GST and consignment sales
Many businesses sell goods that are held on consignment; that is, the goods that are offered for sale, belong to someone else. The way GST applies to goods sold on consignment depends on:
- the nature of the consignment arrangement
- whether or not the owner of the goods is registered for GST.
If your business regularly sells goods on consignment, you will need to understand the nature of the arrangement you have with your clients so you can work out how GST applies to those sales.
What is a consignment sale?
This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
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If you sell goods sold on consignment, you have agreed to sell the goods without first buying those goods from the owner. Typically, your agreement specifies one of the following:
- you agree to sell the goods on behalf of the owner as an agent
- you agree to purchase the goods for an agreed price when you find a buyer.
What goods are sold on consignment?
There are no restrictions on what goods can be sold on consignment. Goods regularly sold on consignment include motor vehicles, boats, wedding and formal dresses, cameras, farm machinery and artworks.
Consignment sales often involve second hand-goods owned by people who are not registered for GST.
How does GST apply to goods sold on consignment?
The way GST applies to consignment sales you make depends on whether the sale is a 'sale or return' or an 'agency' sale.
What are 'sale or return' sales?
You are making a 'sale or return' sale when you purchase the goods from their owner when you find a buyer for those goods. This means you are selling the goods to the customer in your own right because you are purchasing the goods from the owner and selling them to the purchaser. If you make this type of sales and you are registered for GST, you are liable to pay GST on the full sale price of the goods.
It is likely you are making 'sale or return' sales if any of the following apply:
- the amount you pay to the owner when a buyer is found is agreed in advance
- any amount you receive from the buyer that is over the agreed amount you have to pay the owner is yours to keep
- you set the sale price of the goods
- you don't have to tell the owner of the goods the final selling price or details of how much profit you made on the sale
- you have to provide a warranty on the goods
- you have to guarantee title to the goods
- you are prevented by a state law from selling goods as an agent - this is common in the motor vehicle industry
- you do not bear any commercial risk; that is, if the goods are not sold, you don't have to purchase them.
What are agency sales?
You are making an agency sale when you sell consigned goods on behalf of the owner of the goods as their agent. Under these circumstances, you are not liable to pay GST to us on the sale; however, you must pay GST to us on the commission you receive.
The owner of the goods is liable to pay GST on the sale if both of the following apply:
- they are registered for GST
- they make the sale in the course of running their business.
If the owner is not registered for GST or is not selling the goods in the course of running a business and you are registered for GST, you must still pay GST to us on the commission you receive but the owner does not have to pay GST to us on the sale.
It is likely you are making sales as an agent if any of the following apply:
- you do not set the sale price of the goods
- you receive either a flat rate or percentage commission on completion of the sale
- you do not hold the goods out in your own right
- you and the owner of the goods agree that you will act as an agent.
If both the owner and common law agent are registered for GST, they can use simplified accounting arrangements to treat the agent as a separate supplier or acquirer. This must be documented in a written agreement.
Since 1 July 2010 these simplified accounting arrangements include intermediaries that facilitate transactions on behalf of an owner even though the intermediary is not a common law agent.
This change in the agency rules affects intermediaries, such as commission agents, who prior to 1 July 2010 would not have been able to use the simplified accounting arrangements in respect of supplies and acquisitions made by them on behalf of an owner.
Joe is a photographer who is registered for GST. Joe decides to sell one of his cameras through a second-hand dealer. The dealer is registered for GST and agrees to sell the camera as an agent for Joe for a commission. Because Joe is registered for GST and is selling the camera in connection with his photography business, he will be liable to pay GST on the sale price of the camera. As the dealer is registered for GST, he will need to include GST on the commission he receives from Joe. Joe is also entitled to claim a GST credit for the GST included in the amount of commission he pays.
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Can I claim GST credits on consigned goods?
If you sell goods on a 'sale or return' basis, you are entitled to claim a GST credit for the GST you pay in the price of the goods you purchase from the owner if both of the following apply:
- the owner is registered for GST
- the sale by the owner to you is a taxable sale.
Many of the goods you sell on consignment may be second-hand goods owned by individuals who are not registered for GST. Under GST law, you can claim a special GST credit on any second-hand goods you purchase to resell or exchange as part of your business.
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