EXPLANATORY STATEMENT
STATUTORY RULE 1985 NO. 100
ISSUED BY THE AUTHORITY OF THE TREASURER
Introductory Note
The sales tax legislation is contained in a number of separate Acts. Prior to 30 May 1985, the sales tax legislation was contained, inter alia, in nine Sales Tax Acts each with its complementary Sales Tax Assessment Act. By the Sales Tax Laws Amendment Act 1985 (Act No. 47 assented to 30 May 1985), the nine Sales Tax Assessment Acts were amended in various ways. Also on that date Assent was given to the Sales Tax Acts (Nos. 10A, 10B and 10C) 1985 (Acts Nos. 44, 45 and 46) and the Sales Tax Assessment Act (No. 10) 1985 (Act No. 43). As a result there are now twelve Sales Tax Acts (the taxing Acts) that specify the rates at which tax is payable and the taxing Acts have ten complementary Sales Tax Assessment Acts (there are three complementary taxing Acts in relation to the Sales Tax Assessment Act (No. 10) 1985 for constitutional reasons) providing the machinery for assessment, collection and administration of the tax imposed by the related taxing Act(s).
There is also a series of Regulations. Of particular importance are the Sales Tax Regulations that provide the detail for the operation of the machinery provisions of the Sales Tax Assessment Acts. The significance of the Sales Tax Regulations in the overall scheme of the sales tax was commented upon by Dixon J. (as he then was) in F.C. of T. v Ellis & Clark Ltd (1934) 52 C.L.R. 85, where his Honour said, at page 89, “Without the regulations, not only is [the scheme of the sales tax legislation] unworkable, but the expression of legislative policy is so inadequate as almost to be unintelligible.”.
The sales tax law is structured on the traditional approach to the marketing of goods - a manufacturer/importer sells either directly to a retailer or to a wholesaler who generally on-sells to a retailer. The sale to the retailer (the taxable sale) is for a price that includes all of the costs incurred by, and the profit margins of, each party in the distribution chain, up to, but not including, the retailer.
The pivotal feature of this single stage sales tax system is the procedure of quotation of certificate numbers by registered persons (manufacturers and wholesalers) at intermediate points of sale in the marketing chain.
The system of quoting certificate numbers (known as “quoting”) plays a crucial part in avoiding the double taxing of goods. Thus, by quoting, a manufacturer acquires raw materials free of tax. The manufacturer is then required to pay tax on sales of finished products, unless the purchaser quotes for the goods or they are of a class exempt from tax.
Similarly, a wholesale merchant is required to quote when purchasing goods for resale and is required to pay tax on sales unless the purchasers in turn quote or the goods are exempt. Retailers are ordinarily obliged to pay a tax inclusive price when purchasing or importing stocks of taxable goods and they then incur no liability for tax on their sales provided the goods are in fact sold by retail.
The Sales Tax Laws Amendment Act 1985 (the Laws Act) amended the Sales Tax Assessment Acts (Nos. 1 to 9) 1930 primarily to prevent revenue losses from sales tax avoidance practices that sought to reduce the taxable sale value of goods (by ensuring the goods were sold by retail), and evasion that resulted from abuses of the registration and quotation procedures of the sales tax legislation.
Further, the Laws Act brought the provisions relating to returns and payment of sales tax on imported goods into line with the Customs law and procedures by applying the sales tax at the rate of tax applicable at the time imported goods are entered for home consumption under the Customs law.
The Laws Act also in part eliminated certain deficiencies that had been exposed in the law relating to the collection of sales tax payable where goods were sold subject to the payment of a royalty. However, to fully achieve this, it was necessary to enact an additional Assessment Act - the Sales Tax Assessment Act (No. 10) 1985 - and, as mentioned earlier, three related taxing Acts - the Sales Tax Act (No. 10A) 1985, the Sales Tax Act (No. 10B) 1985 and the Sales Tax Act (No. 10C) 1985.
The purpose of the Sales Tax Assessment Act (No. 10) 1985 (Act (No. 10)) together with its three complementary taxing Acts, is to ensure, where the remaining sales tax law does not bring a royalty in respect of goods into the sales tax base, that sales tax will be payable by the person who actually pays the royalty. Act (No. 10), which is in keeping with the traditional structure of the sales tax legislation, provides the necessary machinery provisions for the assessment, collection and administration of the tax so payable. Like the nine original Sales Tax Assessment Acts it will need the support of Sales Tax Regulations to be effective.
The purpose of these amending regulations is to ensure that the objectives sought by the amendments made by the Laws Act and the enactment of Act (No. 10) are fully achieved.
A detailed explanation of each of the regulations follows.
Regulation 1 facilitates references to the Sales Tax Regulations, which are referred to as the “Principal Regulations”.
Under regulation 2, the Sales Tax Assessment Act (No. 1) 1930 is referred to, in the amending regulations, as “the Act”, unless the contrary intention appears.
Regulation 3 of the Principal Regulations listed the various Parts and Divisions of the Principal Regulations. This type of provision is no longer part of the recognised style of drafting modern Acts or Regulations. Accordingly, regulation 3 repeals the regulation. A new regulation 3 is being inserted in its place.
New regulation 3, together with new sub-regulation 4(6), is designed to ensure that the Principal Regulations apply for all the purposes of new Sales Tax Assessment Act (No. 10) 1985 (see introductory notes in this statement) in the same manner as they apply for each of the other nine Assessment Acts and obviates the need to re-make all of the existing regulations under that Act.
Regulation 4 of the Principal Regulations defines certain expressions used in the Principal Regulations and contains a number of other measures to aid in their interpretation.
Regulation 4 inserts a new sub-regulation - sub-regulation 4(6) - in the Principal Regulations. New sub-regulation 4(6) ensures that references in various regulations to the expression “Act under which these Regulations are made” includes the Sales Tax Assessment Act (No. 10) 1985.
Part II of the Principal Regulations contains the rules and procedures to be followed in relation to any application for registration by a sales taxpayer and the issue of certificates evidencing that registration. Regulations 5,6 and 7 amend Part II in a number of respects.
Regulation 5 of the Principal Regulations provided that an application for sales tax registration was to be in accordance with prescribed Form A and made to the Commissioner of Taxation in respect of each State in which the applicant had a place of business as a manufacturer or wholesale merchant. Regulation 6 of the Principal Regulations provided that an application for registration in respect of a particular State was to be lodged with the Deputy Commissioner of Taxation for that State.
The function performed by regulations 5 and 6 is now performed by sub-section 11(3) of the Act. Regulation 5 effects their repeal.
Regulation 7 of the Principal Regulations required the Commissioner of Taxation to register a person who had applied to be registered in accordance with Part II and to issue that person with a certificate of registration in accordance with prescribed Form B. This regulation has been superseded, in part, by sub-sections 11(3A) and (4) of the Act, which require the Commissioner to register a person who has applied for registration, provided the person’s application meets the requirements of section 11 of the Act, and to issue to the person a certificate of registration.
Regulation 6 repeals existing regulation 7 and inserts a revised regulation 7. The revised regulation simply requires the Commissioner, when he registers a person and issues a certificate of registration, to do so in accordance with Form B of the Principal Regulations.
Regulation 9 of the Principal Regulations dealt with the effect of cancellation of a person’s certificate. Where a person’s certificate was cancelled, the person, by virtue of sub-regulation 9(1), ceased to be a registered person. Sub-regulation 9(2) operates so as to protect the revenue by ensuring that cancellation of a person’s certificate does not free that person from any outstanding liability for sales tax.
Broadly stated, section 16 of the Act, inserted by the Laws Act, authorises the Commissioner to revoke a person’s registration and to cancel the registered person’s certificate. Such action on the part of the Commissioner will ensure that affected persons cease to be registered persons. As sub-regulation 9(1) was, therefore, no longer necessary, it is repealed by regulation 7.
As mentioned earlier in this statement, the quoting of a certificate number is an essential element in the incidence of the sales tax. The circumstances of quotation or non-quotation of a certificate are prescribed by Part III of the Principal Regulations. Under Part III it is obligatory for every registered person, if the person is to avoid penalties for false or wrongful quotation or non-quotation of a certificate, to quote or refrain from quoting in respect of specified transactions or transactions in specified classes of transactions. Regulations 12 to 15 (inclusive) in Part III prescribe the various circumstances under which a registered person shall, or shall not, quote.
Sub-section 3(4A) of the Act which was inserted by the Laws Act describes two methods of selling goods by retail that are referred to as indirect marketing arrangements.
Under one indirect marketing arrangement - an agency arrangement - the wholesaler appoints another person, usually the former retailer, as agent with the result that the wholesaler, as principal, technically becomes the retailer. Simply stated, the effect of an agency arrangement is to move back the point in the marketing chain at which the taxable sale takes place, i.e., the taxable sale is the sale to the wholesaler (now the retailer for sales tax purposes). This arrangement eliminates the wholesaler’s costs and profit margin from the sale value of the goods sold by retail, and the sales tax payable is accordingly that much lower.
The second retail marketing arrangement produces essentially the same sales tax reduction. The wholesaler acquires an interest in, or obtains permission to use (e.g., leases) a section of a traditional retailer’s store from which goods are sold direct to the public, in fact by the wholesaler, but ostensibly by the retail store operator. Again, the wholesaler technically acquires the mantle of a retailer and the wholesaler’s cost and profit margin is not subject to sales tax as it should be.
Where any person, not being the manufacturer of goods, sells goods by retail under an indirect marketing arrangement, that person is, under the new definition of “wholesale merchant” in the Act, deemed to be a wholesaler.
Regulations 8, 9, 10 and 11 amend Part III of the Principal Regulations to prescribe the circumstances under which these deemed wholesale merchants are required to quote.
Regulation 11 of Part III was an interpretative provision which prescribed particular meanings to expressions used in that Part. Simply stated, regulation 11 provided that, where the total value of a wholesale merchant’s or manufacturer’s average yearly sales by wholesale was, in the Commissioner’s opinion, not less than 50% of the total value of the wholesale merchant’s or manufacturer’s average yearly sales, that wholesale merchant or manufacturer would be treated as one who sells goods principally by wholesale.
Regulation 8 repeals existing regulation 11 and substitutes a new regulation 11.
New paragraph 11(a) is identical in form and effect to former regulation 11. New paragraph 11(b) defines the expression “person who sells goods principally by retail”. Under new paragraph (b) a person will be taken to sell goods principally by retail if, in the opinion of the Commissioner, the person’s sales of goods are made principally by retail. However, sales of goods of a kind referred to in paragraph (b), (c), (e) or (g) of the definition of “sale of goods by wholesale” in sub-section 3(1) of the Act, are excluded when determining whether or not a person sells goods principally by retail. Examples of excluded sales of goods are accommodation sales due to temporary shortages of stock, cash order sales, sales of goods of a kind used in the manufacture of clothes for human wear to order and sales of school requisites or sporting equipment to school authorities or sporting clubs for resale to students or members.
New paragraph (c) provides that, where goods are sold by retail under an indirect marketing arrangement, that sale of goods by retail is to be treated as a sale of goods by wholesale. In practical terms, the effect of new paragraph 11(c) is that, where a deemed wholesale merchant purchases goods for sale by retail under an indirect marketing arrangement, the deemed wholesale merchant will be required to quote when purchasing the goods in accordance with existing paragraph 12(1)(a) of the Principal Regulations. As such, the deemed wholesale merchant will be required to pay sales tax when the goods are sold by retail on the fair market value of the goods if sold by wholesale (that is a sale value that includes the deemed wholesaler’s costs and profit margin).
New paragraph 11(d) is the converse of paragraph 11(c) and ensures that a sale of goods under an indirect marketing arrangement, which at law is a retail sale, is not to be taken as a retail sale of goods for the purposes of Part III of the Principal Regulations.
Regulation 12 of Part III of the Principal Regulations prescribes the circumstances in which a registered person is required to quote.
Part VI of the Laws Act amended the Sales Tax Assessment Act (No. 5) 1930 to bring the provisions delating the liability to, and the time for payment of, sales tax into line with the Customs law. This is achieved by imposing the
liability for tax on imported goods at the rate applicable at the time of the entry for home consumption of the goods and on the person who so entered them.
In practical terms, the only changes effected by paragraphs 9(a), (b), (c) and (d) are changes of language to reflect the fact that liability for sales tax on imported goods now arises in relation to the entry of those goods for home consumption, rather than on their importation.
Under the present sales tax law, where goods are not the subject of a wholesale sale by a manufacturer or wholesaler, for example, where goods are sold by retail, sales tax is generally levied on a sale value that is intended to reflect, as closely as possible, the amount for which the goods could have been sold by wholesale.
The one exception to this general rule was where a wholesaler purchased goods from a manufacturer/importer specifically for sale by retail. In this case, paragraph (e) of sub-regulation 12(1) treated the wholesaler the same as a retailer in respect of those purchases and sales tax was payable on the price for which the goods were purchased by the wholesaler.
This exception to the general rule is to be removed so that where retail sales are made by wholesalers, whether or not the goods were purchased specifically for sale by retail, the sales tax is imposed on a fair wholesale value of the goods at the time of their retail sale.
Paragraph 9(e) amends paragraph 12(1)(e) of the Principal Regulations to require a manufacturer or wholesale merchant who sells goods principally by wholesale to quote when purchasing goods or entering imported goods for home consumption for sale by the manufacturer or wholesale merchant. This requirement, unlike former paragraph 12(1)(e), operates irrespective of the manner in which it is proposed that the goods will be sold by the manufacturer or wholesale merchant.
Paragraph 9(f) inserts a new paragraph - paragraph (ea) - in sub-regulation 12(1).
Under new paragraph 12(1)(ea) a registered person who sells goods principally by retail (not being retail sales of goods under an indirect marketing arrangement - see earlier notes on proposed paragraph 11(c)) must quote when purchasing goods or entering imported goods for home consumption for sale by wholesale by the person. The effect of this paragraph when read with paragraphs 12(1)(a) and (e) is that all purchases or importation of goods for sale by wholesale (including retail sales under indirect marketing arrangements) by a registered person must be the subject of a quotation.
Paragraphs 9(g), (h), (i), (j), (k), (l) and (m) are to the same effect as the amendments described in the notes on paragraph 9(a) to (d) inclusive in that they modify the language used in the remainder of regulation 12 in relation to imported goods to reflect the alteration in the taxing point to the entry for home consumption of imported goods.
Regulation 13 identifies the transactions in relation to which a certificate must not be quoted. Regulation 10 effects a language change in regulation 13 to substitute references to the new taxing point in relation to imported goods, that is, the entry for home consumption of such goods.
Regulation 11 inserts a new regulation - regulation 14A - in the Principal Regulations.
Under new paragraph 12(1)(ea) - see earlier notes on regulation 9 - a registered person who sells goods principally by retail (other than retail sales under an indirect marketing arrangement) is to be required to quote in respect of the purchase of goods, or the entry for home consumption of imported goods, for sale by wholesale (including sale under an indirect marketing arrangement). It is not, however, always practicable to identify the particular goods that will be sold by wholesale, for example, the purchase of a container of goods. In these circumstances, the registered person will not be entitled to quote in respect of the purchase or entry of goods that are to form part of the person’s “common stock”.
Where a registered person subsequently sells goods from common stock by wholesale (including retail sales under an indirect marketing arrangement), the person is liable to tax in respect of those sales. In order to ensure that the person is entitled to a credit under the existing regulations in respect of any tax paid in respect of those goods, sub-regulation 14A(1) operates to deem the registered person to have quoted in respect of the purchase or entry, as the case may be, of those particular wholesale sales.
At the date of making these regulations, a number of persons (both those registered and those required to be registered) would have had tax-paid stock on hand. On or after 30 May 1985 - the date of Royal Assent to the Laws Act - some of those persons would have become liable to tax in respect of sales of goods either by wholesale or by retail under an indirect marketing arrangement. Sub-regulation 14A(2) deems those persons to have quoted their certificates in respect of the purchase, importation or entry of the goods that are sold by wholesale (including retail sales under indirect marketing arrangements) from such tax-paid stock on hand. This sub-regulation prevents double taxation in respect of these wholesale sales of goods by ensuring that the affected persons are entitled to a credit or rebate in respect of any tax paid at the time of the purchase, importation or entry of the goods.
The sales tax law has, since its inception, authorised the Commissioner of Taxation to require security from a registered person in any case where the Commissioner considered that course was necessary to protect the revenue - sub-section 11(8A) of the Act. Part IV of the Principal Regulations (regulations 21 to 25 inclusive) relates to the furnishing of securities, and the forms prescribed under those regulations apply in cases in which the furnishing of security is required by the Commissioner.
As well as increasing to $25,000 the maximum amount of security that the Commissioner may require from a registered person, the Laws Act amended the security provisions in a number of other respects that affect Part IV of the Principal Regulations.
Former sub-section 11(9) of the Act provided that both the manner and form of security were to be prescribed. To that end, regulation 21 of the Principal Regulations specified that security should be given either by a deposit of cash or Treasury bonds, together with a Memorandum of Deposit in accordance with Form F (paragraph 21(1)(a)). Paragraph 21(1)(b) provided an alternative manner of giving security by permitting the security to be by provision of one or more sureties in accordance with Form G. Regulation 22 was a technical provision that concerned the legal effect of a security given in accordance with paragraph 21(1)(b).
Sub-section 11(9) of the Act was omitted by the Laws Act. As a consequence, it is no longer necessary for the manner and form of security that a sales taxpayer provides to be prescribed - the only requirement being that the security is to the satisfaction of the Commissioner. Regulations 21 and 22, which deal with these matters are therefore, by virtue of regulation 12, repealed.
Regulation 25 of the Principal Regulations contains a number of rules and conditions that are required to be followed by the Commissioner in relation to securities given as a deposit of cash or by Treasury bonds. As mentioned earlier, the manner of a security is no longer to be limited to cash or bonds. Since security may now be provided in any number of ways, paragraphs 13(a), (b), (c) and (d) effect a number of amendments of regulation 25 to ensure that the rules and conditions set down in that regulation can apply no matter in what form the security is provided.
In broad terms, former sub-regulation 25(7) of the Principal Regulations ensured, where a person’s certificate was cancelled, that the person was entitled to a return of any security provided to the Commissioner subject to there being no outstanding sales tax debt.
Under new section 15A of the Act, the Commissioner is authorised to withdraw a registered person’s right to quote where the Commissioner establishes that the person has quoted any certificate or aided or abetted others to quote any certificate (otherwise than in accordance with the law) for the purposes of defeating the sales tax law.
Where the Commissioner withdraws under section 15A a person’s right to quote, the person is required to return his certificate to the Commissioner who in turn must cancel the certificate (sub-sections 15A(3) and (4) respectively) - the person continues to be liable to tax as the person is still required to be registered for sales tax purposes.
However, where a person who is prohibited from quoting under section 15A does not have any current liability to sales tax, the Commissioner would, under former sub-regulation 25(7), have been required to return any security held by the Commissioner in respect of the person. Such a result could have defeated the legislative policy
behind the provision of security, especially as it is clear that, by virtue of the imposition of the prohibition on quoting, such a person had already attempted to defeat the intention of the sales tax law.
Accordingly, paragraph 13(e) omits sub-regulation 25(7) and substituted a new sub-regulation. New sub-regulation 25(7) differs, for all practical purposes, from the former sub-regulation in two respects.
First, before the Commissioner is to be required to return any security to a person whose certificate has been cancelled, the person -
• will no longer have to be required to register, for example, the person has ceased business as a manufacturer; and
• will have to have met all existing and potential liabilities to sales tax arising from that business.
Secondly, the new sub-regulation is not confined to securities given as deposits of cash or Treasury bonds (see notes on paragraphs 13(a), (b), (c) and (d)).
Former section 7 of the Sales Tax Assessment Act (No. 5) 1930 (Act (No. 5)), which was repealed by the Laws Act, required a person who imported goods that were subject to tax under that Act to lodge an entry in respect of those goods in the prescribed manner and form.
Regulation 28 of the Principal Regulations prescribed the manner and form of such entries as being the entry for home consumption prescribed in the Customs Regulations, together with a statement of particulars in accordance with Form H, contained in the Second Schedule to the Principal Regulations. That prescribed form was unsuited to the computerised forms of entry used for Customs purposes and the manner in which it was required to be lodged did not conform to that law.
New section 7 of Act (No. 5) inserted by the Laws Act provides that, where goods are subject to tax under that Act and a formal entry under sections 36 and 37 of the Customs Act 1901 is lodged, the person who enters the goods shall lodge ah entry in a form approved by the Commissioner. This more flexible approach eliminates the need for regulation 28. Regulation 14, therefore, repeals this regulation.
The Second Schedule to the Principal Regulations prescribes a number of forms to be used in connection with those regulations.
Paragraph 15(a) omits Form A from the Second Schedule. This amendment is consequential upon the repeal of regulation 5 of the Principal Regulations - see notes on regulation 5 of these amending regulations.
Form B is the prescribed form of a certificate of registration that the Commissioner is required to provide to a registered person as evidence of that person’s
registration. Paragraph 15(b) amends Form B to ensure that the certificate of registration is applicable to new Sales Tax Assessment Act (No. 10) 1985, as well as to the other nine Assessment Acts.
Following upon the changes to be made by regulations 12 and 14 to the Principal Regulations, paragraph 15(c) omits prescribed Forms F, G and H - see earlier notes on regulations 12 and 14.
Regulation 16 effects, by means of a schedule to these regulations, a number of consequential amendments of the Principal Regulations to ensure that references contained in the Principal Regulations to “imported” and “importation” or similar references, when used in connection with a liability for sales tax, reflect the new taxing point for imported goods, namely, the entry for home consumption of those goods.