Special arrangements
Second-hand goods
Second-hand goods are used items resold in business. A registered business buying them from a non-registered seller can sometimes claim a credit even though no GST was charged.
Second-hand goods are items that have been used before and are being sold again. In GST terms, the important question is who is selling them. If a registered business sells a used item, GST generally applies in the normal way, and the buyer receives a tax invoice. If a private individual sells a used item, there is normally no GST on the sale, because a private seller is not carrying on an enterprise.
This creates a gap for businesses that trade in second-hand goods. A dealer who buys a used item from a private seller pays no GST, but will charge GST when the item is later resold. Without a special rule, the dealer would pay GST on the whole sale price despite never having received a credit on its purchase. To address this, the law allows an input tax credit in certain cases for second-hand goods acquired from non-registered sellers.
The credit is generally worked out using the GST fraction applied to the price the dealer paid. For this to apply, the goods must be acquired for sale or exchange in the ordinary course of the dealer's business, and the dealer must be registered. The supplier must not have been registered, or must not have charged GST, and the dealer must meet record-keeping requirements. Because there is no tax invoice from a private seller, the dealer should keep other documents that show the details of the purchase.
Some categories of goods are treated differently. If the goods were bought under the margin scheme, no credit is available in this way. Precious metals and some other goods fall under their own rules, and certain items such as those acquired under particular arrangements may not qualify. Dealers handling a mixture of products should check each category.
Typical businesses affected include second-hand car dealers, pawnbrokers, antique shops, vintage clothing stores and secondhand electronics retailers. A person who occasionally sells their own used belongings online is generally not in the same position and does not have to charge GST, though a person who sells regularly with a profit motive may be carrying on an enterprise.
A frequent mistake is to claim a credit for a second-hand purchase from a registered seller who did charge GST while also using the special rule, resulting in a double claim. Another is failing to keep adequate purchase records, which can lead to a disallowed claim. Dealers also need to apply the right GST treatment when selling, since the sale is usually fully taxable.
Because eligibility turns on the facts, this page is general information only. Confirm your position with the ATO or a registered tax professional.
Worked example
A registered vintage-furniture dealer buys a used cabinet from a private individual for $660, with no GST charged. It qualifies for the second-hand goods credit, which is $660 multiplied by 1/11, equal to $60. The dealer later sells the cabinet for $1,100 including GST, so GST of $100 is payable. The net GST on the transaction is $40, reflecting the dealer's margin of $440 before GST.
Practical tips
- Keep a record of every second-hand purchase from unregistered sellers, including seller details, date, price and description of the goods.
- Do not claim the special credit when the seller charged GST. Claim on the tax invoice instead.
- Check whether the margin scheme or other special rules apply to the goods before claiming.