House of Representatives

Sales Tax Assessment Bill 1992

Sales Tax Assessment Act 1992

Sales Tax Imposition (Excise) Bill 1992

Sales Tax Imposition (Excise) Act 1992

Sales Tax Imposition (Customs) Bill 1992

Sales Tax Imposition (Customs) Act 1992

Sales Tax Imposition (General) Bill 1992

Sales Tax Imposition (General) Act 1992

Sales Tax Amendment (Transitional) Bill 1992

Sales Tax Amendment (Transitional) Act 1992

Explanatory Memorandum

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

Registration

A. Introduction

13.1 This chapter discusses the circumstances in which a person may apply to the Commissioner of Taxation for registration under the Sales Tax law. Registration is a necessary pre-condition to the quotation of a registration number (which is discussed in Chapters 14 and 15).

Registration is dealt with in Part 6 of the Sales Tax Assessment Bill 1992.

B. Explanation and Commentary

What is registration?

13.2 Taxpayers who engage (or intend to engage) in certain activities with goods will be entitled to be registered by the Commissioner of Taxation for sales tax purposes. The Commissioner will allocate a separate registration number to each registered person. [clause 5, definition of 'registered person' and 'registration number']

13.3 The purpose of registration is to entitle a person to quote their registration number to acquire their business inputs or trading stock tax-free. Registered persons will also be entitled to quote their registration number to acquire goods tax-free on the basis that they intend to satisfy any exemption Item in respect of the goods.

Note:
An exemption Item is an item in Schedule 1 to the Sales Tax (Exemptions and Classifications) Bill 1992. Most business inputs exemption Items will only be available to registered persons. This will be the major benefit of registration. [clause 5, definition of 'exemption Item']

13.4 There will be two types of quotation authorised under the sales tax law:

(i)
quotation of a registration number by a registered person; and
(ii)
quotation of an exemption declaration by an unregistered person.

Only a registered person will be entitled to quote a registration number. Quotation of a registration number will be a simpler and faster method of quoting than quotation of an exemption declaration. On the other hand, quoting an exemption declaration will require the quoter to give certain details, including the circumstances in which the goods will be used to satisfy an exemption Item, to be specified. In the case of a registered person, these details do not need to be specified when quoting.

13.5 Registration will not be compulsory: Under the new legislation, registration will be optional. Persons entitled to be registered may choose not to be. This represents a major change from the existing law, under which registration is compulsory for manufacturers and wholesale merchants. The reason for the change is that there is insufficient reason to continue to impose an offence of failure to register. While the Government would prefer that persons entitled to register do so, the approach of the new legislation will be to encourage registration rather than to require it.

Note 1:
Optional registration will also allow persons registered under the existing law to choose not to be registered under the new law.
Note 2:
Registration is not a pre-condition to liability. Liability and registration are separate concepts that exist independently of each other under the law. A person's liability on an assessable dealing with goods is not affected by opting not to register.

Grounds for registration

13.6 There will be 6 grounds for registration:

Registration Ground 1: The person manufactures assessable goods.
Registration Ground 2: The person sells assessable goods by wholesale.
Registration Ground 3: The person makes indirect marketing sales of assessable goods.
Registration Ground 4: The person sells goods that are for use by the purchaser as raw materials in the manufacture of assessable goods.
Registration Ground 5: The person sells assessable goods to eligible Australian or foreign travellers.
Registration Ground 6: The person does something which, if done by a registered person, would have satisfied an exemption Item that is limited to registered persons (referred to as a business input exemption Item). [clause 78]

13.7 Intention test: While each of the registration grounds will relate to the carrying on of a particular activity (e.g. manufacture, wholesale sale, retail sale to eligible travellers), that activity will not actually have to be carried on before the person can be registered. Rather, any of the registration grounds can be satisfied if the person intends to carry out the prescribed activity in the immediate or foreseeable future. This will allow persons starting up in business to acquire their business inputs and trading stock tax-free before they actually start trading.

13.8 Business test: A registration ground will only be satisfied if the registrable activity is carried on (or intended to be carried on) by a person in the course of carrying on a business. The business does not have to be one that is primarily oriented towards the nature of the registrable activity - it can be any kind of business. Once registered for one business activity it will not be necessary to become registered for each subsequent business activity. It will be possible to carry on business activities that are not related to the one for which registration may have been granted without the requirement for separate registrations. The overriding consideration is that the activity must be carried on in the course of carrying on a business.

Note 1:
This represents a change to the existing law, under which registration is restricted to persons who carry on business as a manufacturer or wholesale merchant. There will be a wider entitlement to registration under the new law.
Note 2:
The grounds for registration do not extend to every person who may be liable on an assessable dealing with goods. While each registration ground will have a business test, the corresponding assessable dealing may not. For example, a wholesale sale of goods will be an assessable dealing regardless of whether the sale occurs in the course of a business or not. However, a wholesale seller cannot be registered unless the sales occur, or are intended to occur, in the course of carrying on a business. The reason for this restriction is primarily administrative: to avoid the significant cost of having to register, and maintain details and accounts for, the large number of persons who may only have a casual or one-off sales tax liability.

13.9 Registration Ground 1: Manufacture: This is one of the 2 grounds for registration under the existing law. The major change to the existing law will be that registration will not be limited to a person who carries on business as manufacturer. Further, the registration entitlement will be closely linked to the assessable dealings by manufacturers, as there is the same business test in both places, i.e. a manufacturer's liability to tax and entitlement to register both require that the manufacture of the goods must occur in the course of a business. Given the broad definition of 'manufacture', this ground will be available to a wide class of persons. [paragraph 78(1)(a)]

Note 1:
This registration ground will not extend to persons whose only manufacturing activity is an activity covered by clause 8 (i.e. persons who manufacture goods on another manufacturer's premises using paid labour). [subclause 78(4)]
Note 2:
For registration purposes only, the duplication of tax-advantaged copies of a computer program will not be regarded as manufacture. The reason for this is that it is not desirable, from a cost benefit point of view, to register persons who are essentially only retailers duplicating a computer program onto a tax-paid medium (e.g. disk) for retail sale. [subclause 78(5)]

13.10 Registration Ground 2: Wholesale sales: This is the second of the two grounds for registration under the existing law. As with Registration Ground 1, the major change to the existing law is that registration will not be limited to a person who carries on business as a wholesaler. Registration will be available to a person who makes wholesale sales in the course of carrying on any business. However, unlike Registration Ground 1, there will not be the same close link with the corresponding assessable dealings, as liability on a wholesale sale will generally arise regardless of whether or not the sale is made in the course of a business. [subparagraph 78(1)(b)(i)]

Note:
There are a number of differences between the concept of a wholesale sale under the existing law and under the new law. These differences are discussed in Chapter 5.

13.11 Registration Ground 3: Indirect marketing sales: These are, broadly, retail sales of goods through an agent or from premises used by a person, other than the principal, mainly for making retail sales. These dealings are discussed in greater detail in Chapter 7. Under the existing law, indirect marketing sales are deemed to be wholesale sales even though they are retail sales and indirect marketers are covered by the 'wholesale merchant' registration ground. Under the new law, indirect marketing sales will be treated as what they are: a class of retail sale that will be a separate assessable dealing and which will give rise to a separate registration entitlement. As with Registration Ground 2, there will be no business test for the corresponding assessable dealing. [subparagraph 78(1)(b)(ii)]

13.12 Registration Ground 4: Sales of goods for use by the purchaser as raw materials: Under the existing law, a sale of goods to a manufacturer for use as raw materials is treated as a wholesale sale of goods. Consequently, a person making sales of this kind has a registration entitlement under the existing law. Under the new law such a sale will not be a wholesale sale (see paragraph 5.22). To ensure that such persons have a registration entitlement, a separate ground for registration for them will be created. [subparagraph 78(1)(b)(iii)]

Note 1:
It is desirable that these persons be registered because most, if not all, of their sales will be made to persons who will quote.
Note 2:
This ground covers only those raw materials that will be used by their purchaser in the manufacture of assessable goods. Goods will only be raw materials if they are used so that they become an integral part of the manufactured goods. [clauses 5 and 7, definition of 'raw materials']

13.13 Registration Ground 5: Retail sales to eligible Australian or foreign travellers: This is a new class of assessable dealing. It is part of the new arrangements proposed for exempting retail sales of assessable goods to eligible Australian or foreign travellers in accordance with the prescribed rules for export sales. This registration ground will enable retailers who satisfy the conditions set out in the prescribed rules for export sales to become registered. There will also be a new quotation ground which will enable them to quote their registration number for acquisitions of goods to be sold to eligible travellers in accordance with the prescribed rules. As a general rule, retailers will not be entitled to hold tax free stock (although there will be exceptions, e.g. indirect marketers). [paragraph 78(1)(c)]

Note 1:
The prescribed rules for export sales will be set out in regulations to be made under the Sales Tax Assessment Bill 1992. [clause 5, definition of 'prescribed rules for export]
Note 2:
Eligible Australian or foreign traveller will be further defined in the regulations. [clause 5, definitions of 'eligible Australian traveller' and 'eligible foreign traveller']

13.14 Registration Ground 6: Selected business inputs exemption Items: In order to satisfy this registration ground the applicant must do things, in the course of carrying on a business, that would have satisfied an exemption [R] Item i.e. an exemption Item that is limited to registered persons. [clause 5, definition of 'exemption [R] Item']

Note:
Broadly, the business inputs exemptions are a class of exemption available to goods producers. Some of these exemptions will only be available to registered persons. This is designed to encourage persons to register.

13.15 This ground will be wide enough to cover 2 classes of person:

(i)
persons who in any event will be entitled to registration under Registration Ground 1 (manufacture);
(ii)
persons who carry out activities on behalf of manufacturers but the activity they carry out is part only of the production process.

It is the second class of persons who will take advantage of this registration ground.

13.16 The applicant must be able to satisfy all of the requirements of an exemption Item marked [R], except for the requirement that they be registered.

Example:

Exemption Item 18 is marked [R] and allows an exemption for goods for use in applying a process or treatment to raw materials to be used in manufacturing assessable goods. Carrying out such an activity does not of itself amount to manufacture and would not entitle a person to registration under Registration Ground 1. However, this ground will allow a person who carries out these activities to be registered.

Note:
Persons who carry out activities on behalf of manufacturers but are not entitled to registration under either Ground 1 or 6 may still be entitled to claim exemption for business inputs via a special exemption Item for subcontractors ( Item 36 ). [exemption Items 18, 36, Schedule 1, Exemptions and Classifications Bill 1992]

13.17 Registration not limited: The new legislation is not drafted on the basis that registration is confined to a particular activity or business. Once registered, a person has the status of a registered person for all purposes, activities and businesses including those unrelated to the basis for registration.

Note 1:
These rules are expressly intended to overcome the type of problem encountered in Brayson Motors Pty Ltd (in liq) v FC of T (1985) 56 CLR 651. In that case, the High Court held that registration related to a particular manufacturing or wholesaling activity, and not necessarily to the whole business, which may have embraced other activities e.g. retail sales from tax-paid stock of goods which were not manufactured or sold by wholesale.
Note 2:
There will only be a single registration required for each person, which will apply throughout Australia. Under the existing law, separate registration is required in each State in which a person carries on a manufacturing or wholesaling business.
Note 3:
There will be one exception to the above rules. Trustees will be registered separately for each trustee capacity. It is possible for the one person to be trustee of several business entities at the same time. It is undesirable for that person to conduct the affairs of several business entities under the one sales tax registration. [clause 119]

13.18 Grounds for refusal to register and cancellation of registration: The following table summarises the circumstances in which the Commissioner may refuse to register a person or may cancel a person's registration:

Table 13: Grounds for cancelling or refusing registration
GROUND ACTION
1. The registration application is false or misleading in a material particular. Refusal to register and cancellation.
2. The person has, at any time, been convicted of an offence of improper quoting. Refusal to register and cancellation.
3. The person no longer satisfies a registration ground. Cancellation.
[clauses 79 and 80]
Registered persons will be able apply to the Commissioner to have their registration cancelled. In these cases, the Commissioner will be obliged to cancel the registration.
Note:
Cancellation of registration will not alter a person's liability to pay tax because liability is not dependent upon registration.

13.19 Objections: A person who has been refused registration or who has had their registration cancelled by the Commissioner will be able to object against the decision of the Commissioner in the manner set out in Part IVC of the Taxation Administration Act 1953. [subclauses 79(2) and 80(3)]

13.20 Notification requirements: A registered person must notify the Commissioner within 21 days of a change of address, or their failure to satisfy a registration ground. [clause 81]

C. Summary of Main Changes

13.21 The main changes to the existing law proposed by the measures discussed in this chapter are summarised below.

CHANGE REASON
1. Registration will be optional. Insufficient reason to continue to impose an offence of failure to register.
2. Intention to carry on registrable activity will be grounds for registration. Will allow new businesses to acquire business inputs and trading stock tax-free.
3. A registrable activity must be carried out in the course of any business. Restriction to a business in the nature of the registrable activity is too narrow.
4. New registration ground for retail sales to eligible travellers. Will allow retailers who satisfy the prescribed rules for export sales to quote on their stock for sale to eligible travellers.
5. New registration ground for persons who can satisfy selected business inputs exemption Items. So that such persons can obtain their business inputs under quote.
6. A single registration will apply for all purposes, activities and businesses of the registered person throughout all of Australia. Simplicity.

D. Transitional Arrangements

13.22 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 rules for people who are registered immediately before the first taxing day.

13.23 Registrations: The new law will maintain the registration of persons who are registered under the existing law immediately before the first taxing day. However, it will not provide any special entitlement to registration if, on the first taxing day, the registered person does not satisfy any of the grounds for registration under the new law. Consequently, the Commissioner may cancel any person's registration if that is the case. To enable the Commissioner to de-register persons who are not entitled to registration under the new law, persons registered under the existing law who have no entitlement to registration on the first taxing day will be required to notify the Commissioner of that fact within 21 days after that day. [clause 10 Sales Tax Amendment (Transitional) Bill 1992]

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