Terms we use
When we say GST credit, we are referring to the GST term input tax credit.
The Code of Compliance (the Code) makes it easier for scrap metal dealers to account for GST when buying and selling scrap metal. It primarily focuses on scrap metal buyers, but is relevant to scrap metal sellers also.
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Both scrap metal buyers and sellers are required to report all their sales and other sources of income.
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The Code provides instructions for buyers of scrap metal on:
- when an Australian business number (ABN) must be quoted by the seller
- when to apply the ABN rule and withhold 46.5% from a payment
- records to keep when an ABN is quoted or required to be quoted
- records to keep when an ABN is not required to be quoted.
The Code covers both statutory and voluntary measures such as proof of identity procedures. By following the Code, GST-registered, scrap metal buyers ensure they are claiming the correct GST credit entitlement.
An ABN makes it easier to keep track of business transactions for tax purposes.
It is compulsory for businesses with a GST turnover of $75,000 or more to have an ABN and to be registered for GST. Businesses with a GST turnover of less than $75,000 can still apply for an ABN and may choose to register for GST once they have an ABN.
You need an ABN and to be registered for GST in order to claim GST credits for any GST you have paid for goods or services you have used in your business.
Not all scrap metal industry sellers will have an ABN. Some businesses with a GST turnover of less than $75,000 may choose not to apply for an ABN. This does not prevent them from making a sale.
If the seller does not quote an ABN, the buyer must withhold 46.5% of the sale - this is what we refer to as the no ABN withholding rule. This allows businesses with an ABN to buy scrap metal from sellers who cannot quote a valid ABN.
An exception to this is where a specific reason why no ABN withholding does not apply is completed in a statement by a supplier and reasonable enquiries have been made to verify the reason provided.
The no ABN withholding rule is designed to ensure that businesses, especially those that are not required to be registered for GST, do not avoid their taxation obligation by requesting cash payments.
By following the record keeping requirements outlined in the Code, scrap metal buyers are able to validate any GST or expense claim they are entitled to for these purchases.
If a seller cannot quote an ABN to you before you make any payment for the supply, you can still buy scrap from them using the no ABN withholding rule.
You apply the no ABN withholding rule by withholding an amount at the top marginal rate of tax plus Medicare levy (currently 46.5%) from the total payment and send the withheld amount to us.
You report the amount withheld to us in your next business activity statement and complete a payment summary form and give it to the seller. The seller will use this form to claim the withheld amount as a credit in their next income tax return.
The no ABN withholding rule does not apply if the seller completes a statement declaring the supply is not made in the course of carrying on a business or where the sale amount is $82.50 or less.
The no ABN withholding rule is not an alternative to having an ABN. Having a valid ABN is the easiest way to make business to business sale transactions.
When a statement by a supplier is required
If an ABN is not quoted and you do not apply the ABN rule, you must record the seller's details for all sales over $82.50. You can use the Statement by supplier (NAT 10210) for this purpose or incorporate the information required into your normal invoicing system.
Depending on the circumstances, you may require the seller to provide you with a specific reason or a general reason why the ABN rule does not apply. If a specific reason is required, you must make reasonable enquiries to verify the explanation.
We have clear rules and strong penalties for sellers who make false statements about their business circumstances and the value of their transactions. You must maintain complete records that allow us to identify the seller and verify purchase transactions.
You can use the Flowchart for scrap metal industry Code of Compliance (NAT 10587) to decide whether you need to apply the no ABN withholding rule and withhold 46.5% or obtain the details for a valid Statement by supplier.
It can be difficult to work out the value of scrap metal until it is sorted, weighed and valued. As a result, the seller may not be able to provide a tax invoice at the time of delivery or pick-up.
In these circumstances the buyer may issue a tax invoice. This invoice is called a recipient created tax invoice (RCTI).
The rules requirements to issue an RCTI include:
- the buyer must be approved to issue RCTIs by us
- the RCTI should be issued within 28 days of making or determining the value of the purchase
- both the buyer and seller must have a valid ABN.
By complying with the Code you will have the necessary records to verify your claims for GST credits on purchases of scrap metal.
As a scrap metal dealer, if you are registered or required to be registered for GST you are entitled to claim GST credits when you buy scrap metal from a GST registered business and you hold any of the following documents:
- a valid tax invoice
- an RCTI
- for purchases that do not exceed $82.50, a record that describes the material purchased, the amount paid and the date of the transaction.
You may also be entitled to special GST credits when you purchase second-hand goods, such as scrap metal from an entity that is not registered and is not required to be registered for GST. This is provided you bought the scrap for sale or exchange as part of your business and you hold the records as detailed under the Code. Certain exceptions apply.
For a copy of any of the publications referred to in this fact sheet or if you need more information, you can:
- visit our website at www.ato.gov.au
- phone us on 13 28 66, or
- write to us at
Australian Taxation Office
PO Box 3524
ALBURY NSW 2640
If you do not speak English well and need help from us, phone the Translating and Interpreting Service on 13 14 50.
If you are deaf, or have a hearing or speech impairment, phone us through the National Relay Service (NRS) on the numbers listed below:
- TTY users, phone 13 36 77 and ask for the ATO number you need
- Speak and Listen (speech-to-speech relay) users, phone 1300 555 727 and ask for the ATO number you need
- internet relay users, connect to the NRS on www.relayservice.com.au and ask for the ATO number you need.
Last Modified: Thursday, 29 March 2012