Senate

Explanatory Memorandum

(Circulated by the authority of the Treasurer the Hon Ralph Willis, M.P.)

CHAPTER 17 - SALES TAX - EXTENSION OF HE CREDIT FOR POST_TRIAL SALES AND LEASES

Overview

17.1 The Bill will amend the Sales Tax Assessment Act 1992 to allow a credit for sales tax paid on goods that are the subject of multiple trials or demonstrations in exempt circumstances and are subsequently sold, or leased for the remainder of the statutory period, to any exempt person.

Summary of the amendments

Purpose of the amendments

17.2 To extend the current credit provision in respect of post-trial sales and leases, to allow for multiple trials or demonstrations in exempt circumstances and for the ultimate sale or lease to be made to any exempt person. [Clause 147]

Date of effect

17.3 The amendment will apply from the date the Bill receives Royal Assent. [Subclauses 2(1) and clause 150]

Background to the legislation

17.4 The sales tax legislation allows a credit for tax borne on goods that are the subject of a post-trial sale or lease, to the extent that it has not been passed on, where:

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the goods have been loaned or leased to a person (usually for the purposes of a trial of the goods); and

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the goods are sold, or leased to that person for the remainder of the statutory period, immediately after the lease or loan; and

•

the purchaser/lessee gives evidence that they will use the goods in exempt circumstances.

17.5 The existing credit ground only applies when goods are sold or leased to an exempt person immediately after the trial and that exempt person is the person who trialed the goods. If the goods are returned to the supplier after the trial, loaned to other possible customers or put into stock and later sold or leased to an exempt customer, no credit is available.

17.6 Thus, even though a particular piece of equipment, for example a mining dump truck, may be exclusively used by a number of trial users in the mining industry and then sold to a mining company, no credit will be available. The purchasing mining company will effectively be paying sales tax on its business inputs.

17.7 Similarly, where a supplier demonstrates, over a period of time, equipment to exempt users and finally sells the equipment to an exempt user, no credit is applicable and the exempt user effectively bears the sales tax in the purchase price.

Explanation of the amendments

17.8 Section 15B of the Sales Tax Assessment Act 1992 has been repealed and replaced by a much wider provision that allows for:

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multiple exempt trial-leases or trial-loans;

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multiple demonstrations to exempt persons; and

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sale, or lease for the remainder of the statutory period, to any exempt person. [Clause 149]

What do I have to do to qualify for the credit?

17.9 To fulfil the requirements of the new section and thus qualify for the credit of tax borne to the extent that it has not been passed on, the claimant must ensure that:

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the goods concerned were assessable goods immediately before the first exempt trial; and

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the only use of the goods from the time of the first trial to the time of the ultimate sale or lease is in exempt trials or demonstrations; and

•

the ultimate sale, or lease for the remainder of the statutory period, is in exempt circumstances. [Clause 149]

Exempt trial-lease

17.10 This term is defined within the section to cover a lease to a person who uses the goods to satisfy an exemption item. The lessee must give the lessor evidence in a form approved by the Commissioner. The Commissioner will issue advice as to the format of the particular certificate that will fulfil his requirements. The new section will permit any number of such leases provided the other requirements are met. [New 15B(2)]

Exempt trial-loan

17.11 This term is defined within the section to cover a loan to a person who uses the goods to satisfy an exemption item. The person to whom the goods are lent must give the lender evidence in a form approved by the Commissioner. The Commissioner will issue advice as to the format of the particular certificate that will fulfil his requirements. As with trial-leases, any number will be permitted provided the other requirements are met.

17.12 The major extension to this concept is to provide for demonstrations to exempt users. The act of demonstrating the goods to an exempt user is included as a use by the exempt person. This will ensure that businesses are able to demonstrate to exempt users without affecting an ultimate sale or lease to an exempt person. It should be noted that some demonstrations are so insignificant that they could be considered to be covered by the concept of de minimus non curat lex, ie. the Act does not concern itself with trifles. [New subsection 15B(3)]

All AOU's must be exempt trial-leases or exempt trial-loans

17.13 The object of the provision is to provide for multiple exempt trial-leases and exempt trial-loans. Should there be demonstrations, leases or loans to persons not entitled to exemption, the object is to deny a credit. Thus if a machine was trialed by a Government Department, then a mining company, then a plumber who is a taxable person, the ultimate credit will no longer be available.

17.14 Storage of goods awaiting another trial or sale for example is not considered to be an AOU in these circumstances nor is transportation to a trial user's premises and back to the claimant's premises. [Paragraph (e) of new subsection 15B(1)]

Can I claim exemption on the goods when I buy them for loan or lease?

17.15 The legislation does not specifically provide for a quotation in these circumstances. Further, the first trial is an application to own use by the claimant, which would be a point of liability should the goods have been purchased under quotation. The credit does not have application until all the conditions are met, thus it is not possible to know at the time of the purchase whether or not all the conditions will be met.

17.16 It has been noted that particular equipment in some industries, (e.g. large mining compressors) will, in almost all cases, be used in exempt circumstances. The legislation does contain a number of very flexible provisions that allow the Commissioner wide discretion. However, before such discretion can be exercised, the Commissioner must be satisfied that it is reasonable to exercise the discretion and that the revenue will be protected.

When does the provision come into effect?

17.17 The new provision will apply from the date the Bill receives Royal Assent. It will only apply to goods where the first exempt trial-lease or exempt trial-loan occurs on or after that date. For situations where the first exempt trial-lease or exempt trial-loan occurs before that date, the old section will apply. The Commissioner has no discretion to vary this to accommodate the latter occurrence. [Subclauses 2(1) and clause 150]