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Edited version of private ruling
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Ruling
Subject: GST and second-hand goods
Question
Are you entitled to claim an input tax credit on the purchase of second-hand goods, where the suppliers are individuals who are not registered for GST?
Answer: No.
You are not entitled to claim an input tax credit on the purchase of the second-hand goods.
Facts
You are a non-resident company that is registered for GST.
You are a dealer of second-hand goods.
You purchase second-hand goods for the purpose of sale and not for manufacture.
You purchased second-hand goods from an Australian auction house.
The auction house has confirmed that the vendors were private individuals who are not registered for GST.
You exported all of the second-hand goods purchased at this auction as you intended to sell them overseas.
Reasons for decision
You are entitled to input tax credits for your creditable acquisitions.
Section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you make a creditable acquisition if:
(a) you acquire anything solely or partly for a creditable purpose
(b) the supply of the thing to you is a taxable supply
(c) you provide, or are liable to provide, consideration for the supply, and
(d) you are registered, or required to be registered for GST.
You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making input taxed supplies or the acquisition is of a private or domestic nature.
On the information provided, you acquire the second-hand goods for a creditable purpose as no part of the acquisition is of a private or domestic nature or relates to making input taxed supplies. You provide or are liable to provide consideration for the supply and you are registered for GST. Accordingly, the acquisition meets the requirements of paragraphs 11-5(a), 11-5(c) and 11-5(d) of the GST Act.
Therefore, what needs to be determined is whether the supply of the second-hand goods to you is a taxable supply as required by paragraph 11-5(b) of the GST Act.
Whether or not a supply is a taxable supply is determined by the supplier's circumstances.
A supplier will make a taxable supply if all of the requirements of section 9-5 of the GST Act are met. Under section 9-5 of the GST Act, the supply is a taxable supply if:
(a) the supplier makes the supply for consideration
(b) the supply is made in the course or furtherance of an enterprise that the supplier carries on
(c) the supply is connected with Australia, and
(d) the supplier is registered, or required to be registered for GST.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
You advised that the auction house has confirmed that the vendors are private individuals who are not registered for GST. Hence, the vendors were not making a taxable supply when they sold the second-hand goods at auction.
Division 66 of the GST Act applies to an acquisition of second-hand goods.
Subsection 66-5(1) of the GST Act provides that if an entity acquires second-hand goods for the purposes of sale or exchange (but not for manufacture) in the ordinary course of business, the fact that the supply of the goods to it is not a taxable supply does not stop the acquisition from being a creditable acquisition.
Subsection 66-5(2) of the GST Act limits the operation of subsection 66-5 by providing that subsection 66-5 does not apply if, among others, the acquirer makes a supply of the goods that is not a taxable supply (paragraph 66-5(2)(e)). That is, for section 66-5 to apply, the subsequent supply by the acquirer must be a taxable supply.
In your case, you carry on an enterprise of buying second-hand goods. You purchased second-hand goods at an auction and the auction house has confirmed that the vendors are individuals who are not registered GST.
You have advised that you have exported all the second-hand goods purchased at this auction as you intended to sell them overseas.
Your subsequent sale of the second-hand goods outside of Australia while the goods are overseas is not connected with Australia as the goods are neither delivered nor made available in Australia. Hence, your subsequent sale of the second-hand goods outside Australia is not a taxable supply. As such paragraph 66-5(2)(e) of the GST Act is satisfied, which has the effect that subsection 66-5(1) cannot operate.
This means that you are not entitled to input tax credits under either section 11-5 or section 66-5 of the GST Act for the acquisition of the second-hand goods that you subsequently supply as not a taxable supply.