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Stock purchases method

Check whether you meet the conditions to use the Stock method, which is designed for businesses that are resellers.

Last updated 22 October 2019

Note: A reference to 'sales' in this section means sales of trading stock and any other trading income but not sales of capital assets or other supplies you might make solely in ceasing or scaling down your business. Trading income includes things like receipts from services.

The Stock purchases method is designed for businesses that are resellers, not converters.

You can only use the Stock purchases method if you meet all of the following conditions:

  • Nature of business – resellers only.
  • Point-of-sale equipment – inadequate.
  • Same premises – sell both taxable and GST-free food on the same premises.
  • Turnover threshold – SAM turnover of less than $2 million.

You may be eligible to use this method if you operate a business such as a:

  • grocery store or supermarket
  • convenience store or milk bar
  • health food shop
  • continental delicatessen
  • butchery
  • service station
  • newsagency
  • greengrocer's store.

How it works

Using the Stock purchases method, you use information relating to your trading stock purchases to estimate your GST-free sales and trading stock purchases.

There are three ways you can use the Stock purchases method:

  1. Every tax period – you work out the percentage of GST-free trading stock purchases then use this percentage to estimate your sales.
  2. Two four-week sample periods – you use GST-free trading stock percentages from sample periods to estimate both your GST-free sales and trading stock purchases.
  3. 5% GST-free stock estimation basis – you use the mark-ups on your trading stock purchases to estimate your GST-free sales.

Every tax period

Using this option, you calculate the GST credits on your trading stock purchases based on your tax invoices but estimate the GST you are liable to pay on your sales. You do this in two steps:

  • Step 1 – work out the percentage of your GST-free trading stock purchases by dividing your GST-free trading stock purchases by your total trading stock purchases for a tax period.
  • Step 2 – apply this percentage to your total sales to estimate your total GST-free sales for the same tax period.

You must complete these steps for every tax period.

Example: Every tax period

Connie runs a grocery store and decides to use the Stock purchases method every tax period to account for GST. She only resells goods and doesn't convert any items.

During a quarterly tax period, Connie purchases trading stock totalling $203,000, which includes GST-free stock totalling $99,470. Connie's sales total $219,500 during the same period.

Connie works out her total GST-free sales in the following way:

  • Total trading stock purchases = $203,000
  • Total GST-free trading stock purchases = $99,470
  • Percentage of GST-free trading stock purchases
    ($99,470 ÷  $203,000 × 100) = 49%
  • Total GST-free sales ($219,500 × 49%) = $107,555.

Connie has to do this calculation every tax period.

End of example

Two four-week sample periods

Using this option, you estimate your GST-free trading stock purchases and sales.

To do this, calculate the percentages of your total trading stock purchases that are GST-free over two four-week sample periods during the financial year. You then apply the applicable sample period percentage to both your total trading stock purchases and sales to calculate your GST-free trading stock purchases and GST-free sales for each tax period.

  • Step 1 – Work out your sample period percentages (if not already worked out)  
    • choose your sample periods. You must choose two for each financial year. They must be a continuous four week period and they must be between  
      • 1 June and 31 July to cover tax periods from 1 July to 31 December, and
      • 1 December and 31 January to cover tax periods from 1 January to 30 June

for the relevant financial year.

  • Work out the percentage of your GST-free trading stock purchases from your total trading stock purchases for the two sample periods.

Sampling is done at these times to allow for seasonal fluctuations. However, if you have recently started your business, your first sample period should be in the first two months of trading.

  • Step 2 – Work out your GST-free sales  
    • work out your GST-free sales for a tax period by applying the applicable sample period percentage to the total sales for that tax period
    • apply this percentage to every tax period until the next sample period.
  • Step 3 – Work out your GST-free trading stock purchases  
    • work out your GST-free trading stock purchases for a tax period by applying the applicable sample period percentage to the total trading stock purchases for that tax period
    • continue to apply this percentage to every tax period until the next sample period.

Example: Two four-week sample periods

Andrew runs a supermarket. He resells all his goods. He doesn't convert any GST-free goods into taxable products.

Andrew chooses his first sample period to start 1 June and to end on 28 June. During this sample period, Andrew has total trading stock purchases of $60,000 of which $29,400 is GST-free.

For his September quarter tax period, Andrew has:

  • total sales of $219,000
  • total stock purchases of $203,000.

He works out his total GST-free sales and trading stock purchases for the tax period using the following three steps:

Step 1 –  Work out your sample period percentage for GST-free trading stock.

  • $29,400 ÷  $60,000 × 100 = 49%

Step 2 – Work out your GST-free sales for the September quarter tax period.

Apply the applicable sample period percentage to total sales.

  • $219,500 × 49% = $107,555

Step 3 – Work out your GST-free trading stock purchases for the September quarter tax period.

Apply the applicable sample period percentage to total trading stock purchases.

  • $203,000 × 49% = $99,470

Andrew applies the 49% rate to his total trading stock purchases and sales for subsequent tax periods until January. He will then choose a second sample period between 1 December and 31 January.

End of example

5% GST-free stock estimation basis

In this method, you use the 'mark-ups' on your GST-free trading stock purchases to estimate your GST-free sales.

You may use this basis if it is reasonable to conclude that the projected GST-free trading stock that you purchase and resell GST-free is not more than 5% of your total trading stock purchases.

The following food retailers are likely to be able to use the 5% GST-free stock estimation basis:

  • kiosks that don't prepare takeaway meals
  • service stations
  • newsagents.

Example: 5% GST-free stock estimation basis

Valda from Valda's Arcade reviews her suppliers' tax invoices for the tax period. She finds that the total trading stock she has purchased GST-free and resold GST-free is $750, as follows:

  • Bottled water – $300
  • Pure fruit juice – $450
  • Total – $750.

Valda's total trading stock purchases are $24,000, so her GST-free trading stock purchases are only 3.1% of this total. This tax period is representative of her trading stock purchases.

It is reasonable for Valda to conclude that her projected GST-free trading stock purchases that she will resell GST-free are less than 5% of her total trading stock purchases. Valda can use this estimation basis.

End of example

Using this option, you work out your actual GST-free trading stock purchases based on your tax invoices.

You estimate your total GST-free sales by applying your mark-ups to the product lines you buy GST-free and resell GST-free and then adding these up to work out your estimated GST-free sales.

Estimate your GST-free sales in the following four steps:

  • Step 1 – identify a product line or trading stock that you buy GST-free and resell GST-free.
  • Step 2 – work out for each product line in step 1 the total acquisitions you made for a tax period.
  • Step 3 – apply your mark-ups to the totals from step 2 to estimate total GST-free sales for each product line.
  • Step 4 – add your estimated GST-free sales for each product line to calculate your total GST-free sales for a tax period.

If your mark-up is the same for each product line, you don't have to separately record the totals for each product line. Only record the total amount of GST-free trading stock purchases. Apply your mark-up to this amount to calculate your total GST-free sales.

Example: Calculating GST-free purchases and sales

Using the previous example, Valda has GST-free trading stock purchases totalling $750 for the tax period ($300 for bottled water and $450 for pure fruit juice). Valda's mark-up is 40% for bottled water and 30% for pure fruit juice. She estimates her total GST-free sales are $420 ($300 + 40% mark-up) for bottled water and $585 ($450 + 30% mark-up) for fruit juice.

Valda adds these amounts to calculate her total GST-free sales of $1,005 for the tax period.

End of example

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