GST Bulletin

GSTB 2000/1

Special credit for sales tax paid on stock

This version is no longer current. Please follow this link to view the current version.

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

may be released

Date of Issue: 10 May 2000

This Bulletin will apply on and from 8 July 1999, the date of Royal Assent to the GST legislation.

Background

Under the new tax system, the wholesale sales tax (WST) will be replaced by the Goods and Services Tax (GST) from 1 July 2000. Goods that have been taxed under different rates of WST will be taxed at 10% under the GST.

Many retailers and service providers will be holding stocks of new goods for sale on which WST has been paid. To apply GST on top of WST already embedded in the price of goods may be imposing inappropriate double taxation. To prevent this happening, businesses may claim a special credit for the WST paid on their stock of new goods held at the start of 1 July 2000.

The special credit only relates to new goods on which WST has been paid and not goods that are exempt from WST. You do not need to take any action for those goods that are exempt. Appendix A shows examples of goods that are exempt.

This Bulletin explains how you claim the special credit to which you are entitled. It is important to note that you claim the special credit on your Businesss Activity Statement (BAS). You do not claim the special credit on a sales tax return or by using a sales tax refund application form.

The BAS is not to be used to claim sales tax credits that relate to dealings prior to 1 July 2000. You should use a sales tax refund application form for that purpose.

This Bulletin explains the application of the concepts contained within GST Ruling GSTR 2000/8 'Special credit for sales tax paid on stock'. This Bulletin contains additional methods to calculate the special credit.

This Bulletin does not apply to stocks of alcoholic beverages, except for certain low alcohol products. Information about calculating the special credit for WST in stocks of alcoholic beverages is provided in GST Ruling GSTR 2000/6.

The methods outlined in this Bulletin are for the purpose of calculating the special credit for WST included in stock on hand at the start of 1 July 2000. These methods are not to be used to determine price.

Whether or not you use any of the simplified calculation methods, you still have to comply with the Australian Competition and Consumer Commission (ACCC) price exploitation guidelines when setting the actual selling price of individual products. You can obtain a copy of the ACCC guidelines Price Exploitation and The New Tax System from the ACCC Pricing Hotline on 1300 302 502 or at their website at www.accc.gov.au

This Bulletin is a public ruling for the purposes of section 37 of the Taxation Administration Act 1953 and may be relied upon by any person to whom it applies. It is current as at 12 May 2000.

How to use this Bulletin

If you can work out the amount of WST from stock records or invoices, you may only need to:

• • identify those goods you hold for sale or exchange at the start of 1 July 2000;

• • make any necessary adjustments for rebates or discounts;

• • calculate the special credit; and

• • show the special credit on your BAS.

See steps 1, 4, 5 and 7 later in this Bulletin.

Where you cannot work out the WST from stock records or invoices, you will need to consider all the steps outlined in this Bulletin. In particular, step 6 may provide an estimation method for your particular industry. However, where you have made stock purchases from a retail trader (not a wholesale trader) you should refer only to 'Method 1 - Retail' in Step 6 at page 11.

For more details on these steps, please refer to the detailed explanation of them later in this Bulletin.

Am I entitled to claim the special credit?

You can claim the special credit if at the start of 1 July 2000 you are registered for GST and you have goods on hand, on which WST has been paid, that you are holding for sale or exchange (and not for manufacture, hire or lease) in the ordinary course of business.

How do I claim the special credit?

To claim the special credit you take the following steps:

• Step 1 Identify the goods you hold for sale or exchange at the start of 1 July 2000 on which WST has been paid.

• Step 2 Work out the quantity of those goods you hold for sale or exchange at the start of 1 July 2000.

• Step 3 Work out the cost of goods you hold for sale or exchange at the start of 1 July 2000.

• Step 4 Make any necessary adjustments to your cost of goods on hand before calculating your special credit.

• Step 5 Calculate the amount of WST paid on goods you hold for sale or exchange at the start of 1 July 2000. This is the amount of the special credit you can claim.

• Step 6 Use an estimation method to calculate your special credit if the amount of WST paid is not readily ascertainable.

• Step 7 Show the special credit on your Business Activity Statement (BAS).

These steps are explained in this Bulletin.

Step 1 - Identify the goods you hold for sale or exchange at the start of 1 July 2000.

You hold goods for sale or exchange at the start of 1 July 2000 if:

• (A) the goods (are) on hand at the start of 1 July 2000; and

• (B) the goods you hold (are) for the purpose of sale or exchange (but not for manufacture) in the ordinary course of business.

However, you do not include:

• (C) goods you hold on someone else's behalf (for example, on consignment); or

• (D) second - hand goods (which include goods held previously for hire or lease), other than if you imported second-hand goods and nobody could quote under the Sales Tax Assessment Act 1992 for their importation.

Each of the concepts highlighted is explained in turn.

(A) Goods on hand at the start of 1 July 2000

Goods are on hand if:

• • you own them - that is you have the power to dispose of them; and

• • they are either in your physical possession; or

• • they are being stored or warehoused for you or they are in transit.

Are goods purchased under 'Retention of Title' (Romalpa) clauses on hand?

Your suppliers may use 'Retention of Title' clauses (also known as Romalpa clauses) to protect their interests. The effect of such clauses is that title in the goods remains with your suppliers until you make payment.

For goods that you purchase under a 'Retention of Title' clause, it is the time when the goods are removed from your suppliers that is relevant - rather than the time when title passes. Where your supplier before 1 July 2000 removes goods, that are subject to a Retention of Title clause, for delivery to you and you pay for the goods on or after 1 July 2000 (this is when title in the goods passes), those goods are considered to be on hand at the start of 1 July 2000 if they are in your possession, or in transit, or being stored or warehoused on your behalf at that time. You can claim the special credit for goods supplied to you under 'Retention of Title' clauses.

Likewise, if you deliver goods to customers under a 'Retention of Title' clause, those goods have already been removed by you and no longer form part of your stock on hand. You cannot claim the special credit for goods you have supplied under 'Retention of Title' clauses.

Are goods put aside on lay-by on hand?

Goods that you have allocated to a customer under a lay-by arrangement are still on hand until the customer makes the final payment.

What if customers return goods to me?

You may have a policy of allowing full credit to customers for returns of unused goods. Where goods that you sell before 1 July 2000 are returned to you for credit after 1 July 2000 and you place them back into your stock, you can treat them as being on hand at the start of 1 July 2000 and include them in your special credit claim. You will need to keep evidence of the original sales to your customers and the returns to you in case we want to check your claim. If you have already claimed your special credit, you can lodge an amended BAS to claim the additional credit.

What if I return goods to suppliers?

You should not include in your special credit claim, goods that were on hand at the start of 1 July 2000 and that you have later returned to your suppliers for a credit of the full purchase price. For these goods, the WST paid on them will be credited to you by your suppliers. If you return the goods after you have claimed your special credit, you will need to adjust your claim. If this occurs, you must lodge an amended BAS and repay the overclaimed special credit.

(B) Goods you hold for the purpose of sale or exchange

If you are a retailer or a retailer/wholesaler, goods that you purchase or import as trading stock will be held for the purpose of sale or exchange in the ordinary course of business.

If you are a builder, you may hold stocks of goods with the intention of permanently affixing them to the site of the building work. Where the property in the goods will pass to another person in the ordinary course of your business, the goods are held for sale or exchange. Property in the goods may pass to another person, either because the building forms part of the land owned by another person, or because you intend to sell the real property on which the building is located. Note that you can only claim the special credit for the WST paid on materials that have not already been permanently affixed to the building site at the start of 1 July 2000.

Example

At the start of 1 July 2000, Reg Builder has a 'spec home' under construction on his land. On completion, the house and land will be sold in the ordinary course of business. Reg has on hand at the start of 1 July 2000 an air conditioner that will be affixed to the home under construction. Reg is eligible for a special credit for WST paid on the air conditioner that has not been permanently affixed to the site.

If you are a tradesperson, repairer or similar service provider, materials and spare parts are goods that you hold for the purposes of sale or exchange where those goods have all of the following qualities:

• • the goods are supplied in the course of, and as an essential part of performing the services;

• • the goods are separately identifiable things that retain their character or nature before and after the services are provided, that is, they are not used up or significantly changed in performing the services;

• • the goods are disposed of under a contract in which a separate charge is made for the materials and spare parts supplied; and

• • property in the goods passes to the customer.

Goods that meet these requirements include oil and grease held by a motor mechanic for supply in a business that services motor vehicles. Goods that are transformed and do not meet these requirements include paint held by an artist or panel beater and materials used by a tyre repairer to retread tyres.

Note: if you are a service provider your purchases would generally be from a retail trader and you should refer to Step 6, Method 1 - Retail on page 11.

Are consumable stores eligible for the special credit?

Consumable stores (for example, office stationery or cleaning rags) by their very nature are not held for purposes of sale or exchange . They are not stock on hand and they are not eligible for the special credit.

(C) Goods you hold on someone else's behalf

You may hold goods that are owned by your suppliers in circumstances where it is either not likely or not certain that you will purchase the goods.

Examples of these types of arrangements are where goods are held on:

• • consignment;

• • approval;

• • sale or return;

• • commission agency; or

• • trial.

You have not purchased goods that you hold under such arrangements and you have not paid WST on these goods. You can not claim any special credit on these items.

However, if you have provided goods under such arrangements to your customers and you have paid WST on those goods, you may be entitled to a special credit.

(D) Second-hand goods

Second-hand goods are those goods that are not new or have been previously used. They do not have to be previously owned. Previously used goods have been used for the purpose for which they were designed - their intrinsic purpose.

You can not claim any special credit on second hand goods.

Are demonstration goods second-hand?

Goods that are used for demonstration purposes may or may not be used for their intrinsic purpose. For example, a refrigerator on display in a department store has not been used for its intrinsic purpose to refrigerate food.

If you hold goods that are used for demonstration purposes you can claim the special credit where the use of the goods for their intrinsic purpose is negligible or insubstantial, and the goods are to be sold as new goods with full warranty attached (as opposed to used goods with a partial warranty or no warranty). For example, a piece of earthmoving equipment which is occasionally used for demonstration purposes at exhibitions or field days is used for its intrinsic purpose, but that use may be regarded as negligible or insubstantial.

Demonstration vehicles or drive cars held by motor dealers have been used for their intrinsic purpose as a means of transportation. They are usually sold as used vehicles with a partial warranty, being the balance of warranty remaining. They are second-hand goods and you cannot claim the special credit for these vehicles.

Are goods second hand if you use them in your business and/or privately?

Goods you acquired in your business that are used in your business and/or used privately have been used for their intrinsic purpose. They are second-hand goods and are not eligible for the special credit.

Step 2 Work out the quantity of goods held for sale or exchange at the start of 1 July 2000.

Do I have to do a stocktake?

In many cases, you will need to (or may want to) undertake a physical stocktake of the goods you hold at the start of 1 July 2000.

You do not have to do a stocktake at this time if:

• • all your goods are exempt from WST; or

• • you have a perpetual inventory system (that is, you maintain a continuous and accurate record of your stock of goods on hand by recording all stock movements and losses such as purchases, sales, returns, spoilage, breakage, shoplifting and theft); and

• • you have undertaken stocktake(s) so that you count all items of stock at least once during the period 1 July 1999 to 30 June 2000; and

• • you have adjusted your stock records for discrepancies identified by your stocktake(s).

Should I stocktake at close of business on 30 June 2000?

Generally, you can obtain a more accurate stocktake between the close of business on 30 June 2000 and the start of business on 1 July 2000. You may be intending to do a stocktake at this time for reasons other than the claiming of the special credit.

However, we realise that it will not be practical for all stocktakes to be conducted between close of business on 30 June and start of business on 1 July. If you do a physical stocktake within the period 1 June 2000 to 31 July 2000, this will be acceptable if you maintain an accurate record of purchases, sales, returns, spoilage and breakage, so the result of your physical stocktake is adjusted for stock movements between the time of the stocktake and the start of 1 July 2000. If your stocktake is carried out by, or under the control of, a stocktaking professional it may be undertaken within the period 18 May 2000 to 14 August 2000.

Suggestions for doing a stocktake

In doing your stocktake it may be helpful to categorise items according to the WST rate that applies.(The table in Appendix A lists WST rates for many items)

Categorisation will be useful in calculating your special credit if:

• • your stock system or invoices do not show how much WST was paid and you wish to reconstruct the amount of WST paid; or

• • you calculate your special credit using Method 1 - Retail (Step 6) on page 11.

If you do categorise your stock items according to WST rates, it is recommended that this occurs prior to doing the stocktake to minimise your workload at stocktake time.

Suggestions for categorising items are:

• • marking stock items or their shelf spaces with a different colour for each WST rate (that is exempt, 12%, 22% and other rates if applicable);

• • if you source some of your stock from retail purchases, you will need to separately identify these items because a different method of WST calculation is required (see Step 6, Method 1 - Retail on page 11); and

• • grouping together items into WST rate categories either on your stock sheets or on a worksheet prior to calculation of the WST paid. Appendix B is a suggested worksheet.

Step 3 Work out the cost of goods you hold for sale or exchange at the start of 1 July 2000.

If your stock system identifies each article of stock, its cost and the amount of WST paid, your special credit should be calculated directly from that WST figure. Alternatively, you may be able to identify the cost of each item and the amount of WST by tracing your purchases back to source documents such as invoices.

However, in many businesses, it is impractical or commercially unrealistic to trace the actual WST inclusive cost of each particular article of stock. Therefore, we will accept any reasonable method (discussed below) of valuing your stock of goods provided it identifies the cost price on which you have paid tax for each line of stock.

FIFO and average cost

FIFO ('first in, first out') and average cost give the most accurate valuation and are the preferred methods for identifying the tax-inclusive cost of goods for which you are claiming the special credit. However, you can use the other methods detailed below if they give an accurate calculation of the tax-inclusive cost of your goods on hand or if appropriate adjustments are made so that your method achieves that result.

Replacement cost

Some stock valuation methods use the cost of the most recent purchases or the cost at which the stock could be replaced. These methods will not value all the items in stock at their actual purchase price unless there have been no price increases for these goods since the time of purchase. If you use these stock valuation methods and your purchase prices have increased since you purchased the goods, you must make adjustments to reduce the resultant cost figure to equal the actual price for which you purchased all of the goods.

Retail inventory method

The retail inventory method (also known as calculated cost or point of sale methods) will provide an accurate cost valuation where:

• (a) your gross profit margin is set to take account of the items of stock of goods on hand at the start of 1 July 2000 that you purchased at a price lower than your most recent purchases; or

• (b) you turn your stock of goods over in a short period of time so that your current retail prices (when reduced by your gross profit margin) equate to your actual purchase prices; or

• (c) a further adjustment is made (after your selling prices are reduced by your gross profit margin) to reflect movements in cost prices while the stock of goods was on hand; and

• (d) mark-downs to retail selling prices are added back.

If you conduct your stocktake after 1 July 2000, you must calculate your total selling prices by valuing the physical quantities at the selling prices that applied before they were adjusted to take account of WST having ceased and GST becoming payable.

Other methods

Other methods such as LIFO ('last in, first out') and base cost are not acceptable for determining the WST component of your stock of goods.

Step 4 Make any necessary adjustments to the cost of goods on hand before calculating your special credit

Before calculating your special credit, you must make adjustments to your stock valuations in the following situations:

• (A) the wholesale cost includes freight and other WST exempt items; or

• (B) the wholesale cost, on which WST was originally calculated, is later altered by discounts, rebates or other reductions.

(A) Wholesale cost includes freight and other WST exempt items

Generally, WST is calculated by the wholesaler on the price for which the goods are sold to you. However, your final recorded cost of the goods may include other costs. You must exclude the value of these costs from your recorded cost before applying the formula for calculating the amount of WST paid because WST is not payable on those costs. Examples include freight, insurance, finance charges and optional warranty charges that are included in a separate contract and are not essential to the contract of sale of the goods to you.

Instruction manuals and AC adaptors

Many goods are sold as a bundle with other goods, such as instruction manuals and AC adaptors that are exempt from WST. Although your supplier charges a single price for the complete packaged goods, the cost of the exempt goods is excluded before calculating the special credit.

(B) Wholesale cost, on which WST was originally calculated, is later altered by discounts, rebates or other deductions

Arrangements between suppliers and purchasers often include express or implied conditions that provide for discounts or rebates from the amount payable by the purchaser to the supplier. Certain of these discounts or rebates such as trade discounts, volume rebates, deferred credits and prompt payment or settlement discounts, reduce the price for which the goods are sold. They also reduce the WST payable.

Price reductions such as settlement discounts or trade discounts are usually deducted in advance of payment. Deferred credits and volume rebates are not calculated until after the transaction has been completed and may be paid as a refund to the purchaser. Consequently, the credit reduces the amount of WST payable by the supplier.

As a retailer, you may receive a refund or credit from the supplier that includes components attributable to both the cost of the original transaction and the WST. In this case, the amount of WST paid is reduced by the tax component of the discount or rebate.

You can apply an average adjustment

If a significant number of the products you sell is purchased at prices that include costs that have not been included in the calculation of WST (or you receive discounts or rebates that reduce the amount of WST paid) you may be able to calculate an average adjustment factor that you could apply to all these goods that are in your stock. To do this you would have to base your calculation on a sufficient number and variety of transactions so that the result is reasonable and statistically sound.

If, at the time of making your special credit claim, you know you will receive discounts or rebates that reduce the amount of WST paid on your stock of goods, you should allow for them when calculating your claim to avoid having to make adjustments after your claim has been made. If you have made your claim and you later receive discounts or rebates that reduce the amount of WST paid on the goods you have claimed, you must lodge an amended BAS and repay the credit overclaimed.

Step 5 Calculate the amount of WST in goods you hold for sale or exchange at the start of 1 July 2000.

(A) Wholesale goods bought in Australia

If your stock system identifies each article of stock, its cost and the amount of WST paid, your special credit should be calculated directly from that WST figure. If your stock system does not identify each article of stock, the most accurate method of identifying the amount of WST paid is to trace the acquisition back to source documents such as invoices.

If your stock system uses an acceptable valuation method and you make any necessary adjustments to arrive at a tax inclusive cost, you can apply the following formula to that amount to work out how much WST was paid:

Formula

WST paid = [(WST rate) / (WST rate + 100%)] * WST-inclusive cost price


(You will find a list of WST rates at Appendix A).

This will be the amount of the special credit that you can claim.

Example

WST-inclusive cost price of $ 933

WST rate of 12%.

Calculation:

WST paid = [(WST rate) / (WST rate + 100%)] * WST-inclusive cost price
= 12% / (12% + 100%) * $933
= $99.96


(B) Goods you have imported

The best way to calculate the credit for goods you have imported is to take the amount of WST paid from each line entry on the Customs Entry for Home Consumption document.

If the document is not available, you can calculate the amount of WST paid. However, WST is calculated differently for your imports than it is for your purchases in Australia. The following formula applies:

Formula

WST paid = Tax and duty inclusive cost * Factor


(The factor to be used is that which corresponds to the relevant WST rate in the following table):

You can only use these factors if you first exclude from your total cost, any other costs that have not been included in the customs value. Such costs may include overseas freight, agents' fees, wharf charges and storage costs.

Example

WST-inclusive cost of import	$345
WST rate	12%
Factor	12.59%
Calculation:
WST paid	= WST-inclusive cost x Factor
	= $345 x 12.59%
	= $43.44

Step 6 If the amount of WST is not readily ascertainable what can you do?

Where the amount of WST in goods on hand held for sale or exchange at the start of 1 July 2000 is not readily ascertainable, you may be able to estimate the amount, provided the method used produces a reasonably accurate result. The appropriate estimation method to use will depend on the type of business you operate, the type of purchases you make or the amount of goods on hand held for sale or exchange at the start of 1 July 2000. There are 4 estimation methods that we will accept:

• Method 1 - Retail A simplified calculation using 50% of purchase price.

• Method 2 - Mixed business A calculation for small retailers that uses a 6 week analysis of purchases.

• Method 3 - Business average A simplified calculation based on average WST rates for particular businesses.

• Method 4 - Safe harbours A simplified method for particular classes of goods.

Method 1 - Retail - Simplified calculation using 50% of purchase price

Where you acquire goods directly from a wholesaler, the WST paid will be included in your invoice. However, when you acquire goods directly from a retailer the WST paid and invoiced to the retailer is generally not disclosed in your invoice, because the retailer's price reflects the retailer's costs (including WST) and the retailer's profit or margin.

Unless you know either the amount of WST or the wholesale cost on which sales tax is levied, you will not be able to apply the formula in Step 5 on page 9 for goods you purchased in Australia. However, if you only know the retail cost of the goods, you may use this method to calculate the special credit.

Under this method, the special credit is calculated on a percentage of the purchase price of the goods you hold for sale or exchange on 1 July 2000. It estimates the cost of the goods when WST was paid by assuming that the retailer applies a 100% markup on cost when selling the goods to you. The formula to use is:

Formula

Special credit = Purchase price * 50% * WST rate


(There is a list of WST rates in Appendix A).

You can use this method for goods where:

• • the sale to you was a retail sale; and

• • the invoice does not show the amount of WST paid.

Example 1

In June 2000, a plumber purchases a hand basin from a retail hardware store for fitting to a customer's home. This item is on hand at the start of 1 July 2000. However, the receipt or invoice from the hardware store does not include in the selling price, details of any WST paid.

The plumber's purchase price is $900 and the plumber is aware that the WST rate on this item is 12%.

Calculation:

Special credit = Purchase price * 50% * WST rate
= $900 * 50% * 12%
= $54


Example 2

A corner store is short of stock and purchases 10 cartons of soft drink from a local supermarket. These are on hand at the start of 1 July 2000.

The corner store's purchase price is $240 and the WST rate for soft drinks is 22%

Calculation:

Special credit = Purchase price * 50% * WST rate
= $240 * 50% * 22%
=$26.40


If you don't know the rate of tax to apply when using this method, you should contact us by calling 13 28 66 for the cost of a local call.

What can I do if the 50% rate is too low for my industry?

A rate greater than 50% may be used to calculate the special credit for goods on hand held for sale or exchange at the start of 1 July 2000 where:

• • the sale to you was a retail sale; and

• • the invoice does not show the amount of WST; and

• • you are a member, or entitled to be a member, of an industry association; and

• • a rate greater than 50% is approved by the ATO for members of that industry association.

You should contact your industry association to see if this applies to you.

Method 2 - Mixed Business - Calculation for a small mixed business using a 6 week analysis of purchases

If you operate a small mixed business which has a wide range of stock items, you may find it difficult and time consuming to identify each item's WST rate at stocktake time.

Under this method, you record and analyse your purchases over 6 continuous weeks. Purchases are grouped according to the WST rates that apply to each item. At the end of 6 weeks, the total WST paid on purchases is divided by the total purchases and expressed as a percentage. The percentage is then applied to your total stock of goods figure at the start of 1 July 2000, enabling you to calculate your special credit.

You can use this method where:

• • you operate a small mixed business (but not repairers); and

• • the sale to you was a wholesale sale; and

• • you have an annual turnover or anticipated annual turnover of less than $5 million; and

• • you have inventory purchases that do not significantly vary throughout the trading year; and

• • you do not keep a perpetual stock recording system or a stock recording scanning system.

How does this method work?

The method estimates the WST paid on goods held for sale or exchange at the start of 1 July 2000 on the basis of an average WST rate determined by the analysis of purchases in a 6 week period.

Note : If you find that some of your suppliers show WST-inclusive prices and others show WST-exclusive prices, we suggest that you record separate weekly totals for tax-exclusive prices rather than adding WST to the price of each item of stock (see the separate columns for tax-exclusive purchases in the worksheet below). At the end of the 6 week period, WST can be added in total to find the total WST-inclusive amounts.

The analysis has 6 processes.

• Process 1 - The items that have borne the same WST rate are grouped together and the costs are totalled to arrive at a weekly figure. This is continued for each tax rate as well as for exempt items until all purchases are accounted for the week. We recommend that you use a worksheet similar to the one shown at Appendix C.

• Process 2 - At the end of the 6 week period you total each column.

• Process 3 - WST is added to each WST-exclusive column to calculate the total cost for your purchases of taxable goods under each WST rate.

• Process 4 - The WST-inclusive totals for each tax rate, together with the total for exempt goods, are added to give you total purchases for the period.

• Process 5 - The WST rate is applied against the purchases for each rate to determine actual WST paid - then totalled.

• Process 6 - From the worksheet calculate the average WST included in stock of goods by dividing the actual WST ( process 5 ) by total purchases ( process 4 ), and then multiply by 100.

In the sample worksheet $1,524.04 is divided by $17,457 then multiplied by 100 to give an average WST rate of 8.73% (.0873 x 100).

Sample worksheet

Weekly purchases in s (assume no purchases of stock with a WST rate of 32%).

You can use this average WST rate to calculate the special credit. When you have calculated the total cost of stock of goods held for sale at the start of 1 July 2000 you multiply this cost by the average WST rate to arrive at the special credit amount.

Example

Your stock of goods on hand, after adjustments for discounts and returns at the start of 1 July 2000 has a total tax - inclusive cost of $25,000.

Total WST paid
	= Stock of goods on hand x Average WST rate
	= $25,000 x 8.73%
	= $ 2,182.50

Special credit of $2,182.50 is to be claimed in the BAS.

In some circumstances, your major wholesale supplier may provide a stocktake support service of costing out your stock of goods by taking the physical quantities from your stocktake and calculating the cost of your stock of goods and the WST paid on that stock of goods. Alternatively, a wholesaler may provide you with a summary of your purchases for the 6 week period. This avoids the need to record and analyse purchases from that wholesaler. At the end of the 6 week period, you can add the totals from that wholesaler to the totals of your purchases from other suppliers and then apply Process 3.

If your stock turnover of WST exempt goods is higher than your turnover of non WST exempt goods, this estimation method may operate to your disadvantage. This is because the breakup of your purchases over the 6 week period will not be reflected in the goods held at the start of 1 July 2000.

Example

Each week you purchase goods for $500 that are WST exempt. Every 2 weeks you purchase goods for $1,220 that are taxed at the WST rate of 22%.

Goods held at the start of 1 July 2000 are $500 that are WST exempt and $1,220 taxed at the WST rate of 22%.

For the 6 week period the average WST rate using the process described on page 13 is 9.91%.

Special credit	= stock of goods on hand x Average WST rate
	= $1,720 x 9.91%
	= $170.45

This is considerably less than the actual WST paid of $220 ($1,220 x 22/122).

What can I do if I have a mix of retail and wholesale purchases?

Method 2 can be used where the sale to you is a wholesale sale. This method cannot be used where the sale to you is a retail sale.

However, where you have a mix of retail and wholesale purchases with only a small percentage of retail purchases (for example, you occasionally purchase cans of soft drink when they are on special at a supermarket) you may be able to use this method.

The average WST rate is calculated only on your wholesale purchases during the 6 week period where:

• • you have an annual turnover or anticipated annual turnover of less than $5 million; and

• • you operate a small mixed business; and

• • the sales to you are a mix of retail and wholesale; and

• • the majority of the sales to you are wholesale; and

• • you have inventory purchases that do not significantly vary throughout the trading year; and

• • you do not keep a perpetual stock recording system or a stock recording scanning system.

The average WST rate calculated on only wholesale purchases during the 6 week period is then used to calculate the special credit on goods held for sale or exchange at 1 July 2000, regardless of whether those goods were a retail or wholesale purchase.

Where your retail purchases are not a small percentage, it may be appropriate to use a mix of methods.

Method 3 - Business average - Simplified calculation based on a business average WST rate

Small business retailers who have a wide range of stock items may find it difficult and time consuming to identify each item's WST rate at stocktake time. Method 3 is intended to overcome this difficulty and is an alternative to Method 2.

The business average WST rates have been jointly developed by the ATO, industry associations or buying groups and the business community for the following businesses:-

• • 'Traditional' record stores are those stores that stock predominantly music CD's, records, videos, cassettes and music accessories including, music books, magazines and sheet music. Music retailers that stock and sell hi-fi systems, hi-fi components and musical instruments are not regarded as traditional record stores and cannot use this method to calculate their special credit.

• # As an alternative, as agreed with the Australian Record Industry Association (ARIA), a rate of 15.88% may be applied to the 'into store' costs of goods on hand at the start of 1 July 2000 rather than calculating the adjusted cost of goods on hand in Step 4.

How does this method work?

For those goods which would normally be stock for that particular industry or buying group, you use a business average WST rate specific to your business to calculate your special credit for the stock of those goods held at the start of 1 July 2000.

You can use this method where:

• • the amount of goods on hand held for sale or exchange at the start of 1 July 2000, including goods that are exempt from WST, is less than the limit specified in the table on page 15; and

• • you exclude from your stock of goods, items that would not normally be stock for that particular industry or buying group (eg. fuel sales for a convenience store); and

• • you exclude any alcohol from your stock of goods.

A separate calculation using one of the methods outlined in this Bulletin is required for the special credit for other goods which would not normally be stock for that industry or buying group. Your special credit is the sum of those two amounts.

To use this method you will need to know:

• • goods normally held for your industry, business or buying group; and

• • the cost of those goods which you hold for sale or exchange at the start of 1 July 2000; and

• • the business average WST rate for your business.

The special credit amount for those goods is the total cost of the stock of those goods held for sale at the start of 1 July 2000 multiplied by the business average WST rate for your business.

Example

A small supermarket has stock of goods on hand (that would normally be held by that business), after adjustments for discounts and returns, at the start of 1 July 2000 of $122,000.

The business average WST rate for that business is 7.60%.

Special credit	= Stock of goods on hand x Average WST rate
	= $122,000 x 7.60%
	= $9,272

Special credit of $9,272 is to be claimed in the BAS.

Industry, business or buying groups not covered in the table on page 15 are encouraged to approach the ATO to negotiate a rate for use in their industry or by their members. Retailers not covered in the table on page 15 that are members, or entitled to be members, of industry associations, business or buying groups, should contact their asssociations or group to see if approval has been given for a business average rate for their industry.

METHOD 4 - Safe harbours

Some industries may find it difficult to calculate the special credit for some goods because there may be a mix of WST rates included in one product or prices may include exempt items.

A safe harbour average WST rate is an agreed rate for WST paid on certain classes of goods held for sale or exchange at the start of 1 July 2000, and they have been jointly developed by the ATO, industry association and the business community. This rate can be used by any business that sells the particular class of goods covered by the safe harbour.

The following is the only safe harbour average WST rate negotiated at the time of issue of this Bulletin:

• # As an alternative, as agreed with ARIA, a rate of 15.40% may be applied to the 'into store' costs of goods on hand at the start of 1 July 2000 rather than calculating the adjusted cost of goods on hand in Step 4.

The special credit amount for the certain classes of goods is the adjusted cost of those goods held for sale at the start of 1 July 2000 multiplied by the safe harbour average WST rate.

Example

Music Stores Ltd has stock of music CD albums on hand of $40,000 (cost adjusted under Step 4) at the start of 1 July 2000. The special credit for the music CD albums will be 15.70% of $40,000.

Special credit of $6,280 is to be claimed in the BAS.

A separate calculation is required for the special credit for other goods held at the start of 1 July 2000. Your special credit is the sum of those two amounts.

Other industry, business or buying groups are encouraged to approach the ATO to negotiate a safe harbour average WST rate for certain classes of goods held at the start of 1 July 2000.

Step 7 Show the special credit on your Business Activity Statement (BAS).

You can claim the special credit on any one BAS that you lodge for a tax period that ends before 7 January 2001. You do this by entering the special credit in the designated field Label 1G in your BAS. If you are a business that reports quarterly, the last BAS on which you can make your special credit claim is required by 4 February 2001.

What if I need to amend my special credit claim?

If, after making your claim, your entitlement to the special credit is reduced because you:

• • receive any discounts or rebates; or

• • accept any returns or return goods to your supplier; or

• • apply goods you had on hand at the start of 1 July 2000 for a purpose other than as trading stock,

you must lodge an amended BAS. You do this by completing an amended BAS to replace the one in which you made your claim. You must do this on or before the 21st day of the month following the end of the tax period in which the change happens.

Provided you lodge the amended BAS (and repay any credit that has been overclaimed) within the time explained above, you will not be liable for any penalty.

You can also lodge an amended BAS to claim any additional credit that may arise because:

• • you made a mistake in calculating your special credit claim; or

• • goods on which a special credit was not claimed are returned from customers and placed back into stock.

Do I need to keep records?

You are required to keep records for five years from the date on which the record was prepared, or the completion of the transaction or acts to which those records relate. The worksheets at Appendix B & C might form part of those records if you use them to calculate your claim.

Do you need more information?

If you need more information about the special credit please contact the Tax Office:

• • by phone on the Business Tax Reform Infoline on 13 24 78 - you can ring this number from anywhere in Australia for the cost of a local call;

• • in person by visiting the enquiry counter at certain Tax Offices - Tax Office addresses are listed in TaxPack, and in your White Pages telephone directory;

• • by A Fax from Tax, our 24 hour fax information service - simply call 13 28 60 (local call cost) on your phone or fax and follow the voice prompts; or

• • at our Internet site, ATOassist www.ato.gov.au

For general WST enquiries, please contact the Tax Office by phone on our national enquiry number 13 28 66 - you can ring this number from anywhere in Australia for the cost of a local call.

Produced by the GST Rulings Unit of the Australian Taxation Office

Commissioner of Taxation
10 May 2000

Appendix A

List of WST rates for goods

Appendix B

Calculation summary for the special credit

Appendix C

Calculation summary for the Average WST rate