Claiming GST on second-hand goods used in your business

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Claiming GST on second-hand goods used in your business

In some situations you may have purchased second-hand goods to use in your business but didn’t pay GST on the purchase because the seller wasn’t GST registered. The good news is you can still claim a GST credit as long as the goods were located in New Zealand at the time of purchase and you have sufficient records of your purchase.

You may consider buying second-hand items for your business to save money. Even if the seller isn’t GST registered you can still make a claim for GST.

Regardless of which accounting basis you use, you must make a payment for the goods before you can claim a GST credit for the purchase.

Example

Alice purchased a second-hand sewing machine for her dressmaking business.
She bought the sewing machine for $160 at a garage sale.

To calculate the GST amount to claim as a credit she would use the following formula: purchase price x 3 / 23 = GST credit that can be claimed $160 x 3 / 23 = $20.86

Alice can claim this amount on her GST return, as long as she’s kept sufficient records of the purchase.

Second-hand goods are commonly defined as goods previously used and paid for by someone else. In the context of GST, second-hand goods don’t include:

  • new goods
  • primary produce – unless previously used
  • goods supplied under a lease or rental agreement
  • livestock
  • goods which contain gold, silver or platinum in any degree of purity.

Second-hand goods purchased from an associated person

When purchasing second-hand goods from associated people, the GST credit you can claim is treated differently.

Associated people are:

  • companies controlled by the same persons
  • companies and persons with a 25% or greater interest in the company
  • partnerships, partners and associates of partners
  • relatives by blood, marriage or adoption, to the second degree (including people in a de facto relationship)
  • trustees of a trust and persons who have benefited or are eligible to benefit under the trust
  • trustees and the settler of a trust, except where the trustee is a charitable or non-profit body
  • trustees of two trusts that have a common settler
  • two persons who are each associated with a third person

For a more detailed definition of “associated persons” see our “Glossary of GST terms“.

If you purchase second-hand goods from an associated person who is not GST registered, the GST claim is limited to the lowest of the:

  • purchase price
  • current market value
  • GST component (if any) of the original cost of the goods to the supplier.

Example

Alex bought a skill saw from his brother Nathan to use in his building business. Nathan originally bought the saw for $500. The current market value of the skill saw is $250, but Nathan sold it to Alex for $350. Nathan is not GST registered and
doesn’t give Alex an invoice.

Because Alex paid his brother more than the market value of the saw, he can only claim the GST on the market value ($250), not the amount paid ($350). Alex can claim $32.60 ($250 x 3 / 23) as a GST credit on his return.

Record keeping

If you purchase second-hand goods from someone who isn’t GST registered, you won’t be given a tax invoice to support your GST claim. In this case you must record the:

  • name and address of the supplier
  • date of purchase
  • description of the goods
  • quantity of goods
  • price paid.

Find out more about record keeping in our “Introduction to business: Record keeping” video

You can also read our record-keeping factsheets:

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