New ruling on modem sales tax

New ruling on modem sales tax

The safe harbour sales tax rate for modem sales has been dropped to 17.6 per cent following talks between the Australian Tax Office, Tech Pacific and modem companies.

The new rate represents a reduction of 20 per cent of the wholesale sales tax component of modem sales, and replaces the previous 10 per cent discount instituted in April 1996.

While computer hardware carries sales, software does not. The safe harbour rate is a blanket ruling that gives a reduced sales tax for hardware that is sold with software either pre-loaded or bundled.

The new rate is available only for modems, and will only apply until 1 July.

Prior to that time the ATO is looking to appoint an academic to make an independent assessment of the applicable tax rate.

In the interim a manufacturer still maintains the right under legislation to set their own determination, but they may be required to prove that by the ATO. Previously many manufacturers have been selling at around a 40 per cent discount.

Tech Pacific's finance and operations manager, Tim Goddard, said the talks were sparked by unhappiness within the modem importer and manufacturer community with the 10 per cent ruling. Many modem manufacturers had been pursuing their own determinations, and Goddard says the ATO was unhappy with this situation, prompting Tech Pacific to hold the discussions that resulted in the new ruling.

Goddard says it is clearly a compromise on behalf of both the ATO and the modem companies. "The tax office took a very pragmatic view on this, which was pleasing," said Goddard.

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