FOOD RETAIL INDUSTRIES FOOD RETAIL INDUSTRIES SPECIFIC GST ISSUES. Paper CONTENTS

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1 FOOD RETAIL INDUSTRIES FOOD RETAIL INDUSTRIES SPECIFIC GST ISSUES CONTENTS Page 1. Goods And Services Tax (GST) Introduced To Australia GST Defined GST Rate GST Scheme Registration New Business Account Option Of Not Registering GST Applies To Virtually All Businesses Taxable Activity As It Relates To Food Retailing Exclusions ( GST Free Supplies - Goods And Services) Food - GST Free Unless Food That Is Not GST Free Food That Is GST Free Includes Combination Food Is Subject To GST Restaurant Takeaway And Prepared Food Premises For GST Hot Food Prepared Food Bakery Products - GST Free Bakery Products - Subject To GST Confectionery Savoury Snacks Ice Cream Biscuit Goods Beverages Food Packaging ESS BIZTOOLS Pty Ltd - ACN: Page 1

2 26. Supply Chain For Fresh Food Fresh Food Supply Chain The Wine Equalisation Tax Promotions Vending Machine Sales And Coin Operated Games Machines Tips Stolen Property Uniforms, Personal Tools And Equipment Deposits Deposit Forfeited Importers Displayed Prices Identification Of GST-Free Product Lines Simplified GST Accounting Methods For Food Retailers Simplified GST Accounting Method Which Method Can I Use? Business Norms Method Stock Purchases Method Snapshot Method Extension Of The Class Of Entities Eligible For Simplified GST Accounting For Small Businesses Election To Use Simplified GST Accounting Methods GST Free Activities Input Tax Credit Creditable Purpose GST Payable GST Payable via Business Activity Statement (B.A.S.) Business Activity Statement For GST With $20m Plus Sales Business Activity Statement For GST With Sales Under $20m Turnover Level Cash Or Accrual Basis Tax Invoices Calculation Of GST On An Invoice Invoice Without An Australian Business Number Unregistered Business (Without Australian Business Number Or GST Registration) Business With Australian Business Number - But Not Registered For GST Receipt Of Tax Invoices From Your Suppliers Business Activity Statement G1 - Total Sales And Income And Other Supplies ESS BIZTOOLS Pty Ltd - ACN: Page 2

3 63. G2 - Exports (GST Free Supplies) G3 - Other GST Free Supplies G4 - Input Taxed Sales And Income And Other Supplies G5 - Total Of GST Free And Input Taxed Supplies G6 - Total Of Taxable Supplies G7 - Adjustments G8 - Total Of Your Taxable Supplies After Adjustments G9 - GST Debit Amount Acquisitions G10 - Capital Acquisitions G11 - Other Acquisitions Treatment Of Purchases If You Are Using The Simplified GST Accounting Methods For Food Retailers Financial Supplies Threshold Exception In G G12 - Total Of Your Acquisitions G13 - Acquisitions For Making Input Taxed Sales And Income And Other Supplies G14 - Acquisitions With No GST In The Price G15 - Total Of Estimated Private Use Of Acquisitions Plus Non Income Tax Deductible Acquisitions G16 - Total Of Non Creditable Acquisitions G17 - Total Of Your Acquisitions G18 - Adjustments Adjustment Notes G19 - Total Of Your Creditable Acquisitions After Adjustments G20 - Calculation Of GST Credit Amount Part Payment Of An Account For GST Free And GST Chargeable Sales If You Are Preparing Your Business Activity Statement On A Cash Basis Insurance Purchases GST-Free Pricing Of Product Professional Assistance ESS BIZTOOLS Pty Ltd - ACN: Page 3

4 GST - FOOD RETAIL INDUSTRIES FOOD RETAIL INDUSTRIES SPECIFIC GST ISSUES 1. Goods And Services Tax (GST) Introduced To Australia This paper analyses in summary form the GST Legislation as it applies to the Food Retail Industries. 2. GST Defined GST is a tax on the supply or importation of goods, services or anything else in Australia, except to the extent that the supply or importation is Input Taxed or GST Free. 3. GST Rate The GST Rate is 10% of the value of goods or services. 4. GST Scheme GST is imposed on virtually all goods and services supplied in Australia. The GST will be a tax of 10% on the consumption of most goods and services in Australia, including those that are imported, however it will not apply to the export of goods or services consumed outside Australia. 5. Registration New Business Account You have to complete this form to register for or be eligible to claim: Goods and Services Tax (GST); Fuel Tax Credit; Pay As You Go (PAYG Withholding); Luxury Car Tax (LCT); or Wine Equalisation Tax (WET). Refer to Form A - Add A New Business Account Form - ESS BIZTOOLS Pty Ltd - ACN: Page 4

5 Section A Entity Information this section is compulsory and requires: your Australian Business Number; advice as to whether the entity has a GST or PAYG branch; and the entity s name. Section B this relates to GST registration. An entity is required to register for GST if it is carrying on an enterprise and its GST turnover is $75,000 or more or $150,000 or more for a non-profit organisation. The entity supplies taxi or limousine travel for fares. An entity that is not required to register for GST can do so on a voluntary basis. You are asked questions relative to: turnover; how often you wish to lodge your Business Activity Statement; do you intend to account for GST on a cash or non-cash (accrual) basis? (Please note that you can only account for GST on a cash basis if your annual turnover is under $2M and the business is a small business, or turnover is $2M or more and the business is properly accounting on a cash basis for income tax purposes); and does the entity import goods; You can register for access to the Australian Taxation Office s online services for business. Section C Fuel Tax Credit a fuel tax credit can be claimed for diesel and petrol used in eligible business activities including: road transport (in vehicles with a gross vehicle mass greater than 4.5 tonne); generation of electricity; diesel only when used in: rail or marine transport certain primary production activates mining Section D PAYG Withholding Registration the entity will need to register for PAYG withholding if it is required to withhold amounts from payments it makes to: payees such as employees (salaries and wages) (Refer to Paper PAYG Withholding Payments To Employees) contractors or subcontractors under a voluntary agreement (Refer to Paper PAYG Voluntary Agreements); or labour hire workers (Refer to Paper PAYG And Labour Hire Arrangements); and the entity will also need to register if it is required to withhold an amount from payments to suppliers who have not provided an ABN (Refer to Paper PAYG Withholding Payments To Businesses Who Have Not Supplied A ABN). Section E - Luxury Car Tax. Section F - Wine Equalisation Tax. Section G - Financial account details - you only have to complete this if you have not previously supplied these details to the Australian Taxation Office. Section H Declaration this section is compulsory and must be completed by an individual authorised by the entity. - ESS BIZTOOLS Pty Ltd - ACN: Page 5

6 6. Option Of Not Registering If a business has taxable activities but turnover of less than $75,000 that entity will have the option of electing whether to register for GST. If the entity does not register the entity cannot charge GST on the goods or services provided to customers. The entity cannot claim a credit for any GST paid on their business inputs or purchases. 7. GST Applies To Virtually All Businesses GST should not be a specific cost for the business as long as the business has abided by the GST laws and the specific rules that apply to the particular industry that the business operates in. The cost of GST is borne by the final consumer. However, if the business makes mistakes in how GST is charged (or not charged when it should be charged) and input tax credits are not claimed on business inputs (supplies and services) that are provided to the business, then there will be costs to the business. Care needs to be taken on the treatment on capital transactions i.e. purchasing and sale of businesses, land, buildings, property, and goodwill to ensure that GST has been properly treated. Even businesses which have been deemed to be selling GST Free products and services will have a requirement to complete a Business Activity Statement every month or quarter so as to: Account for GST on possibly some component of their services which is not deemed to be GST Free; or Claiming input tax credits for GST charged to that business on supplies or services purchased by the business. 8. Taxable Activity As It Relates To Food Retailing A taxable activity will be the supply of goods or services for payment, whether in cash or kind. Taxable activity does not include transactions of an essentially private nature. Taxable activity does not include employment activities. 9. Exclusions ( GST Free Supplies - Goods And Services) GST exclusion applying to Food Retailing Industries includes: Food (unless specifically provided otherwise) All Exports (i.e. not for consumption or use in Australia) Hobbies Private recreational pursuits Employees Wages Sale of a Business (as a going concern) - ESS BIZTOOLS Pty Ltd - ACN: Page 6

7 10. Food - GST Free Unless... The supply of food is GST free, unless specifically provided otherwise. Food is defined as: Food (or ingredients for food) marketed for human consumption (whether or not requiring processing or treatment). Beverages (including water) and ingredients for beverages. Goods to be mixed with or added to food for human consumption (including condiments, spices, seasonings, sweetening etc. Fats and oils marketed for culinary purposes. Food that is GST free will be GST free throughout the supply chain (as long as it continues to be marketed for human consumption). This means that vegetables (marketed as fit for human consumption) sold to a pet food manufacturer are GST free. However, when the pet food manufacturer sells the pet food product, GST has to be included in the sale price. Beverages that are GST free include: Milk products Soy milk and rice milk Tea, Coffee Fruit and vegetable juices Beverages for infants or invalids Water Food including excluded food (see Item 9) will be GST free if the supply is made as part of a certain GST free service e.g. hospitals for the care of patients (not cafeterias). The supply of packaging in which food is supplied that is deemed to be GST free, will be supplied GST free - subject to the packaging being: necessary for the supply of the food; and of a kind in which food of that kind is normally supplied. e.g. 1 litre milk carton 11. Food That Is Not GST Free The definition of food does not include: live animals (except crustaceans or molluscs) any grain, cereal or sugar cane that has not been subject to any processing or treatment resulting in an alteration to its form, nature or condition plants under cultivation that can be consumed as food for human consumption food that is unfit for human consumption In addition, Schedule 1A of the Act has specifically excluded: prepared food confectionery savoury snacks bakery products ice cream food biscuit goods (not including breakfast food or rusks) food for consumption on the premises from which it is supplied hot food for consumption away from the premises other food specified by regulation - ESS BIZTOOLS Pty Ltd - ACN: Page 7

8 12. Food That Is GST Free Includes... Fruit and Vegetables Meat Eggs Bread Cheese Soup Milk Tea Coffee Some Fruit and Vegetable Juices Breakfast Cereals Flour Infant Formulas Sugar Ingredients for food for human consumption Fats and Oils for Culinary purposes 13. Combination Food Is Subject To GST Food that is a combination of food that this is GST Free and one or more categories from the list of food that is not GST Free will be subject to GST. e.g. A snack pack containing cheese (which is GST Free) and biscuits (which is not GST Free) will be subject to GST. However, the separate items of food in a hamper are taxed individually. 14. Restaurant Takeaway And Prepared Food Restaurant, takeaway and prepared food will be subject to GST, including: all food and drink supplied for consumption on the premises where it is supplied all hot food supplied for consumption away from premises, and food that is included in the category of prepared food listed in Schedule 1 of a New Tax System (Goods and Services Tax) Act This includes food similar to food sold by takeaway outlets (such as sandwiches, pizza and pies) that is sold at a supermarket or similar outlet. It also includes frozen meals sold in a form that only requires heating for consumption (such as a TV dinner). 15. Premises For GST What is meant by premises? Premises is more than just the place where you supply the food. It includes: the grounds surrounding a cafe, public house or other outlet where food is supplied, and the whole of any enclosed space, such as a football ground, garden, showground, amusement - ESS BIZTOOLS Pty Ltd - ACN: Page 8

9 park or similar area. Premises does not include any part of a public thoroughfare unless it is designated for use in connection with supplying food from a particular outlet, for example, an annual street food fair. 16. Hot Food What is hot food? Hot food means food for consumption that has been heated above the room temperature or above the generally surrounding air temperature. Food that you sell while it is still warm because it happens to be freshly baked and is not intended to be eaten while still hot is GST-free (unless it falls under another category of taxable food). For example, freshly baked bread is GST-free. Hot and cold food supplied as a single item for consumption away from the premises (such as a sausage and onion on a slice of bread) will be subject to GST. 17. Prepared Food What is prepared food? Prepared food covers a range of food products that directly compete against takeaway shops and restaurants. These products will always be taxable. It does not matter whether they: are sold hot, cold or frozen, or require any cooking, heating, thawing or chilling before consumption. Sandwiches, hot dogs and TV dinners are examples of foods that are considered to be prepared food. Examples of food that are not considered to be a prepared meal and will be GST-free include: frozen vegetables uncooked pasta products fish fingers, and baby food, baked beans, spaghetti and Irish stews that do not require refrigeration or freezing. 18. Bakery Products - GST Free Bakery products that are GST-free include: bread and bread rolls sesame seed and poppy seed rolls cheese top bread pumpkin bread plain focaccia hamburger buns damper sour dough bread rye bread tortillas unleavened bread, gluten-free and yeast-free bread, and - ESS BIZTOOLS Pty Ltd - ACN: Page 9

10 pita, Lebanese and lavish bread Bread that has ingredients mixed with the dough before baking will be GST-free. This includes fruit loaves without a coating or filling. 19. Bakery Products - Subject To GST Bakery products that are taxable include uncooked, fresh or frozen: cakes, slices, cheesecakes, pancakes, waffles, crepes, muffins and puddings pavlovas and meringues pies (meat, vegetable or fruit), pasties and sausage rolls tarts and pastries doughnuts and croissants pastizzi, calzoni and brioche scones and scrolls, or bread (including buns) with a sweet filling or coating. It does not matter whether bakeries or any other business sells them. 20. Confectionery Confectionery includes food that is marketed as confectionery, such as chocolate and fruit lollies, muesli bars and glace fruit. However, candied peel is not confectionery. 21. Savoury Snacks Products taxed under GST as savoury snacks are based on the wholesale sales tax treatment, with some minor changes. Caviar and other fish roe products are specifically included as savoury snacks. Seeds and nuts which have been processed or treated by salting, spicing, smoking or roasting, or similarly processed or treated, are also included and therefore subject to GST. Unshelled nuts and raw nuts are GST-free. 22. Ice Cream Ice cream (including ice cream cakes and ice cream substitutes) frozen yoghurt and fruit products are taxable. Frozen whole fruit is GST-free, 23. Biscuit Goods Breakfast cereals and rusks for infants or invalids are GST-free. Biscuit goods that are taxable include dry biscuits, savoury biscuits, chocolate biscuits and crispbreads. - ESS BIZTOOLS Pty Ltd - ACN: Page 10

11 24. Beverages Taxable beverages: All beverages and ingredients for beverages are taxable unless they are in one of the following GSTfree categories: milk products, lactose, soy milk and rice milk, but not including flavoured milk preparations for the making of beverages - tea, coffee, coffee essence, chicory, chicory essence, malt, malt extract for drinking purposes, and similar preparations marketed as substitutes for these dry preparations marketed for the purposes of flavouring milk fruit and vegetable juices if they consist of at least 90 per cent by volume of juices of fruits or vegetables non-carbonated natural water without any other additives, and beverages and ingredients for beverages marketed as food for infants or invalids. 25. Food Packaging Packaging is treated in the same way as the contents. So packaging for GST-free food is also GSTfree, e.g. 1 litre milk carton. However, packaging that is more than is usual and necessary for the supply of food will be taxable. For example, if breakfast cereal is supplied in a plastic container intended for re-use, the container will be taxable. The supply would be partly taxable and partly GST-free. 26. Supply Chain For Fresh Food The following example and diagram show when GST is applied in the supply chain. Supply chain for fresh food: A plant nursery sells punnets of broccoli seedlings to a market gardener. As the seedlings are plants under cultivation, GST is payable on the sale even though the broccoli is ultimately for human consumption. The market gardener grows and picks the broccoli and sells it to a wholesaler. The price does not include GST. The broccoli is now food for human consumption so no GST is payable. Because there is no GST, no input tax credits arise in relation to the purchase of the broccoli. Input tax credits for GST included in the purchase price of other business inputs can still be claimed by the wholesaler. The wholesaler sells broccoli to a retailer, again without GST included in the price. The retailer may also claim input tax credits on any other GST payments made in the course of business, even though no GST was paid on the broccoli. The retailer sells the broccoli to a consumer. The sale is GST-free. The wholesaler also sells broccoli to a restaurant and again does not apply GST. The restaurant prepares the broccoli as part of a vegetable platter eaten by a customer on the premises. The price of the vegetable platter will include GST. Food that is GST-free to the consumer is generally GST-free throughout the supply chain. - ESS BIZTOOLS Pty Ltd - ACN: Page 11

12 27. Fresh Food Supply Chain PLANT NURSERY GST Payable MARKET GARDENER GST Free WHOLESALER GST Free GST Free RETAILER RESTAURANT GST Free GST Charged CONSUMER CONSUMER 28. The Wine Equalisation Tax The wine equalisation tax (WET) ensured that the price of wine remained stable after the wholesale sales tax was abolished and replaced by the GST. The WET applies to wine including grape wine, grape wine products, fruit wine, vegetable wine, cider, perry, mead and sake. Wine manufacturers, wine wholesalers and wine importers will usually have a WET liability and be required to collect and remit WET to either the ATO or Customs. Wine retailers will pay WET at the rate of 29% calculated on the wholesale value as part of the purchase price. If a retailer makes its own wholesale sales of wine (i.e. to a reseller) they may have a WET liability. There is a wine producer rebate for wine producers. The maximum rebate is $500,000. This effectively exempts about $1,724,000 of relevant sales from WET. - ESS BIZTOOLS Pty Ltd - ACN: Page 12

13 The Australian Taxation Office has produced a flowchart for the Wine Equalisation Tax. This is as follows: Produce/purchase wine Assessable dealing: Retail sale; Wholesale sale; Application to own use Exemption applies eg Purchaser quotes ABN; Wine is exported as a GST-free supply. No wine tax payable Ascertain Taxable Value (TY) Grape Wine Wholesale sale TV = Selling price (excluding wine tax & GST) Retail sale by the manufactures, or a purchaser under quote, and application to own use by the manufacturer in connection with a retail sale EITHER TV = 50% of full retail selling price (including wine tax & GST) OR TV = Average wholesale price (excluding wine tax and GST) Application own use by purchaser under quote TV = Purchase price (excluding GST) Wine other than grape wine Wholesale Sale TV = Selling price (excluding wine tax & GST) Calculate wine tax = 29% of Taxable Value Show wine tax payable and any wine tax credits on BAS Retail sale by the manufacturer, or a purchaser under quote, and application to own use by the manufacturer in connection with a retail sale TV = 50% of full retail selling price (including wine tax & GST) Application to own use by purchaser under quote TV = Purchase price (excluding GST) Note: Intended as a guide only. Amounts may be added to the taxable value in respect of containers, royalties and non-arm s length transactions. The Wine Equalisation Tax applies to drinks, which has an alcohol content of between 8% and 22% by volume of ethyl alcohol band. - ESS BIZTOOLS Pty Ltd - ACN: Page 13

14 The Wine Equalisation Tax is normally paid by wine manufacturers, wine wholesalers and wine importers. However, if a wine retailer makes wholesale sales, then the retailer will be required to pay WET on the wholesale value of wine sold. 29. Promotions If you supply a free drink or food as part of a promotion you do not need to account for GST. Where something is supplied free of charge, and without conditions, no GST is payable. Similarly, if you give away a free glass of wine with every meal purchased, GST is payable on the amount charged for the meal and no GST is payable on the free glass of wine. Happy hour and other discount promotions will be subject to GST on the discounted price charged. 30. Vending Machine Sales And Coin Operated Games Machines You will need to account for GST on your vending machine sales in the tax period in which you empty the vending machine of coins. If vending machines on your premises are operated by another business and you receive a commission on sales, GST is payable by you on the commission when you receive it. 31. Tips A genuine tip, paid on a purely voluntary basis by a customer, is not subject to GST. If the tip is not voluntary, for example, a pre-set amount or otherwise defined as a service charge or similar, the amount will be subject to GST. If a voluntary tip is paid with a credit card it is not subject to GST if the amount of the tip is given to the employees for whom it is intended. However, tips received should be declared as income in the recipient's income tax return. 32. Stolen Property Customers sometimes souvenir items such as glasses or cutlery. Stolen property is not considered a sale and therefore does not fall under the GST system. You are still entitled to retain the input tax credit claimed for the item when you purchased it and you do not have to make an adjustment. However, if you recover any money from your customer for the item, you will need to account for GST on the amount recovered. 33. Uniforms, Personal Tools And Equipment Staff uniforms and personal tools and equipment are subject to GST. If you purchase these goods as the employer, you will be able to claim input tax credits for the GST paid on the goods. - ESS BIZTOOLS Pty Ltd - ACN: Page 14

15 If your employees purchase these goods, no input tax credit can be claimed for the GST paid on the goods. However, employees could still claim tax deductions in their personal income tax return, subject to the income tax rules governing deductions for uniforms. You are entitled to input tax credits for reimbursements you make to employees for uniform or other expenses they incur that are directly related to their activities as your employee. The employees must obtain a tax invoice when the goods and services are purchased and pass it on to you. 34. Deposits If you make a deposit, the intention is usually that it will be refunded to you when you meet the obligations to which the deposit relates. The supplier therefore does not include GST in the deposit. GST is not payable by the restaurant in the tax period in which it receives the deposits. The clients attend the restaurant and the amount of the deposit is deducted from the bill. The deposit then becomes part of the consideration of a taxable supply. GST is payable on the total price charged for the meal, in the tax period in which payment for the meal is received. However, GST is payable on deposits if they are applied towards the consideration for a taxable supply, that is, when the deposit amount becomes part of the payment for a supply. GST is also payable on a deposit if it is forfeited. If a deposit is forfeited, GST is paid on the amount of the deposit. 35. Deposit Forfeited The clients do not arrive at a restaurant and the deposit is forfeited. The $550 forfeited deposit is consideration for a taxable supply and the supplier accounts for $50 GST on the deposit (1/11) in the tax period in which the deposit is forfeited. GST is paid to the Australian Taxation Office in the tax period when the deposit is either forfeited or applied towards the consideration. 36. Importers The Australian Customs Service will collect the GST from Importers on goods imported when they are imported (unless the Importer is registered under the Deferred GST Scheme). There is no requirement for an Importer to be registered for GST. However, Input Tax Credits will only be available to enterprises, which are registered for GST. Under the Deferred GST Scheme (DGST) approved importers may defer payment of GST until they submit their first Business Activity Statement after the goods have been entered for consumption in Australia. Only eligible importers can participate in the scheme. To be an eligible importer for the deferment of GST, importers must: have an Australian Business Number and be registered for GST. - ESS BIZTOOLS Pty Ltd - ACN: Page 15

16 lodge their Business Activity Statement monthly via the e-commerce system operated by the Australian Taxation office. pay their Business Activity Statement liabilities and other Taxation Office payments electronically. deal with Australian Customs Office electronically. as a general rule, do not have any debt or returns outstanding with the Australian Taxation Office. have received approval in writing from the Australian Taxation Office to defer payment of GST. The scheme will operate by importers quoting their Australian Business Number to Australian Customs when the Customs Office releases the goods to the importer. If the importer has been given approval to defer GST, Customs will release the goods after payment of any Customs Duty or any other charges, but not GST. Customs will record the deferred GST liability of each shipment as it is cleared. At the end of the month, Customs will advise the Australian Taxation Office of the total deferred GST liability for the importer. The Australian Taxation Office will include the amount of deferred GST on the Business Activity Statement before it is issued to a registered business. In this way, the amount of deferred GST liability is included in their calculation of net liability in the Business Activity Statement for the month. The Business Activity Statement must be lodged with the Australian Taxation Office within 21 days from the end of the month. This scheme gives significant cashflow benefits to approved importers as it allows importers to claim their Input Tax Credit on the importation of the goods at the same time as they account for their GST liability. This means that approved importers will never have to physically pay GST on their creditable purpose imports. Full details on the scheme are available from the Australian Taxation Office. You may have your approval to participate in the Deferred GST Scheme withdrawn if you: do not lodge your Business Activity Statement or payments to the Australian Taxation Office by the due date. are subject to administrative penalty under any Act administered by the Australian Taxation Office. no longer meet the eligibility criteria. You may be re-admitted to the Deferred GST Scheme if you satisfy the eligibility criteria. The Australian Taxation Office may require a bank guarantee equivalent to 1.5 times the business' average GST liability on imported goods if the business fails to pay deferred GST on imported goods when it is due. If you are importing goods into Australia, it is recommended that you make application for registration under the Deferred GST Scheme. Your professional advisor will be able to give you detailed professional advice on the procedures required for registration and complying with the Australian Taxation Office's regulations relating to the scheme. 37. Displayed Prices Displayed prices in price lists and menus are to include the GST amount, but the GST amount does not have to be separately stated. - ESS BIZTOOLS Pty Ltd - ACN: Page 16

17 38. Identification Of GST-Free Product Lines It is necessary to clearly identify which food products are GST-free and to implement appropriate systems and staff training to ensure that only the specified GST-free items are treated as such. 39. Simplified GST Accounting Methods For Food Retailers The Government has recognised that small food retailers have many transactions across a range of GST, taxable and mixed sales. To separately record these sales without adequate point of sale equipment may slow down business and make administration and accounting complicated. Point of sale equipment will be regarded as adequate if it is able to identify and record separately the amount of GST free and total sales so that the business can complete its Business Activity Statement. Adequate point of sale equipment will generally include: electronic scanning systems; touch screen registers; and product specific cash registers If you have this type of equipment, but it cannot separately identify and record GST free and total sales, then the business can use the simplified GST accounting method. To assist in overcoming these problems and make accounting for GST as simple as possible for small food retailers, five simplified accounting methods have been introduced which may be used if a small food retailer so elects. There is no compulsion to use these methods. "Business Norms" Method "Snapshot" Method "Stock Purchase" Method Sales Percentage Method Purchases Snapshot Method You may be eligible to use a simplified GST accounting method if: you are registered for GST; your are a retailer who sells both taxable and GST free food at the same premises (unless you want to use the Purchases Snapshot Method; and your turnover is not more than $2M (the SAM turnover of $2M or less for the Snapshot Method, Stock Purchases Method and Business Norms Method; or GST turnover of $2M of less for the Sales Percentage Method and Purchases Snapshot Method. You can utilise the simplified accounting methods whether you lodge your business activity on a cash or non-cash basis of account ( accruals ). The business will still need to separately consider other sales (e.g. non stock items or capital items) and purchases such as rent, telephone and any capital items when completing the Business Activity Statement. SAM Turnover the Australian Taxation Office has indicated that the definition of SAM turnover is as follows: Your turnover helps to determine which simplified GST accounting method you can use. You must - ESS BIZTOOLS Pty Ltd - ACN: Page 17

18 have a SAM turnover of $2 million or less if you want to use the business norms, snapshot or stock purchases method. If you know your turnover is clearly below the relevant threshold, you don t need to perform any calculations to determine your eligibility. For the business norms, snapshot and stock purchases methods, the way the threshold is applied for these methods is slightly different from other GST thresholds, although the results should be similar. To work out SAM turnover for these three methods, there are three points to remember: The threshold amounts are GST-exclusive, which means you don t include the GST in your sales when you work out whether your sales are lower than the relevant threshold. You apply the threshold test only to your trading sales that is, you include sales of trading stock and any other trading income but you ignore any sales of capital assets or other supplies you might make solely in ceasing or scaling down your business. Trading income includes things like receipts from services, such as video hire by a video store. Capital assets include things like land and buildings or plant and equipment. You may apply the threshold to either: your trading sales for the last financial year, or your projected trading sales for the current financial year. If you started your business during the financial year, you can apply the threshold to your projected trading sales for the financial year as if it were a 12-month period. GST Turnover the Australian Taxation Office has produced a definition of GST turnover. The definition is as follows: Your turnover helps to determine which simplified GST accounting method you can use. You must have a GST turnover of $2 million or less if you want to use the sales percentage or purchases snapshot method. If you know your turnover is clearly below the relevant threshold, you don t need to perform any calculations to determine your eligibility. Your GST turnover is your gross business income (not your profit), excluding any: GST included in sales to your customers sales not connected with an enterprise that you carry on input taxed sales you make, and sales not connected with Australia. Your GST turnover is over the threshold if: your turnover for the current month and the previous 11 months is more than $2 million (current GST turnover), or your turnover for the current month and the next 11 months is likely to be more than $2 million (projected GST turnover). In working out your projected GST turnover, you do not include amounts received for the sale of a business asset or any sale made, or likely to be made, solely as a consequence of ceasing or substantially and permanently reducing the size of the business. The type of businesses that are likely to use the simplified accounting methods include: convenience stores milk bars grocery and supermarkets bakeries and hot bread shops cake shops sandwich bars - ESS BIZTOOLS Pty Ltd - ACN: Page 18

19 delicatessen take away outlets fresh fish retailers who sell cooked fish fish & chip shops (with fresh fish sales) butchers with some taxable sales The simplified accounting methods are provided to help a business calculate at the end of the GST tax period the amount of GST that the business will have to pay or the amount of refund that can be claimed. The averaging involved cannot be used in setting your prices. Setting the business' prices must be done within the Australian Competition and Consumer Commissions (ACCC) Guidelines. 40. Simplified GST Accounting Method There are 5 simplified GST accounting methods for a retailer to choose from depending on turnover, nature of the business, nature of the point of sale equipment included in the business (except for the Purchases Snapshot Method). The methods are summarised in the following table. These methods will help you work out the information you need to correctly complete the GST section of your Business Activity Statement. However, these methods can only be applied to sales and/or purchases of trading stock, if you decide to use a simplified GST accounting method, you will still need to separately consider other sales (such as non-stock or capital items) and expenses (such as rent, phone and any capital items) when you complete your Business Activity Statement. Method Turnover threshold Business Norms SAM turnover of $2 million or less Stock Purchases SAM turnover of $2 million or less Snapshot SAM turnover of $2 million or less Sales Percentage GST turnover of $2 million or less Purchases Snapshot GST turnover of $2 million or less How you estimate your GST-free sales and/or purchases You apply standard percentages to your sales and purchases. You take a sample of purchases and use this sample. You take a snapshot of your sales and purchases and use this. You work out what percentage of GST-free sales you made in a tax period and apply this to your purchases. You take a snapshot of your purchases and use this to calculate your GST credits. 41. Which Method Can I Use? To help you narrow down the choices you need to work out your turnover and to know whether you are a: reseller that is, you resell stock without converting it into different products, or converter that is, you buy GST-free goods and convert them into taxable goods. For example, if you buy potatoes (which are GST-free) and sell them as cooked chips (which are taxable), you are a converter. If you are both a reseller and a converter (for example, if your business is a snack bar), you are - ESS BIZTOOLS Pty Ltd - ACN: Page 19

20 treated as a converter. Use the following table to work out which method(s) you may be able to use. Refer to the additional criteria specified under each method. Your Business Profile Your turnover* is $2 million or less, and you are a reseller. Your turnover* is $2 million or less, and you are a converter and your conversions make up less than 5% of total sales. Your turnover* is $2 million or less, and you are a converter and your conversions make up 5% or more of your total sales. Business Norms Stock Purchases Snapshot Sales Percentage Purchases Snapshot Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes No Yes No Yes After electing to use a simplified GST accounting method, you cannot change your method of GST accounting in the first 12 months. If you stop using a simplified GST accounting method by revoting your choice, you cannot chose to use another simplified GST accounting method in the first 12 months after revoking your decision. 42. Business Norms Method The business norms method can be used where the business chooses to use standard percentages and apply these to sales and purchases to estimate GST free sales and purchases. This method can only be used for small food retailers with an annual turnover of less than $2m. The Australian Taxation Office has developed business norms for a number of different types of businesses. The Australian Taxation Office claims that the "Business Norms" method is the easiest way for a business to calculate its GST liability or refund. This method allows the business to apply standard percentages (known as business norms) to the total sales and purchases for every tax period to estimate the business' GST free sales and GST free purchases. The percentages, which are considered business norms, have been developed by the Australian Taxation Office in consultation with industry representatives and research gathered directly from retailers. The business norms determined at this stage are: - ESS BIZTOOLS Pty Ltd - ACN: Page 20

21 Type of Business GST Free Sales GST Free Purchases Hot Bread Shops 50% 75% Convenience Stores that prepare takeaway food 22.5% 30% Convenience Stores that do not prepare takeaway food Continental Delicatessens (that do not sell hot foods or prepared meals) 30% 30% 85% 90% Cake Shops 2% 95% Health Food Shops (that do not convert GST free food into taxable food) 35% 35% Fresh Fish Retailers 35% 98% Rural Convenience Stores (that may sell fuel or have an Australian Post Agency) Converters (if the business prepares takeaway hot food or prepares sandwiches or fish and chips) 22.5% 30% Non Converters 30% 30% Pharmacies that also sell food Dispensary non-claimable 98% Nil Over the counter 47.5% 2% A business applies the business norm percentage to its total sales and total stock purchases to determine the amount of GST free sales and GST free purchases in any GST period. If you do not agree with the business norm's percentages calculated by the Australian Taxation Office, then you do not have to use the Business Norms Method or you could use the Snapshots Method or the Stock Purchases Method or you could keep the full details of both sales and purchases as they relate to your business for the calculation of GST payable or refundable. Example given by Australian Taxation Office: Business norms method Carlo has a hot bread shop that includes GST-free sales and GST-free purchases. Since he chooses to use the business norms method to calculate the GST he owes or is owed, the standard percentages he must use is 50% for his GST-free sales and 75% for his GST-free purchases. Using this method, Carlo works out 50% of his total sales for the period to arrive at his GST-free sales figure. He works out 75% of his total stock purchases to arrive at his GST-free purchases figure. Sales Total stock sales for tax = $120,000 GST-free sales (50% of $120,000) = $60,000 Purchases Total stock purchases for tax period = $95,000 GST-free purchases (75% of $95,000) = $75,250 - ESS BIZTOOLS Pty Ltd - ACN: Page 21

22 43. Stock Purchases Method This method enables a business to take a snapshot of purchases during a period to estimate the percentage of GST free purchases and sales. You can only use the "Stock Purchases" Method if you resell your products in an unchanged form. If you convert GST free ingredients into taxable food such as sandwiches or fish & chips you cannot use the Stock Purchases Method you must use the Business Norms or Snapshot Methods. You can only use the Stock Purchases Method if you: are a reseller (you purchase food items and then sell them in an unchanged form); do not have adequate point of sale equipment; or have a SAM turnover of $2M of less. You may be able to use the Stock Purchases Method if you operate a business such as (but not limited to) one of the following: grocery stock or supermarket; convenience store or milk bar; video hire outlet; health food shop; continental delicatessen; butchery; service station; newsagency; or green grocer store. When you use the Stock Purchases Method the percentage of your GST free sales will be the same as the percentage of your GST free purchases. There are three ways you can use the Stock Purchases Method: every tax period you work out your GST free purchases accurately but estimate your sales; 2 four week sample periods, you reduce your administrative workload further by choosing to estimate both your GST free sales and purchases; or the 5% GST free stock estimation basis, you track only the GST free goods that you purchased and resell, such as bottled water, pure fruit juice, milk or fresh fruit. This will reduce your administrative workload even further. You must complete a daily worksheet detailing your calculations. If you choose to use every tax period or two four week sample periods, this worksheet should contain a breakdown of your total purchases for the period. You should distinguish between your taxable and GST free purchases. If you choose to use the 5% GST free stock estimation basis, your worksheet should show only the GST free purchases that you resell GST free for each tax period. From your sample period, the business can then calculate what percentage of its total sales is GST free and what percentage of its total stock purchases is GST free. The business can then use these percentages for the current GST tax period to calculate GST free sales and GST free purchase. The percentage of GST free purchases to total purchases determined during the four-week sample period is then utilised as the percentage of GST free sales during the stated GST tax periods. - ESS BIZTOOLS Pty Ltd - ACN: Page 22

23 Example given by Australian Taxation Office: Every tax period Connie runs a grocery store and decides to use the stock purchases method to calculate how much GST she owes or is owed. She only resells goods and doesn t convert any items. During a quarterly tax period, Connie purchases trading stock totalling $203,000, which includes GST-free stock totalling $99,470. Connie also sells stock totalling $219,500 during the same period. Connie works out her total GST-free sales by using the four steps: Step 1 Total stock purchases = $203,000 Step 2 Total GST-free stock purchases = $99,470 Step 3 Percentage of GST-free stock purchases ($99,470 $203, ) = 49% Step 4 Total GST-free sales ($219,500 49%) = $107,555 Using this method, Connie has to do the above calculation every tax period. 44. Snapshot Method The snapshot method is similar to the stock purchases method except that you have to measure GST free sales as well as GST free purchase. You can use the snapshot method if you are a food retailer with a SAM turnover of $2M or less and do not have adequate point of sale equipment. You may be eligible to use the snapshot method if you operate a business such as (but not limited to) one of the following: grocery stock or supermarket; convenience store or milk bar; video hire outlet; fish and chip shop; health food shop; continental delicatessen; butchery; cake shop; hot bread shop or bakery; restaurant (dine in and take away); sandwich bar; kiosk or canteen, or tuckshop that is not input taxed; There are three ways that you can use the snapshot method: 2 Sample Periods. You reduce your administrative workload by choosing to estimate both your GST free sales and purchase; every tax period you work out your GST free purchases accurately but estimate your sales; the 5% GST free stock estimation basis. You only track the GST free goods that you purchase and resell (such as bottled water, pure fruit juice, milk or fresh fruit). This will reduce your administrative workload even further. 2 Sample Periods if you use this option you can take a snapshot of your trading and use the results to estimate your GST free sales and GST free purchases. You need to do the snapshot twice a year to account for seasonal fluctuations, ideally between 1 st June and 31 st July to cover the July to December tax period and 1 st December and 31 st January to cover the January to June tax periods. To calculate the percentage of your GST free trading, you must examine your sales over a - ESS BIZTOOLS Pty Ltd - ACN: Page 23

24 continuous 2-week period and your purchases over a continuous 4-week period to make sure you account for irregular purchases. You need to record the amount and type of transaction (whether it is taxable or GST free) for all of your stock purchases and sales. You also need to complete a daily work sheet detailing your calculations. At the end of the sample period, you should have recorded: for sales: your total sales over 2 weeks; and your total GST free sales over 2 weeks for purchases: your total stock purchases over 4 weeks; and your total GST free stock purchases over 4 weeks From you sample period, you will work out the GST free percentage of your total sales and the GST free percentage of your total stock purchases. You then use these percentages for each tax period to calculate your GST free amounts until you take your next snapshot. Example given by Australian Taxation Office: Snapshot method Maria is a convenience store owner who sells a variety of items, including groceries, newspapers, fresh fruit, vegetables, sandwiches and other takeaway food. She decides to use the snapshot method to calculate her GST-free sales and purchases. She examines her business transactions for the two-week and four-week continuous periods and records the following: Sales Total sales for two weeks = $24,500 Total GST-free sales for two weeks = $17,640 Percentage of GST-free sales in total ($17,640 $24, ) = 72% Maria uses this percentage to calculate her GST-free sales for each tax period until she takes the next sample. Purchases Total stock purchases for four weeks = $19,750 Total GST-free purchases for four weeks = $15,405 Percentage of GST-free purchases in total ($15,405 $19, ) = 78% Maria uses this percentage to calculate her GST-free purchases for each tax period until the next sample is taken. 45. Extension Of The Class Of Entities Eligible For Simplified GST Accounting For Small Businesses The Australian Government has announced that from 1 st July 2007 the class of entities for whom the Commissioner of Taxation can determine simplified accounting methods is to be extended. However, the Commissioner will only make determinations for industry groups not individual businesses. The Commissioner will be able to apply simplified accounting methods for any businesses with an annual turnover of less than $2M that: make mixed supply; have mixed inputs; or - ESS BIZTOOLS Pty Ltd - ACN: Page 24