Treatment of GST in gross margin budgets
Introduction
Note that the gross margin budgets available from this site show GST exclusive prices. This is because a majority of farmers have an Australian Business Number (ABN) and are registered for GST, thus the gross margin effect is zero. However, a small proportion of farmers are not registered for GST but have an ABN or have neither. In these cases the gross margin implications of GST are different.
Registered for GST
There are three steps for farmers who have an ABN and are registered for GST.
- They will be able to claim all GST paid when purchasing enterprise inputs as input tax credits.
- Farmers will have to pass on to the tax office the GST they collect as a result of selling an enterprise output or service. Therefore, the net effect of GST on the gross margin is zero.
- Farmers who are registered for the GST have to complete a Business Activity Statement, which will determine their net GST to be paid to or received from the tax office.
With ABN but not registered for GST
Farmers who have an ABN but are not registered for GST, will not be able to claim the GST component as an input tax credit nor will they be able to charge GST on sales of their produce or services supplied. These producers should account for additional input costs by using GST inclusive costs in preparing their gross margin budgets.
Without an ABN
Farmers without an ABN (therefore not registered for GST), unless authorised as a hobby, will have deducted from the value of a sale or service withholding tax, currently 48.5%, when supplying to businesses with an ABN. These producers should account for additional costs in their gross margin preparation by using GST inclusive costs, allow for withholding tax if not a hobby, and seek advice regarding the legal requirements of the tax system.
Special notes
Farmers and their advisers should note the following:
- The GST could have significant cash flow consequences to a business. This should be considered when preparing cash flow projections.
- Producers should seek advice regarding their requirements for collecting withholding tax when dealing with businesses that do not have an ABN.
- For more details, various handouts are available from the ATO. Phone 13 24 78 or see the web sites:
