Simplified GST Accounting Methods Legislative Instrument (No. 1) 2007
Explanatory Statement
General Outline of Instrument
- This determination is made under subsection 123-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act).
- This determination replaces the A New Tax System (Goods and Services Tax) (Simplified GST Accounting Methods) Determination 2001 (the previous instrument).
- This determination is a legislative instrument for the purposes of the Legislative Instruments Act 2003.
Date of effect
4. The instrument commences on 1 October 2007 and will not apply retrospectively.
What this instrument is about
5. As a result of an announcement in the May 2006 Federal Budget, the $1 million eligibility threshold for the 'business norms' (simplified GST accounting) method is aligned with the $2 million threshold for the other small business concessions.
6. The previous instrument is deregistered and replaced with this instrument to reflect this announcement.
What is the effect of this instrument
7. The effect of this instrument is that it will apply on and after 1 October 2007 in the same way as the previous instrument had applied prior to 1 October 2007, but will do so using a common $2 million threshold.
Background
8. To enable certain food retailers a simplified way of working out their components of GST-free sales and GST-free purchases, the Commissioner made a determination under subsection 123-5(1) of the GST Act (the previous instrument). In that instrument the Commissioner specified:
- the types of food retailers eligible to use simplified GST accounting methods and the eligibility requirements; and
- the details of three simplified methods (the business norms method, the stock purchases method and the snapshot method).
9. One of the eligibility requirements was that food retailers must have had annual turnovers that did not exceed the thresholds specified for the methods. The threshold for the stock purchases and snapshot methods was specified as $2 million (which aligns with the current $2 million threshold for other small business concessions). To be eligible for the business norms method prior to 1 October 2007, the previous instrument specified the relevant threshold as $1 million.
10. As a result of the 2005-06 Federal Budget announcement, the $1 million threshold for the business norms method is aligned with the $2 million threshold for the other methods and the small business concessions. To effect this change in the eligibility threshold for the business norms method, the previous instrument has been revoked and replaced with this instrument, with effect from 1 October 2007.
11. In Part 3 of the previous instrument, some Tax Office publications (called Fact Sheets) were stated as forming part of the business norms method. These Fact Sheets contained further eligibility criteria for, and some modifications to the business norms method. They also contained business norm percentages for specified types of food retailers. As part of the process to update the change in the business norm threshold, the eligibility criteria, modifications and business norm percentages for using the business norms method contained in the Fact Sheets are now incorporated directly into this instrument.
12. For determining whether or not you exceed the $2 million threshold, the term 'SAM turnover' is now used in place of 'annual turnover'. However, SAM turnover has the same meaning as the term 'annual turnover' had in the Tax Office publication Simplified GST Accounting Methods for Food Retailers (NAT 3185) prior to 1 October 2007.
Note: the meaning of 'SAM turnover' is different to the meaning of the term 'annual turnover' inserted into the Income Tax Assessment Act 1997 (ITAA 1997) by the Tax Laws Amendment (Small Business) Act 2007 (see section 328-120 of the ITAA 1997).
Consultation
13. Section 18 of the Legislative Instruments Act 2003 specifically provides for circumstances where consultation may not be necessary or appropriate. One of those circumstances is where the instrument is considered minor or machinery in nature, and does not substantially change the law.
14. Because the only substantive change from the previous instrument (and its incorporated Fact Sheets) is the change in the eligibility threshold for the business norms method from $1 million to $2 million, the changes in this instrument are considered to be minor and machinery in nature.
15. Extensive consultation was carried out with external stakeholders during the development of the previous instrument (and its incorporated Fact Sheets).
16. Therefore, no further consultation has been undertaken in the development of this instrument.
Shane Reardon
Deputy Commissioner of Taxation
Date: 14 August 2007
Legislative references:
A New Tax System (Goods and Services Tax) Act 1999
Legislative Instruments Act 2003
Income Tax Assessment Act 1997
Other references:
Simplified GST accounting methods (NAT3185)
Overview
The Simplified GST Accounting Methods Legislative Instrument (No. 1) 2007 was enacted in 2007 under the authority of the Legislative Instruments Act 2003. This legislative instrument amends the Simplified GST Accounting Methods Determination 2001 by updating the eligibility criteria for small food retailers to use simplified GST accounting methods. Specifically, it aligns the $1 million threshold for the business norms method with the $2 million threshold for other small business concessions and the stock purchases and snapshot methods, as announced in the 2005-06 Federal Budget. The instrument commences on 1 October 2007 and is made under the A New Tax System (Goods and Services Tax) Act 1999, reflecting the policy objective of providing simplified GST accounting methods for small businesses. The change is considered minor and machinery in nature, and no further consultation was undertaken beyond that done for the previous instrument.
Scope and Application
The Simplified GST Accounting Methods Legislative Instrument (No. 1) 2007 applies to food retailers who are seeking to use simplified methods for accounting for their GST obligations under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Specifically, the instrument replaces the previous Simplified GST Accounting Methods Determination 2001 to reflect the announcement made in the May 2006 Federal Budget, which aligned the eligibility threshold for the business norms method with the $2 million threshold for other small business concessions. This change took effect from 1 October 2007 and is not retrospective. The instrument specifies three methods available to food retailers: the business norms method, the stock purchases method, and the snapshot method, all of which now operate under a common $2 million threshold for the annual turnover (referred to as 'SAM turnover'). The instrument also incorporates eligibility criteria, modifications, and business norm percentages previously detailed in Tax Office publications directly into the instrument itself. As the changes are considered minor and do not substantially alter the law, no further consultation was deemed necessary beyond the extensive consultation previously undertaken during the development of the superseded instrument.
Key Provisions
The key provisions of the Simplified GST Accounting Methods Legislative Instrument (No. 1) 2007 revolve around the alignment of eligibility thresholds for simplified GST accounting methods for food retailers, which are now harmonised with the $2 million threshold for other small business concessions (sections 8-10). The instrument replaces the earlier Simplified GST Accounting Methods Determination 2001 and takes effect from 1 October 2007, applying the same rules as the previous instrument but with a unified $2 million threshold for all eligible methods (section 7). This change was announced in the 2006 Federal Budget and aims to provide a more consistent approach for small businesses under GST regulations (section 6).
Under this legislation, food retailers seeking to use simplified GST accounting methods must meet the specified criteria, including the new $2 million threshold for Simplified Accounting Methods (SAM) turnover (section 9). This turnover threshold is critical for determining eligibility and is now explicitly referred to as 'SAM turnover' instead of 'annual turnover' (section 12). The eligibility criteria, modifications, and business norm percentages previously outlined in Tax Office Fact Sheets are now directly incorporated into the instrument, providing a consolidated reference for all requirements (section 11).
Failure to comply with the provisions of this instrument could result in the invalidation of the simplified GST accounting methods for the affected businesses, potentially leading to more complex and resource-intensive GST accounting processes. While the instrument does not specify particular offences, penalties, or consequences for non-compliance, it is important to note that incorrect application of GST accounting methods could lead to audits, penalties, or interest charges imposed by the Australian Taxation Office (ATO) under the GST Act. The ATO has the authority to enforce compliance and may impose penalties for incorrect or fraudulent GST reporting (section 123-5, GST Act).
The instrument is considered minor and of a machinery nature, meaning it does not substantially alter the existing law but rather updates and refines specific details to ensure consistency and alignment with other small business concessions (sections 13-16). As such, it was developed without further consultation, given that the changes are relatively minor and do not introduce new substantive legal requirements. This legislative instrument is crucial for food retailers who wish to benefit from the simplified GST accounting methods and ensures that they remain compliant with current tax regulations.