Edited version of private ruling

Authorisation Number: 1011771929866

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Ruling

Subject: GST and second hand goods

Questions

1. Is the supply of the second hand goods to customers in Australia a taxable supply?

2. Is the supply of the second hand goods to overseas customers a taxable supply?

3. Are you entitled to claim input tax credits for the purchase of second hand goods where the suppliers are not registered for GST?

4. Are you entitled to claim input tax credits for second hand goods that you imported into Australia by post?

Answers

1. Yes. The supply of the second hand goods to customers in Australia is a taxable supply and is liable for GST.

2. No. The supply of the second hand goods to overseas customers is not a taxable supply.

3. Yes. You are entitled to claim input tax credits for the purchase of second hand goods from the suppliers that are not registered for GST provided the supply of the goods by you is a taxable supply. However, you are not entitled to claim input tax credits for the second hand goods when you supply them GST-free such as the circumstances mentioned in question 2.

4. No. You are not entitled to claim input tax credits for second hand goods that you imported into Australia by post.

Facts

You are a sole trader and are registered for goods and services tax (GST). You carry on a business of buying and selling second hand goods.

In most cases, you buy the second hand goods from private individuals in Australia who are not registered for GST. You also buy second hand goods from owners overseas and you import the goods in small parcels by post. You do not pay any GST for the goods as the value of the parcels is less than $1,000. You may buy a bulk load of second hand goods from a single owner for one single price and sell the goods separately.

You sell all the second hand goods through the internet. The customers may be in Australia or overseas. You deliver the goods to your customers by post. You would send the goods to the customers overseas within 60 days after you receive the consideration.

Reasons for decisions

1. Supply of the second hand goods to customers in Australia

Subsection 7-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that GST is payable on taxable supplies and taxable importations.

Section 9-5 of the GST Act states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

(* denotes a term defined in section 195-1 of the GST Act)

For the supply of the second hand goods to be a taxable supply, all the conditions listed in section 9-5 of the GST Act must be satisfied.

Your supply of the second hand goods satisfies the conditions in paragraphs 9-5(a), (b) and (d) of the GST Act as follows:

· you supply the second hand goods for consideration

· the supply is made in the course of an enterprise that you carry on, and

· you are registered for GST.

Therefore we have to consider whether the supply of the second hand goods to your Australian customers is connected with Australia under paragraph 9-5(c) of the GST Act.

Connected with Australia

Section 9-25 of the GST Act outlines when a supply is connected with Australia. In determining whether a supply of goods is connected with Australia, a distinction is made between supplies of goods wholly within Australia (subsection 9-25(1) of the GST Act), supplies of goods from Australia (subsection 9-25(2) of the GST Act), and supplies of goods to Australia (subsection 9-25(3) of the GST Act). 

As your supply of the second hand goods is to customers in Australia, we will consider this issue under subsection 9-25(1) of the GST Act which are supplies of goods wholly within Australia.

Supply of goods wholly within Australia

Subsection 9-25(1) of the GST Act provides that a supply of goods is connected with Australia if the goods are 'delivered, or made available', in Australia to the recipient of the supply.

The phrase 'delivered, or made available' takes the meaning that the goods are either physically delivered, or if not physically delivered, physically made available in Australia. 'Made available' refers to the situation where goods are not actually delivered to the recipient but rather the supplier makes the goods physically available to the recipient in Australia. Both 'delivered' and 'made available' look at the place where the goods are at the relevant time.

You advised that you deliver the goods to the customers in Australia by post after you receive the consideration. Therefore, the supply of the second hand goods to customers in Australia satisfies the conditions in subsection 9-25(1) of the GST Act as the goods are delivered in Australia. As such this supply is connected with Australia under paragraph 9-5(c) of the GST Act.

There is no provision in the GST Act for the supply of your second hand goods to customers in Australia GST-free or input taxed. Therefore, the supply of second hand goods to customers in Australia is a taxable supply and is liable for GST.

2. Supply of the second hand goods to overseas customers

The supply of second hand goods to overseas customers satisfies the conditions in paragraph

9-5(a), (b) and (d) of the GST Act. Again, we have to determine whether this supply is connected with Australia under paragraph 9-5(c) of the GST Act.

Under subsection 9-25(2) of the GST Act a supply of goods is connected with Australia if the supply involves those goods being removed from Australia. Removal of goods from Australia is a supply from Australia.

Goods removed from Australia means the goods are physically taken out of Australia. The requirement in subsection 9-25(2) of the GST Act is met as you export the second hand goods to customers overseas. Therefore, this supply is connected with Australia under 9-5(c) of the GST Act. As such, this supply will be taxable to the extent that it is not input taxed or GST-free.

There is no provision in the GST Act for the export of second hand goods to be input taxed. However, if goods are exported, that supply of goods may be GST-free under section 38-185 of the GST Act.

GST-free exports

A supply of goods, where those goods are exported from Australia, is GST-free if the requirements of one of the items in the table in subsection 38-185(1) of the GST Act are met.

Specifically, item 1 in the table in subsection 38-185(1) of the GST Act (Item 1) is relevant in this scenario. It states:

Hence, a supply of goods is GST-free under Item 1 if all the requirements of Item 1 are satisfied unless the supplier re-imports the goods according to subsection 38-185(2) of the GST Act.

In this case, you advised that you would export the second hand goods within 60 days after you receive the consideration. As such, the conditions in Item 1 are satisfied. Further, subsection

38-185(2) of the GST Act is not applicable in your circumstances as the goods are not re-imported to Australia.

Therefore, the supply of second hand goods to customers overseas is GST-free under item 1 in the table in subsection 38-185(1) of the GST Act and GST is not payable for the supply.

3. Entitlement to claim input tax credits for second hand goods where the suppliers are not registered for GST

Division 66 of the GST Act applies to an acquisition of second hand goods.

Normally, input tax credits (ITCs) in respect of GST included in the price of second hand goods purchased from registered entities are subject to the operation of Division 11 of the GST Act.

However, where the second-hand goods are acquired from unregistered entities, which mean that there is no GST component in the price charged for them, ITCs may be claimed under Division 66 of the GST Act.

Subsection 66-5(1) of the GST Act will allow you an entitlement to claim ITCs where:

· you acquired the goods for the purposes of sale or exchange (but not for manufacture)

· you are registered or required to be registered at the time you acquired the goods, and

· you provide, or will be liable to provide, consideration for the goods.

However, subsection 66-5(2) of the GST Act limits the operation of section 66-5 on the entitlement to claim ITCs for second hand goods. Subsection 66-5(2) of the GST Act provides that this section does not apply if:

(e) the supply of the goods to you was a taxable supply

(f) the supply of the goods to you was GST-free

(g) you imported the goods

(h) the supply of the goods to you was a supply by way of hire, or

(i) you make a supply of the goods that is not a taxable supply.

In your case, you are in the business of buying and selling second hand goods. You will purchase the goods for monetary consideration from entities that are not registered for GST and you are registered for GST at the time of each acquisition.

Under these circumstances, you can apply Division 66 of the GST Act to the purchase of the second hand goods where the conditions in subsection 66-5(2) of the GST Act do not apply. This means that, amongst other things, you are entitled to claim ITCs for the purchase of second hand goods from unregistered owners where the supply of the second hand goods by you is a taxable supply. For example the supply of second hand goods to customers in Australia as mentioned in question 1.

However, you are not entitled to claim an ITC for the purchase of goods that you would sell to customers overseas as mentioned in question 2. As discussed, the sale of the second hand goods to customers overseas is not a taxable supply and it meets the condition in paragraph 66-5(2)(e) of the GST Act. Therefore, subsection 66-5(2) of the GST Act applies to negate your entitlement to claim the ITCs for this supply.

Calculation of ITCs

Although you are entitled to claim ITCs on the purchases of the second hand goods from unregistered entities, special rules regarding when you can claim them apply to you. A copy of the publication 'GST and second-hand goods - completing your activity statement' (NAT 10817) is enclosed for information regarding these special rules.

Goods and Services Tax Advice GSTA TPP 007 on calculating the ITC for second hand goods not to be divided for re-supply and Goods and Services Tax Advice GSTA TPP on how to calculate the ITC for an acquisition of second hand goods that is divided for re-supply provide further explanations and examples on the calculation of ITCs. We have also enclosed the copies for your information.

Record keeping requirements

Normally, you must hold a tax invoice from the supplier before you can claim any ITC. However, a valid tax invoice will not be available where the supplier is not registered for GST. Instead, a record similar to a tax invoice must be prepared by you to substantiate acquisitions of a value of more than $75. The record must:

· contain the name and address of the entity that the goods were acquired from

· have a brief description of the goods, including quantity, and

· set out the date of, and consideration, for that acquisition.

4. Entitlement to claim input tax credits for second hand goods that you imported into Australia by post

As discussed in previous paragraphs, if any of the conditions under subsection 66-5(2) of the GST Act is met, you will not be entitled to claim ITCs for the purchase of second hand goods.

You have advised that you import some of the goods from overseas for the purpose of re-selling them in the course of your business. The goods are sent as small parcels in the post and no GST is payable for the parcels as the value of each of the parcels is below $1,000. Hence, paragraph

66-5(2)(c) of the GST Act applies and you are not entitled to claim ITCs for your importation of the goods.

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