GST issues registers

Primary production industry partnership

10 Wool and shearing

10.1 Shearing

10.1.1 - Contractors tax invoice - full contract

Question

Does the contractor's tax invoice need to show cost of shearing and GST separately where shearing is undertaken on a full contract basis?

Non-interpretative - other references (see GSTR 2013/1 - Goods and services tax: tax invoices).

Background

Shearing contracts

There are four basic types of shearing operations (full contract, cost plus, levy and cocky).

1. Full contract

The contractor quotes a specific price per head to cover the provision of a shearing team. The contractor is the employer of each member of the team and covers them for workers compensation, remits PAYG and pays the required super contributions. (Note: PAYG replaced PAYE from 1 July, 2000)

The contractor provides in advance a quote for the work that is $3.70 per sheep.

If the contractor is providing machinery such as hand pieces, presses or grinders, this may be quoted as a separate item or covered in the cost per head.

Answer

Where GST payable is exactly one-eleventh of the total price, the tax invoice must contain a statement that the total price includes GST or show the amount of GST payable.

Explanation

Subdivision 29-C of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) deals with tax invoices and adjustment notes. Section 29-70 of the GST Act deals specifically with tax invoices and states:

(1)

A tax invoice is a document that complies with the following requirements:

(a)

it is issued by the supplier of the supply or supplies to which the document relates, unless it is a recipient created tax invoice (in which case it is issued by the recipient

(b)

it is in the approved form

(c)

it contains enough information to enable the following to be clearly ascertained

(i)

the supplier's identity and the supplier's ABN

(ii)

if the total price of the supply or supplies is at least $1,000 or such higher amount as the regulations specify, or if the document was issued by the recipient-the recipient's identity or the recipient's ABN

(iii)

what is supplied, including the quantity (if applicable) and the price of what is supplied

(iv)

the extent to which each supply to which the document relates is a taxable supply

(v)

the date the document is issued

(vi)

the amount of GST (if any) payable in relation to each supply to which the document relates

(vii)

if the document was issued by the recipient and GST is payable in relation to any supply-that the GST is payable by the supplier

(viii)

such other matters as the regulations specify.

(d)

It can be clearly ascertained from the document that the document was intended to be a tax invoice or, if it was issued by the recipient, a recipient created tax invoice.

(1A)

A document issued by an entity to another entity may be treated by the other entity as a tax invoice for the purposes of this Act if:

(a)

it would comply with the requirements for a tax invoice but for the fact that it does not contain certain information

(b)

all of that information can be clearly ascertained from other documents given by the entity to the other entity.

(1B)

However, the Commissioner may treat as a tax invoice a particular document that would not, apart from this subsection, be a tax invoice.

Where GST payable is exactly one-eleventh of the total price, the tax invoice must either contain a statement that the total price includes GST or show the amount of GST payable.

Where the quoted cost of shearing includes provision of machinery etc in the price there is no need to show a separate line item for each GST component on the tax invoice. It will be sufficient to provide one GST amount on the invoice for the overall supply.

Note: GSTR 2013/1 - Goods and Services Tax: tax invoices

Examples of model tax invoices can be viewed at issues 4.3.1 (tax invoice), 4.1.4 (agent/vendor tax invoice) and 4.4.1 (recipient created tax invoice).

10.1.2 - Contractors tax invoice - cost plus

Question

How is the GST liability calculated on a 'cost plus' basis shearing contract?

Non-interpretative - straight application of the law

Background

Shearing Contracts

There are four basic types of shearing operations (Full contract, Cost plus, Cocky and Levy).

Cost plus

Under this method the Contractor provides a full team and is the employer of the team. The contractor is responsible for workers compensation, remitting PAYG, making superannuation contributions.

The contractor does not quote a set price before commencing the work. This may be because it is the first time the contractor has provided a team for a woolgrower or the woolgrower may require the team to carry out extra work such as fleece sampling and measurement.

Before work commences, the contractor explains the basis he will use to calculate his final account. The rate of pay for each worker and extra costs are specified. The contractors overheads and margin are then added on. This margin is usually specified as a cost per sheep and can range from 15 to 32 cents per sheep. The contractor provides a final account when shearing is completed.

Answer

The provision of a shearing team on a 'Cost Plus' basis will represent a taxable supply by the contractor to the woolgrower if the contractor is registered or required to be registered for GST. The method of calculating the contract amount and the timing of notification of the cost to the woolgrower does not change the fact that it is a taxable supply.

We understand that the contractor includes items such as cost of labour, workers compensation, superannuation, payroll tax, contractors overhead and margin in the contract. Although these items are used to calculate the contract price, they do not represent the supply that the contractor is making to the woolgrower. The supply is the sheep shearing and the consideration payable is the amount calculated using the individual items. The contractor is liable for GST on the taxable supply not on the components.

The contractor will be liable for GST, calculated on either the full contract or a per head basis, depending on the method chosen.

10.1.3 - Cocky shearing arrangements

Question

Is the employer liable for GST on the labour component of a 'cocky shearing' arrangement?

Non-interpretative - straight application of the law Background

Shearing Contracts

There are four basic types of shearing operations (Full contract, Cost plus, Cocky and Levy).

Cocky Shearing

Under this method, the woolgrower employs the members of the team directly.

Answer

No.

Explanation

Generally, employees supply their labour to the employer and their wages represent consideration for that supply. However, subsection 9-20(2) of the GST Act ensures that employees are not considered to be carrying on an enterprise, therefore, there can be no taxable supply between employees and employers. This exclusion is contained in paragraph 9-20(2)(a) of the Act which states:

However, enterprise does not include an activity, or series of activities, done:

(a)

by a person as an employee or in connection with earning withholding payments covered by subsection (4) (unless the activity or series is done in supplying services as the holder of an office that the person has accepted in the course of or in connection with an activity or series of activities of a kind mentioned in subsection (1))

Where the woolgrower employs the shearers there will be no taxable supply as the shearers are not conducting an enterprise. Note, however, that PAYG will apply to these payments.

10.1.4 - Levy shearing

Question

Is the contractor liable for GST on fees charged to woolgrowers under a 'levy shearing' arrangement?

Non-interpretative - straight application of the law

Background

Shearing contracts

There are four basic types of shearing operations (Full contract, Cost plus, Cocky and Levy).

Levy shearing

Under this method, the contractor acts as an employment broker and provides a team which is employed by the woolgrower.

The woolgrower is responsible for workers compensation, remitting PAYG and making superannuation contributions.

The contractor charges a fee or levy for his services.

Answer

Yes.

Explanation

The fee charged by the contractor for organising the shearing team will represent a taxable supply if the contractor is registered or required to be registered. The contractor will be liable for GST on the supply and will be able to claim input tax credits for any creditable acquisitions that are made in relation to that supply, if registered or required to be registered.

10.1.5 - Shearers food and accommodation

Question

Does GST apply on supplies of meals or accommodation to shearers by their employers?

For the source of the ATO view refer to GSTR 2012/6 - Goods and Services Tax: commercial residential premises (in particular paragraphs 124, 239 and 240) and GSTR 2001/3 - Goods and services tax: GST and how it applies to supplies of fringe benefits.

Answer

GST will generally apply where an employer is registered or required to be registered for GST and makes a supply of food to a shearer, and the shearer makes a payment for the supply.

In the case of a supply of accommodation, the GST treatment of the supply will depend upon whether the accommodation is provided in 'residential premises' or 'commercial residential premises'. Where the accommodation is provided in residential premises (other than commercial residential premises) GST will not apply. Where the accommodation is provided in commercial residential premises, GST will apply if the shearer makes a payment towards the supply.

Where the food or accommodation is provided free of charge, GST will generally not apply.

Explanation

Section 9-5 of A New Tax System (Goods and Services Tax) 1999 (the GST Act) provides, broadly, that a supply is a taxable supply if it is for consideration, in the course of the employer's business, connected with Australia, and the employer is registered or required to be registered for GST. However it is not a taxable supply to the extent it is GST-free or input taxed.

The definition of supply in the GST Act is broad and includes a supply that constitutes a fringe benefit (including an exempt fringe benefit) made by an employer to an employee. Subsection 9-75(3) of the GST Act provides a special method for calculating the taxable value of such a supply. To determine the taxable value it is necessary to examine the definition of 'recipients contribution' in the Fringe Benefits Tax Assessment Act 1986. Paragraph (a) of that definition refers to 'consideration paid'.

It is found that supplies of food typically provided to shearers for the duration of a shearing 'shed' (and short-term accommodation provided in commercial residential premises where applicable) have a GST inclusive price equal to the amount, if any, paid by the shearer for the supplies.

Food that is paid for

Shearers may be employed under an award on a not found basis. This means they are responsible for their own food and accommodation. However, they may enter into an arrangement with their employer for food or accommodation to be provided, at a price agreed with the employer. If their employer is registered for GST their employer will generally be liable for GST based on the amount paid by the employee for the provision of the food.

Although the supply of food for human consumption is GST-free in many circumstances, it is not GST-free if it is food for consumption on the premises from which it is supplied (paragraph 38-3(1)(a)of the GST Act). Food includes beverages.

Shearers may be provided with meals in a kitchen or dining room, either formal or informal, or in the open air. Because the supply is intended for consumption at the place where it is provided, it is not GST-free.

Under the provisions of subparagraph 9-75(3)(a)(ii) of the GST Act, the GST inclusive price of the supply of the meals will be the amount the shearer pays for the meals.

Note that shearers employed on a found basis, generally make no payment for their food, as they are generally entitled to be provided with meals as a condition of their employment.

Accommodation that is paid for

Short-term accommodation is usually provided to shearers in residential premises (other than commercial residential premises) and consequently, the supply of the accommodation constitutes an input taxed supply of residential premises.

However, should the accommodation be provided in camp style quarters (see example 10 of GSTR 2012/6) or other types of premises that have the features of commercial residential premises and the shearer pays for the accommodation, the supply will be taxable. Where this is the case, under the provisions of subparagraph 9-75(3)(a)(ii) of the GST Act, the GST-inclusive price of the supply of the accommodation to a particular shearer will be the amount the shearer pays for the accommodation.

Note that shearers employed on a found basis, generally make no payment for their accommodation, as they are generally entitled to be provided with basic accommodation as a condition of their employment.

Food or accommodation that is provided free of charge (including food or accommodation provided free of charge to found shearers)

In some cases employers may provide food and/or accommodation to shearers free of charge, as an over-award benefit at the employer's discretion.

In other cases, employers may engage shearers on a 'found' basis, such that they are entitled to food and/or accommodation free of charge as an entitlement under an award. Examples of such awards are the Pastoral Industry Award 1998, and the Western Australia Shearing Contractors Award 1993. The Pastoral Industry Award 1998 states 'Found employees shall be employees who are supplied with up to 5 meals per day during the course of shearing or crutching, such meals to be provided by the employer together with suitable accommodation.' The rates of pay provided in these two particular awards for shearers employed on a Found basis are lower than the rates for employees engaged on a not found basis. The ATO considers that shearers engaged on a Found basis under these two awards do not pay for their meals and accommodation, other than indirectly through their labour.

Where the employer provides food and/or accommodation free of charge to employee shearers, the GST taxable value of those supplies, where applicable, will be nil, as the 'recipients contribution' within the meaning of subsection 9-75(3) of the GST Act is nil.

Supplies of food and/or accommodation to associates free of charge as an entitlement under a found award

The GST Act contains a special provision, section 72-70 of the GST Act, for supplies made to associates for less than market value. The found conditions of employment specified in an award are available to shearers at large. Accordingly, employers engaging members of their family or other associates as employees on a found award basis, and supplying them free of charge as an entitlement under that award with a normal level of benefits available to non-associates, should not be affected by this special provision, and the GST taxable value will remain as nil.

Example

'Found' and 'Not Found' shearers in a joint mess.

A grazing partnership registered for GST employs six shearers under the Pastoral Industry Award 1998 for five days of shearing on the partnership sheep property. Two of the shearers advise the partnership they will not need sleeping accommodation or breakfast or an evening meal, as they live within driving distance. The partnership engages these two shearers on a 'Not Found' basis under the Award and supplies each of them with morning and afternoon tea and lunch at an agreed price of $11 per day. The price includes any applicable GST.

At the conclusion of the shed, the partnership pays these two shearers at the award rate for 'Not Found' employment. The partnership deducts the agreed amount of $11 per day from the wages in payment for the meals. The total deducted for meals for the five days is $55 per employee, a total of $110. The partnership, being registered for GST, will include the $110 in its partnership business activity statement. The partnership will be liable for GST of $10, being one-eleventh of the total price of $110.

The other four shearers wish to take all their meals at the shearing shed. The grazing partnership engages them on a 'Found' basis under the Pastoral Industry Award 1998 and supplies these four shearers with suitable basic accommodation in residential premises (other than commercial residential premises).

At the conclusion of the shed, the partnership pays these four shearers for the 5 days at the 'Found' rates specified under the Award. These rates are less than the 'Not Found' rates. The partnership cannot deduct from the wages of these four shearers any amount for the benefits of food and accommodation, as it was obliged to supply these benefits to these 'Found' shearers under the Award. The GST Act provides that the taxable value of the supplies of benefits of food to these four employees is based on the 'consideration paid' by these employees. The ATO considers there is no consideration paid, as these four shearers make no payment other than indirectly through their labour. The GST price and liability is accordingly nil for the supplies of meals to these four shearers and the supplies of the accommodation to them being input taxed, there is also no GST liability arising from these supplies.

When the partnership calculates its input tax credits, it can claim for its creditable acquisitions (of food etc) in relation to its provision of meals to all six employees. However, the partnership cannot claim input tax credits for acquisitions it makes in relation to providing the accommodation as this particular supply is input taxed. Had the partnership provided the accommodation in commercial residential premises, it would have been entitled to input tax credits for its creditable acquisitions in relation to providing the accommodation. It will make no difference whether the employees were employed on a 'Found' or a 'Not Found' basis.

Please note that from 19 December 2012 GSTR 2012/6 has replaced GSTR 2000/20. The view expressed in GSTR 2000/20 regarding 'employee accommodation' is not replicated in GSTR 2012/6 and the written guidance provided above incorporates this change (also see issue 20.8.1).

10.2 Wool

10.2.1 - Wool auctions pre 1 July 2000

Question

Wool is being sold at auction towards the end of June 2000. Will GST apply if payment is not made until after 30 June?

Non-interpretative - straight application of the law

Answer

Yes.

Explanation

The Australian Taxation Office (ATO) has been advised in relation to sales of wool by auction as follows:

•

It is long-standing industry practice that wool is not available to be removed by the purchaser until it is paid for in full.

•

Bidding is likely to be on a tax exclusive basis both before and after the commencement of GST.

•

Normally payment is required to be made by a 'prompt date'. Late payments may be accepted at the discretion of the vendor.

•

Precise terms of sale will be found in wool auction sales catalogues.

Goods and services tax (GST) is only payable on a supply to the extent that it is made on or after 1 July 2000. The time of supply is set out in section 6 of A New Tax System (Goods and Services Tax Transition) Act 1999. Where goods are not to be removed, the time of supply is 'when the goods are made available to the recipient'.

The ATO accepts that it is not necessary that the wool actually be removed, merely that it be available to be removed by the recipient. Based on representations made to the ATO it is understood that wool is not made available for removal until the purchaser has paid in full. Therefore, the time of supply for GST purposes is the date of payment.

Auctioneers may wish to announce the importance of payments being received by the vendor's broker on or before 30 June 2000. If a vendor is registered and accepts payment for auctioned wool after 30 June 2000, the vendor will become liable for GST on the supply and will need to charge the purchaser accordingly.

Registered purchasers paying after 30 June 2000 will need to hold a tax invoice before being able to claim any input tax credit on the purchase of the wool.

10.2.2 - Wool tax and GST application to wool sales

Question

How is GST calculated when Wool Tax is imposed on the same transaction?

Non-interpretative - straight application of the law

The Wool Tax Act was repealed on 14 Sep 2006. This issue previously stated:

Answer

There is no GST applied to the Wool Tax and no Wool Tax applied to the GST on the initial sale of wool.

Explanation

Section 81-1 of A New Tax System (Goods and Services) Act 1999 (GST Act) provides that:

'GST applies to payment of taxes, fees and charges, except those taxes, fees and charges that are excluded from the GST by a determination of the Treasurer.'

Wool Tax has been excluded from the GST by the Treasurer's Determination, A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2007 (No.1).

Additionally, the following concession is provided by subsection 10(5) of the Wool Tax (Administration) Act 1964:

'... the price of the supply of wool is taken not to include the net GST that is, or would be, payable by an entity making the supply.'

Therefore initial wool sales will have Wool Tax and GST levied separately.

In subsequent sales GST is simply calculated on the value of the wool sold. No adjustment is made for Wool Tax previously imposed.

An example to illustrate the levying of GST and Wool Tax in a purchase of shorn wool by a wool-dealer from a grower is as follows:

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