Transform Your Used Goods Business with Strategic Tax Benefits

Gross Margin Scheme (GMS)

The Gross Margin Scheme (GMS) in Singapore allows GST-registered businesses to charge GST only on the gross margin of used goods, offering potential benefits and requiring compliance with specific conditions.

What is the Gross Margin Scheme?

At BluTrust Pte. Ltd., we understand that managing GST can be complex. That’s why we want to introduce you to the Gross Margin Scheme (GMS), a specialized program that allows you to levy GST only on your profit margin, rather than the full value of the goods you sell. This scheme is particularly beneficial if you’re in the business of selling used goods. 

How Does It Work?

The Gross Margin is calculated as follows:

Gross Margin = Selling Price (A) – Purchase Price (B)

If your selling price is equal to or less than your purchase price, no GST is applicable. However, you still need to report the selling price in your GST return. If the selling price exceeds the purchase price, you’ll be responsible for accounting for GST on the profit margin using the tax fraction (i.e., Gross Margin x 8/108).

Eligibility Criteria

To be eligible for the GMS, you must meet the following conditions:

  1. Your business primarily deals with used goods, such as second-hand vehicles, electrical appliances, furniture, or jewelry.
  2. The goods you’re selling were acquired without GST charges. This could be from either a non-GST registered supplier or a GST-registered supplier who also used the GMS.

Additional Responsibilities

Before opting for the GMS, consider the following:

– You’ll need to maintain meticulous records for all used goods sold under this scheme.

– Ensure that you’re correctly calculating and accounting for GST on your profit margins.

– Incorrect application of the GMS could result in penalties as per GST regulations.

Feel free to reach out (link to contact form) to our team at BluTrust Pte. Ltd. for more information and personalized guidance on how the Gross Margin Scheme can benefit your business.

Capital Allowances

Deductions for the decline in value of depreciating assets are available under the Uniform capital allowance (UCA) system. In addition to the rules for depreciating assets, deductions are allowed for certain other capital expenditure.

Small business entities have the option of choosing simplified depreciation rules. Under these rules, small business entities can claim an immediate deduction if the cost is below the relevant threshold or else add the asset to the small business depreciation pool.

Land, trading stock and most intangible assets (excluding exceptions such as intellectual property and in-house software) are not depreciating assets.

The decline in value is generally calculated by spreading the cost of the asset over its effective life, using one of two methods:

Prime cost method – decline in value each year is calculated as a percentage of the initial cost of the asset
Diminishing value method – decline in value each year is calculated as a percentage of the opening depreciated value of the asset
MORE: Australian Taxation Office (ATO) Decline in value calculator.

For most depreciating assets, taxpayers can either self-assess the effective life, or use estimates published by the ATO. Taxpayers can recalculate, either up or down, the effective life of an asset if the circumstances of use change and the effective life initially chosen is no longer accurate. An improvement to an asset that increases its cost by 10% or more in a year may result in an obligation to recalculate the effective life of the asset.

Decline in value of cars is restricted to the car limit. From 1 July 2022, the luxury car tax threshold for luxury cars is $64,741 (it was $60,733 for the year commencing 1 July 2021). Luxury car leases are treated as a notional sale and purchase, with decline in value restricted to the car limit.

The decline in value of certain depreciating assets with a cost or opening adjustable value of less than $1,000 can be calculated through a low-value pool. The decline in value for depreciating assets in the pool is calculated at an annual diminishing value rate of 37.5%.

Changes for 2022 and 2023

From 12 March 2020 until 31 December 2020, the asset cost threshold for the instant asset write-off (which is usually only available to small business entities) has increased from $30,000 to $150,000 and the eligibility criteria expended to cover entities with an aggregated turnover threshold of less than $500 million (up from $50 million).

Further, from 12 March 2020 until 30 June 2021 the Backing business investment measure applied to businesses with aggregated turnover below $500 million and provides either:

A deduction of 50% of the cost or opening adjustable value of an eligible asset on installation (existing depreciation rules apply to the balance of the asset's cost), or
For businesses using a small business depreciation pool, a deduction of 57.5% of the cost of the asset in the first year, with the balance added the asset to the small business pool
In addition, from 6 October 2020 to 30 June 2023, full expensing applies to allow eligible businesses with an aggregated turnover of less than $5 billion to deduct the full cost of new eligible depreciating assets. For businesses with aggregated turnover of less than $50 million, full expensing also applies to eligible second-hand assets.

Activity Statement

Businesses use activity statements to report and pay a number of tax obligations, including GST, pay as you go (PAYG) instalments, PAYG withholding and fringe benefits tax. Non-business taxpayers who need to pay quarterly PAYG instalments also use activity statements.

Activity statements are personalised to each taxpayer to support reporting against identified obligations.

Activity statements for businesses may be due either quarterly or monthly. Generally, businesses can lodge and pay quarterly if annual turnover is less than $20 million, and total annual PAYG withholding is $25,000 or less. Businesses that exceed one or both of those thresholds will have at least some monthly obligations. Non-business taxpayers are generally required to lodge and pay quarterly.

Taxpayers with small obligations may be able to lodge and pay annually. Some taxpayers may receive an instalment notice for GST and/or PAYG instalments, instead of an activity statement.

The Australian Taxation Office (ATO) web site provides instructions on lodging and paying activity statements. Detailed instructions are provided for each of the different tax obligations:

GST (Goods and Services Tax)
PAYG (Pay As You Go) Instalments
PAYG (Pay As You Go) Withholding
FBT (Fringe Benefit Tax)
LCT (Luxury Car Tax)
WET (Wine Equalisation Tax)
Fuel Tax Credits