How to handle GST on second-hand goods

Buying second-hand goods for your business can help keep costs down because they are usually cheaper than new goods. At this time of year, you might be able to pick up some good bargains from other businesses as they take advantage of summer sales to upgrade their own equipment.

The good news is that if you’re GST-registered, you can claim a GST credit on secondhand goods bought in New Zealand for your business – even if the seller isn’t registered for GST.

That’s really handy if you, for example, buy a second-hand wheelbarrow from your neighbour to use in your gardening business, or pick up a second-hand printer in an online auction to use in your graphic design business.

It’s pretty obvious that new goods are not considered second-hand when it comes to GST. But certain other goods also can’t be considered second-hand when it comes to GST, including:

  • livestock
  • goods supplied under a lease or rental
  • primary produce
  • goods made with fine metals – platinum, gold or silver.

Otherwise, it’s considered second-hand if it’s been used and paid for by someone else, and was in New Zealand when you bought it.

It doesn't matter which accounting method you use, you can only claim GST on what you paid for the goods.

As with all things tax-related, it’s important to keep good records, even if you pay cash at your uncle’s garage sale.

The Inland Revenue website has a full guide to GST(external link), but here is a brief case study to show you how to calculate it.

Fiona bought a second-hand shelving unit to use in her gift shop.

Fiona bought a second-hand shelving unit to use in her gift shop.

She paid $85 for it at her local school fair. To calculate the GST she used the formula:

  • Purchase price × 3 ÷ 23 = GST credit that can be claimed
  • $85 × 3 ÷ 23 = $11.08

You won’t get a tax invoice when you buy from someone who isn’t registered for GST – just like Fiona didn’t get one from the fair – and no GST will be charged. To claim the credit for GST purposes, you’ll need to record the following information:

  • the name and address of the person or business you bought it from
  • the date of the purchase
  • a description of the goods
  • the quantity of the goods
  • the price paid.

If you buy from a person or business that you have an association with, the GST credit is calculated differently. Check Inland Revenue’s guide to find out more about associated persons(external link).

You'll also need to keep details of the transaction if you're going to make a claim for income tax purposes.

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