixed by Proclamation.

It should be noted that where goods that are purportedly exported, or purchased for export, are deemed to be entered for home consumption under paragraph (g), the goods will not be exempt from sales tax under item 110 of the Sales Tax (Exemptions and Classifications) Act 1935, as the goods clearly were not exported nor intended to be exported.

Paragraph (h) (in conjunction with paragraph (p)) will deem goods that are removed from a warehouse in pursuance of permission granted under sub-section 97(1) of the Customs Act to be entered for home consumption at the time when the permission is given. The entry will be deemed to be made by the person to whom permission is given.

Paragraph (j) (in conjunction with paragraph (k)) will deem goods delivered in pursuance of permission given under section 6B of the Principal Act to be entered for home consumption at the time permission is given and by the person to whom the permission is given. Under section 6B and Sales Tax regulation 57A certain goods may, provided they are not to be the subject of any sale or other commercial dealing, be imported into Australia if the goods are of a class dealt with in any international government to government agreement specifying that the goods may be temporarily imported without payment of sales tax. Under sub-section 6B(3) of the Principal Act goods delivered pursuant to section 6B are deemed to be delivered. Paragraph (j) re-enacts in practical terms sub-section 6B(3) of the Principal Act that is omitted by paragraph 31(a) of this Bill (see notes on that paragraph).

Paragraph (k) will deem the person to whom the goods are delivered under paragraph (a) or (b) to be the person who has entered the goods for home consumption for the purposes of the Principal Act.

As has been explained, goods may be formally entered, or deemed to be entered for home consumption by virtue of the operation of sub-section (1) or (2). Situations may arise where a formal entry of goods for home consumption is withdrawn under section 38 of the Customs Act 1901. Alternatively a person who has formally entered goods for home consumption may, by virtue of the operation of sub-section (2), be deemed to again enter the goods for home consumption at a time after the formal entry.

Proposed sub-section (3) provides, subject to the operation of a new anti-avoidance provision (proposed sub-section (5) that -

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where goods have been formally entered for home consumption (paragraph (a));

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subsequently -

•.

the formal entry is withdrawn (sub-paragraph (b)(i)), or

•.

the goods are deemed to be entered for home consumption (sub-paragraph (b)(ii)),

the formal entry of the goods may be disregarded.

Sub-section (4) takes into account the possibility that goods may be formally entered for home consumption after the time that they have been deemed to be entered for home consumption under sub-section (2). New sub-section (4) will ensure that the goods are taken to be entered at the time they were deemed to be entered for home consumption i.e. the earlier time of entry.

As noted earlier, a formal entry of goods for home consumption may be withdrawn under the Customs Act: section 38. However, any withdrawal of an entry under that provision is valid only to the extent that there has not been any reduction in a rate of custom duty that occurred between formal entry and the withdrawal: sub-section 38(5).

Proposed sub-section (5), which is in similar terms to sub-section 38(5), is an anti-avoidance provision that is designed to prevent persons who have formally entered goods withdrawing the entry under section 38 of the Customs Act 1901 in order to take advantage of an abolition or (Editor's note: the original says "or", but the context suggests that "of" may have been intended), or reduction in, a rate of sales tax. Where a person withdraws an entry after a rate of tax has been abolished or reduced and subsequently re-enters the goods, the person will be taken to have entered the goods at the time the goods were formally entered, despite the entry that was withdrawn.

Clause 27: Sales Tax

Section 3 of the Principal Act levies sales tax on goods imported into Australia. Clause 27 proposes amendments of section 3 to ensure that liability for sales tax will arise in respect of imported goods that are entered for home consumption. This amendment of the Principal Act reflects the change in the point in time at which the rate of sales tax payable is to be determined, i.e., the point in time at which customs duty is levied under the Customs Act 1901.

Clause 28: Sale value of imported goods: Liability for tax: No tax payable on entry of certain goods

Section 4 of the Principal Act describes the sale value of goods imported into Australia upon which sales tax is, by virtue of section 5 of that Act, to be paid by the importer. Simply put, if the importer of goods is unregistered or, if registered, fails to quote his certificate on the entry, sub-section 4(1) provides for the sale value of those goods to be the amount which exceeds by 20 per cent the sum of the value for duty of the goods and the customs duty.

Under existing sub-section 4(2) the expression value for duty is defined as meaning -

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in a case where customs duty is payable in respect of the goods - the value of the goods for the purposes of the customs law; and

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where the goods are not liable to customs duty - a value which in the opinion of the Commissioner duty would have been calculated if it were payable.

The proviso to sub-section 4(2) ensures that the value for duty on goods is to be accepted as the value at which the goods are entered for home consumption under the customs law pending the determination of a value under paragraph 4(2)(a) or (b).

Existing sub-section 4(3) provides a sale value for goods that, having been imported into Australia and entered for home consumption, are subsequently exported for repair and re-imported into Australia after the repair.

Briefly, the sale value of the repaired goods is -

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if customs duty is payable according to the value of the repairs - the value of the repairs plus the amount of customs duty; or

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in any other case - the Commissioner's valuation of the cost of repairs.

This clause will repeal sections 4 and 5 of the Principal Act and insert three new sections - sections 4, 5 and 5A. New sections 4 and 5, are, in practical terms, to the same affect as existing sections 4 and 5 of the Principal Act.

New sub-section 4(1) will describe the sale value of imported goods that have been entered for home consumption by an unregistered person, or by a registered person who has not quoted a certificate, to be an amount equal to 120 per cent of the sum of -

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the customs value of the goods (paragraph (c)); and

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the amount of customs duty payable on the goods (paragraph (b)).

All goods imported into Australia have, for the purposes of the customs law, a customs value. There may, however, be some delay in that value being correctly determined. Accordingly, new sub-section 4(2) reflects the existing proviso to former sub-section (2) by stipulating that the customs value of goods set out in the customs entry of the goods may be accepted as the customs value of the goods under sub-section (1), until such time as the correct value is ascertained.

New sub-section 4(3) provides for the sale value of imported goods exported for repair and then re-imported.

Under paragraph 4(3)(a), to the extent that customs duty is payable solely in respect of the value of the repairs, the sale value is to be an amount determined by adding -

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the value of the repairs for customs duty purposes (sub-paragraph (a)(i)); and

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the customs duty (sub-paragraph (a)(ii)).

This sale value is, in practical terms, the same as the sale value ascertained in the existing law.

Paragraph 4(3)(b) is a provision that has no direct counterpart in the existing law. Under the customs law, customs duty may, in some circumstances, be calculated by reference to matters other than simply the value of the repairs. This paragraph will set the sale of value of goods that have been re-imported after repair, but which have been subject to customs duty on a value of the goods that exceeds the value of the repairs. The sale value will, in the circumstances, be the total of -

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the amount that in the opinion of the Commissioner was the value of the repairs (sub-paragraph (b)(i)); and

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the proportion of the total customs duty payable on the goods that is attributable to the value of the repairs (sub-paragraph (b)(ii)).

For example, if the customs value of goods is $100, the customs duty $10 and the value of the repairs $50, the sale value of the repairs for sales tax purposes would be determined as follows:

$50 + ($50 * $10)/($100) = $55


.

Finally, paragraph 4(3)(c) sets the sale value of repaired goods where customs duty is not payable in respect of the re-importation of the goods. In this case the sale value is to be the value of the repairs that the Commissioner considers would have been subject to customs duty if that duty were payable. Paragraph 4(3)(c) is, for practical purposes, a re-enactment of existing paragraph 4(3)(b).

Sub-section (4) is a new provision that will ensure that, where goods are imported and entered for home consumption subject to a payment of a royalty, the sale value of the goods will include the amount of royalty: royalty is be defined in proposed section 3A of Sales Tax Assessment Act (No. 1) 1930 (see notes on clause 5) and applied for the purposes of the Principal Act (refer to clause 39).

Section 5 of the Principal Act as mentioned previously specifies that the liability for sales tax on the sale value of goods shall be met by the "importer" of the goods. New sub-section 5(1) will perform a similar function, however, in conformity with the customs law, the tax is to be payable by -

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the person who is deemed under proposed sub-section 2B(1) to formally enter the goods (paragraph 5(1)(a)); or

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the person who is deemed under sub-section 2B(2) to enter the goods (paragraph 5(1)(b)).

New sub-section (1) will overcome the problem that arises under the existing sales tax law that the person who enters goods may not technically be the importer of the goods.

But for proposed sub-section (2) a single liability for tax that may arise under sub-section (1) could fall on several persons to the extent that those persons were in accordance with the definition of "owner" in proposed section 2A co-owners of the goods. Sub-section (2) therefore provides that, where two or more persons who own goods are taken to have entered the goods, their liability for tax in respect of the goods will be joint and several, that is, each will be liable for payment of the whole of the sales tax, but so that the tax will only be collected once.

Sub-section (3) will, however, ensure that, where two or more persons are jointly and severally liable to pay tax and one of the persons has paid any of the tax, that person has a right to obtain a contribution from the other person(s) to the extent that a court considers is just and equitable.

The scheme of the sales tax law operates generally to prevent double taxation of goods. New section 5A will perform two functions. It will avoid the possibility of double taxation in respect of the one transaction and also avoid any liability for sales tax on goods that are the property of the Crown.

Goods may be imported and entered for warehousing by the importer before being entered for home consumption. The importer may, while the goods are warehoused, sell the goods in circumstances under which a liability for tax may arise under the Sales Tax Assessment Act (No. 6 or 7) 1930. Under the present law, if the purchaser of goods in these circumstances enters the goods for home consumption, sales tax is not payable under the Principal Act as the purchaser is not the importer of the goods.

By virtue of the arrangements being put in place by this Part, if the purchaser enters the goods for home consumption, the purchaser would, but for special provision being made, be liable to tax under the Principal Act, as well as under the Sales Tax Assessment Act (No. 6 or 7) 1930. New sub-section 5A(1) will, in these circumstances, mean that sales tax is not payable under the Principal Act.

Under the customs law, certain goods may be forfeited to the Crown e.g., goods imported into the country illegally. These goods can then be sold by Customs in circumstances where the Crown would, without a contrary rule, be technically liable for sales tax by virtue of there being a deemed entry of those goods under proposed paragraph 2B(2)(c). Sub-section 5A(2) will ensure that no liability for tax on sales of goods occurs where the goods are property of the Crown. This sub-section gives statutory backing to the present practice in respect of the collection of sales tax on sales of these goods.

Clause 29: Exemptions

Section 6 of the Principal Act is to be amended by this clause by removing the reference to "the person specified in that section" and substituting "a person liable to pay sales tax under that section". This is a drafting change consequential on the amendments of section 5 to reflect the fact that more than one person may now be liable under section 5 for the payment of sales tax.

This clause will also vary the citation of the Sales Tax (Exemptions and Classifications) Act 1935 in that section to reflect the changed method of citing Commonwealth Acts.

Clause 30: Delivery of goods on giving security or undertaking for payment of tax

The amendments to be made by paragraphs 30(a) to (d) to section 6A of the Principal Act are of a consequential nature to reflect the proposed change in the time when liability for sales tax arises and to effect some drafting changes that bring the sales tax law into line with the definitions and expressions used in the Customs Act.

Clause 31: Delivery of goods on giving general security or undertaking for payment of tax

Paragraph 31(a) will omit sub-section 6B(3) of the Principal Act which operates to deem goods delivered under that section to be entered for home consumption. This provision is to be contained in paragraph 2B(2)(j) (see notes on clause 26).

Paragraphs 31(b) to (d) are in similar terms and to similar effect as the amendments proposed by the preceding clause (see notes on clause 30).

Clause 32: Entries

Existing section 7 of the Principal Act requires a person who imports goods that are subject to tax under that Act to lodge an entry in the prescribed manner and form. The present prescribed form is unsuited to the computerised forms of entry now used for Customs purposes and the manner in which it is to be lodged does not conform to the customs law.

In order to make the entry required under section 7 more appropriate to modern administration techniques and to allow some flexibility to change the form of entry in the future should the need arise without the requirement to resort to legislative action, section 7 is to be repealed and a new section substituted.

The new section 7 will provide that, where goods are subject to tax under the Principal Act and a formal entry under section 36 or 37 of the Customs Act is lodged, the person who enters the goods shall lodge with the Collector, at the place where the person is required to give an entry under those sections, an entry in a form approved by the Commissioner. This more flexible approach accords with the latest practice in specifying forms used for taxation purposes.

Clause 33: Time for payment of tax

Where sales tax is imposed on the importation of goods, the tax must, under section 9 of the Principal Act, be paid at the time of entry of the goods for home consumption and at the time and place at which, and in the manner in which, customs duty on those goods is payable, or would be payable if the goods were subject to such duty. In the case of goods the sale value of which is ascertained in accordance with the opinion of the Commissioner, however, the person liable to pay sales tax upon that value is required to pay such tax on or before the date specified in a notice served by the Commissioner on that person.

New paragraph 9(1)(a) does not alter that position insofar as the former situation is concerned. Sales tax will continue to be due and payable by the person liable to pay the tax on the sale value of imported goods at the time when the goods are entered for home consumption by the person. Because, as mentioned in the notes on clause 28, all goods have a customs value, the Commissioner no longer has any need to form an opinion about the sale value of goods and the latter situation cannot now arise.

As mentioned earlier in the notes on clause 26, sub-section 96A(12) of the Customs Act will come into operation on a date to be fixed by Proclamation. New paragraph 9(1)(b) will ensure that, when that sub-section of the Customs Act comes into operation, persons deemed to enter goods as a result of its operation will be also liable to pay sales tax.

Under section 97 of the Customs Act a Collector of Customs may authorise the removal of goods from a bonded warehouse for public exhibition or testing without entry of the goods, provided security has been lodged with the Collector. If the goods are not retrieved, the security is enforced. Under proposed paragraphs 2B(2)(h) and (p), goods removed under section 97 of the Customs Act are deemed to be entered for home consumption for the purposes of the sales tax law.

Sub-section 9(2) will ensure that persons who are deemed to have entered goods to which section 97 of the Customs Act applies will not be liable to sales tax on the sale value of those goods unless the goods are not retrieved and it becomes necessary to enforce the security under the customs law.

New sub-section 9(3) will, broadly speaking, ensure that, where a person pays sales tax in advance of the entry of the goods for home consumption, that prepayment of tax when it becomes due and payable on the goods will be deemed to be a payment of sales tax.

Sub-section 9(4) is complementary to new sub-section (3) in that it allows a person who has made a prepayment of tax to obtain a refund of it at any time before the tax actually becomes due and payable.

Clause 34: Customs may hold goods until tax paid

Proposed sub-section 3(3) of Assessment Act (No. 1) is an anti-avoidance provision designed to ensure, where goods are sold on the basis of a quotation that the vendor believes to be suspicious, that sales tax is paid in respect of that sale, notwithstanding the fact of a purported quotation - see notes on clause 4.

Where imported goods are entered for home consumption by a registered person who quotes a certificate to a Collector, the Collector could form the opinion under sub-section 3(3) of Assessment Act (No. 1) as applied for the purposes of the Principal Act by sub-section 12(1) of that latter Act, that sales tax is properly payable in respect of the imported goods, despite the purported quotation. Under the present customs law, however, the Collector may not be able to retain possession of the goods until the sales tax payable is paid. Such a result would defeat the purpose of new sub-section 3(3) of the Assessment Act (No. 1).

This clause proposes the insertion of a new section - section 10A - in the Principal Act. Sub-section 10A(1) will entitle a Collector to retain imported goods entered for home consumption where, by virtue of sub-section 3(3) of Assessment Act (No. 1) as applied, sales tax payable in respect of the goods is not paid.

Under section 39 of the Customs Act 1901, a collector may be forced to deliver goods once customs duty (if any) has been paid, notwithstanding that any sales tax payable may not have been paid. Sub-section 10A(2) is a technical measure to ensure that a Collector's authority under section 39 of that Act to deliver up goods is subject to the operation of proposed sub-section 10A(1).

Clause 35: Refunds of tax

Section 11 of the Principal Act relates to refunds and offsetting of overpaid tax on imported goods. In particular, sub-section 11(2A) authorises the Commissioner to refund an amount of tax paid upon the sale value of goods imported by a registered person who was required to quote a certificate in respect of the importation, but who failed to do so. This provision is designed to meet cases where, through ignorance or misunderstanding, a registered person fails to quote in accordance with the law.

Paragraph (a) of clause 35 will omit existing paragraph 11(2A)(a) of the Principal Act and insert a new paragraph (a) which will be in identical terms to the existing paragraph except for the substituted reference to refer to "the entry for home consumption of imported goods" instead of "importation" of the goods.

Paragraph 35(b) will insert a new sub-section 11(2B) in the Principal Act. The need for sub-section 11(2B) arises as a consequence of the operation of proposed sub-section 3(3) of Assessment Act (No. 1) and is explained in more detail in the notes on clause 13 relating to proposed sub-section 26(3A) of that Act. Briefly stated, the Commissioner will be able to refund or remit any tax payable, as the case may be, subject to the usual conditions that govern refunds of sales tax.

Clause 36: Drawback

Where drawback of import duty paid in respect of any goods is allowed pursuant to section 168 of the Customs Act 1901, drawback of sales tax paid under the Principal Act in respect of those goods is allowable under section 11A of that Act.

Clause 36 will effect a number of technical consequential changes to section 11A to -

•

insert the correct form of reference to the Customs Act 1901;

•

refer to "customs duty" instead of the outdated expression "import duty"; and

•

refer to a Collector of Customs in terms of the defined expression "Collector".

Clause 37: Refunds of tax on rejected goods

Section 11B of the Principal Act provides for refunds of sales tax in circumstances where -

•

sales tax has been paid in respect of goods imported under a contract of sale;

•

the importer refuses to accept the goods under the contract;

•

the goods are destroyed by a Collector; and

•

the Commissioner is satisfied that customs duty (if any) has been, will be or would (if payable) have been refunded or remitted.

This clause will make a number of technical drafting amendments (similar to those proposed by clause 36) to section 11B to include the new expressions "entry for home consumption" and "customs duty" that are being inserted in the Principal Act by this Part.

Clause 38: Proceeds of Collector's sales

Section 276 of the Customs Act 1901 lays down certain rules that are to be adhered to by a Collector of Customs in relation to sales of goods by the Collector. Put simply, a Collector may sell goods by auction or tender having giving reasonable notice of the sale. The goods may be sold subject to customs duty and charges and the price paid shall be in cash on acceptance of a bid or tender.

Sub-section 277(1) of that Act sets out the order in which the price paid for goods sold by a Collector shall be allocated before the residual proceeds may be paid to the person entitled to the payment. That order is as follows:

•

expenses of sale;

•

customs duty (if any);

•

warehouse rent and charges; and

•

harbour and wharfage dues and freight (if any).

This clause proposes to insert a new section - section 11C - in the Principal Act so as to ensure -

•

where goods are sold by a Collector under section 276 of the Customs Act 1901 (paragraph (a)); and

•

sales tax is payable under the Principal Act in respect of that sale of goods (paragraph (b)).

that the sales tax is paid from the proceeds of the sale after payment of the expenses of the sale and customs duty (if any). New section 11C will apply notwithstanding the order of disbursements specified in section 277 of the Customs Act.

Clause 39: Application of Provisions of Sales Tax Assessment Act (No. 1) 1930

This clause will amend section 12 of the Principal Act to include the new royalty provision (section 3A of Assessment Act (No. 1)) among the provisions of that latter Act that are applied for the purposes of the Principal Act.

Briefly stated, the need for a refund of tax might occur where imported goods have been entered for home consumption by a registered person who quotes in the manner prescribed in the Sales tax Regulations, however, that quotation is, by virtue of the operation of proposed sub-section 3(3) of the Assessment Act (No. 1), to no effect. In these circumstances the Commissioner will be authorised by sub-section 11(2B) to refund or remit the tax payable, as the case requires.

But for its application to imported goods entered for home consumption, sub-section 11(2B) is in identical terms and to the same effect as the general refund provision, proposed sub-section 26(3A) of the Assessment Act (No. 1): see notes on clause 13.

PART VII - AMENDMENTS OF SALES TAX ASSESSMENT ACT (No. 6) 1930

Clause 40: Principal Act

This clause provides for the Sales Tax Assessment Act (No. 6) 1930 to be referred to in this Part as "the Principal Act".

Clause 41: Sale value of goods

Sub-section 4(1A) of the Principal Act provides that, where goods have been imported into Australia "tax-free", i.e., by quotation of a certificate by a registered person on the Customs entry of the goods and the registered person applies the goods to own use, the sale value of those goods is to be the sale value of the goods for the purposes of the Sales Tax Assessment Act (No. 5) 1930 that would have applied if that person had not so quoted.

This clause will, as a consequence of the amendments proposed to the Sales Tax Assessment Act (No. 5) 1930 by Part VI of this Bill, refer to a quotation in respect of the entry of goods for home consumption in lieu of the existing reference to "Customs entry".

Clause 42: Liability for tax

Sub-section 5(2) of the Principal Act ensures that, where goods have been imported into Australia "tax-free", i.e., by quotation of a certificate by a registered person on the Customs entry of the goods and the registered person applies the goods to own use, sales tax is payable.

This clause will, as a consequence of the amendments proposed to the Sales Tax Assessment Act (No. 5) 1930 by Part VI of this Bill, refer to a quotation in respect of the entry of goods for home consumption in lieu of the existing reference to "Customs entry".

Clause 43: Tax not payable on certain goods

Clause 43 will insert a new section - section 6A -in the Principal Act in order to avoid double taxation in respect of certain sales of goods.

Under proposed sub-section 2B(2) of the Sales Tax Assessment Act (No. 5) 1930, certain sales of goods are deemed, for the purposes of that Act, to be an entry of the goods for home consumption - see notes on clause 26. Those sales of goods would, but for the operation of proposed section 6A, be liable to sales tax under section 5 of the Principal Act and under the Sales Tax Assessment Act (No. 5).

New section 6A will ensure that a liability for sales tax in respect of deemed entries of goods only arises under Assessment Act (No. 5).

Clause 44: Application of provisions of Sales Tax Assessment Act (No. 1) 1930

Section 12 of the Principal Act operates to adapt and apply for the purposes of the assessment and collection of sales tax under that Act, the machinery provisions of the Sales Tax Assessment Act (No. 1) 1930.

Paragraph (a) of clause 44 will apply the definition of royalty (proposed section 3A of Assessment Act (No. 1) - see clause 5) for the purposes explained while paragraph (b) will ensure that a new refund provision - proposed sub-section 26(3A) - see clause 13 - will similarly apply in relation to quotations under the Principal Act.

PART VIII - AMENDMENTS OF SALES TAX ASSESSMENT ACT (No. 7) 1930

Clause 45: Principal Act

This clause provides for the Sales Tax Assessment Act (No. 7) 1930 to be referred to in this Part as the "Principal Act".

Clause 46: Tax not payable on certain goods

Clause 46 will insert new section 6A in the Principal Act. The new section will operate to the same effect as the identical provision inserted in Assessment Act (No. 6) 1930 by clause 43 - see notes on that clause.

Clause 47: Application of provisions of Sales Tax Assessment Act (No. 1) 1930

Section 12 of the Principal Act operates to adapt and apply for the purposes of the assessment and collection of sales tax under that Act, the machinery provisions of Assessment Act (No. 1).

This clause will apply proposed section 3A and sub-section 26(3A) of that Act in the Principal Act in the same way as a similar amendment of Assessment Act (No. 6) - see notes on clause 44.

PART IX - AMENDMENTS OF SALES TAX ASSESSMENT ACT (No. 8) 1930

Clause 48: Principal Act

This clause provides for the Sales Tax Assessment Act (No. 8) 1930 to be referred to in this Part as the "Principal Act".

Clause 49: Application of provisions of Sales Tax Assessment Act (No. 1) 1930

This clause will apply new section 3A and sub-section 26(3A) of Assessment Act (No. 1) in the Principal Act for the purposes of that Act - see notes on clause 44 for similar provisions in Assessment Act (No. 6).

PART X - AMENDMENTS OF SALES TAX ASSESSMENT ACT (No. 9) 1930

Clause 50: Principal Act

Clause 50 provides for the Sales Tax Assessment Act (No. 9) 1930 to be referred to as the "Principal Act".

Clause 51: Sale value of goods

Section 4 of the Principal Act describes the various sale values of goods that may arise in respect of certain goods in Australia dealt with by lease.

Clause 51 will insert a new sub-section - sub-section (4) - in section 4 of the Principal Act to provide that, where goods are leased subject to the payment of a royalty, the Commissioner may increase the sale value of the goods by such amount as in the Commissioner's opinion is the value of the royalty. This further sub-section is necessary as goods dealt with by lease are not covered by proposed sub-section 3A(6) to be inserted in the Sales Tax Assessment Act (No. 1) 1930 - see clause 5.

Clause 52: Refunds of tax

This clause will insert a new sub-section - sub-section 11(1B) - in the Principal Act to allow refunds of tax to be made where a registered person validly quotes a certificate but, by virtue of the operation of proposed sub-section 3(3) of Assessment Act (No. 1), as applied by section 12 of the Principal Act, tax is overpaid.

New sub-section 11(1B) is, in practical terms, identical in effect in relation to leased goods to proposed sub-section 26(3A) which deals with goods sold - see notes on clause 13.

Clause 53: Application of provisions

This clause will amend section 12 of the Principal Act to ensure that the new royalty provision (section 3A of Assessment Act (No. 1)) is applied in the Principal Act for the purposes of that Act. As explained in the notes on clause 51 a separate provision - sub-section 4(4) will apply to leased goods instead of sub-section 3A(6) of Assessment Act (No. 1).

PART XI - AMENDMENT OF SALES TAX ASSESSMENT (No. 1) AMENDMENT ACT 1978

As mentioned earlier in these notes, the transitional provisions contained in the Sales Tax Assessment (No. 1) Amendment Act 1978, that inserted in the sales tax law anti avoidance measures designed to secure payment of sales tax on the full value of goods manufactured for a person out of exempt materials supplied by that person to the manufacturer, can have an effect beyond their intention as transitional provisions. The amendments proposed by this Part will provide a cut-off date of 20 August 1981 to the operation of the transitional provisions in that Act to prevent continuing unintended use of the transitional arrangements.

Clause 54: Principal Act

By this clause the Sales Tax Assessment (No. 1) Amendment Act 1978 is to be referred to in this Part as "the Principal Act". That Act amended the Sales Tax Assessment Act (No. 1) 1930.

Clause 55: Goods deemed to be sold

This clause will insert a new sub-section 4(3) in the Principal Act that will terminate the operation of the transitional provisions contained in sub-section 4(2) with effect from 20 August 1981.

Clause 56: Sale value of goods

Clause 56 will effect a similar amendment, to that contained in clause 55, of section 5 of the Principal Act to close-off the operation of the transitional provision (sub-section 5(2)) with effect from 20 August 1981.

PART XII - AMENDMENT OF SALES TAX PROCEDURE ACT 1934

Clause 57: Principal Act

Clause 57 provides for the Sales Tax Procedure Act 1934 to be referred to, in this Part, as "the Principal Act". The Sales Tax Procedure Act provides the machinery for the collection and recovery of the sales tax, but obviates the necessity to establish which of the Assessment Acts a particular transaction falls under.

Clause 58: No refund of overpayment after 3 years

Section 12C of the Principal Act provides a limitation of three years upon the making of refunds of tax overpaid. The effect of the section is that no refunds of sales tax are to be made unless the overpayment is discovered by the Commissioner within 3 years of the date upon which the payment was made, or unless a request for refund in writing is lodged with the Commissioner within 3 years from the date upon which the overpayment occurred.

The limitation of 3 years upon the making of refunds imposed by sub-section 12C(1) of the Principal Act does not apply, under sub-section 12C(2), to prevent the making of refunds -

•

as the result of a decision given by a court or a Board of Review upon an appeal lodged by the taxpayer;

•

where the taxpayer successfully argues in court, in an action commenced within 6 months of making payment of tax, that particular goods were not manufactured in Australia and where the tax was paid "under protest";

•

in cases where a bad debt is incurred by the taxpayer (sub-section 26(2) of the Sales Tax Assessment Act (No. 1) and sub-section 11(2) of the Sales Tax Assessment Acts (Nos. 2, 3, 5, 6 and 7), and sub-section 4(1A) of the Sales Tax Assessment Act (No. 9));

•

where goods that have borne sales tax are sold to a Government Department, for its official use, at a price which does not include the tax previously paid (sub-section 26(4) of the Sales Tax Assessment Act (No. 1), sub-section 11(3) of the Sales Tax Assessment Acts (Nos. 2, 3, 5, 6 and 7));

•

by way of drawback of tax on imported goods that are exported from Australia (section 11A of the Sales Tax Assessment Act (No. 5)); or

•

by virtue of section 11B of Sales Tax Assessment Act (No. 5) which provides for a refund of sales tax in special circumstances on certain goods that are destroyed under supervision of a Collector of Customs.

Paragraph (a) of clause 58 will insert a new paragraph (ca) in sub-section 12(2) to exclude from the 3 year limitation on refunds a refund that arises by virtue of the operation of proposed sub-section 26(3A) of the Sales Tax Assessment Act (No. 1) 1930, or that sub-section as applied by any other Sales Tax Assessment Act. Briefly, an amount will be refundable under that provision where a valid quotation has been made to a vendor of goods, but the vendor has treated the quotation as invalid under proposed sub-section 3(3) of Assessment Act (No. 1) - see notes on clause 13.

Paragraph (b) of this clause will add a reference to a similar refund provision dealing with tax on imported goods to that described in the preceding paragraph in paragraph 12C(2)(f) - see notes on clause 35.

Paragraph (c) inserts a reference to another similar refund provision, by means of new paragraph 12C(2)(ha), that will apply in respect of goods in Australia dealt with by lease.

Under proposed sub-section 11(2) of the Sales Tax Assessment Bill (No. 10) 1985, the Commissioner is to be authorised to refund any tax paid on an amount of royalty where the whole of the tax payable, in respect of the sale value of the goods is refunded or refundable - see notes on clause 11 of the Sales Tax Assessment Bill (No. 10) 1985.

To the extent that sales tax on goods is refunded under any of the circumstances described in sub-section 12C(2) of the Principal Act (no three year limitation), any tax paid on royalties in respect of these goods should also be refunded without any three year limitation. Paragraph (e) of this clause will give effect to this concept by inserting new paragraphs (ia) and (ib) in sub-section 12C(2) of the Principal Act.

Clause 59: Access to premises, &c.

There are two major administrative problems that exist in relation to the provision - section 71 of the Sales Tax Assessment Act (No. 1) 1930 - in the sales tax law that authorises the Commissioner or an authorised officer access to buildings, premises, etc.

The first occurs in the everyday administration of the law in that there is no power of access to goods which may be subject to sales tax. It often happens that, without examining goods, their particular sales tax classification cannot be determined. In some cases, e.g., sunscreen preparations, fruit juices, etc., where the classification depends upon the composition of, or ingredients used in, goods, it may be necessary to analyse the goods before giving a ruling on the rate of tax applicable.

Secondly, it is unnecessarily burdensome, and indeed often impossible, for the Commissioner and his officers to specify the particular Assessment Act(s) under which access is required, since access is commonly necessary in order to determine under which Act the taxpayer's liability to tax will fall. This is the classic "Catch 22" situation.

This clause will overcome the second-mentioned problem by inserting the new access provision - section 12E - in the Principal Act, thus making it unnecessary to nominate the particular Assessment Act under which access is being sought. The new provision is also expanded in scope to include access to goods and the power to examine, test, analyse, etc. goods, - former section 71 is, therefore, to be repealed by clause 17.

Under sub-section 12E(1), a taxation officer authorised by the Commissioner may, for the purposes of the sales tax law -

•

enter and remain on hand or premises at all reasonable times (paragraph (a));

•

have full and free access to any documents or goods (paragraph (b));

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inspect examine, make copies of (including taking extracts of) documents (paragraph (c)); and

•

inspect or otherwise examine goods and, if necessary, remove or take samples of those goods (paragraph (d)).

If requested to do so by a person who is occupying land or premises, a taxation officer must produce an authority signed by the Commissioner or his delegate to the effect that the officer is authorised to exercise powers under the section - sub-section 12E(2).

Sub-section 12E(3) will ensure that an authorised taxation officer who has entered premises for the purposes of the sales tax law is to be entitled to reasonable facilities and assistance for the effective exercise of power under this section. This sub-section will overcome a situation that has arisen in the past whereby a similar information gathering power, to existing section 71 of Assessment Act (No. 1), section 263 of the Income Tax Assessment Act 1936, was held by the High Court, despite its wide and unqualified terms, not to impose an obligation on anyone to take positive steps to assist the Commissioner or his officers in their enquiries under the section.

Sub-section (4) defines the word "goods", as used in section 12E, in broad enough to cover both new and second-hand goods.

PART XIII - MISCELLANEOUS

Clause 60: Transitional

Under the amendments proposed by sub-clause 4(2) and Part XI of the Bill, certain persons will be brought within the concept of a 'manufacturer' with effect from 20 August 1981. Under sub-clause 60(1), such persons will, to the extent that they are not presently registered with the Commissioner as a 'manufacturer' have 28 days after the date of Royal Assent to the Bill (the 'prescribed day') to become so registered. But for this sub-clause, persons affected by the amendments mentioned would, by virtue of the operation of proposed paragraph 11(3F)(a) of the Sales Tax Assessment Act (No. 1) 1930 have been required to be registered within 28 days after 20 August 1981.

Sub-clause 60(2) is a savings provision to ensure that anything done under the registration provisions that are to be repealed by clause 6 (and any regulations made for the purposes of those provisions) continues to have effect as if done under the new registration provisions. Thus, for example, a person whose registration has been dispensed with may continue to rely on that dispensation. Such a person would, however, be required by new sub-section 11(3D) to apply for registration if the conditions in that sub-section were satisfied - see notes on clause 6.

Under proposed sub-section 11(3) of the Sales Tax Assessment Act (No. 1) 1930, applications for registration are to be in a form provided by the Commissioner and the Commissioner may require additional information in relation to such an application. By sub-clause 60(3), applications made before the date of Royal Assent will not need to be re-lodged, but will be processed as if they were applications made in accordance with new sub-section 11(3).

Sub-clause 60(4) is a re-statement of the common law position that a person cannot be convicted of any offence to be inserted by the Bill in relation to acts or omissions of the person that occurred before the date of Royal Assent (the 'prescribed day').

As was noted earlier, certain persons will, under sub-clause 4(2) and Part XI be treated as manufacturers with effect from 20 August 1981. Under section 21 of the Sales Tax Assessment Act (No. 1) 1930, (a 'prescribed provision') a manufacturer is required to furnish to the Commissioner a sales tax return within 21 days after the close of each month in respect of which the manufacturer engages in acts, transactions or operations that are subject to the sales tax law. The purpose of sub-clause 60(5) is to make it clear that section 21 (and similar provisions of the other Sales Tax Assessment Acts) only applies in relation to these particular manufacturers as if transactions that are now liable to tax and that occurred between 20 August 1981 and the date of Royal Assent occurred during the month in which the Bill receives Royal Assent (paragraph 60(5)(c)). In this way, these manufacturers will have until 21 days after the end of the month in which Royal Assent is given to furnish a sales tax return in respect of these transactions and pay the sales tax payable.

Sub-clause 60(5) will also ensure that, notwithstanding the three year time limit on recovering unpaid sales tax provided in section 12B of the Sales tax Procedure Act 1934, tax payable by persons who are to be treated as manufacturers with effect from 20 August 1981 by reason of the amendments proposed by sub-clause 4(2) to the definition of "manufacture" will be recoverable even though more than 3 years has elapsed since that date. Those persons were put on notice by the former Treasurer's announcement on 20 August 1981 of the then Government's intention to introduce the amendments contained in sub-clause 4(2).

Sub-clause 60(6) is another savings provision that deals with an importer's liability to tax on goods imported into Australia before the date of Royal Assent. The sub-clause will mean that tax on such goods will continue to be assessed and collected under the Sales Tax Assessment Act (No. 5) 1930 as it stood before the amendments proposed by Part VI of the Bill.

Sub-clause 60(7) is a drafting aid that expands on the particular transactions that a manufacturer may engage in and that are affected by sub-clause 60(5). They are -

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a sale or deemed sale of goods;

•

the treatment of goods as stock for sale by retail; or

•

an application of goods to the manufacturer's own use.

Sub-clause 60(8) will define a number of terms used in this clause. They are -

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"Assessment Act" which is defined to be the Sales Tax Assessment Act (No. 1) 1930;

•

"prescribed day", this being the date of Royal Assent to the Bill;

•

"prescribed provision" which refers to section 21 of the Assessment Act, or section 9 (which is in similar terms to section 21) in the Sales Tax Assessment Acts (Nos. 2, 3 and 4); and

•

"sales tax law", meaning the Assessment Act and the Sales Tax Assessment Acts (Nos. 2, 3 and 4), as the particular situation requires.

Clause 61: Amendment of various laws

The Sales Tax Assessment Bill (No. 10) 1985 together with 3 complementary taxing Bills, will counter certain sales tax avoidance schemes concerning the payment of royalties - see notes on these Bills. The proposed new Sales Tax Assessment Act (No. 10) 1985 necessitates a number of consequential amendments of other Commonwealth Statutes that refer to the existing Sales Tax Assessment Acts (Nos. 1 to 9).

Clause 61 will effect these amendments by ensuring that references to the nine existing Assessment Acts are replaced by the more general expression "an Act providing for the assessment of sales tax" that describes the existing nine Assessment Acts as well as the new (No. 10) Assessment Act.

SALES TAX (No. 5) AMENDMENT BILL 1985

Clause 1: Short title

This clause provides for the amending Act to be cited as the Sales Tax (No. 5) Amendment Act 1985.

Clause 2: Commencement

As this Bill is complementary to Part VI of the Sales Tax Laws Amendment Bill 1985 the Bill is, under this clause, to come into operation on the day on which the Sales Tax Laws Amendment Bill receives the Royal Assent. But for this clause this Bill would, by reason of sub-section 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after the date of Assent.

Clause 3: Principal Act

This clause will facilitate a reference to the Sales Tax Act (No. 5) 1930 which, in the Bill, is referred to as "The Principal Act".

Clause 4: Imposition of tax

Section 3 of the Principal Act formally imposes sales tax on imported goods. The rates applicable to the imported goods are set out in section 4 of the Act.

Paragraph (c) will, as a result of amendments proposed by Part VI of the Sales Tax Laws Amendment Bill to the Sales Tax Assessment Act (No. 5) 1930, insert the new sub-section 3(2) in the Principal Act. Sales tax imposed under sub-section 3(1) of the Principal Act will, under sub-section 3(2), be payable at the rates specified in section 4 of the Principal Act, being the rates in force at the time the goods are entered for home consumption.

Clause 5: Transitional

This clause is a transitional measure to ensure that goods imported into Australia before the date of commencement of this Bill, but entered for home consumption after that date are liable to sales tax under the law in force when the goods were imported, that is, at the rate applicable to the goods at the time of their importation. But for this clause, such goods would be subject to tax at the rate applicable at the date of entry for home consumption rather than that applicable at the time of importation. While the rate may be the same in the general run of cases, this would not be so if a change in rates were to occur between the two dates.

SALES TAX ASSESSMENT BILL (NO. 10) 1985

Introductory Note

As noted earlier in this explanatory memorandum it is a general principle of sales tax (a principle embodied in the sales tax law since its enactment in 1930) to levy tax on wholesale values that reflect all costs (including royalties) attributable to the production, wholesale distribution and sale of goods. Accordingly, sub-section 3(3) of the Sales Tax Assessment Act (No. 1) 1930 was enacted in 1930 with the purpose of including in the taxable sale value of goods all royalties paid in connection with the manufacture, purchase or sale of those goods (see earlier notes on clause 5 of the Sales Tax Laws Amendment Bill 1985).

A weakness in this provision was, however, exposed by the High Court in R.C.A. Ltd. v Federal Commissioner of Taxation (1977) 137 CLR 583. It became apparent as a result of that decision that, in certain circumstances, avenues existed to avoid payment of sales tax on royalties in respect of the production and sale of goods. In practical terms if, after the goods pass the point at which sales tax becomes payable (the taxing point), the royalty is payable and paid by a person who is not liable for payment of the sales tax, e.g., where the royalty is payable by a retailer, sub-section 3(3) of the (No. 1) Assessment Act does not operate to include the amounts of the royalty in the taxable value of the goods sold.

The purpose of the Sales Tax Assessment Bill (No. 10) 1985 (together with its 3 complementary Taxing Bills) is to ensure, where the sales tax law does not bring a royalty in respect of goods into the sales tax base, that sales tax will be payable by the person who actually pays the royalty. This Bill, which is in keeping with the existing structure of the sales tax legislation, provides the necessary machinery provisions for the assessment, collection and administration of the tax so payable.

The particular arrangements being put in place by this Bill will operate from the date of introduction of the measures into the Parliament.

Each clause of the Sales Tax Assessment Bill (No. 10) 1985 is discussed in more detail below.

PART I - PRELIMINARY

Clause 1: Short title

This clause provides for the new Act to be cited as the Sales Tax Assessment Act (No. 10) 1985. As explained in the note on the broad framework of the sales tax law at the commencement of this explanatory memorandum, the existing sales tax law is contained, inter alia, in 9 Assessment Acts, each with its complementary Taxing Act. This Act will become the tenth Assessment Act and is so designated in its short title.

Clause 2: Commencement

By clause 2, the Act is to come into operation on the date of introduction. But for this clause, the Act would, by reason of sub-section 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after Royal Assent.

Clause 3: Interpretation

This clause contains a number of definitions to assist in interpretation.

Sub-clause 3(1) defines various expressions used in the Bill. Each expression is to have the given meaning, unless the contrary intention appears:

•

"Act providing for the assessment of sales tax" means any of the existing Sales Tax Assessment Acts (Nos. 1 to 9) 1930. This expression is used in the Bill to identify situations where an amount of royalty has been included in the taxable sale value of goods under any of the existing sales tax Assessment Acts and will ensure that the amount of Loyalty will be excluded from the scope of this Bill.

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"Goods" is to have its ordinary meaning and is also defined to include both goods and commodities that have gone into use or consumption in Australia (second-hand or consumed goods). This definition of goods is, of course, broader than that presently used in the existing sales tax Assessment Acts (other than the (No. 9) Assessment Act) and is necessary because an amount of royalty in respect of goods may be paid at a time when the goods have gone into use or consumption, for example, after goods have been sold by retail. Royalties paid in respect of such goods are to be subject to tax under the provisions of this Bill provided the goods are themselves subject to sales tax.

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"Taxing Act" means the 3 Rating Acts. As the case requires, the expression refers to -

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the Sales Tax Act (No. 10A) 1985;

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the Sales Tax Act (No. 10B) 1985; or

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the Sales Tax Act (No. 10C) 1985;

An explanation of the purpose of each of these Acts is explained later in these notes.

Sub-clause 3(2) is a drafting measure which gives the same meaning to the expression "goods deemed to be sold" where used in this Bill as the identical expression has in clause 6 of each Taxing Bill.

PART II - LIABILITY TO TAXATION

This Part contains the main provisions for determining liability to sales tax for an amount of royalty that is not included in the taxable sales value of goods under any of the other sales tax Assessment Acts paid or payable in respect of goods deemed to be sold by the Taxing Bills. The provisions deal with -

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the goods that are the subject of sales tax (clause 4);

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the sale value of the goods (clause 5); and

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the liability to pay tax in respect of that sale value (clause 6).

Clause 4: Sales tax

The sales tax imposed by each Taxing Act is, under clause 4, levied and is payable upon the sale value of goods in Australia deemed to be sold by a taxpayer (see notes on clause 6 of the Taxing Bills).

Clause 5: Sale value

Clause 5 declares the sale value of goods (that is, the amount on which tax is payable) deemed to be sold by a taxpayer to be the value of the royalty. As mentioned earlier in these notes, to the extent an amount of royalty is included in the taxable sale value of goods under the Sales Tax Assessment Acts (Nos. 1 to 9) 1930, that amount is not, as this clause recognises, to be subject to tax again under the Bill.

Clause 6: Liability for tax

A person who is deemed to have sold goods in respect of which a royalty is paid (that person is, under clause 6 of each Taxing Bill, the person who has paid the royalty) is, by reason of clause 6, the person liable to pay sales tax upon the sale value of those goods.

PART III - RETURNS

Sales tax returns are (subject to certain exceptions) required to be lodged monthly with the Commissioner by every manufacturer or wholesale merchant of taxable goods. Under paragraph 12(1)(a) of the Bill (see notes on that paragraph), a person who is, under each Taxing Bill, deemed to sell goods is to be taken to be a wholesale merchant. Accordingly, this Part sets out the obligations in relation to sales tax returns for wholesalers generally that are to apply to persons who are deemed to sell goods. i.e., deemed wholesalers.

Clause 7: Returns, etc

Clause 7 will, consistent with each other Assessment Act, require every person who is deemed (under a Taxing Bill) to sell goods during a month to lodge, in the prescribed form, a sales tax return within 21 days after the close of that month. This requirement is modified by section 5 of the Sales Tax Procedure Act 1934 in that sub-section 5(2) of that Act provides that, where no return form is prescribed (as is presently the case), the return form shall be in such form and contain such information as authorised by the Commissioner.

Clause 8: Further returns

In addition to any monthly return that may be required by clause 7, the Commissioner may under clause 8, by notice in writing, call upon any person to furnish, within the time specified in the notice, such return, or such further return or fuller return, as the Commissioner requires - whether in that person's own behalf or as an agent or trustee.

Returns under this clause will be either "amended" returns or "supplementary" returns. A return may be required under this clause where the usual monthly return is either incomplete or inaccurate. An "amended" return would include the complete sale values for the month (or other period), whereas the latter would merely supplement the original return by covering certain transactions not included in that return.

PART IV - COLLECTION AND RECOVERY OF TAX

Clause 9: Time for payment of tax

Under sub-clause 9(1) every person liable to pay tax upon the sale value of goods deemed to be sold by that person must pay such tax within 21 days after the close of the month in which the goods are deemed to be sold. This requirement corresponds with the requirement placed on manufacturers and wholesalers generally. At the expiry of the 21 day period, any unpaid sales tax becomes due and payable by virtue of sub-clause 9(2). At this time, the sales tax is deemed to be a debt due to the Commonwealth and payable to the Commissioner under section 30 of the Sales Tax Assessment Act (No. 1) 1930 as applied by sub-clause 12(1) of this Bill.

Clause 10: Further tax

Sub-clause 10(1) will authorise the Commissioner -

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to assess the sale value upon which tax should have been paid in those cases where the Commissioner determines that tax is payable by a person and that person has not for some reason paid that tax (paragraph (a)); and

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to calculate the amount of tax that is so payable (paragraph (b)).

Under sub-clause 10(2) the Commissioner may raise an assessment against a taxpayer for an amount of sales tax in circumstances where the Commissioner considers tax ought to be levied. The circumstances under which such an assessment may be made are -

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where a person fails to furnish a return and sales tax is payable (paragraph (a));

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notwithstanding that a return may have been furnished by a taxpayer, where the return does not fully disclose the correct amount of sales tax payable (paragraph (b)); and

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irrespective of whether or not a sales tax return has been furnished by a person, the Commissioner believes that sales tax or extra sales tax is payable by the person (paragraph (c)).

Where an assessment has been made under this clause, a written notice (an assessment notice) of the tax payable is required to be sent to the person liable to pay the tax - sub-clause 10(3). An assessment notice is, under this sub-clause, to be issued as soon as is practicable after the making of the assessment.

Any tax specified in an assessment notice so issued is, by virtue of sub-clause 10(4) payable on or before the due date specified in the notice. While the invariable practice is to issue an assessment notice, the omission to give any such notice does not invalidate the assessment or the calculation made by the Commissioner - sub-clause 10(5).

Sub-clause 10(6) is a drafting aid that provides that a reference to "tax" in clause 10 includes further tax.

Clause 11: Refunds of tax

The Sales Tax Assessment Acts (Nos. 1 to 9) 1930 provide that, where the Commissioner finds in any case that tax has been overpaid and is satisfied that the tax has not been passed on by the taxpayer to some other person, or, if passed on to another person, has been refunded to that person by the taxpayer, the Commissioner may refund or offset the amount of tax found to be overpaid.

Sub-clause 11(1) makes similar provision for refunds of tax overpaid, in respect of royalties. The Commissioner may, instead of refunding an amount of overpaid tax, apply the amount against any liability of the person to the Commonwealth under any other Act administered by the Commissioner. In other words, if the person owes any other sales tax or income tax for example the refund otherwise due may be offset against that debt. Any excess remaining would, of course, be refunded to the person.

It is possible that, where sales tax has been paid by a person under this Bill on an amount of a royalty paid in respect of goods, the whole of the tax originally payable in respect of the taxable sale value of the goods under one of the sales tax Assessment Acts is refunded or refundable. In these cases, the Commissioner is to be authorised to refund any tax paid on the royalty (sub-clause 11(2)).

On the other hand, sales tax may become payable under the Bill on a royalty even though the goods in respect of which the royalty is paid have not reached the expected taxing point (see notes on clause 6 of the Taxing Bills). Sub-clause 11(3) provides that where tax was expected to be payable in respect of the goods, but it turns out that that tax is not payable, the Commissioner may refund any amount of tax paid on an amount of royalty paid on those goods.

The effect of sub-clause 11(4) is to make it an essential condition before overpaid tax is refunded that it be shown to the Commissioner's satisfaction that the tax -

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has not been passed on by the taxpayer to some other person; or

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if so passed on, has been refunded by the taxpayer to the person to whom it was passed on.

Thus, where a taxpayer has recouped the amount of the tax from a customer by selling goods at a tax inclusive price, no refund or offset will be made unless and until the customer has been reimbursed for the tax incorporated in the purchase price.

Sub-clause 11(5) is a technical anti-avoidance measure to ensure that where a rate of sales tax is reduced no person liable to tax on a royalty will be entitled to any refund, etc., on account of that alteration where the transaction in respect of which tax was payable occurred before the rate reduction took effect.

Sub-clause 11(6) is an interpretational measure defining the term "tax" when used in this clause to have (unless the contrary intention appears) its ordinary meaning and to also include both further tax and additional tax. In this context, additional tax includes -

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additional tax payable at the rate of 20 per cent per annum where tax or further tax is not paid within the statutory time; and

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additional tax, equal to up to double the amount of tax sought to be avoided, imposed where a person furnishes a return, or makes a statement in connection with tax payable, that is false or misleading.

PART V - APPLICATION OF SALES TAX ASSESSMENT ACT (NO. 1) 1930

Clause 12: Application of certain provisions

Clause 12 will operate to adopt and apply, for the purposes of the sales tax payable on royalties, the machinery provisions of the sales tax law contained in the Sales Tax Assessment Act (No. 1) 1930.

Sub-clause 12(1) applies, with appropriate variations, specified provisions of the Assessment Act (No. 1) for the purposes of the assessment and collection of tax on royalties.

The specified provisions relate to definitions (sections 3 and 3A) - except "goods" (see earlier notes on sub-clause 3(1)), administration (Part II), registration and certificates (Part III), certain sale value provisions (sub-sections 18(5B) and (5C)), information gathering (section 23), collection and recovery of tax (sections 25A, and 27 to 39 (inclusive)), objections, appeals and reviews (Part VII), penalty tax (Part VIII, other than section 46), and miscellaneous provisions (Part X) and the Schedule.

The application of these provisions to this Assessment Act will mean, for example, that a person will have the same rights of objection and appeal against an assessment to tax on a royalty as are available to a taxpayer who is dissatisfied with any other sales tax liability. In broad terms, an objection may be lodged against the sale value determined for goods.

There are, however, certain references in the Assessment Act (No. 1) that are to be applied in a particular way.

Under paragraph (1)(a) of clause 12, the definition of "Wholesale Merchant" as applied is to be construed in the royalty context as including a reference to a person who is deemed to sell goods. In this manner, the deemed wholesaler is required to comply with all the obligations of any wholesaler.

The provisions of the sales tax law relating to the responsibilities of liquidators are contained in section 32 of the Assessment Act (No. 1) and, by virtue of section 12 of the other Assessment Acts, apply in respect of those Acts also. Under section 32 (as applied), the liquidator of a company is required to provide, to the extent possible out of the assets of the company, for the company's liability to tax under any of the Acts administered by the Commissioner.

Paragraphs 12(1)(b) and (c) are designed to ensure that tax payable on royalties is included in the liabilities of a company that a liquidator is required to provide for in addition to any other sales tax or tax liability.

Under sub-section 35(2), an executor or administrator of a deceased's estate is required to lodge returns that have not been completed by the deceased person. Paragraph 12(1)(d) is a drafting measure to ensure that the reference to Part V in sub-section 35(2), as applied by this clause, correctly refers to Part III of Assessment Act (No. 10) - Part III sets out the requirements of persons in relation to lodgment of sales tax returns.

The Sales Tax Assessment Acts (Nos. 1 to 9) 1930 are supported by the Sales Tax Regulations, which set out in more detail the conditions governing the quoting of certificates by taxpayers and the machinery for registering taxpayers, collecting and refunding sales tax and reviewing objections by taxpayers. Sub-clause 12(2) will apply the general regulation making power contained in section 73 of the Sales Tax Assessment Act (No. 1) 1930 for all similar purposes in respect of collection of tax on royalties.

SALES TAX BILL (NO. 10A) 1985

SALES TAX BILL (NO. 10B) 1985

SALES TAX BILL (NO. 10C) 1985

Introductory Note

Section 55 of the Australian Constitution provides that taxation laws shall deal only with taxation. The section also carries this separation of taxation matters further by declaring that taxation laws shall deal only with one subject of taxation, and that laws imposing customs duties must deal only with customs duties and laws imposing excise duties must deal only with excise duties.

In recognition of this constitutional requirement, these 3 Bills formally impose the sales tax, where that tax is -

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a duty of excise (the Sales Tax Bill (No. 10A) 1985;

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a duty of customs (the Sales Tax Bill (No. 10B) 1985); and

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neither a duty of excise nor a duty of customs (the Sales Tax Bill (No. 10C) 1985,

being in each case sales tax payable under the proposed Sales Tax Assessment Act (No. 10) 1985 on royalties paid in respect of goods.

With the exception of one clause - clause 8 - in each of the Bills that imposes sales tax in its various forms, the clauses of the Taxing Bills are identical and are explained together in the following notes.

Clause 1: Short title

This clause provides for the proposed new Acts to be cited as the Sales Tax Act (No. 10A) 1985, the Sales Tax Act (No. 10B) 1985 and the Sales Tax Act (No. 10C) 1985, as the case requires - the numeric 10 in each case indicating that the Act applies to tax payable under the Assessment Act (No. 10).

Clause 2: Commencement

But for this clause each Bill would, by reason by sub-section 5(1A) of the Acts Interpretation Act 1901, come into operation on the twenty-eighth day after the date of Assent. By this clause, each Bill once enacted is to come into operation on the day on which the Sales Tax Assessment Bill (No. 10) 1985 comes into operation, namely the date of introduction.

Clause 3: Incorporation

As has been the invariable practice since Federation, the "Taxing" legislation is contained in separate Acts from the "Assessment" legislation but is to be read as one with the "Assessment" legislation. By this clause, each of the Taxing Bills is to be read as one with the Sales Tax Assessment Bill (No. 10) 1985.

Clause 4: Interpretation

This clause contains provisions to assist in interpretation.

Sub-clause 4(1) defines the expression "Assessment Act", as used in each of the Taxing Bills, to mean the Sales Tax Assessment Act (No. 10) 1985.

The sales tax law currently applies to any installation (as defined in section 3 of the Sales Tax Assessment Act (No. 1) 1930) that is attached, or taken to be attached, to the Australian seabed for the purposes of exploring or exploiting the mineral and non-living resources of the seabed and its sub-soil. In essence the sales tax law applies to oil drilling platforms and the like as if those installations were part of mainland Australia. "Australian seabed" is defined in sub-section 3(1) of that Act as the seabed adjacent to Australia that is within the areas described in Schedule 2 to the Petroleum (Submerged Lands) Act 1967 and the Coral Sea area as defined in that Act, where those areas form part of the Australian Continental Shelf, the seabed beneath the Australian territorial sea or the seabed beneath any internal waters (such as bays and inlets) that are not within the boundaries of a State or Territory.

The purpose of sub-clauses 4(2) and (3) is to provide, for the purposes of the Taxing legislation and the complementary Assessment legislation, that an off-shore installation, which is attached to the Australian seabed (as defined), is to be treated as part of Australia. Thus, any transaction involving the payment of a royalty that takes place on such an installation will be subject to sales tax in the same circumstances as would be the case if the transaction took place in Australia.

This will be achieved by proposed sub-clause 4(2) which will deem an off-shore installation, which is taken to be attached to the Australian seabed, to be part of Australia. Proposed sub-clause (3) provides that such an installation will cease to be part of Australia when it is detached from the seabed for the purpose, or so detached and at any time moved for the purpose, of being taken to a place outside Australian waters.

Clause 5: Imposition of tax

By this clause, sales tax is formally imposed on the sale value of goods in Australia that are, in accordance with the operation of clause 6 of each Bill, deemed to be sold by a taxpayer after the date of introduction. The sale value of the goods in this situation is simply the amount of the royalty paid in respect of the goods. Of course, sales tax will also be payable under one of the other Assessment Acts on a sale value of the goods equal to the wholesale selling price of the goods. The creation of a deemed sale and the ascertainment of a sale value of that deemed sale equal to the amount of the royalty is merely a drafting technique to impose and collect the sales tax on royalties.

Clause 6: Deemed sales

Under the existing sales tax law, there are several kinds of transactions, acts and operations that, when entered into or effected in relation to any goods, may give rise to a "taxing point" which in turn permits the determination of a taxable sale value of those goods. The several kinds are the -

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sale of goods;

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treatment of goods by a manufacturer as stock for sale by retail;

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application of goods to a taxpayer's own use;

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importation of goods; and

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lease of goods.

As explained in the notes on the Sales Tax Assessment Bill (No. 10) 1985, the present law leads to sales tax avoidance under schemes (of which there are a number of variations) implemented to exclude royalties from the taxable sale value of goods. Proposed sub-clause 6(1) is designed to ensure where a royalty is paid by a person that is not subject to sales tax under the Assessment Acts (Nos. 1 to 9) (paragraph (1)(b)) that there shall be deemed to be a sale of goods by that person. The effect of this clause, which is part of the drafting device referred to in the notes on clause 5, is to establish a separate basis for the purposes of the relevant Taxing and Assessment legislation for determining a taxable sale value - the amount of the royalty - for the purposes of imposing the sales tax on royalties.

However, if a deemed sale were taken to have occurred only when goods on which a royalty was payable had themselves become subject to tax, it would be possible for proponents of these royalty schemes to ensure payment of the royalty before the relevant goods passed the taxing point. Accordingly, paragraph 6(1)(a) will ensure that a deemed sale of goods will arise not only where sales tax is paid or payable on a sale value of goods under the existing sales tax law, but also where sales tax might reasonably be expected to become payable under that law. Put another way, where there is a reasonable expectation that goods will, at some time in the future, pass a taxing point and a royalty is paid in respect of those goods before that time, there will be a deemed sale of goods by the person who pays the royalty.

Sub-clause 6(2) is a drafting measure to ensure that a person will be deemed to sell goods at a particular time even though there has not been an actual sale of goods by the person (paragraph (a)) and, where there is an actual sale of goods, irrespective of the timing of that sale (paragraph (b)).

Clause 7: Rates of tax

This clause declares that the rate of tax on royalties will be the same rate of tax applicable to the goods that are the subject of the royalty payment. For example, where goods are sold and the rate of tax applicable to the taxable sale value of those goods is 20 per cent (the general rate), and an amount of royalty is paid in respect of those goods by a person who is deemed (under clause 6) to have sold goods at the time the royalty is paid, the same rate of tax (20 per cent) is to be applied to the sale value of the deemed sale of goods by the person.

Clause 8: Subject of taxation

As mentioned in the earlier notes on these Bills, clause 8 of each Bill imposes sales tax on one of the three subjects of taxation, namely, a duty of excise, a duty of customs and neither a duty of excise nor a duty of customs in order to satisfy the requirements of section 55 of the Australian Constitution.