TCF Product Diversification Scheme - Frequently Asked Questions

Q.   What is the object of the Product Diversification Scheme (PDS)?
A.   PDS is designed to assist eligible clothing and finished textile entities internationalise their sourcing arrangements and complement their existing product range.  It will do this by providing non-tradable duty credit that an eligible clothing or finished textile entity can use to offset the duty payable on qualifying finished clothing and finished textile articles it imports into Australia.  PDS is associated with the TCF SIP and TCF Post-2005 (SIP) Schemes.

Q.   What is the duration of PDS?
A.   PDS will operate over a ten year period, with duty credit earned for use, commencing in the 2006/07 financial year and concluding in the 2015/16 financial year.

Q.   Who is eligible for PDS?
A.   To be eligible for PDS, you must be a clothing or finished textile entity as defined under the TCF Post-2005 (SIP) Scheme.  That is, you must either manufacture in Australia, or design in Australia for manufacture in Australia, eligible clothing (for example women’s skirts, boys’ shirts or socks) or finished textiles (for example towels, bed linen or curtains). 

Q.   How do I earn duty credit?
A.   To earn duty credit, a clothing and finished textile entity, must:

• be entitled to be paid a TCF SIP or TCF Post-2005 (SIP) grant (have a determination)
• have additional production of nominated product/s greater than zero (verified by an auditor’s report)
  and
• the total of your TCF SIP or TCF Post-2005 (SIP) grant and the duty credit you use between 1 July and 10 June in the financial year in which the grant is paid, does not exceed the five percent sales-based cap (the cap that applies to the TCF SIP or TCF Post-2005 (SIP) grant).

If the total of your grant and the duty credit you use exceeds the five per cent sales-based cap, then you will not earn any duty credit.  The five per cent sales-based cap applies irrespective of whether you are, or were in, a start-up situation over that period.

Q.   What is involved in applying for PDS?
A.   If you are an eligible clothing or finished textile entity, you can apply for PDS by completing a Request for Duty Credit that must accompany your claim for a grant under the TCF SIP or Post-2005 (SIP) Schemes.  This must be accompanied by an audit statement verifying additional production.  You will need to complete a Request for Duty Credit for each relevant year. 

Following AusIndustry’s receipt of your completed Request for Duty Credit, you will receive an acknowledgement letter.  You will then, within 60 days, be advised of the amount of additional production that has been recorded and that will be used, if and after eligibility is confirmed, in calculating your duty credit allocation. 

Q.   When will I be advised of duty credit earned?
A.   Duty credit will be earned on, or as soon as practicable, after 1 July following payment of your TCF SIP or TCF Post-2005 (SIP) grant.

Q.   How long does duty credit last?
A.   Duty credit that is earned, but not used, will expire at the end of the financial year in which it is earned.

Q.   What is a nominated product?
A.   A nominated product must be an eligible TCF product resulting, directly and predominantly, from an eligible clothing or finished textile activity.  What you choose to select as a nominated product/s can be narrow or broad.  For example, ABC Pty Ltd which solely manufactures women’s clothing may choose to nominate all its eligible clothing sales.  On the other hand XYZ Ltd, which manufactures both men’s and women’s apparel, may decide to nominate only its menswear line.

Your nominated product/s must remain the same over two consecutive years in order to measure additional production.   In addition, there must be sales of those nominated products in both years.  In subsequent years you can change your choice of nominated product/s if you wish, although it is still necessary for a product to be nominated for two consecutive years for additional production to be measured in relation to that product.  You are required to keep appropriate documentation and records for verification purposes. 

Q.   What is additional production?
A.   Additional production is calculated as the increase in the sales revenue of an entity’s nominated product/s (except sales to New Zealand).  This must be verified by an independent auditor’s report.  Using the above examples:

If ABC Pty Ltd makes a request for duty credit with its TCF SIP claim for program year 2004/05, it would be able to demonstrate additional production by its increase in TER from 2003/04 to 2004/05.  This would need to be verified by an auditor’s statement.  Similarly, XYZ Ltd would have to obtain a separate audit report verifying additional production for its nominated products, being the menswear line.

Q.   What are PDS’ key dates and deadlines?
A.   The first opportunity for an entity to request duty credit will coincide with a claim for a grant for the final program year (2004/05) of the TCF SIP Scheme.  The deadline for lodging a Request for Duty Credit for the 2004/05 program year is before 1 April 2006.  Duty credit will then be earned on, or as soon as practicable after, 1 July 2006.  Entities will have until 30 June 2007 to use duty credit earned in the 2006/07 financial year.

Q.   Why do I need to monitor my usage of duty credit?
A.  If you wish to earn duty credit, you need to ensure that the total of your TCF SIP or TCF Post-2005 (SIP) grant, and the duty credit applied between 1 July and 10 June in the financial year in which your grant is paid, does not exceed the five percentsales-based cap for the grant.  No duty credit will be earned where the sales-based cap has been exceeded. 

In relation to the first year, as no duty credit will have been issued or used in the 2005/06 financial year this will not impact upon any entity.   This test becomes more relevant in subsequent years:  For example, if ABC Pty Ltd is to earn duty credit in 2007/08, it needs to make certain that the total of the TCF Post-2005 (SIP) grant it is entitled to in 2006/07 and the duty credit applied between 1 July 2006 and 10 June 2007, does not exceed the five per cent sales-based cap. 

Using the example above:
- Assume ABC earned $125,000 of duty credit for use in the 2006/07 financial year. 
- ABC estimates that it will receive a grant of $300,000; and that its five per cent sales-based cap is $400,000. 
- If ABC is to earn duty credit in the 2007/08 financial year, then it should only use $100,000 of duty credit in 2006/07 so as not to exceed the five per cent sales-based cap.
- If ABC applies all $125,000 of duty credit which it earned it will have exceeded the five per cent sales-based cap and will not earn any duty credit for 2007/08. 

Q.   How can I monitor the use of my duty credit?
A.   The amount of duty credit held by each entity is recorded in Customs’ Integrated Cargo System (ICS).  Either you, or your Customs Broker, may monitor the level of your duty credit in the ICS.

Q.   What happens to duty credit as I use it?
A.   The amount of duty credit will be reduced by the amount used to offset any duty payable on qualifying goods as stated in the import declarations you import into Australia. 

Q.   Why do I need an Import Credit Number (ICN) and Personal Identification Number (PIN)?
A.   AusIndustry will notify you of your ICN and PIN (these remain fixed for the life of PDS) and will also advise you of the amount of duty credit you have earned.  The ICN and PIN serves to provide a level of security in relation to your dealings with your duty credit.

You need to know your ICN and PIN to be able to access and use your duty credit.  Both the ICN and PIN must be provided to Customs on the import declaration when duty credit is applied.  If need be, customers can contact their CSM to confirm their ICN and/or PIN.

Note that in order for AusIndustry to issue you with duty credit, you must have either registered your ABN or have obtained a Customs Client Identifier (CCID) from Customs.

Q.   Can I get refunds for example if the duty credit was used to offset duty payable on goods received in a damaged condition?
A.   No.  Refunds are not available in relation to PDS. 

However, other types of post warrant amendments (i.e. where duty credit or duty has been short levied) still apply, such that payment of additional amount of duty could be via duty credit.

Q.   How can I contact the Australian Customs Service?
A.  For general information on Customs’ matters and informal tariff advice, you can email Customs at the Information and Support Centre information@customs.gov.au or contact the Centre on 1300 363 263.

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