Sales Tax Bulletin - No. 29

STB 29

Taxable Value for Indirect Marketers and Direct Sellers

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Date of Issue: July 1996

Valid from 1 September 1997

Replaces Sales Tax Bulletin No. 29 - Taxable value for indirect marketers and direct sellers issued in July 1996

About this bulletin

This bulletin gives indirect marketers and direct sellers (who are not the manufacturers of the goods) some assistance in calculating the taxable value of goods they sell where an exemption doesn't apply. It is a public ruling for the purposes of section 77 of the Sales Tax Assessment Act 1992 and may be relied upon by any person to whom it applies. It replaces any previous private or public rulings, if they are inconsistent with this bulletin, and is current as at 1 September 1997.

Warning: We regularly revise our publications to take into account changes in the law so if you are seeking to rely on anything contained in this bulletin, you should make sure that this edition is the latest.

The bulletin is based on Taxation Ruling SST 6 Sales Tax: taxable value, a copy of which is available:

• • from your local Tax Office; and

• • on the Internet at http://www.ato.gov.au

If, after reading this bulletin, you need more information on how the sales tax law affects your business, contact your local Tax Office on 13 28 66 for the cost of a local call.

Overview

Under the sales tax law, the amount of tax payable on assessable goods is determined by multiplying what is known as the taxable value of the goods by the tax rate applicable to the goods.

Indirect marketing sales are retail sales by a person, who is not the manufacturer of the goods, either through agents or from premises used mainly for making retail sales by someone else. The taxable values that may be used by the two distinct types of resellers that are covered by the indirect marketing provisions, namely Direct Sellers and Indirect Marketers, are described in this bulletin.

Arm's length rule

Where parties are not dealing at arm's length and this affects the price of the goods, the sales tax law requires that the taxable value of the goods reflects a price for which the goods could reasonably be expected to have been sold under an arm's length transaction. This bulletin must be read as subject to this rule.

Taxable value for Direct Sellers

Direct Selling is where you sell goods through agents or contractors acting on your behalf away from retail premises. Door to door sales, party plan and home demonstrations are examples of direct selling.

If you sell similar goods by wholesale

The taxable value is the price for which you could reasonably have been expected to sell the goods by wholesale under an arm's length transaction. This is the notional wholesale selling price of the goods.

You can calculate tax on the basis of the actual wholesale price of similar goods sold in significant quantities to arm's length retailers in Australia in comparable circumstances.

Example

You sell goods through agents acting on your behalf (Direct Selling) for $290 (excluding tax). If you also sell similar goods to arm's length retailers for $200 before tax in comparable circumstances, the taxable value of the goods the subject of your Direct Selling will be $200 (ie the wholesale price), as this is the price for which you could reasonably have been expected to sell the goods by wholesale.

If you only sell by retail (i.e. direct selling)

The Tax Office would expect that you would normally sell by wholesale at a price reflecting the sum of into store cost, wholesale selling expenses and a fair wholesale profit. A simplified formula (known as a Safe Harbour) for finding this figure is available for Direct Sellers who do not sell significant quantities of similar goods to arm's length retailers in Australia in comparable circumstances. It is calculated for both imported and local goods acquired at arm's length as the lesser of:

• 1. into store cost plus one third of the difference between that amount and the retail selling price (excluding tax) of the goods; or

• 2. into store cost plus 15%

A Safe Harbour is a statement of how to calculate taxable value that the Tax Office accepts as completely discharging a taxpayer's liability.

Into store cost means the purchase price of the goods plus duties, inwards transport costs to the non-manufacturer's premises (or as it directs), and any other directly attributable costs of acquisition.

Example

You import goods and sell them through agents acting on your behalf (Direct Selling) by retail for $80 (before tax). If the into store cost of the goods is $50, the taxable value of the goods will be $60 calculated as follows:

$50 + ⅓ of (80 - 50) = 50 + 10 = $60


(using method 1. above).

If you had used method 2. above, the taxable value would be $50 + 15% of $50 = 50 + 7.50 = $57.50. You are entitled to use the taxable value which gives you the best result, which in this case, is method 2.

Taxable value for Indirect Marketers

Indirect Marketers sell under arrangements with agents acting on their behalf through retail outlets that are held out to be other people's premises. Where you supply your own staff and the retail outlet charges you rent for the floor space used, this is referred to as a concession arrangement.

If you sell similar goods by wholesale

The taxable value is the price for which you could reasonably have been expected to sell the goods by wholesale under an arm's length transaction. This is the notional wholesale selling price of the goods.

You can calculate tax on the basis of the actual wholesale price of similar goods sold in significant quantities to arm's length retailers in Australia in comparable circumstances.

Example

You make an indirect marketing sale for $290 (excluding tax). If you also sell similar goods to arm's length retailers for $200 before tax in comparable circumstances, the taxable value of the goods you sell by indirect marketing will be $200 (ie the wholesale price), as this is the price for which you could reasonably have been expected to sell the goods by wholesale.

If you only sell by retail (i.e. through agents)

The Tax Office would expect that you would normally sell by wholesale at a price reflecting the sum of into store cost, wholesale selling expenses and a fair wholesale profit. A simplified formula (known as a Safe Harbour) for finding this figure is available for Indirect Marketers (not including those operating under concession arrangements) who do not sell significant quantities of similar goods to arm's length retailers in Australia in comparable circumstances. It is calculated for both imported and local goods acquired at arm's length as the lesser of:

• 1. into store cost plus one third of the difference between that amount and the retail selling price (excluding tax) of the goods; or

• 2. into store cost plus 35%.

A Safe Harbour is a statement of how to calculate taxable value that the Tax Office accepts as completely discharging a taxpayer's liability.

Example

You import goods and only sell them through retail outlets that are held out to be other people's premises. The retail selling price of the goods is $80 (before tax). If the into store cost of the goods is $50, the taxable value of the goods will be $60 calculated as follows:

$50 + ⅓ of (80 - 50) = 50 + 10 = $60


(using method 1. above).

If you had used method 2. above, the taxable value would be $50 + 35% of 50 = 50 + 17.50 = $67.50. You are entitled to use the taxable value which gives you the best result, which in this case, is method 1.

Indirect Marketers operating under concession arrangements who do not sell significant quantities of similar goods to arm's length retailers in Australia in comparable circumstances, may calculate their taxable value of goods purchased or imported at arm's length as the lesser of:

• 1. into store cost plus one third of the difference between that amount and the retail selling price (excluding tax) of the goods; or

• 2. into store cost plus 15%.

Taxable value - applying goods to own use (AOU)

In some cases, whether you are a Direct Seller or an Indirect Marketer, you may purchase or import goods under quotation of your sales tax registration number or an exemption declaration and AOU them in circumstances where an exemption doesn't apply. This would include using goods yourself, giving goods away and using goods in repair work. It does not include selling the goods.

The taxable value is the purchase price of the goods. If the goods were imported by you under quote, the taxable value is 120% of (customs value + customs duty).

What if I have a current private ruling from the Tax Office?

Some private rulings may conflict with the principles in this bulletin and with Taxation Ruling SST 6 Sales Tax: taxable value. These private rulings lapsed on 1 October 1996.

Private rulings that issued before 30 June 1992 lapsed on 1 July 1997. All other private rulings will lapse 5 years from the date they were issued by the Tax Office.

Do you need more information?

If you have any questions or need more information about how sales tax applies to you, please contact your local Tax Office:

ATO references:
NO NAT 2453.09.97