GST on second hand purchases

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Has your business been buying second hand furniture and office supplies off Facebook market place for employees now working from home? Does your business buy and resell second hand goods?

The GST requirements around second hand goods can seem tricky as you delve into the detail, but when you purchase second hand goods they will generally fall into 1 of three categories:

1) Supplies from a non registered entity.

2) Supplies from a non registered entity subject to Division 66

3) Taxable supplies

Supplies from a non registered entity.

A purchase will not include GST if it is purchased from an entity that is not registered for GST such as a private individual (Think Gumtree or Facebook Marketplace). A business cannot claim any GST credits for these purchases (Unless they are for resale - Read on). This means any desks, monitors or equipment purchased second hand from private sellers should be labelled GST-Free in your accounting system.

Supplies from a non registered entity - Subject to Division 66

When second hand items are purchased from private sellers for the purposes of reselling Division 66 of the GST act allows the purchasing company to claim a GST credit in some instances, despite the fact that no GST was included in the purchase price of the resellable item. There are two methods of applying division 66:

Single asset method - Where the purchase was under $300, GST of 1/11th of this price can be claimed immediately upon purchase. For purchases over $300, 1/11th of the purchase price can be claimed as a GST credit only when the item is subsequently sold. If the item is sold at a loss the GST credit will be limited to the amount of GST included in the sale.

Global accounting method - This is mandated for bulk purchases over $300 and allows the purchaser to pool GST credits on the bulk items purchased and apply them to the individual pieces as they are sold. GST will only be payable to the ATO when GST on sales exceeds the value of the pooled credits.

Taxable Supplies

Taxable supplies are supplies that have been made to your business via an entity that is registered for GST. When you purchased these items regardless of whether they are second hand or brand new they will have GST included in there price. You can claim the GST credits on your BAS so long as you have a valid tax invoice.

For advice on  BAS, GST, Bookeeping, and Payroll issues visit us at ctkaccounting.com.au

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