Question

wered of stion . During the current financial year, 'Pick-A-Punnet' - a family-run, strawberry farming business in NSW, recorded the following activities: • Sales of freshly picked strawberries: $55,000 • Sales of strawberry ice cream: $220,000 It also recorded the following outgoings: $22,000 was spent on farming supplies used for growing the strawberries such as fertiliser, pesticides, seedling pots etc $55,000 was spent on employee wages Answer the following questions. You must show calculations and refer to law where relevant: 1. How much GST is payable on the sale of the strawberries? (2.5 marks) 2. How much GST is payable on the sale of the ice cream? (2.5 marks) 3. How much can the taxpayer claim any input tax credits in respect of the farming supplies? (2.5 marks) 4. How much can the taxpayer claim any input tax credits in respect of the wages? (2.5 marks)

Answer 1

Since the company has sales of greater than the threshold of $75000, it is liable to pay GST.

1) GST is exempt on the sale of fresh fruits and vegetables.

Thus, the sale of strawberries will have 0 GST payable.

2) A GST rate of 10% is levied on the sale of ice cream.

Thus, 10% x 220,000 = $22,000 is the GST payable on sale of strawberry ice cream.

3) The laws state that if there exists a farming business and it is going concern, the input supplies will be GST free.

Subsection 38-475(2) of the GST Act provides the following:

‘An entity carries on a farming business if it carries on a business of:

1. cultivating or propagating plants, fungi or their products or parts (including seeds, spores, bulbs and similar things), in any physical environment; or

2. maintaining animals for the purpose of selling them or their bodily produce (including natural increase); or

3. manufacturing dairy produce from raw material that the entity produced; or

4. planting or tending trees in a plantation or forest that are intended to be felled.’

Since the company satisfies point 1 mentioned above, and that it is a family run registered business, it satisfies the going concern concept.

Thus, it will be a GST - free purchase and thus, no input tax credit will be received.

4) Section 44 of payroll tax act, 2007 says that GST will be excluded from wages (other than wages that comprise fringe benefits) and it was ruled that Employees’ wages and salaries are not subject to GST.

GST is applicable if work is being done by independent contracters.

In this case, no independent contractors are mentioned and thus, no input tax credit can be claimed.