Why Hastings and South-West Victoria Is a Distinct Bookkeeping Region
The Hastings–Otway and Corangamite shires are home to one of Australia's most concentrated dairy regions, along with grain cropping, sheep farming, timber production, and a growing food manufacturing sector that includes bakeries, artisan producers, and value-added farm operations. Mornington Peninsula, about 100km to the east, is the natural service centre for this region, and increasingly, food and farm businesses based in Hastings engage with professional services in Mornington Peninsula.
What makes this region distinct from a bookkeeping perspective is the mix: businesses that straddle primary production (GST-free, income averaging eligible) and food processing or retail (taxable, standard small business rules) within the same ABN. Most generic bookkeeping advice is written for one type of business or the other. The reality on the ground in the Hastings region is usually both.
GST on Food: What's Taxable and What Isn't
The A New Tax System (Goods and Services Tax) Act 1999 divides food into two broad categories: basic food staples (GST-free) and everything else (taxable at 10%). For a bakery or food producer, this means classification happens at the product level, not the business level, not the invoice level.
GST-Free Food in a Bakery Context
- Bread, bread rolls, plain croissants, sold cold
- Unprocessed flour, raw ingredients supplied wholesale
- Most unprocessed fruit, vegetables, meat and dairy sold as raw produce
Taxable Food in a Bakery Context
- Any food sold hot and ready to eat (pies, sausage rolls, pasties, toasties)
- Cakes, muffins, biscuits, slices, and most confectionery items
- Café-style beverages (coffee, tea, flavoured milk)
- Decorated celebration cakes
- Processed dairy products (cheese, yoghurt, butter) produced on-farm
- Jams, preserves, dried fruit and sauces made from farm produce
Bakery & Farm-Gate Products: GST Status at a Glance
| Product | GST Status | Applies In |
|---|---|---|
| Bread loaf, plain rolls (cold) | GST-Free | Bakery retail counter |
| Pie, sausage roll (sold warm) | Taxable 10% | Bakery / café |
| Muffin, cake, slice, biscuit | Taxable 10% | Bakery retail |
| Raw milk (to processor or farm gate) | GST-Free | Hastings-region dairy farms |
| On-farm cheese, butter, yoghurt | Taxable 10% | Value-added dairy producers |
| Grain sold to silo or trader (wheat, canola, barley) | GST-Free | Grain farms |
| Jam, preserves, pickles made on-farm | Taxable 10% | Food producers & farm shops |
| Live cattle, sheep to abattoir or at market | GST-Free | Beef and sheep producers |
| Agri-tourism, farm stays, events | Taxable 10% | Farms with tourism income |
In Xero, the solution is separate revenue accounts per product type or sales channel, with the correct GST rate assigned at the account level. That way, each sale automatically codes to the right GST treatment and your BAS is calculated correctly without any manual adjustment.
COGS Tracking: Seeing Your Real Gross Margin
Most food businesses in this region are operating without visibility into their gross margin. They know revenue, they know the bank balance, but they can't tell you what it costs to produce a unit of output, because ingredient and packaging costs are mixed with rent, wages, and general overheads in a single lump of expenses.
Setting Up COGS in Xero
Cost of Goods Sold sits between revenue and gross profit on the profit and loss statement. For a bakery, COGS includes flour, dairy, eggs, fruit, chocolate, packaging materials, and direct consumables used in production. For a farm, COGS on processed products includes the raw ingredient cost (valued at the transfer price from the primary production side), packaging, and processing consumables.
What a Correct Bakery P&L Looks Like
| Line | $ (illustrative) | % of Revenue |
|---|---|---|
| Revenue, Retail Sales | $380,000 | |
| Revenue, Wholesale | $140,000 | |
| Total Revenue | $520,000 | 100% |
| Less: COGS (ingredients, packaging) | ($156,000) | 30% |
| Gross Profit | $364,000 | 70% |
| Less: Wages & Superannuation | ($182,000) | 35% |
| Less: Occupancy (rent, utilities) | ($72,000) | 14% |
| Less: Other Overheads | ($38,000) | 7% |
| Net Profit | $72,000 | 14% |
ATO benchmarks for bakeries show gross margins typically between 55–75% of revenue. If your gross margin is outside that range, you need to investigate, but you can only investigate if COGS is tracked separately. Without this split, you're left with a net profit figure and no diagnostic capability.
Agricultural Bookkeeping: Concessions for Hastings-Region Primary Producers
Primary producers, dairy farmers, grain growers, beef producers, and others operating in the Hastings-Otway and Corangamite shires, have access to a distinct set of ATO concessions not available to standard small businesses. These concessions exist because farming income is inherently volatile and subject to conditions outside the operator's control.
Income Averaging
Under Division 392 of the Income Tax Assessment Act 1997, individual primary producers can elect to have their income tax calculated on a 5-year average income rather than the current year's actual income. In a year where milk prices spiked, or a bumper grain harvest drove unusually high income, this can move a portion of taxable income into a lower marginal tax bracket retroactively. The averaging calculation is handled in the tax return, but the bookkeeper must ensure income is coded correctly across all years for the averaging to work.
Farm Management Deposits
Farm Management Deposits (FMDs) allow primary producers to deposit up to $800,000 of taxable income into an approved financial institution account, claim the deposit as a deduction in the year of deposit, and withdraw it in a later year when it becomes assessable income. The deposit must remain for at least 12 months to retain the deduction, and the business's off-farm income must not exceed $100,000 in the year of deposit. For Hastings dairy farmers with income that varies significantly by milk price year, FMDs are a practical income-smoothing tool.
Livestock Valuation
Livestock held for trading or breeding is treated as trading stock. The ATO allows three valuation methods for livestock: cost price, market selling value, or the elective method (which uses a lower replacement value). The method must be elected annually and consistently applied. A change in the opening stock value, from a change in valuation method or from births, deaths, purchases and sales, flows directly into assessable income. This is one of the most common bookkeeping errors on farming operations: livestock movements coded as general expenses rather than trading stock movements.
Key Tax Concessions for Primary Producers
| Concession | Who It Applies To | What It Does | Bookkeeping Requirement |
|---|---|---|---|
| Income averaging | Individual primary producers | Tax based on 5-year average income | Accurate income coding across all years |
| Farm Management Deposits | Primary producers with off-farm income <$100k | Defer taxable income to future years | FMD account tracked separately in Xero |
| Livestock valuation election | All primary producers with trading livestock | 3 valuation methods available annually | Livestock movements tracked as trading stock |
| Water facility / landcare deductions | Primary producers | Immediate deduction rather than depreciation | Coded as eligible capital expenditure |
| GST-free classification | Primary producers selling raw produce | No GST on raw milk, grain, livestock, raw fruit/veg | Separate revenue accounts per product type |
Bakery Payroll in the Hastings Region
Bakeries and regional food businesses that employ staff face payroll compliance obligations that go beyond the basics. Early morning starts, split shifts, weekend trading, and the mix of full-time and casual staff across production and retail roles creates a payroll profile that is one of the more complex in regional small business.
Bakery Industry Award 2020: Penalty Rate Summary
| Shift Type / Day | Rate | STP Phase 2 Reporting |
|---|---|---|
| Weekday ordinary hours | 100% | Ordinary time earnings |
| Early morning shift (start before 6am) | 115% | Must be reported as separate allowance under STP2 |
| Saturday | 125% | Saturday penalty, separate STP2 pay item |
| Sunday | 150% | Sunday penalty, separate STP2 pay item |
| Public holiday | 225% | Public holiday penalty + substitute day |
| Overtime | 150% / 200% | Overtime, separate STP2 pay item |
Under STP Phase 2, none of these components can be bundled together. Each penalty type must be a separate pay item in Xero, linked to the correct gross income type, and reported individually in every STP lodgement. Setting this up correctly once, before the first pay run, means every subsequent pay run is compliant automatically. Setting it up incorrectly means every pay run lodged to date has incorrect ATO data and will need to be amended.
Seasonal Cash Flow and BAS Timing for Hastings Businesses
Agricultural income in the Hastings region is inherently seasonal. Milk price supplements arrive in certain months. Grain income is received post-harvest. Lamb and beef sales cluster at certain times of year. This creates a well-known BAS trap: a quarterly BAS lodgement timed against a low-income month, but following a high-income month where significant GST was collected and already spent.
The fix is either a dedicated GST holding account (transfer 10% of taxable revenue into a separate account every week), or Xero Analytics Plus for cash flow forecasting (90-day rolling forecast that flags upcoming BAS liability before the lodgement date). For Hastings-region agri-food businesses with mixed GST profiles, the cash flow forecasting view is especially useful, it makes the invisible liability visible in advance.
Watch: Bookkeeping for Bakeries and Farms in the Hastings and Mornington Peninsula Region
Read the video transcript
If you run a bakery or an agricultural business in the Hastings region or anywhere across south-west Victoria, and you feel like your bookkeeping isn't keeping up with the complexity of what you're actually doing, this is the video for you.
The Hastings-Otway and Corangamite region is one of Australia's most productive dairy and agri-food areas. And the businesses in this region, bakeries, dairy farms, grain growers, value-added food producers, have a bookkeeping profile that is genuinely more complex than what most generic small business advice addresses. Let me walk you through the three things that matter most.
The first is GST on food. This is not simple. If you're a dairy farmer, your raw milk sales to the processor are GST-free. But if you've started making farm-gate cheese or yoghurt, those sales are taxable at 10%. If you're a bakery, your bread loaves are GST-free, your muffins are taxable, your pies sold warm are taxable, your plain croissants sold cold might be GST-free, it depends on the product and how it's sold. The rule is that basic food staples are GST-free, but prepared, hot, and processed foods are taxable. And most food businesses in this region have a mix of both.
The way to handle this in Xero is to set up separate revenue accounts for each product type, GST-free sales in one account, taxable sales in another, and assign the correct GST rate to each account. Your point-of-sale system should map to those accounts so the coding happens automatically. If you've been applying 10% GST across all of your sales, you may have been overpaying GST on your BAS every quarter, and that's worth reviewing.
The second issue is COGS, cost of goods sold. For a bakery, that's the direct cost of your ingredients and packaging. For a farm producing value-added food, that's the cost of the raw produce plus processing. COGS needs to sit in its own account in Xero, separate from wages and overheads, so you can see your gross margin. Without that split, you can see your net profit but you can't diagnose it. You don't know if the problem is ingredient costs, or labour, or overhead, you just know the number at the bottom.
ATO benchmarks for bakeries show gross margins between 55% and 75%. If yours is outside that range, higher or lower, you should want to know why. And you can't know if you're not tracking COGS.
The third area is what I'd call the primary producer advantage. If you're farming in this region, dairy, grain, beef, sheep, you have access to tax concessions that most city-based businesses don't. Income averaging means your tax in a high-income year is calculated on a 5-year average, which can significantly reduce what you pay. Farm management deposits let you put income aside in a good year, claim the deduction now, and bring it back in a lower-income year. And livestock has its own valuation rules, they're not just expenses, they're trading stock, and how you value them each year affects your taxable income directly.
These concessions are only useful if your bookkeeping is set up to support them. If livestock purchases are being coded as expenses rather than trading stock movements, the calculation doesn't work. If income isn't coded correctly across years, the averaging doesn't work.
If you're a bakery or food producer or farming business in the Hastings region, we work with businesses across Mornington Peninsula and south-west Victoria and we understand the specific profile of this region. Book a free call at truetally.com.au or call us on 0468 159 950.
Last updated July 2026
Frequently Asked Questions
Does GST apply to farm-gate dairy sales in Hastings?
Raw milk sold to a processor or wholesale buyer is GST-free. On-farm processed dairy, cheese, butter, yoghurt, is taxable at 10%. If you produce and sell both, you need separate revenue accounts in Xero for each, with the correct GST rate per account.
What is income averaging and does it apply to Hastings farmers?
Income averaging is available to individual primary producers including dairy farmers and grain growers. It calculates income tax based on a 5-year average income, which reduces tax in a high-income year following several lower-income years. The bookkeeping requirement is accurate income coding across all years in scope.
How do farm management deposits work?
FMDs allow primary producers to deposit taxable income into an approved account, claim the deduction in the year of deposit, and withdraw it in a future year when it becomes assessable. The minimum deposit period is 12 months. Off-farm income must not exceed $100,000 in the year of deposit. For variable-income farming businesses in the Hastings region, FMDs are a practical tax management tool.
What penalty rates apply to bakery staff?
Under the Bakery Industry Award 2020: 115% for early morning shifts starting before 6am, 125% on Saturdays, 150% on Sundays, and 225% on public holidays. Under STP Phase 2, each penalty component must be a separate pay item in Xero and reported individually per pay run.
Does a Hastings agri-food business need to register for GST?
GST registration is required when GST-applicable turnover reaches $75,000. For primary producers, GST-free raw produce sales don't count toward that threshold, only taxable supplies do. If your processed food sales, agri-tourism, or other taxable income reaches $75,000, you must register.
Bakery or farming business in Hastings, Mornington Peninsula or regional VIC?
We work with food producers, bakeries and agribusinesses across south-west Victoria. Book a free 20-minute call to talk through your bookkeeping setup.
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