If you sell second-hand goods in your Australian business, you may be entitled to a special input tax credit. If in carrying on your business you buy second-hand goods from an unregistered entity, you will not pay GST in the price of the goods. Even though no GST was included in the price, you may be entitled to claim a special input tax credit. This is for goods bought as trading stock only.
This page provides generic advice only and should not be relied upon without first consulting your accountant or the ATO. For further details regarding this type of transaction please see the Australian Taxation Office (ATO) website.
Running a business in New Zealand? Use the information below as a guide, but check with your accounting advisor or the IRD about how second-hand goods should be handled in your business.
If the value of goods purchased from unregistered entity are less than $300
You can claim the special 1/11th input tax credit when you purchase the goods. For cash basis reporters, this credit is claimed in the period of payment, and for non-cash (accrual), in the period of purchase. In RetailManager treat these in the same manner as ordinary purchases using the GST tax code and making the supply tax inclusive.
If the value of goods purchased from unregistered entity are more than $300
You must wait until you sell the item you have purchased to claim the GST credit if you paid, or are liable to pay, more than $300 for the second-hand item you purchased. You can also choose to wait until you sell the item before claiming your GST credit even if you pay $300 or less for the second-hand item.
If you account on a non-cash (accruals) basis you can claim the GST credit for the second-hand item you purchased in the reporting period you first:
- receive any part of the payment for the sale of the item, or
- issue an invoice for the item you sold.
If you account on a cash basis, you can claim the GST credit for the purchase in each reporting period you receive a payment for the sale of the item.
As a general rule:
The amount that you are entitled to claim is the lesser of:
- 1/11th of the price paid for the goods, or
- The amount of GST payable when you on-sell the goods.
At the time of recording the Goods Received in RetailManager, you will not know the amount of GST to be paid, until the item is sold.
You will need to create a new tax code that you can use when processing the Goods Received for second hand goods.
- Go to the Admin menu and choose Set Tax Codes.
- Click New Tax Code.
- The tax code can be set up with any name and description that you like. An example is Tax Code: SHG and Description: Second Hand Goods.
- Set the rate to 0%.
- If you use MYOB Accounting software, enter an A/C for Tax on Sales. This account number along with this tax code must exist in your MYOB Accounting Software. There will never be a dollar amount allocated to this account after an import into MYOB, because the rate is 0%.
Create a new stock item for the second hand goods being received. Allocate the 'Second Hand Goods' tax code as the tax code for Purchases of this item. Remember that the tax code should be changed to FRE (GST Free) if the purchase is less than $300. Commit this item.
Record a Goods Received for the second hand items being purchased. If the amount is less that $300, change the tax code to FRE. This will bring the item into stock for the amount of the purchase not including tax. If you export your data to MYOB Accounting, a purchase will be brought across with a SHG tax code.
Enter the sale. In this case, the sale is for $550, including $50 GST. This sale will create journal entries for the amount of the sale and the GST component when imported into MYOB. As this is a greater price than the Purchase price, the amount of the credit that the business is entitled to claim is 1/11th of the Purchase price of the goods.
The amount of the credit that the business is entitled to claim is 1/11th of $350. In this case, 1/11th of $350 is $31.82. To record this credit amount in MYOB, you will need to record another Goods Received. Make sure when this one is recorded, that the 'Cost Includes Tax' option is selected. Enter a positive quantity for one of these items with the price being $350. The tax code this time should be GST. Enter a second line to the Goods Received, this time having a negative quantity, with the price still as $350 (this will appear as $-350). This time set the tax code to FRE.
After cashing up/closing the session, perform an Accounting export. The transaction recorded in step 5 will create the GST credit for the purchase of the second hand goods. This credit will be imported into MYOB Accounting and will update the appropriate GST accounts.
Check that the file has imported correctly into MYOB, by looking for the Purchase in the Transaction Journal.
The Purchase should then show a credit to Inventory for the inclusive GST amount, and a debit to Inventory for the exclusive GST amount. The Inventory account would have been increased by the inclusive amount when the original Goods Received was recorded and imported into MYOB (Step 3). The positive amount should have the GST Free tax code (GST) applied to it, and the negative amount should have the GST tax code (FRE) applied to it. The Balance Due should be zero, with only a figure being against Tax.