Senate

Supplementary Explanatory Memorandum

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

General Outline and Financial Impact

Sales Tax Assessment Bill 1992

Sales Tax Amendment (Transitional) Bill 1992

Sales Tax (Exemptions and Classifications) Bill 1992

The amendments will make the following changes to the Bills:

General anti-avoidance provision

Change to the Bill: The amendments will clarify the circumstances in which the general anti-avoidance provision will apply. In particular, the provision will list the factors that the Commissioner must have regard to in deciding whether or not a scheme has been entered into for the sole or dominant purpose of obtaining a tax benefit. Also, the definition of 'dominant purpose' will be changed to refer to a purpose which is dominant as against all of the other purposes combined.

What the Bill currently provides: The conclusion as to whether or not a scheme has been entered into for the sole or dominant purpose of obtaining a tax benefit must be based on an objective consideration of relevant circumstances, but these circumstances are not listed. The definition of 'dominant purpose' refers to a purpose which is dominant when compared to each of the remaining purposes.

Revenue impact: None.

External costs

Change to Bill: The tax liability to be imposed on design, formulation or development costs, incurred by persons not otherwise liable to sales tax, will be deleted. The taxable value for royalty costs will be limited to the wholesale purchase price of the goods plus the royalty component for the goods.

What the Bill currently provides: The Bill provides for a liability to be imposed on a person, other than the manufacturer, who incurs design, formulation or development costs in relation to goods and sells the goods by retail or applies them to own use.

Revenue impact: Cost to revenue of $61m.

Untaxed goods

Change to Bill: Goods that have been acquired tax-free from a person covered by the small business exemption will no longer be regarded as untaxed goods when sold by retail or applied to own use.

What the Bill currently provides: Goods that have not previously been taxed are liable to tax if sold by retail or applied to own use. This includes goods that have previously been exempted from tax by the small business exemption (SBE).

Revenue impact: No cost to revenue as the original revenue estimates did not include an amount for goods covered by the SBE being treated as untaxed goods.

Leases

Change to the Bill: The leasing provisions will be extended to allow concessions for leases granted on a short-term basis in exempt circumstances. An exemption will apply if continuous short-term leases are to be granted exclusively in exempt circumstances. If short-term leases of goods are made in both taxable and exempt circumstances, there will be a pro-rata reduction in the tax payable on the goods. The new concessions will only apply if the lessor has entered into an agreement with the Commissioner of Taxation. The exemption for pallets will be omitted.

What the Bill currently provides: There is an exemption for a long-term lease if the lessee intends to use the goods for an exempt purpose.

Revenue impact: Cost to revenue of $3m in 1992-93 and $4m in 1993-94.

Deemed Manufacturers

Change to the Bill: Business inputs concessions will be available for a person who supplies materials to a manufacturer to be made up into goods, provided that the made-up goods are mainly for wholesale and/or indirect marketing sale by the supplier.

What the Bill currently provides: If a person supplies materials to a manufacturer to be made up into goods for resale by the person, then the Bills will limit liability to the actual manufacturer. As an offset to the removal of liability from the supplier, business inputs concessions were not to be available to the supplier.

Revenue impact: No cost to revenue as original estimates did not provide for any revenue gain from the removal of the business inputs concessions.

Donations to and by exempt bodies

Change to Bill: An exemption will be provided for:

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goods donated to exempt bodies;

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goods given away by exempt bodies; and

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goods for use as prizes and awards by exempt bodies.

What the Bill currently provides: Goods donated to exempt bodies by taxable persons may be taxable in certain circumstances. Goods given away by, or for use as prizes by, exempt bodies could also be taxable in certain circumstances.

Revenue impact: No cost to revenue as original estimates did not provide for any revenue gain from the removal of this exemption.

Repairs to goods owned by exempt bodies and exempt users

Change to Bill: An exemption will be provided for parts and materials incorporated by external repairers into goods owned by exempt bodies and exempt users.

What the Bill currently provides: Parts and materials used by external repairers in repairing goods owned by exempt bodies and exempt users will be taxable.

Revenue impact: No cost to revenue as original estimates did not provide for any revenue gain from the removal of this exemption.

Buildings owned or leased by exempt bodies

Change to Bill: An exemption will be provided, broadly, for goods incorporated into buildings that are owned by exempt bodies or leased by exempt bodies.

What the Bill currently provides: Goods that are incorporated into buildings by private builders and repairers will be taxable.

Revenue impact: No cost to revenue as original estimates did not provide for any revenue gain from the removal of this exemption.