House of Representatives

Explanatory Memorandum

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

Chapter 8

Exemptions

A. Introduction

8.1 This chapter describes the general situations in which assessable goods which are the subject of an assessable dealing will not be taxable. These situations are referred to as exemptions and are dealt with in Part 3 of the Sales Tax Assessment Bill 1992.

B. Explanation and Commentary

8.2 The basic structure of the new law is that assessable goods which are the subject of an assessable dealing will be taxable unless one of the exemptions applies.

What are the general categories of exemption?

8.3 There will be six general categories of exemption:

1.

An exemption Item applies to the assessable dealing, and quotation is not required.

2.

There is an eligible long-term lease.

3.

There is a quotation in respect of the dealing.

4.

The small business exemption applies to the dealing.

5.

The dealing is with goods that are intended for export.

6.

A miscellaneous exemption applies.

Exemption 1: An exemption Item applies and quoting is not required

8.4 There will be two specific exemptions in this category:

Exemption 1(a): An exemption Item is unconditionally satisfied;

Exemption 1(b): The dealing is a non-lease application to own use (AOU) and the applier intends to satisfy an exemption Item; and

8.5 Exemption 1(a): An exemption Item is unconditionally satisfied: An exemption Item is an exemption from sales tax for goods which are described in an item in Schedule 1 to the Exemptions and Classifications Bill 1992. [clause 5, definition of 'exemption Item']

8.6 There are two ways in which an exemption Item can be satisfied: unconditionally at the time of the assessable dealing or conditionally at the time of the assessable dealing. There are significantly different consequences under the sales tax law depending on which situation applies.

8.7 An exemption Item will be unconditionally satisfied if, at the time an assessable dealing occurs, all the requirements of an exemption Item are met. If this happens, there will be an exemption for that dealing. This exemption is available for every kind of dealing. Goods referred to in an exemption Item that will be unconditionally satisfied at the dealing time, no matter what the dealing, will be known as always exempt goods. [clause 24 of the Assessment Bill, and clauses 4 and 5 of the Exemptions and Classifications Bill]

Example 1:

An exemption for 'newspapers' will always be unconditionally satisfied at the dealing time.

Further examples of always exempt goods: Coal, firewood, tea, coffee, postage stamps, and manuscripts.

8.8 Exemption 1(b) : An exemption Item is conditionally satisfied (and the dealing is a non-lease AOU): An exemption Item is conditionally satisfied if, at the time of the assessable dealing, the goods are intended to be dealt with by a particular person so as to satisfy an exemption Item that is in force at the time of the assessable dealing.

8.9 Only in the case of an application to own use is there an exemption based solely on an intention to satisfy an exemption Item at the dealing time. In any other case, the exemption is available only if the intention is also evidenced by a quote by the person dealing with the goods. [clause 25 of the Assessment Bill, and clauses 4 and 5 of the Exemptions and Classifications Bill]

8.10 Statutory period: In all cases, exemption 1(b) is subject to the requirement that the applier must intend to satisfy the exemption Item for a minimum period, referred to in the new law as the statutory period. The applier must, at the time of the AOU, intend to use the goods so as to satisfy the requirements of the exemption Item throughout the whole of the statutory period. If that intention is satisfied at the time of the dealing, then the exemption will apply. This will be so, even though the applier might later change that intention and not satisfy the item throughout the whole of the statutory period. [clause 5 of the Exemptions and Classifications Bill]

8.11 Definition of 'statutory period': The statutory period commences at the time that goods are applied to own use and ends at the earliest of the following times:

(i)

after 2 years;

(ii)

when the goods are no longer reasonably capable of being used for the purpose for which goods of that kind are ordinarily used; or

Note:

The purpose of (ii) is to cover situations where the working life of the goods is less than 2 years.

(iii)

at a time that the Commissioner considers to be appropriate in special circumstances. [clause 5, definition of 'statutory period']

8.12 Extent of the changes: This exemption is a major part of the changes proposed by the new law to the operation of the conditional exemption system for goods. Under the existing law, there are no rules about giving effect to exemption for goods apart from a general statement that goods covered by an item in the first Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 are exempt from sales tax. An administrative system has developed based on the giving of exemption certificates in dealings where the dealer wants to rely on an exemption item. There are a number of shortcomings in that system, not the least of which is the absence of any liability to tax on persons who falsely give exemption certificates. The changes proposed to the existing law are:

(i)

statutory recognition of an exemption declaration system (see paragraph 8.18 and Chapters 14 and 15);

(ii)

imposition of liability on a person who falsely gives an exemption declaration (see Chapter 7);

(iii)

a requirement that the dealer must intend to use the goods so as to satisfy an exemption Item for the duration of the statutory period (see paragraph 8.10).

8.13 Examples of the exemption for a non-lease AOU:

Example 1: AVW Pty Ltd applies goods to own use. The goods have an effective working life of 10 years. At the time of the first AOU, AVW intends to use the goods in accordance with an exemption Item for 3 years and then to sell them. After 6 months of such use, AVW's business experiences a downturn and it is forced to sell the goods.

Result: AVW's AOU of the goods is exempt from tax because, at the time of the AOU, it had the intention to use the goods for the statutory period in accordance with an exemption Item. A change of intention after the dealing time does not affect liability.

Example 2: X applies goods to own use. The goods have an effective working life of 10 years. An exemption Item applies to the goods if they are used mainly (i.e. more than 50%) for an exempt purpose. X intends to use the goods exclusively for the exempt purpose for 18 months and then to use them for another 18 months exclusively in taxable circumstances.

Result: X is not entitled to the exemption and the AOU is taxable. The requirement is that the goods must be used mainly for the exempt purpose over the entire statutory period. This does not entitle X to argue that exclusive use over 18 months exceeds 50% use over 2 years and, hence, satisfies the exemption Item. It does not.

Exemption 2: The dealing is a lease AOU and the lease is an eligible long-term lease:

8.14 The granting of a lease of assessable goods will be treated as an application to own use under the new law. If the lease AOU is an assessable dealing, there will be an exemption if the lease is an eligible long-term lease. This is part of the new approach to the taxation of leases. This will be one of only 2 situations where an exemption will apply to the grant of a lease, (the other is where the lessee intends to export the goods - see paragraph 8.44). The new approach can be summarised as:

(i)

the first lease, and only the first lease, of assessable goods will be an assessable dealing (known as a lease AOU); [clause 5, definitions of 'application to own use' and 'lease AOU']

(ii)

the lease will be taxable unless it is an eligible long-term lease. [clause 26]

(iii)

the person who grants the lease the lessor will be the taxpayer; [clause 16 and Table 1]

(iv)

if the lease is taxable, then its taxable value will be the full wholesale value of the goods. The length of the lease and the amount of the lease payments will not be relevant for determining taxable value. [clause 34 and Table 1]

Leases are discussed in more detail in Chapter 19.

8.15 Definition of 'eligible long-term lease': An eligible long-term lease must satisfy 3 conditions:

(i)

the term of the lease must be for at least as long as the statutory period;

(ii)

the lessee must give to the lessor, at or before the grant of the lease, a statement that the lessee intends to use the goods so as to satisfy an exemption Item, at least until the end of the statutory period;

(iii)

if the lessor has previously borne tax on the goods, no part of that tax must have been passed on to any person.

Note:

Condition (iii) is relevant only to the credit rules and not to exemption.

If all these conditions are satisfied, and the lease is of assessable goods, then the lease AOU will not be taxable. [clause 5, definition of 'eligible long-term lease']

8.16 Examples of the exemption for eligible long-term leases

Example 1: X holds tax-free stock. X leases to EMG goods with an effective working life of 10 years. The term of the lease is 2 years. EMG gives a statement to X that EMG intends to use the goods to satisfy an exemption Item for the full period of the lease.

Result: X will not be taxable on the lease AOU.

Example 2: Leasing company X leases an item of goods to Y The goods have an effective working life of 10 years. The lease is for a period of 18 months with an option to renew for a further 12 months. Y gives a statement to X that Y intends to use the goods throughout the 18 month term of the lease to satisfy an exemption Item. Y also intends, at the time the lease is entered into, to take up the option and to continue to use the goods for an exempt purpose for the additional 12 months. This is also included in the statement.

Result: X is taxable on the lease. The lease is only entered into for a period of 18 months, which is less than the statutory period. While Y intends to take up the option for the additional 12 months, there is no guarantee that this will happen and so the exemption does not apply.

Exemption 3: There is a quotation in respect of the dealing

8.17 There will be an exemption whenever a quotation is made in respect of an assessable dealing, at or before the dealing time. This exemption is available for every kind of assessable dealing except an application to own use. [clauses 27 and 28]

8.18 What is quotation? Quotation is a mechanism that will prevent tax being payable on an assessable dealing (other than an application to own use). Quotation is discussed in greater detail in Chapters 14 and 15. The two purposes of quotation are to defer taxability to a later assessable dealing or to give effect to a full exemption from tax for particular goods. Broadly, there will be two types of quotation:

(i)

quotation by a registered person of their registration number; or

(ii)

quotation by an unregistered person of an exemption declaration. [clause 5, definition of 'quote']

A person will be entitled to quote in respect of an assessable dealing if they intend to satisfy one of the grounds for quotation (these are discussed in Chapter 15). If the quotation is made on the basis that the quoter intends to satisfy an exemption Item in respect of the goods, the intention must be that the exemption will be satisfied throughout the whole of the statutory period (see paragraphs 8.10-8.11 ). This requirement does not apply in the case of a registered person quoting on the basis of a non Exemption Item quoting ground e.g. acquiring goods for sale by wholesale. [subclause 5(1) of the Exemptions and Classifications Bill]

8.19 Who can quote? The following persons can quote:

(i)

in the case of a sale - the purchaser.

(ii)

in the case of a delivery of customer's materials goods - the customer.

(iii)

in the case of a local entry - the taxpayer. i.e. broadly, the person making the entry);

(iv)

in the case of a removal of airport shop goods from a customs clearance area - the taxpayer. i.e. the person removing the goods).

8.20 Consequences of quotation: If the quoter does not intend to satisfy a quotation ground at the time of quoting, but still quotes, then the quoter will be guilty of an offence. This will not, of itself, impose a liability to tax on either the quoter or the person receiving the quote. However, anything that the quoter does with the goods after acquiring them will constitute an assessable dealing. If, at the time of that later assessable dealing, an exemption does not apply then the dealing will be taxable. This closes a major gap in the law which is discussed in greater detail in Chapter 7.

8.21 Examples of the exemption where there is quotation:

Example 1: X is an unregistered person who purchases goods under quote of an exemption declaration. At the time of giving that declaration, X does not intend to satisfy any exemption Item in respect of the goods. X immediately sells the goods by retail to Y. Y does not quote in respect of the purchase.

Result: X is guilty of an offence of making a false quotation. X is also taxable on the subsequent sale to Y , which is an assessable dealing (AD2b or 12b - retail sale of goods obtained under quote).

Example 2: Y is a registered person who purchases goods under quote of a registration number. At the time of purchasing the goods, Y does not intend to satisfy any of the quotation grounds for a registered person. Y subsequently applies the goods to own use. At the time of AOU, Y does intend that the goods will be used to satisfy an exemption Item throughout the whole of the statutory period.

Result: Y is guilty of an offence of making a false quotation. However, Y is not liable to tax on the subsequent AOU because at the time of AOU Y had the intention of satisfying an exemption Item.

Example 3: Z is an unregistered company. It is part of a company group comprising companies X, Y and Z. There is an exemption Item for machinery for use mainly (i.e. more than 50%) for the bulk handling of grain. Z quotes on a purchase of goods to be used exclusively by X, Y and Z in equal proportions for bulk handling of grain throughout the statutory period.

Result: Z is not entitled to quote and will be liable to tax on the first AOU of the goods. The exemption requires that more than 50% of the use be by the quoter Z .

Exemption 4: The small business exemption applies to the dealing

8.22 What is the small business exemption? In broad terms, the small business exemption will be available to persons whose sales tax liability, over a 12 month period, is $10,000 or less.

8.23 Why have a small business exemption? The small business exemption is designed to provide an exemption for persons who have only a small annual sales tax liability. The purpose of the exemption is partly concessionary and partly to avoid the administrative costs of processing large numbers of small tax payments. Notwithstanding its name, the exemption is not limited to taxpayers who carry on a business. Rather, it is linked to assessable dealings (not all of which have a business test).

8.24 The intention is that persons who come within the exemption should not pay tax on their outputs but they should pay tax on their inputs The exemption will therefore not be available to dealings with goods obtained under quote, or output goods that are 'linked' to input goods that have not borne tax.

8.25 When will the exemption apply? The small business exemption will apply only if all of the following conditions are met:

Condition 1: The current dealing is one of the kinds of assessable dealing that is covered by the exemption (not all kinds are covered);

Condition 2: The goods for which exemption is sought (the 'current goods') were not obtained under quote by the taxpayer;

Condition 3: The current goods were not manufactured by the taxpayer on another manufacturer's premises;

Condition 4: The total tax liability for the current dealing, and all other countable dealings in the previous 2 months, is $10,000 or less;

Condition 5: The taxpayer has a reasonable expectation that the total tax liability for the next months will continue to be $10,000 or less; and

Condition 6: The inputs for the current goods have previously borne tax. [clause 29]

8.26 Condition 1: What dealings will the exemption apply to? The exemption will apply to a wider range of taxpayers and their dealings than does the small manufacturer's exemption in the existing law. The new exemption will be 'dealings' based, and the exemption will apply to all assessable dealings except the following:

(i) local entry of imported goods (AD10);

Reason: In the absence of the exception, every person in Australia would receive a $10,000 tax concession for goods which they import themselves or purchase in bond from importers.

(ii) removal of Australian or imported airport shop goods from a customs clearance area - (AD4b and AD14b);

Reason: This will avoid giving a $10,000 tax concession to international travellers arriving in, or returning to, Australia.

(iii) an AOU of Australian goods or imported goods by a person, other than the manufacturer, where the goods have not been obtained under quote, but they have not previously passed a taxing point - (AD3a and AD13a);

Reason: Under the existing law, it is possible for goods to fall through the sales tax net where they were acquired tax-free by some method other than purchase under quote. These dealings are designed to close that gap. It is appropriate that these dealings be treated similarly to dealings with goods obtained under quote. Therefore, the exemption will not apply to these dealings. [paragraph 29(4)(c)]

The fact that the exemption is not available if the current goods have been obtained under quote (see Condition 2), means that the exemption will not be available for any of the following dealings:

(iv) a retail sale of Australian goods or imported goods obtained under quote (AD2b and AD12b);

Reason: Dealings of this kind would often contravene the particular ground quoted to acquire the goods tax-free. Dealings AD2b and 12b will ensure that tax is collected when the goods are dealt with subsequently. To apply the concession to these dealings would allow the exemption to persons who abuse the quotation system. While there will be some situations where such a sale would not be in contravention of a quoting ground (e.g. where the goods are acquired under quote as part of the common stock of a person who is 'mainly a wholesaler'), these sales will also not attract the concession.

(v) an AOU of Australian goods or imported goods obtained under quote - (AD3c and AD13c).

Reason: Same as for (iv). [paragraph 29(4)(a)]

Example 1: GB imports goods which GB then sells by retail. GB is not entitled to quote on the importation of the goods. Does the small business exemption apply to exempt the local entry of the goods from tax?

Result: The small business exemption will not apply because the local entry of imported goods is one of the dealings to which the small business exemption will not apply.

Example 2: JH is a registered farmer. JH quotes and purchases a motor vehicle tax-free. JH was entitled to quote because at the time of purchase JH intended to satisfy a business inputs exemption Item. However, JH in fact uses the motor vehicle otherwise than in accordance with the exemption Item.

Result: The application to own use of the vehicle will be an assessable dealing. The small business exemption will not apply because the dealing is an AOU of goods obtained under quote. Therefore, JH must pay tax on the vehicle at the dealing time.

8.27 Condition 2: The current goods must not have been obtained under quote.

Reason: To ensure that the output dealing with stock will be exempt only if tax was paid at the time of acquisition of that stock. This condition will ensure that, in addition to the dealings listed in (iv) and (v) above, AD1b, AD2d, AD11b and AD12d dealings with goods obtained under quote will not be covered by the small business exemption. [paragraph 29(4)(a)]

Example: An unregistered retailer purchases trading stock tax-paid. The taxpayer sells the stock by wholesale (to a purchaser who doesn't quote). The taxpayer's current and countable dealings are below the $10,000 tax threshold.

Result: The sale of the stock will be an assessable dealing. The small business exemption will apply. Therefore, the output dealing will be exempt. There will be no credit available for the tax paid on the purchase of the stock.

8.28 Condition 3: The current goods must not have been manufactured by the taxpayer in circumstances covered by clause 8.

Reason: Clause 8 will ensure that tax is collected where goods are manufactured under arrangements whereby the customer in effect becomes the manufacturer of the goods. This situation is explained in greater detail in Chapter 7. The tax is collected from the customer who is taken to have manufactured the goods in the course of a business. The customers are usually individuals who do not engage in other assessable dealings. If the small business exemption were to apply to the customer in these circumstances, the purpose for which clause 8 was inserted would be defeated. [paragraph 29(4)(d)]

8.29 Condition 4: Prescribed limits must not be exceeded in previous 12 months

This condition will be satisfied if the total tax liability for the current (assessable) dealing, and all countable dealings in the past 12 months, is $10,000 or less. [subclause 29(2)]

8.30 What are countable dealings? Countable dealings will not correspond exactly to the class of dealings to which the exemption applies. Countable dealings will be any assessable dealings except:

(i) a local entry of imported goods or a removal of Australian or imported goods from a customs clearance area - AD4b, AD10 or AD14b;

Reason: The exemption will not apply to these dealings. Therefore, they will not be counted for the purposes of determining whether the $10,000 threshold has been exceeded.

(ii) an assessable dealing that would have been exempted from tax because of a business inputs exemption Item, if the taxpayer had been registered at the time of that assessable dealing. [subclause 29(7)]

Reason: These dealings will be with goods which are applied to own use as business inputs but are taxable because an exemption Item does not apply (e.g. because the relevant exemption Item is marked [R] but the taxpayer is not registered). As their value will be counted eventually in the value of any dealing with the output goods, to count both the input and the output dealings would not give a true reflection of the taxpayer's sales tax liability - it would amount to a double count which would more quickly push some taxpayers above the $10,000 limit, and so outside the benefit of the exemption.

8.31 How do you calculate the 'tax' for the $10,000 limit? Tax on the current dealing is to be calculated on the assumption that the dealing is taxable. With one exception, tax on countable dealings will only be capable of calculation if the dealing was in fact taxable. The exception will be where the dealing was not taxable because the small business exemption applied. In that case, tax will be calculated on the countable dealing on the assumption that the dealing was taxable. [subclause 29(6)]

Example: X purchases goods tax-paid which X then sells by wholesale. The sale is an assessable dealing and no exemption applies. X is liable to pay $2,000 tax on the sale. All of X 's sales in the preceding 12 months were covered by the small business exemption. If the small business exemption had not applied X would have been liable to pay a total of $7,000 tax on those previous dealings.

Result: The small business exemption applies to exempt the current assessable dealing from tax because:

•

tax had been paid on the purchase of the goods; and

•

X's Tax liability on its total current and countable dealings for the previous 12 months is only $9,000 i.e. $2,000 tax on the current dealing (to be calculated on the assumption that it will be taxable) plus $7,000 tax on the countable dealings (which because they were exempt only by virtue of the small business exemption, are treated as though they were taxable).

8.32 Condition 5: Prescribed limits not to be exceeded in next 12 months

This condition will be satisfied if, at the time of the current assessable dealing, the taxpayer has a reasonable expectation that the total tax liability for the current dealing, and all countable dealings for the next 12 months will also be $10,000 or less. [subclause 29(3)]

8.33 Condition 6: All inputs must have previously borne tax: The small business exemption will not apply if the current goods are in any way 'linked' to taxable inputs that have not previously borne tax. This condition will not be relevant where the inputs are always exempt goods. The purpose of this condition is to prevent persons from obtaining their business inputs tax-free and then also attempting to take advantage of the exemption on their outputs. The exemption will therefore not apply if any Of the input goods have not borne tax. It is therefore necessary to determine:

(i)

whether the appropriate link exists between the current goods and the input goods; and

(ii)

if so, whether the input goods have borne tax. [paragraph 29(4)(b)]

8.34 The link: There will be a 'link' if the input goods are linked with the current goods in any of the following ways:

(i)

the input goods, or some essential element of the input goods, has become an integral part of the output goods; [subparagraph 29(5)(a)(i), and clauses 5 and 7, definition of 'raw materials']

Note:

This is intended to cover input goods that are applied to own use as raw materials in the manufacture of the current goods. The wording closely follows that of the definition of 'raw materials'.

(ii)

the input goods have been used in connection with the output goods in the carrying out of an activity covered by an exemption Item marked [R] ; [subparagraph 29(5)(a)(ii)]

Note:

This category most frequently covers machinery used in the manufacture of goods. For this category of input goods, the goods will only be linked if the input goods were first applied to own use less than 2 years before the current dealing, If the input goods are used in this way, they will be business inputs for the purposes of the new law.

(iii)

something that formed part of the input goods at the time of an assessable dealing with the input goods has become an integral part of the output goods. [subparagraph 29(5)(a)(iii)]

Note:

This is intended to cover, for example, a part of defective input goods that have been returned by a purchaser and have been re-used in manufacturing the output goods.

8.35 The linked goods have not previously borne tax: There will be no exemption on the dealing if the linked goods have not previously borne tax - that is, if:

(i)

the taxpayer has not borne tax on the goods because they have been exempted from tax by virtue of one of the business input exemption Items marked [R] ;

(ii)

the taxpayer has borne tax on the input goods, but has become entitled to a credit for any of that tax. [paragraph 29(5)(b)]

Note:

A person will have borne tax on goods if, and only if:

•

the person has become liable to tax on an assessable dealing with the goods; or

•

the person purchased the goods for a price that included tax; or

•

the person was the customer for an AD4a delivery of the goods and did not quote in respect of the delivery. [clauses 5 and 11, definition of 'borne tax']

Example: M is a registered manufacturer of taxable goods. M purchases the raw materials used in the manufacture of those goods tax- paid i.e. M refrains from quoting on their purchase). The machinery used in the manufacture of the goods was acquired by M tax- free but was first used by M more than 2 years ago. M makes retail sales of the manufactured goods. Tax on M. current and countable dealings is within the $10,000 threshold.

Result: The small business exemption will apply to exempt the retail sales from tax because:

•

the dealing is a type to which the small business exemption is capable of applying;

•

the raw materials used in the manufacture of the goods have borne tax;

•

although the machinery used in the manufacture was originally acquired tax-free, it was first used applied to M's own use more than 2 years ago;

•

M's dealings come within the $10,000 threshold.

8.36 Credits: If a taxpayer is for any reason not entitled to access the small business concession, and they have paid tax on their inputs (i.e. they are liable to tax on both input and output goods), they will be entitled to a credit for tax borne on the input goods. However, the small business exemption will not then be available for goods produced from those input goods.

Exemption 5: The assessable dealing is with goods that are intended for export

8.37 One of the basic rules of both the existing law and the new law is that there is an exemption for an assessable dealing with goods that are to be exported. There are several reasons for this rule: to assist Australia's exports; to avoid the goods being taxed twice (the second time in the country to which they are exported); and to encourage tourism in Australia.

8.38 There will be 5 exemptions based on export:

Export exemption 4(a): If the goods are sold and the seller is required to export them. [clause 30]

Export exemption 4(b): If the goods are sold or delivered to a person who intends to export them, otherwise than as accompanied baggage. [clause 30]

Export exemption 4(c): If the goods are sold or delivered to an eligible foreign traveller in accordance with the prescribed rules for export. [clause 30]

Export exemption 4(d): If the dealing is a packing AOU and the applier intends to export the container with their contents. [clause 31]

Export exemption 4(e): If the dealing is a lease AOU and the lessee intends (or the lessor is required) to export the goods. [clause 32]

8.39 Export exemption 4(a): Export by seller: This exemption applies only to goods that are the subject of a sale. The contract of sale must require the seller to export the goods while the goods are still assessable goods. [paragraph 30(1)(c)]

8.40 Export exemption 4(b): Export by purchaser/customer: This exemption applies to goods that are the subject of a sale or a delivery of customer's materials goods. The purchaser or customer must intend, at the time of the sale or delivery, to export the goods while they are still assessable goods. The intended method of export cannot be as accompanied baggage if it is, exemption 4(c) may apply). [paragraphs 30(1)(b) and 30(2)(b)]

8.41 Export exemption 4(c): Export by eligible foreign traveller: There will be an exemption for goods to be exported by certain foreign travellers. This exemption will apply to sales and to delivery of customer's materials goods, made in accordance with the prescribed rules for export sales to eligible foreign travellers. These rules will be set out in the proposed new Sales Tax Regulations. [paragraphs 30(1)(a) and 30(1)(b), and clause 5, definitions of 'eligible foreign traveller' and 'prescribed rules for export sales']

8.42 Export exemption 4(d): Containers for export: The general exemptions for goods for export (Export exemptions 4(a) and 4(b)) require that the goods be assessable goods at the time of export. Any application to own use of the goods in Australia before export will be an assessable dealing and the export exemption will not be available. There will be, however, 2 situations where the export exemption will be available to goods that have been applied to own use in Australia before export. The first situation is an AOU of a container (known as a packing AOU) where both the container and the contents are intended to be exported. The second situation, which involves a lease AOU, is discussed in Export exemption 4(e) (paragraph 8.44).

8.43 Under the proposed new approach to the treatment of containers, goods broadly will be taken to be applied to own use when any contents are placed in them. This is defined as a packing AOU. In the case of a packed container, the general exemptions for goods for export (Export exemptions 4(a) and 4(b)) will not be available because the container is no longer assessable goods. Export exemption 4(d) will provide an additional ground for exempting the packing AOU when the container and its contents are intended for export by the applier, or if the applier packed the contents on behalf of another person - the applier expects that the other person will export the container with those contents. Containers are discussed in more detail in Chapter 20. [clause 31]

8.44 Export exemption 4(e): Leased goods for export: The general exemptions for goods for export require that they still be assessable goods at the time of export. The grant of a lease of goods to a lessee is an application to own use and the leased goods cease to be assessable goods at that time. This would mean that leased goods, which have not been physically used in Australia, could not be covered by the export exemption. That result is not intended. In order to avoid it, there will be a special exemption for goods which are leased. The exemption will apply to the lease AOU if at the time of the lease AOU:

(i)

the lessor is required, by the terms of the lease, to export the goods; or

(ii)

the lessee intends to export the goods without using them in Australia and has given evidence of intention to export to the lessor. [clause 32]

Exemption 6: Miscellaneous Exemptions

8.45 There will be two other exemptions:

(i)

if the goods have previously been taxed while in bond. This exemption applies only to a dealing that is a local entry.

(ii)

if the taxpayer is an exempt person at the dealing time. This exemption applies to all dealings.

8.46 Goods taxed in bond: There will be an exemption at the time of a local entry (AD10) of goods if the goods entered have previously been the subject of a taxable dealing while in bond, or still under the control of the Customs. [clause 33]

8.47 Taxpayer is an exempt person: A person may be exempt for a reason outside the sales tax law. For example, an authority may be exempt from sales tax by virtue of the legislation that established it.

C. Summary of Main Changes

8.48 The main changes to the existing law discussed in this chapter are:

D. Structure of Exemptions

8.49 The following table shows the general structure of the exemptions, and their relationship to the assessable dealings.

E. Transitional Arrangements

8.50 The Sales Tax Amendment (Transitional) Bill 1992 sets out the transitional arrangements that will apply to the new law. These arrangements are discussed in full in Chapter 23. They include provisions of general application as well as special provisions applicable to particular elements. There will be special transitional provisions in the Bill that apply to the small business exemption.

8.51 Broadly, the special transitional provisions:

•

will preserve the benefit of existing items 100 and 103 (the small manufacturers exemptions) of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 for any manufacturer who will be taxable on a dealing under the new law, but would have been exempt if items 100 and 103 continued to apply. This is discussed in greater detail in paragraph 23.20; [clause 12(1) of the Sales Tax Amendment (Transitional) Bill 1992]

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will extend the concept of countable dealings to include acts, transactions or operations taxed under the old law (or exempted by items 100 or 103). This is discussed in paragraph 23.21;

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will ensure that dealings with goods manufactured before the first taxing day from tax-paid raw materials will not be entitled to exemption. This is discussed in paragraph 23.22. [clause 13 of the Sales Tax Amendment (Transitional) Bill 1992]