Senate

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)

CHAPTER 13 - Sales tax - new credit ground for unregistered exemption users

Overview

13.1 Items 8 and 10 of Schedule 9 of the Bill propose to amend paragraph 15(4)(d) and Table 3 of Schedule 1, respectively, of the Sales Tax Assessment Act 1992 (STAA). The amendments will insert a new credit ground for unregistered persons where they have borne tax on an assessable dealing even though they were entitled to quote an exemption declaration.

Summary of the amendments

Purpose of the amendments

13.2 To enable persons who are unregistered exemption users access to a credit ground so they can claim refunds of sales tax where they have borne tax on an assessable dealing even though they were entitled to quote an exemption declaration and therefore receive the goods free of tax.

Date of effect

13.3 The new credit ground will apply to assessable dealings occurring after the Bill receives Royal Assent. [Clause 2]

Background to the legislation

13.4 Under the existing sales tax law an assessable dealing is taxable unless an exemption applies. An exemption applies when a quotation is made or the goods in question are always exempt goods. Subsection 86(2) of the STAA requires that a quote for a dealing be made at or before the time of the dealing for it to be effective.

13.5 If a registered or unregistered person does not quote for a taxable dealing, then the dealing is taxable. A credit ground (CR2) exists to enable a registered person to obtain a credit of tax paid on a dealing for which they had borne tax even though they were entitled to quote a registration number. A similar credit ground was not provided for unregistered persons as it was considered desirable that such persons establish their entitlement to sales tax exemption at the time the sale took place. It was thought that this would assist in the efficient administration of the streamlined sales tax legislation (SST).

13.6 The public education programs conducted since the SST was introduced in January 1993 have provided the large majority of unregistered persons with the understanding that they must quote an exemption declaration at the time of the assessable dealing. However the lack of a credit ground still affects bodies such as schools, hospitals, government departments and local councils that forget to quote. It is now considered that the law should be amended to give such bodies access to a credit ground where they were entitled to quote but have still borne tax on an assessable dealing.

Explanation of the amendments

13.7 There are two amendments to the STAA necessary to implement the new credit ground. The first is an amendment to insert new credit ground CR2A in Table 3 of Schedule 1 of the STAA [item 10] . The second is an amendment to section 15 to ensure that if unregistered users receive a credit under the new credit ground, they are considered to have obtained the goods under quote [item 8] . This ensures that if the goods are then sold by the unregistered user the sale might still be an assessable dealing under AD2b or AD3c of Table 1 of Schedule 1 of the STAA, and therefore still subject to sales tax.

13.8 There are two situations covered by this credit ground. The first is where the claimant was entitled to quote on the dealing but did not quote. The second is where the claimant was entitled to quote but the quote was not accepted by the person to whom the quote was given.

13.9 New credit ground CR2A specifies that a claimant will be entitled to a credit provided that:

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the claimant was entitled to quote an exemption declaration;

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the claimant has borne tax;

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the claimant has not sold the goods; and

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if the claimant has applied the goods to their own use by the time the credit is claimed then the application to own use (AOU) would not have been taxable if the AOU had been an assessable dealing. This test is a notional one as the goods will have been tax-paid. It ensures that, assuming the AOU was an assessable dealing, then it would have been covered by an exemption item.

Example

13.10 A hospital that is carried on by a non-profit body purchases cleaning equipment for its own use and not for resale. The hospital is entitled to quote an exemption declaration because the goods are exempt from sales tax under paragraph 140(b) of Schedule 1 of the Sales Tax (Exemptions and Classifications) Act 1992 . Assuming the hospital forgot to quote, the result would be that it will have purchased the cleaning goods at a price that included sales tax.

13.11 The proposed credit ground would then entitle the hospital to a credit of the tax borne on the cleaning equipment since it has satisfied the tests outlined in the new credit ground. That is, the hospital has borne tax on a dealing for which it was entitled to quote, it has not sold the goods, and if the hospital had already used the cleaning equipment, that application to own use would have been covered by exemption item 140 if the AOU had been an assessable dealing.