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Sales tax exemption for inputs to goods production



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THE TREASURER

PRESS RELEASE JOHN KERIN MP

No. 115

STATEMENT BY THE TREASURER, JOHN KERIN MP

SALES TAX EXEMPTION FOR INPUTS TO GOODS PRODUCTION

In Parliament today I introduced legislation to give effect to the sales tax measures foreshadowed in the Industry Statement of 12 March 1991: "Building a Competitive Australia".

These measures will enable goods producers to be more competitive in both domestic and international markets. They demonstrate the Government's continuing commitment to reduce the costs incurred by Australia's goods producing sectors.

The revenue cost of the measures is estimated to be $240m for the 1991-92 part year and $445m in 1992-93.

The overall benefit to Australian business, allowing for the flow-on effects of reducing costs earlier in the production chain, is expected to be worth over $1 billion in 1992-93.

The legislation - Sales Tax Laws Amendment Bill (No. 3) 1991 - will extend the existing sales tax exemptions to cover a wider range of business inputs for use by goods producers and certain other categories of persons.

Goods producers include those persons carrying on business in the primary production, mining and manufacturing sectors. The new sales tax exemptions for business inputs will also be available to certain research and development entities.

New exemptions will also apply to persons engaged in the handling of sea or international air cargo. This important new measure will reduce the operating costs of Australia's sea ports and international airports and the benefits will flow on to all

goods for export.

Exemption will also be extended to a wider range of equipment and materials used by subcontractors working on behalf of goods producers or any of the other eligible persons. This will encourage the use of specialist subcontractors by goods

producers.

The legislation exempts goods used in a wide range of production-related activities such a.: : training, accident prevention, pollution control, lighting or cleaning production premises.

Office furniture, equipment and consumables such as stationery will be exempt when used in eligible activities. COMMONWEALTH PARLIAMENTARY LIBRARY

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Lubricants used by primary producers, miners and manufacturers in production-related activities will also be exempted.

The legislation will allow for special refunds where stock on hand has been purchased inclusive of sales tax after 12 March 1991 and where those goods are used for the first time after the commencement of the legislation in exempt activities.

This will assist those goods producers who may have invested in capital equipment for use in large infrastructure projects where that equipment has been acquired tax paid, but will not be used until after the commencement of the legislation.

The new exemptions will take effect from the date on which the legislation will receive the Royal Assent. This is likely to be later in the year.

Further information regarding the new measures is attached, together with details of Taxation Office contact numbers for enquiries regarding the benefits of the new exemptions for particular industries.

CANBERRA

7 November 1991

Contact: Barrie Russell Ph (07) 222 8168

SALES TAX EXEMPTIONS FOR INPUTS TO GOODS PRODUCTION

SUMMARY OF NEW EXEMPTIONS

Sales Tax Laws Amendment Bill (No. 3) 1991 was introduced into Parliament on 7 November 1991. The key features of the legislation are as follows:

New exemptions for goods producers

Sales tax exemption will be extended to a wide range of goods used in production-related activities such as:

. research and development or engineering and technical design in respect of goods or production processes

. minesite rehabilitation

. the transport of goods by rail, pipeline or conveyor between production premises, eligible storage facilities or exempt ports

. storage, handling or dispatch of finished goods, raw materials, or work in progress

. certain ancillary and supporting activities which ensure the efficiency of the production process. These include:

- training production staff - accident prevention - pollution control - lighting or cleaning of production premises - scheduling or costing of production

The legislation will introduce a new general definition of primary production operations. This will place beyond doubt that exemption will be available for general purpose tools for

use mainly in carrying out agricultural and other primary production activities.

Research and development entities

In addition to goods producers carrying out research and development, this legislation will also apply to certain R&D entities, such as those registered with the Industry Research

and Development Board. These entities will be eligible for exemption or refunds of tax which has been paid on equipment or materials used for researching or developing new or improved Australian goods or production processes.

This will assist specialist R&D organisations, even where they are not working under contract to goods producers.

Use

All of the newly exempted goods (other than general purpose road vehicles) will be subject to a main use test, i .e ., goods will qualify for exemption where used more than 50% in one, or a combination of, eligible activities.

Sea cargo and international air cargo handlers

The legislation will provide new exemptions for goods used by persons operating storage or handling facilities for sea or international air cargo. These exemptions will also include ancillary or supporting activities carried out in relation to the cargo handling process.

Subcontractors

Subcontractors will now be entitled to exemption for a wider range of equipment or materials used in work carried out for goods producers. It will be a requirement that the goods producer (or other eligible person) would have been entitled to exemption had they used the equipment in the same circumstances.

Removal of existing exclusions

Under the current sales tax law, certain goods are specifically excluded from the various exemptions applicable to agriculturalists, miners and manufacturers. The Bill will remove many of these restrictions, thereby extending exemption

to the following classes of goods when used in qualifying circumstances:

. lubricants

. office furniture, euqipment and consumables . general purpose road vehicles when used exclusively within or between contiguous production premises.

General Purpose road vehicles

General purpose road vehicles will need to satisfy two use tests to be exempt from sales tax. To qualify for exemption a vehicle must be for use:

. mainly to perform exempt activities (as with other eligible business goods), and

. exclusively within eligible areas (premises) or, in some cases, between contiguous premises.

Exclusive use will not mean that any use away from premises disqualifies vehicles from exemption. Irregular and insignificant use for such things as yearly registration tests, occasional servicing or repairing the vehicle off site will not exclude the vehicle from being eligible business goods.

Contiguous premises will not be defined but is intended to cover travel between adjacent or abutting premises which are owned, leased or controlled by the goods producer. This is the case even though the two premises in urban areas may be separated by

a public road.

In remote areas, travel over short distances between separate premises will be covered. Generally, however, travel on public roads beterrn properties that are separated by cities or towns would not be covered.

AUSTRALIAN TAXATION OFFICE

Contact Officers for Industry

Further inform ation regarding the effe cts of the n ew m easures on individual industries can be obtained from the contact officers listed below;

Topic/Issue Contact Telephone Facsimile

Cargo Handling Brian Benson (02) 210 8179 (02) 210 7965

Manufacturing Barry Tutty (03) 608 2298 (03) 6081404

M ining Kevin Adamson (09) 326 3863 (09) 326 3832

Primary Production Mark Schmalkuche (08) 237 2825 (08) 237 2220

Research & Peter Gerrard (03) 608 2298 (03) 608 1404

D evelopm ent

Representatives from the Taxation Office w ill be available to participate in information or training sessions organised by industry groups or individual

companies. For further information, please contact Colin Walker in Hobart on telephone (002) 205602 or facsimile (002) 205249.