Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 3 - Stock on hand at start of 1 July 2000
Special GST credit for wholesale sales tax (WST)
Overview
3.1 At the time of introduction of the GST, many enterprises will be holding inventories 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 would be inappropriate double taxation. Consequently, businesses may claim a special GST credit for the WST paid on the stock.
3.2 The amount of the special GST credit is equal to the amount of sales tax that you have borne in respect of the goods. The special GST credit is available only if you are registered for GST and can only be claimed through your GST return, in a tax period of your choice, but it must be a tax period ending before 1 January 2001. The special GST credit must be claimed before 22 January 2001.
3.3 The information contained in this chapter includes:
| Transition Bill | EM paragraph | |
|---|---|---|
| Goods to which provision applies | Subsection 15(1) | 3.4 |
| Goods to which provision doesnt apply | Subsections 15(1) & 15(2) | 3.6 |
| Who is entitled to claim a credit | Subsections 15(1) & 15(4) | 3.12 |
| How to claim a credit | Subsection 15(4) | 3.13 |
| How to calculate the credit | Subsections 15(3) & 15(5) | 3.15 |
| Goods later applied for private purposes | Section 16 | 3.19 |
Goods which attract the special credit
3.4 The special GST credit can only be claimed in respect of stock on hand at the start of 1 July 2000 which is held for sale or exchange in the ordinary course of business. [Paragraph 15(1)(b)]
3.5 Stock which attracts the special credit may be held by retailers or wholesalers, provided that it is not excluded by the provision.
Goods that do not attract the special GST credit
Goods for the purposes of manufacture
3.6 Stock held for the purposes of manufacture, for example, raw materials, is excluded from entitlement to the GST credit. [Paragraph 15(1)(b)]
3.7 Stocks of second hand goods are not eligible for the special GST credit. [Paragraph 15(2)(a)]
Goods for hire, consumables or for own use
3.8 Goods held for hire, as business consumables (for example, stationery) or for your own use are not held for the purposes of sale or exchange, so would not be eligible for the special GST credit.
3.9 You can not claim the special GST credit for stocks of alcoholic beverages of the type mentioned in subsection 15A(1) of the ST(E & C)Act . [Paragraph 15(2)(b)]
3.10 Subsection 15A(1) of the ST(E & C)Act mentions the following alcoholic beverages:
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- the following, only if they contain more than 1.15% by volume ethyl alcohol:
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- wine;
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- cider;
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- beverages similar to wine or cider; and
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- mead, perry, sake and other similar fermented beverages;
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- beer;
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- spirits, liqueurs or spiritous liquors; and
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- beverages that contain beer, spirits (other than spirits for fortifying wine or other beverages), liqueurs, or spiritous liquors.
3.11 The Government has announced that these products are to be subject to a different approach which effectively maintains their retail price.
How to claim the special GST credit
3.12 To claim the special GST credit for embedded WST, you must be registered as at 1 July 2000. [Paragraph 15(1)(a)]
You will be regarded as registered as at 1 July 2000 if your registration has a date of effect of 1 July 2000, even if you are not notified of your registration until after that date.
3.13 You can only claim the special GST credit through a GST return, as a separate adjustment against your GST liability, where it is treated as though it were an input tax credit. [Subsection 15(4)]
3.14 You can claim the special GST credit in only one tax period applicable to you, and which ends before 1 January 2001. The GST return in which the claim is made must be lodged before 22 January. The Commissioner has no discretion to extend this period. [Subsection 15(4)]
How to calculate the special GST credit
3.15 The amount of the credit is the amount of WST that you have borne on the goods. [Subsection 15(3)]
This may have been directly paid by you to the supplier of the goods, and appear on your invoice, or it may have been paid at an earlier taxing point.
Example
A tradesman who is entitled to claim the special GST credit, purchased a stock of plumbing hardware for use in an enterprise from a retail store in June 2000, and has it on hand at 1 July 2000. The receipt from the retail store would not provide details of any WST contained in the price.
3.16 If you did not directly bear the WST, or other circumstances make it difficult to readily ascertain the amount of WST which goods have borne, the Commissioner can provide an alternative means of calculating the credit. This will be provided in writing, and may be in response to a specific request by you, or may be initiated by the Commissioner. [Subsection 15(5)]
3.17 The Commissioner may issue public rulings which provide methods for calculation for certain types of goods, or in certain industries, where it is likely that difficulties will be experienced in identifying the WST embedded in stock.
3.18 Taxpayers whose circumstances are addressed in a ruling and who subsequently act in accordance with that ruling, will be afforded the protection available under section 37 of the A New Tax System (Goods and Services Tax Administration) Act 1998 .
Stock of assessable goods later applied for a private or domestic purpose
3.19 If assessable goods are applied for private or domestic use rather than in the course of carrying on an enterprise, they will become subject to GST under section 16 . Subsection 16(1) ensures that such dispositions of the goods are taxable supplies. Subsection 16(3) also provides that such goods on hand on cessation of registration are taxable supplies.
3.20 Section 16 only applies if you are registered or required to be registered on 1 July 2000.
3.21 The taxable supply is taken to be made during the tax period in which you apply the goods for a private or domestic purpose [subsection 16(1)] or the last period that began before cessation of registration [subsection 16(3)] , whichever is relevant.
3.22 The value of the supply is the market value of whatever is applied to a private or domestic purpose, but only to the extent that it is applied in this way. The market value is taken at the time the goods are applied for a private or domestic purpose [subsection 16(2)] ,or at the time of cessation where the supply results from the cessation of registration. [Subsection 16(4)]