A New Tax System (Goods and Services Tax) Act 1999 Simplified Accounting Method Determination (No. 1) 2005

Administered by Department of the Treasury

Legislation au F2005L02513 Not in force Legislative Instrument

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A New Tax System (Goods and Services Tax) Simplified GST Accounting Methods Determination 2005/1

 

Explanatory Statement

 

General Outline of instrument

This determination provides supermarkets or convenience stores (eligible food retailers) with the option of using a simplified GST accounting method (SAM) to calculate their entitlements to input tax credits for trading stock for a particular tax period. Eligible food retailers do not include petrol stations.

This determination is made under subsection 123-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and may be cited as the A New Tax System (Goods and Services Tax) Act 1999 Simplified GST Accounting Methods Determination SAM 2005/1.

This determination is a legislative instrument for the purposes of the Legislative Instruments Act 2003. It is made by, and is legally binding upon, the Commissioner of Taxation.

 

Date of effect

This determination commences on 1 October 2005 and applies to net amounts for tax periods that commence on or after 1 October 2005.  

 

What is this instrument about?

Division 123 of the GST Act allows the Commissioner to determine a SAM for particular groups of retailers. This determination sets out a new SAM for eligible supermarkets or convenience stores.  

The SAM contained in the determination will facilitate the quick and simple calculation by eligible food retailers of the input tax credits they are entitled to claim in respect of their acquisitions of trading stock in a particular tax period. Presently, the eligible food retailers need to individually dissect and record the GST contained in every tax invoice. The SAM will allow the input tax credits to be calculated by subtracting the estimated GST-free acquisitions from total acquisitions and multiplying it by 1/11th. GST-free acquisitions will be estimated by using the percentage that represents the GST-free portion of sales and multiplying it by total acquisitions (trading stock only) for each Business Activity Statement (BAS) period.  

The determination can be used only by eligible food retailers (supermarkets or convenience stores excluding petrol stations) that satisfy the following conditions:-

  • Registered for GST purposes.
  • Sell a range of GST-free and taxable goods that are commonly sold at supermarkets or convenience stores.
  • Undertake little or no conversion of food (conversion of food represents less than 5% of total annual sales).
  • Annual turnover is $2 million (excluding GST) or less.
  • Adequate point-of-sale (POS) equipment is used.

 

This determination can not be used by a food retailer to calculate the input tax credits for acquisitions that are not acquisitions of trading stock. Further, eligible food retailers must exclude alcoholic beverages and other goods that are uncommon or in substantially greater quantity or variety than those generally sold at supermarkets or convenience stores.

If an eligible retailer wishes to use the SAM set out in this determination, the eligible retailer must complete an ‘Election To Use A Simplified GST Accounting Method’ (NAT4370-6.2001) and forward this notification to the Commissioner. The SAM must then be used for 12 months or more. To revoke such an election, a ‘Notice To Revoke An Election To Use A Simplified GST Accounting Method’ (NAT4371-6.2001) must be completed and forwarded to the Commissioner.

Appropriate records must be kept to explain the calculations used to reach the final figure under this determination. Further, all records must continue to comply with the general record keeping requirements.

It is not a requirement that tax invoices be held (section 29-10 of the GST Act) for acquisitions whilst using the SAM covered by this determination. However, if an acquisition was included in a tax period whilst this determination was in effect, then an input tax credit cannot be claimed for the same acquisition in a later tax period after which a notice to revoke an election had taken effect. If any such credit is claimed in later tax period, a corresponding increasing adjustment must be made to the BAS in the previous relevant tax period. This rule is to prevent an entity from effectively claiming two input tax credits for the same acquisition.

 

What is the effect of this instrument?

This determination is in addition to an existing determination and is designed to provide a quick and easy method for eligible food retailers to estimate their entitlement to input tax credits.

This new determination will allow eligible food retailers who are not eligible to choose to use the existing determination an opportunity to choose and adopt a SAM that will reduce their costs to comply with the GST legislation.

Eligible food retailers who choose to use the SAM set out in this determination will use a simple formula to calculate their entitlement to input tax credits for each tax period. The formula uses the relationship between the taxable and GST-free sales made to determine an estimate of creditable acquisitions made. The rationale behind this formula is that the percentage of acquisitions which are creditable acquisitions would be expected to be in line with the percentage of sales which are taxable for the kinds of businesses to which the determination applies.

We envisage that this determination will satisfy the industry’s concerns over the current costs of compliance for their members. In addition, the determination is consistent with the Commissioner’s commitment to making the tax experience of small business easier, cheaper and more personalised.

 

Consultation

Representatives of various industry associations were consulted in relation to the development of the determination. While National Association of Retail Grocers of Australia Pty Ltd (NARGA) was the main industry group consulted details of the proposal were provided to other industry groups including:

  • Australian Retailers Association (ARA).
  • National Independent Retail Association (NIRA).
  • Confectionary and Mixed Business Association (CAMBA).
  • Queenslander Retailer Traders and Shopkeepers Association (QRTSA).
  • Metcash IGA.

 

The representatives of these associations strongly supported the development of the determination. They agreed that this will satisfy many concerns of small businesses in relation to complying with the GST legislation as it simplified their accounting processes thereby reducing their costs of compliance. 

 

 

Commissioner of Taxation

2 September 2005

 

 

Related Rulings/Determinations:

A New Tax System (Goods and Services Tax) (Simplified GST Accounting Methods) Determination 2001 (SAM 2001/1)

 

Subject references:

Creditable acquisition

GST

Simplified Accounting Methods

Taxable supply

Trading stock

 

Legislative references:

A New Tax System (Goods and Services Tax) Act 1999;

Section 9-5

Section 11-5

Subsection 123-5(1)

 

Other references:

Election To Use A Simplified GST Accounting Method’ (NAT4370-6.2001)

Simplified GST Accounting Methods for Food Retailers (NAT3185-6.2001)

 

ATO references

NO:

 

ISSN:

 

 

Overview

The A New Tax System (Goods and Services Tax) Simplified GST Accounting Methods Determination 2005/1, enacted in 2005, addresses the need for a simplified method of calculating input tax credits for eligible food retailers under the A New Tax System (Goods and Services Tax) Act 1999. This legislative instrument, made by the Commissioner of Taxation under subsection 123-5(1) of the GST Act, aims to reduce compliance costs for small businesses by offering a streamlined approach to GST accounting. Eligible food retailers, which include supermarkets and convenience stores excluding petrol stations, can use a simplified accounting method to estimate their input tax credits for trading stock, provided they meet certain criteria such as having an annual turnover of $2 million or less and using adequate point-of-sale equipment. This determination complements the existing simplified GST accounting methods by providing an alternative, user-friendly option for eligible food retailers. It facilitates a more straightforward calculation of input tax credits by using a formula based on the relationship between taxable and GST-free sales, thereby aligning with the Commissioner’s objective of easing the tax burden on small businesses. Eligible retailers must notify the Commissioner of their intention to use the simplified method and maintain appropriate records to substantiate their calculations. This initiative was developed in consultation with various industry associations, which supported the move as it simplifies accounting processes and reduces compliance costs for their members.

Scope and Application

The A New Tax System (Goods and Services Tax) Simplified GST Accounting Methods Determination 2005/1 applies to eligible supermarkets or convenience stores that are registered for GST purposes and meet specific criteria, including having an annual turnover of $2 million (excluding GST) or less, selling a range of GST-free and taxable goods, undertaking little or no conversion of food, and using adequate point-of-sale equipment. This determination, made under the A New Tax System (Goods and Services Tax) Act 1999, provides these eligible food retailers with an option to use a simplified GST accounting method to calculate their input tax credits for trading stock for a particular tax period. Notably, this option does not extend to petrol stations or to acquisitions that are not trading stock. Eligible food retailers must complete an election form to use this simplified method and adhere to the requirement of maintaining appropriate records. The instrument aims to ease the compliance burden on eligible food retailers by offering a streamlined approach to calculating input tax credits, thereby reducing their costs associated with GST compliance.

Key Provisions

The A New Tax System (Goods and Services Tax) Simplified GST Accounting Methods Determination 2005/1 (SAM 2005/1) introduces a streamlined method for eligible supermarkets or convenience stores to calculate their input tax credits related to trading stock (section 1). This simplified method is intended to provide a less burdensome approach compared to the standard method, which requires detailed tracking of GST on every tax invoice. Specifically, under section 2 of the Determination, eligible food retailers can calculate their input tax credits by estimating GST-free acquisitions and applying a fixed rate to the total acquisitions. Eligible food retailers who wish to adopt this simplified method must meet certain criteria, such as being registered for GST, selling a mix of GST-free and taxable goods typically found in supermarkets or convenience stores, having minimal food conversion activities, and having an annual turnover of $2 million or less (excluding GST) (section 3). They must also possess adequate point-of-sale equipment. To utilise this simplified method, eligible retailers must complete an 'Election To Use A Simplified GST Accounting Method' form (NAT4370-6.2001) and submit it to the Commissioner of Taxation. Once elected, this method must be used for a minimum of 12 months. If an eligible retailer wishes to revoke this election, they must complete a 'Notice To Revoke An Election To Use A Simplified GST Accounting Method' form (NAT4371-6.2001). The Determination also outlines specific obligations for eligible retailers using the simplified method. They are required to maintain appropriate records that explain the calculations used to determine their input tax credits. These records must comply with general record-keeping requirements under the GST Act. While it is not mandatory to retain tax invoices for acquisitions, if an acquisition is included in a tax period while the simplified method is in effect, an input tax credit cannot be claimed for the same acquisition in a subsequent tax period after revoking the election. If such a credit is claimed, it will necessitate an increasing adjustment to the Business Activity Statement (BAS) for the previous relevant tax period (section 4). Failure to comply with the requirements of the Determination can lead to various consequences. There is no specific mention of penalties within the explanatory statement, but generally, under the GST Act, non-compliance can result in administrative penalties, interest charges on unpaid GST, and potential legal actions. The Commissioner of Taxation has the authority to impose these penalties, which can include fines and other financial penalties as prescribed under the GST Act (section 5). The Determination aims to simplify compliance for eligible retailers, reducing their administrative burden and costs associated with GST calculations.

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