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Sales Tax Laws Amendment Bill (No. 3) 1991



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House: House of Representatives Portfolio: Treasury

Purpose To give effect to certain sales tax measures announced by the Government in its 12 March 1991 statement - ` Building a Competitive Australia', including to widen sales tax exemptions for certain business inputs used by manufacturers and primary producers.

Background This Bill will give effect to certain measures relating to sales tax announced by the Government in its 12 March 1991 statement - Building a Competitive Australia, including that exemption from sales tax would be extended to business inputs used by manufacturers, miners and primary producers in the following activities: * pre- production - research, development, engineering or technical design undertaken by a goods producer in relation to goods or production processes which are to be, or are likely to be, produced or used by that person or another entity in which that person has an interest; * production related - ordering of goods; controlling or costing production processes; and maintaining the environment where new or existing eligible activities are undertaken, including goods which form part of that environment; * post- production - storage, handling or dispatch of own- produced goods in premises controlled by the goods producer and which are not mainly used for retailing; transportation of goods by rail, pipeline or conveyor between production premises, eligible storage facilities or exempt ports; and rehabilitation of mine sites; and * training - training of staff to perform new or existing eligible activities.

It was also announced in the Government's 12 March 1991 statement that the following goods will become exempt from sales tax when used in new or existing eligible activities: lubricants; office furniture, equipment and consumables; road vehicles when used exclusively within the production premises; and goods such as hand tools when used in agricultural activities or fishing. In addition, it was announced that the sub- contractor provisions of the sales tax legislation would be extended to apply, subject to a tighter test of exclusive use, to all goods producers including miners and primary producers.

The Australian sales tax scheme is built around a number of Acts, including eleven Sales Tax Acts which specify the rates at which tax is payable and fourteen Sales Tax Assessment Acts which deal with the assessment, collection and administration of the tax imposed by the Sales Tax Acts. The reason for the large number of Sales Tax Acts is section 55 of the Constitution which provides that laws imposing taxation must not deal with any other matter, and that such laws must deal with the subject of taxation alone. The Sales Tax (Exemptions and Classifications) Act 1935 contains several Schedules that classify goods that are exempt from tax or taxable at specified rates. A general rate of tax of 20% is applied to all goods not covered by any item in the Schedules of the Principal Act. Exemptions from tax occur only under the First Schedule of the Principal Act and extend to otherwise taxable goods that are used in a particular manner or by specified organisation and various other goods specified for exemption by description only.

Main Provisions The principal changes proposed by this Bill are contained in Schedule 1 of this Bill which will amend the First Schedule of the Sales Tax (Exemptions and Classifications) Act 1935 (the Principal Act) by virtue of clause 4.

A definition of `ancillary activity' will be inserted into the First Schedule of the Principal Act. `Ancillary activity', in relation to a core activity of a person (e.g. primary production operations), will include: the ordering, storage, handling, monitoring, controlling or costing of goods used, or for use, mainly in carrying out the core activity; and training a person, or preparing materials for training a person, where the training is mainly for developing, improving or maintaining the person's skills in performing the core activity. This definition is important because in order to qualify for an exemption under the Principal Act, goods have to be for use mainly in either the core activity of a category, or ancillary activities in relation to a core activity.

A definition of `primary production operations' will be inserted into the First Schedule of the Principal Act. `Primary production operations' are defined to include agricultural operations; forest operations; or fishing operations. This definition is important because in order for goods to be categorised as `eligible primary production goods', and as such exempt from sales tax, the goods have to be for use mainly in carrying out primary production operations, or carrying out ancillary activities in relation to primary production operations.

A definition of `eligible business goods' will be inserted into the First Schedule of the Principal Act. `Eligible business goods' are defined to include: eligible primary production goods; eligible mineral production goods; eligible transport goods; eligible RD goods; eligible sea cargo handling goods; eligible international air cargo handling goods; and mixed eligible business goods. This definition is important because goods which fall within the above categories will be eligible for sales tax exemption. Certain categories of goods will be excluded from eligible business goods, including: goods that form, or are to form, part of the infrastructure of a telecommunications network; luxury cars, other than four wheel drive cars; goods for use mainly in connection with domestic or staff amenities; and goods for use mainly in connection with construction of buildings or other structures. These exclusions are important because excluded goods will not be exempt from sales tax.

A definition of `eligible primary production goods' will be inserted into the First Schedule of the Principal Act. `Eligible primary production goods' are defined to be goods which satisfy certain conditions, including that: * the goods are for use by a primary producer; * the goods are for use mainly in carrying out primary production operations, and/or carrying out ancillary activities in relation to those operations; and * the goods are not for use mainly in connection with administrative activities associated with ancillary activities.

A definition of `eligible transport goods' will be inserted into the First Schedule of the Principal Act. `Eligible transport goods' are defined to be goods which satisfy certain conditions, including that: * the goods are for use by a goods producer (e.g. a person who is a manufacturer, wholesaler, processor or treater, mineral producer or primary producer); * the goods are for use mainly in the operation, maintenance or repair of a railway, pipeline or conveyor used, or for use, mainly to convey qualifying goods within, between, or within and between, eligible premises; and carrying out ancillary activities in relation to such activities.

A definition of `eligible RD goods' will be inserted into the First Schedule of the Principal Act. `Eligible RD goods' are defined to be goods which satisfy certain conditions, including that: * the goods are for use by a person who is a goods producer (e.g. a person who is a manufacturer; processes or treats goods on behalf of the manufacturer; or is a primary producer), or an eligible RD entity; and * the goods are for use mainly in carrying out an eligible RD activity, or an ancillary activity in relation to such an activity. Certain activities will be excluded from the definition, including: feasibility studies; prospecting, exploring or drilling for minerals or petroleum; and quality control.

A definition of `eligible sea cargo handling goods' will be inserted into the First Schedule of the Principal Act. `Eligible sea cargo handling goods' are defined to be goods which satisfy certain conditions, including that: * the goods are for use by a person mainly at a place that is used, or for use, mainly in carrying out eligible sea cargo handling activities; and * the goods are for use mainly in carrying out an eligible sea cargo handling activity, and/or an ancillary activity in relation to such an activity. `Eligible sea cargo handling activity' is defined to include: the loading or unloading of sea cargo; the storage, movement, packing or unpacking of sea cargo; and the physical protection, preservation or decontamination of sea cargo. `Sea cargo' is defined to be cargo that has been, or is to be, carried on a ship, other than: stores for the ship; fuel or ballast for the ship; passengers' baggage; goods to

be used, consumed, or sold by retail, on the ship; or goods to be used, consumed, or sold by retail, at a place that is used, or for use, mainly in carrying out eligible sea cargo handling activities.

A definition of `eligible international air cargo handling goods' will be inserted into the First Schedule of the Principal Act. `Eligible international air cargo handling goods' are defined to be goods which satisfy certain conditions including that: * the goods are for use by a person mainly at a place that is used, or for use, mainly in carrying out eligible international air cargo handling activities; and * the goods are for use mainly in carrying out an eligible air cargo handling activity, and/or an ancillary activity in relation to such an activity. `Eligible international air cargo handling activity' is defined to include the loading or unloading of international air cargo; the storage, movement, packing or unpacking of international air cargo; or the physical protection, preservation or decontamination of international air cargo. `International air cargo' is defined to be cargo that has been, or is to be, carried on an aircraft and is consigned on a bill of lading to or from an airport outside Australia, other than: stores for the aircraft; fuel for the aircraft; passengers' baggage; goods to be used, consumed, or sold by retail, on the aircraft; or goods to be used, consumed, or sold by retail, at a place or facility that is used, or for use, mainly in carrying out eligible international air cargo handling activities.

In certain circumstances eligible business goods used in two or more eligible activities will be exempt from sales tax. Such goods are referred to in this Bill as mixed- use eligible business goods. Goods will be mixed- use eligible business goods if they are for use by a person mainly in carrying out two or more eligible activities. Basically, an `eligible activity' is defined to be an activity in relation to those goods categorised as eligible business goods.

A new item 158 will be substituted into the First Schedule of the Principal Act that provides a sales tax exemption for goods, other than general purpose road vehicles or parts for such vehicles, used by subcontractors. A number of conditions will have to be satisfied before a subcontractor becomes eligible for an exemption, including that the goods are for use by a person mainly in carrying out activities on behalf of one or more other persons where those persons would be entitled to an exemption for the goods as eligible business goods if they had used the goods to carry out contracted activities.

A new Regulation 55A, that deals with sales tax refunds for certain goods purchased by RD entities, will be inserted into the Sales Tax Regulations by virtue of clause 5. Basically, a refund will only be payable in certain circumstances, including: where an RD entity has: purchased goods at a price that includes sales tax; has paid sales tax on the goods; or is not entitled to a payment or refund in respect of sales tax under any other Act or regulation.

Clause 8 provides for a refund of sales tax: * where a person has purchased or imported goods after 12 March 1991 and before the commencement of this Bill; * sales tax has been paid or is liable for sales tax; * that within three years from the commencement of this clause the goods are used for the first time and as eligible business goods, and an application for a refund is made; and * the person is not entitled to a sales tax refund under any other Act or regulation.

Bills Digest Service 14 November 1991 Parliamentary Research Service

For further information, if required, contact the Economics and Commerce Group on 06 2772460.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1991.

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Published by the Department of the Parliamentary Library, 1991.