The Purchases snapshot method only applies to trading stock purchases. Therefore, you must use the normal GST rules to work out both your:
- GST credits on the purchases that are not trading stock
- GST liability on sales.
You can only use the Purchases snapshot method if you meet all of the following conditions:
- Available to restaurants, cafés and caterers only.
- Nature of business – reseller or converter.
- Same premises – not applicable.
- Point-of-sale equipment – not applicable.
- Turnover threshold – GST turnover of $2 million or less.
How it works
With this method, you work out the percentages of your trading stock purchases that are GST-free in two four week sample periods each financial year. You apply these sample percentages to trading stock purchases for each tax period to estimate your GST-free trading stock purchases. Each four-week sample period should be typical of your trading stock purchases.
To apply the Purchases snapshot method, use the following steps:
- Step 1 – choose a four-week sample period.
- Step 2 – work out the percentage of GST-free trading stock purchases you made for that period.
- Step 3 – apply the percentage of GST-free trading stock purchases to your total trading stock purchases.
- Step 4 – work out the GST credits you are eligible to claim at the end of the tax period based on the GST-free trading stock purchases percentage you have worked out.
Choosing a sample period
Generally, your four-week sample periods must be taken within the set periods of:
- 1 June to 31 July, and
- 1 December to 31 January.
However, it is possible to take sample periods outside the set periods.
If your business is new, and you want to use this method from the day your business starts, the first sample period must be within two months of the date you start selling food to customers.
If you operate an existing business, and you want to use this method from the beginning of a tax period that starts outside the set periods, the first sample period can be either of the following:
- a four-week period during the tax period in which you start to use this method
- a four-week period during whichever of the set sample periods has most recently passed.
Work out the GST-free trading stock percentage
To work out the GST-free trading stock percentage for the sample period, first work out the total amount of your trading stock purchases for that period.
If you account for GST on a cash basis, this will be the total amount you paid for trading stock during the period.
If you account for GST on a non-cash basis, this will be the total price of trading stock you have purchased during the period. You include a purchase in the earlier of the periods in which either:
- an invoice has been issued for the purchase
- you have made any payment for the purchase.
After working out your total trading stock purchases, work out the total amount of these purchases that were GST-free.
To calculate the GST-free trading stock percentage for the sample period divide the total GST-free trading stock purchases figure by the total trading stock purchases figure. Multiply by 100 to obtain the percentage:
- Total GST-free trading stock purchases ÷ Total trading stock purchases × 100 = GST-free trading stock percentage.
If your first sample period is not between 1 June to 31 July or 1 December to 31 January, your GST-free trading stock percentage must be applied to all tax periods until the earlier of either:
- 30 June
- 31 December.
If your sample period is between 1 June and 31 July, your GST-free trading stock percentage must be applied to all tax periods between 1 July and 31 December.
If your sample period is between 1 December and 31 January, your GST-free trading stock percentage must be applied to all tax periods between 1 January and 30 June.
Work out the estimated GST-free trading stock purchases
Use the GST-free trading stock percentage to work out your estimated GST-free trading stock purchases for each tax period until your next sample period. To do this, calculate the following:
- Total trading stock purchases for the tax period × GST-free trading stock percentage for the sample period = Estimated GST-free trading stock purchases for the tax period.
When using this method, you don't have to hold tax invoices for your trading stock purchases when calculating your GST credits for a tax period. However, you must keep appropriate records, such as receipts and invoices, to explain how you calculated the GST credits.
Calculate your GST credits on the trading stock purchases
To work out your GST credits on trading stock purchases for the tax period, work out one-eleventh of your taxable trading stock purchases for that period. To do this, calculate the following:
- (Trading stock purchases − Estimated GST-free trading stock purchases) × (1 ÷ 11) = GST credits on trading stock purchases.
Example: Purchases snapshot method
Anil has been operating a restaurant for five years. He reports and pays his GST quarterly. His GST turnover is below $2 million. Anil has not previously used a SAM. He has been identifying and recording the GST status and the amounts of all trading stock he purchases.
Anil decides to use the Purchases snapshot method from 1 October 2015 to work out his GST credits for his trading stock purchases. He completes an election form to notify us of his decision.
Step 1 – Anil can choose either a:
- four-week period between 1 October 2015 and 31 December 2015
- four-week period between 1 June 2015 and 31 July 2015.
Anil uses the second option and chooses a sample period of 3 July – 30 July 2015. This is because he has already identified the GST status and the total trading stock for that period.
Step 2 – Anil works out that the:
- total cost of his trading stock purchases for the sample period is $15,000
- total cost of his GST-free trading stock purchases for the sample period is $10,500
- percentage of his GST-free trading stock purchases is 70% ($10,500 ÷ $15,000 × 100).
Step 3 – During the tax period 1 October – 31 December 2015, Anil purchases $65,000 of trading stock. He uses the percentage he works out for his sample period to calculate that the total of his GST-free trading stock purchases for the tax period is $45,500 ($65,000 × 70%).
Step 4 – Anil works out the total of his GST credits on trading stock purchases for the tax period is $1,773 ([$65,000 − $45,500] × 1 ÷ 11). He uses this amount to work out the amount of GST he is liable to pay for the tax period.
Next sample periods
Anil must choose two four-week sample periods each financial year to continue to work out the GST-free percentage of his trading stock purchases.
His next four-week sample period is between 1 December 2015 and 31 January 2016. Anil calculates the GST-free percentage of his trading stock purchases for this sample period then applies it to the following two tax periods:
- January – March 2016
- April – June 2016.
Anil then needs to choose another four-week sample period between 1 June and 31 July 2016 to calculate his GST credits for the tax periods:
- 1 July – 30 September 2016
- 1 October – 31 December 2016.
Find out about: