1998-99

The Parliament of the Commonwealth of Australia

house of representatives

A new tax system (Wine Equalisation TAX and LUXURY CAR tax transition) bill 1999

Explanatory Memorandum

(Circulated by authority of the
Treasurer, the Hon Peter Costello, MP)

ISBN:  0642 391750

Introduction
1.1		A New Tax System (Wine Equalisation Tax and Luxury Car Tax Transition) Bill 1999 (Transition Bill) is one of several Bills which introduce and implement the wine tax and luxury car tax.
Wine equalisation tax – Goods and services TAX (gST) credit for wholesale sales tax (WST) paid on stock
Overview
1.2		At the time of introduction of the wine tax, many enterprises will be holding inventories of wine for sale on which WST has been paid. To apply wine tax on top of WST already embedded in the price of wine would be inappropriate double taxation. Consequently, businesses may claim a special (GST) credit for a portion of the WST paid on the stock. 
1.3		There may also be situations where an entity has become liable to sales tax on wine or has purchased wine for a price that includes sales tax but then becomes liable to wine tax on an assessable dealing under the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act). The Transition Bill will treat the sales tax as wine tax borne for the purposes of the WET Act.
1.4		The A New Tax System (Goods and Services Tax Transition) Act 1999 allows a GST credit for sales tax paid on stock held on 1 July 2000 that was acquired before that date.  However, the The A New Tax System (Goods and Services Tax Transition) Act 1999 does not allow a credit to be claimed in respect of stocks of alcoholic beverages of the type, which includes wine, mentioned in subsection 15A(1) of the Sales Tax (Exemptions and Classifications) Act 1992 
1.5		The amount of the special GST credit is equal to the fraction (12/41) of the sales tax that you have borne in respect of the wine.  This is the difference between the WST paid (41%) and the wine tax rate (29%). The special GST credit is available only if you are registered for GST and can only be claimed through your GST return, in a tax period of your choice, but it must be a tax period ending before 1 January 2001. The special GST credit must be claimed before 22 January 2001.
1.6		The special GST credit can only be claimed in respect of stock on hand at the start of 1 July 2000 which is held for sale or exchange in the ordinary course of business. [Paragraph 3(1)(b)]
1.7		Stock which attracts the special credit may be held by retailers or wholesalers, provided that it is not excluded by the provision.
1.8		Stock held for the purposes of manufacture, for example, raw materials, is excluded from entitlement to the GST credit. [Paragraph 3(1)(b)]
1.9		Stocks of second hand goods are not eligible for the special GST credit. [Subsection 3(2)]
How to claim the special GST credit
1.10	To claim the special GST credit for embedded WST, you must be registered as at 1 July 2000. [Paragraph 3(1)(a)] You will be regarded as registered as at 1 July 2000 if your registration has a date of effect of 1 July 2000, even if you are not notified of your registration until after that date.
1.11	You can only claim the special GST credit through a GST return, as a separate adjustment against your GST liability, where it is treated as though it were an input tax credit. [Subsection 3(4)]
1.12	You can claim the special GST credit in only one tax period applicable to you, and which ends before 1 January 2001. The GST return in which the claim is made must be lodged before 22 January 2001.  The Commissioner of Taxation (Commissioner) has no discretion to extend this period. [Subsection 3(4)]
How to calculate the special GST credit
1.13	The amount of the credit is the fraction (12/41) of WST that you have borne on the wine. [Subsection 3(3)]  This may have been directly paid by you to the supplier of the goods, and appear on your invoice, or it may have been paid at an earlier taxing point.
Example
A retailer of wine who is entitled to claim the special GST credit, purchased a stock of wine for resale from a wholesaler in June 2000, and has it on hand at 1 July 2000. The receipt from the wholesaler shows WST of $41 was contained in the price of the wine. The retailer is entitled to claim a special credit of $12 in respect of the goods (12/41  $41 = $12).
1.14	If you did not directly bear the WST, or other circumstances make it difficult to readily ascertain the amount of WST which wine has borne, the Commissioner can provide an alternative means of calculating the credit. This will be provided in writing, and may be in response to a specific request by you, or may be initiated by the Commissioner. [Subsection 3(5)]
1.15	The Commissioner may issue public rulings which provide methods for calculation, where it is likely that difficulties will be experienced in identifying the WST embedded in stock. 
1.16	Taxpayers whose circumstances are addressed in a ruling and who subsequently act in accordance with that ruling, will be afforded the protection available under section 37 of the A New Tax System (Goods and Services Tax Administration) Act 1999.
Wine tax credits relating to sales tax borne on wine
1.17	Section 4 inserts a transitional credit ground to alleviate double taxation of wine. Under CR4 in the Wine Tax Credits Table in Division 17 of the WET Act an entity that has become liable to wine tax on an assessable dealing but has already borne wine tax on the wine is entitled to a credit of the wine tax previously borne. 
1.18	The Transition Bill will ensure that where an entity has become liable to wine tax but has previously borne sales tax in respect of the wine, the entity is treated as if it has borne wine tax on the wine in respect of the sales tax paid.
1.19	There is a restriction to the amount of sales tax previously paid or borne that will be treated as wine tax borne. Any amount of sales tax that has been the subject of a sales tax or wine tax credit entitlement is not counted. Also any entitlement to the special credit in section 3 of this Bill is not counted.
1.20	Where an entity has purchased wine for a price that includes sales tax any sales tax refunded in respect of that wine is not counted for the purpose of calculating the amount of wine tax borne under this provision.
Example 
A retailer holds wine for which $41 sales tax was included in the purchase price. The retailer makes a wholesale sale of that wine after 1 July 2000 and is liable to pay wine tax. The retailer has claimed a credit of $12 sales tax under section 3 of this Bill. The retailer is taken to have borne wine tax of $29 ($41 - $12). The retailer would be entitled to a credit of $29 under CR4 of the Wine Tax Credits Table in Division 17 of the WET Act.
Luxury car tax – APPLICATION 
1.21	The A New Tax System (Luxury Car Tax) Bill 1999 introduces a luxury car tax, from 1 July 2000, on taxable supplies and importations of luxury cars. It is a single stage tax that is imposed on taxable supplies and importations of luxury cars and is in addition to any GST that may be payable, but is not levied on top of the GST. 
1.22	The Transition Bill provides that generally the luxury car tax will apply from 1 July 2000, to all taxable supplies or importations of luxury cars. 
1.23	However, the luxury car tax is not generally intended to apply to the supply of a car where WST has already been paid at the luxury car rate. Therefore, the luxury car tax will not apply to a supply of a car in the situations considered below.
Retail sale
1.24	The luxury car tax will not apply to cars sold by a retail sale in Australia before 1 July 2000. As such, the luxury car tax will not apply to second hand cars on hand in Australia at 1 July 2000. [Paragraph 5(1)(a)]
Importation
1.25	The luxury car tax will not apply if the car was imported into Australia before 1 July 2000 and nobody was entitled to quote under the Sales Tax Assessment Act 1992 (STAA 1992) for the importation. [Paragraph 5(1)(b)]
1.26	If you imported a luxury car before 1 July 2000 and you were not entitled to quote under the STAA 1992, WST has been paid on the supply of the car. Luxury car tax will not apply to subsequent supplies of the car.
1.27	If you imported a luxury car before 1 July 2000 and you were entitled to quote under the STAA 1992 but did not, WST has been paid on the car. However, under the STAA 1992 you are able to claim a credit of the WST borne by you. Effectively, no WST has been paid on the supply of the car. Luxury car tax will apply to subsequent supplies of the car.
1.28	If you imported a luxury car before 1 July 2000 and quoted under the STAA 1992, you do not pay WST on the supply of the car. Luxury car tax will apply to subsequent supplies of the car. 
Application to own use
1.29	The luxury car tax will not apply if there is an application to own use of the car before 1 July 2000, and a special credit under section 15 of the A New Tax System (Goods and Services Tax Transition) Act 1999 does not arise in relation to the car. [Paragraph 5(1)(c)]
1.30	If you applied the car to your own use (within the meaning given by the STAA 1992) before 1 July 2000, WST has been paid on the car. Luxury car tax will not apply to subsequent supplies of the car.
Date of commencement
1.31	The Transition Bill commences from 1 July 2000. The Transition Bill should be read in conjunction with the other Wine Tax Acts and Luxury Car Tax Acts.