Pharmacies and GST refunds

Certain Hepatitis C medicines have recently been listed on the Pharmaceutical Benefits Scheme. We have worked with the Pharmacy Guild and understand you may claim unusually large GST refunds if you purchase these medicines.

We have developed information which explains how you can work with us to reduce the likelihood of undue delays in processing your GST refunds.

Before you lodge your Business activity statement (BAS)

To ensure you receive communications from us in a timely manner and to allow us to process your BAS promptly, it is very important that:

  • your contact details (including your tax agent's details) with the ATO are up to date
  • you lodge any BAS that may be outstanding or overdue
  • you have provided the ATO with a valid Australian financial institution account
  • your business industry code describing your main business activity is ‘Chemists or Pharmacy Operation (42711)’. If you use an incorrect code, you may not receive necessary services or material from us, or your business could be incorrectly targeted for compliance activities. Reporting the correct code will also assist us to prioritise GST refund claims for pharmacies affected by this issue.

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After you lodge your BAS

We normally processes GST refund claims within 14 calendar days of you lodging your BAS.

Sometimes we will contact you to discuss your refund claim. To assist with the prompt processing and payment of your refund, we recommend you have the following information easily accessible:

  • tax invoices supporting the GST purchases reported on the BAS – in particular any large or unusual expenses that may have impacted on the claim (eg purchase of Hepatitis C medicines)
  • proof of payment (such as a bank statement) for GST purchases if you account for GST on a cash basis
  • a list of your GST transactions for the period.

Choosing a reporting and payment method that suits you

Your preferences for reporting and paying GST may also impact on when you can expect to receive any GST refund.

If your pharmacy business turns over less than $20 million, you can choose to report quarterly or monthly. However, if your pharmacy business turns over $20 million or more, you are generally required to report GST on a monthly basis.

Many businesses in a net GST refund position choose to lodge monthly to receive the refund sooner to minimise the cash flow impact.

If you are reporting GST quarterly, and want to change to monthly, you can contact us on 13 28 66.

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Accounting for GST on a cash basis or non-cash basis (accruals)

Accounting for GST on a cash basis or a non-cash (accruals) basis will make a difference to how soon you must pay and claim GST to us.

Generally, if your pharmacy business and any of your associated entities have an aggregated turnover of less than $2 million, you can choose to operate on either a cash basis or an accruals basis. Unless you qualify to account for GST on a cash basis, you must use the accruals basis.

If your pharmacy chooses to account for GST on a cash basis, you can only claim GST credits included in the cost of drugs and medicines you purchase from wholesalers in the tax period (month or quarter) you actually pay the wholesaler.

However, if your pharmacy accounts for GST on an accruals basis, depending on your trade terms, you may be able to claim GST credits on orders of drugs and medicines from your wholesaler before you actually pay for the order if:

  • your wholesaler issues you with a document that notifies you that you are liable to make a payment for the order
  • the document (or another document) issued by your wholesaler meets the requirements of a valid tax invoice.

Many supplies made by your pharmacy will be GST-free, and changing to an accruals basis will have no impact on your net GST amount payable when accounting for these sales in your BAS.

However, when you do make a taxable sale, you must pay GST in the tax period in which you receive any partial or full payment for the sale, or when you have issued an invoice to the customer (whichever is earlier). Generally, for over the counter taxable sales to customers, this will not change the timing of when you have to pay GST.

If you are unsure what accounting method you use, or you would like to change your accounting method, you can contact your accountant or the ATO on 13 28 66.

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    Last modified: 01 Jun 2016QC 48802