GST on second hand goods

Let’s say you’re running a landscaping business and want to purchase a lawnmower. You decide to save on costs and buy a pre-owned one. Chances are, you’ll find yourself asking: how do I deal with the GST on second hand goods? ​

We often receive questions from business owners on this topic. What if you’re not GST registered? What if the seller doesn’t provide a tax invoice? How much can you claim back? Things can get tricky, so let’s cover the basics you need to know.​

In Australia, purchasing second hand goods generally falls into one of the three categories below (we’ll cover them in more detail later):​

GST stands for Goods and Service Tax. In Australia, GST is 10% on top of any goods or services you sell. If you’re GST registered, you can claim back the GST portion on the purchases of goods or services you use for taxable activities.​

In Australia, the GST registration threshold is $75,000. In other words, if your business's annual turnover exceeds $75,000, you need to register for GST. If your business's annual turnover is below this threshold, registering for GST becomes voluntary. You can read more about this on our blog: how and when to register for GST.​

Once you are GST-registered you must include 10% GST on top of the sales price of your goods or service. You’ll also need to issue GST invoices that meet the ATO’s requirements. Read more on what to include in your tax invoice here.​

Here are some important GST formulae you should know:​

Use our GST calculator to calculate the GST inclusive and exclusive price for your goods or services.​

Read more: 10 common GST mistakes small business owners should avoid​

Supplies from a non-registered entity​

If you purchase second hand goods that aren’t for the purpose of reselling, and from an entity that’s not registered for GST (such as a private individual on Facebook Marketplace), you can’t claim GST. You also can’t claim any GST back on the purchase. These goods should be labelled as ‘GST free’ when reconciling your GST and preparing BAS.​

If you purchase second hand goods for the purpose of reselling, and from a private individual, the goods will be subject to Division 66. This means you can claim GST back on the purchase (however, there’s no GST component in the sale price). There are two different approaches to applying Division 66, which differ based on the price of the second hand goods and whether you plan to re-sell them as individual items or as parts.​

The two approaches are:​

Generally speaking, if you purchase an item for under $300 and you intend to re-sell, you can choose to claim the GST back immediately. If you purchase an item over $300, however, you need to sell the item again in order to claim the GST credit.​

It is important to note there are exceptions to this rule. Your Beany accountant can guide you on what you can (and can’t) claim, and ensure your BAS is filled out correctly.​

When you purchase second hand goods from an entity who is registered for GST, and you have a valid tax invoice, you can claim back the GST on your BAS.​

To get the GST portion of your purchase, take the total price paid and divide by 11. You can also pay through your business bank account and treat it as a business purchase and a GST purchase in your software.​

For example, if you purchase a second hand printer for $110, the GST portion would be $110/11= $10.​

When purchasing from someone who isn’t GST registered, you won’t receive a GST invoice and there will be no GST charge for the items you buy. In order to make GST claims, you need to have paid for the good(s) and keep records required by the ATO.​

You need to keep appropriate records In order to claim a GST credit. If you purchase from a person who’s not registered for GST a tax invoice is not required, however you still need to document the following information:​

You’ll need to keep a valid invoice If you purchase second hand goods from a GST-registered entity.​

We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant would. ​

We have a dedicated team of remote accountants to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Get started for free today.  ​