Second Hand goods covered by the GST Act are defined as goods previously used and paid for by someone else – the ‘using’ is an important aspect as merely owning something does not make goods necessarily second hand. The Act also includes land as second hand goods. (Further reading: Tax Season Tips for Small Business Owners)
This definition excludes anything new, and second hand goods consisting of any fine metal of any degree of purity plus primary produce and livestock plus goods supplied under a lease or rental agreement.
If you are GST registered and you buy second hand goods from someone who is not registered for GST you can make a claim for credit for GST purposes, as long as you have paid for the goods before you make the claim.
In this case you must also keep a record of the following:
the name and address of the supplier
the date of the purchase
a description of the goods
the quantity of the goods
the price paid
With regard to land, which is classed as second hand in the GST Act, if it is purchased from an unregistered vendor, the registered purchaser may be able to claim GST on the purchase price. The GST credit will be available only for that part of the land related to a taxable activity – if a farm then not the area occupied by a house, but only the land used as farm land, for example.
You have to be able to show that the second hand goods have been used and previously owned by someone – not just owned, as ownership alone does not make things second hand.
You also need to hold a valid tax invoice for the goods at the time of filing the GST return – where the supplier is unregistered for GST you need to obtain a written confirmation that they are not registered.
Even if you are normally on an invoice basis – you have to pay for second hand goods before making a claim, the claim is limited to the actual amount paid within the period.
If you purchase second hand goods from an associated party (partner, relative, company you own etc.) and they are unregistered, you cannot make a claim unless that associated party paid GST when they bought the goods.
Watch more videos on our YouTube Channel HERE
Need to Make a claim or just want to find out more?
Download your FREE Xmas Deductible Expenses Cheat Sheet now.