Edited version of private advice

Authorisation Number: 1051778916070

Date of advice: 11 November 2020

Ruling

Subject: Goods and services tax and second-hand goods

Question

Are your acquisitions of certain Items within the indirect tax zone, creditable acquisitions of second-hand goods under section 66-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, your acquisitions of these Items within the indirect tax zone are creditable acquisitions of second-hand goods under section 66-5 of the GST Act.

This ruling applies for the following period:

11 November 20XX to 11 November 20XX

The scheme commences on:

11 November 20XX

Relevant facts and circumstances

You are a sole trader and are registered for goods and services tax (GST). You report your GST on a quarterly basis and are on a cash basis of accounting.

You are carrying on an enterprise of buying and selling certain Items.

Your GST turnover is greater than $75,000.

You use your website and multiple platforms to buy and sell the Items. Some of your transactions are conducted directly through you.

You buy the Items from individuals who are not registered for GST and are members of the general public. Some of the Items owned by individuals may not have been previously worn by the individuals.

Some of the Items you buy may be from individuals that live overseas, hence are imported. However, this private ruling application does not apply to these imported Items.

When you on-sell the Items to your customers you charge GST for your supply. Your average sale price per item is approximately $300 (GST inclusive).

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 66-5

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Sections 11-5, 11-20

Reasons for decision

Section 66-5 of the GST Act states as follows:

66-5 Creditable acquisitions of second-hand goods

(1)  If you acquire *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 you is not a *taxable supply does not stop the acquisition being a *creditable acquisition.

(2)  However, this section does not apply, and is taken never to have applied, to the acquisition if:

(a)  the supply of the goods to you was a *taxable supply, or was *GST-free; or

(b)  you *imported the goods; or

(c)   the supply of the goods to you was a supply by way of hire; or

(d)  Subdivision 66-B applies to the acquisition; or

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

(3)  This section has effect despite section 11-5 (which is about what is a creditable acquisition).

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

Paragraph 37 of Goods and Services Tax Ruling GSTR 2005/3, Goods and services tax: arrangements of the kind described in Taxpayer Alert TA 2004/9 - exploitation of the second-hand goods provisions to obtain input tax credits (GSTR 2005/3) states:

37. As the meaning of second-hand goods provided in section 195-1 is not exhaustive, the term takes its ordinary meaning. The ordinary meaning of 'second-hand', depending on its context, contemplates previous use or previous ownership, or both.

Therefore, the Items you purchase within the indirect zone for resale would meet the definition of second-hand goods for the purpose of the GST Act.

Division 11 of the GST Act contains the basic rules about whether an acquisition is a 'creditable acquisition'. Under section 11-20 of the GST Act, an entity is entitled to an input tax credit for any creditable acquisition they make provided the entity satisfies section 11-5 of the GST Act.

Paragraph 11-5(b) of the GST Act requires that the supply of the thing to the entity is a 'taxable supply' within the meaning of section 9-5 of the GST Act.

The sale by an unregistered entity of second-hand goods to a GST registered entity is not a taxable supply under section 9-5 of the GST Act. As it is not a taxable supply, the acquisition of the second-hand goods by the registered entity is not a creditable acquisition under section 11-5 of the GST Act.

However, if subsection 66-5(1) of the GST Act is satisfied and the requirements of section 11-5 of the GST Act are otherwise met, the acquisition of second-hand goods by a registered entity will be a creditable acquisition.

Subsection 66-5(1) of the GST Act is satisfied if second-hand goods are acquired for the purposes of sale or exchange (but not for manufacture) in the ordinary course of business. However, subsection 66-5(1) of the GST Act does not apply if any of the exceptions in subsection 66-5(2) of the GST Act apply.

Subdivision 66-B of the GST Act and in particular subsection 66-40(1) of the GST Act deals with acquisitions of second-hand goods that are divided for re-supply. As such, subdivision 66-B of the GST Act does not apply in this case.

You have told us that you are carrying on an enterprise of buying and selling certain Items. You have also told us that you acquire the Items from individuals who are not registered for GST hence the supply to you is not a taxable supply, the Items are not imported, you purchase the Items and hence the supply of the Items to you are not by way of hire and you charge GST on your sale of the Items.

Therefore, your acquisitions of the Items will meet the requirements of section 66-5 of the GST Act and would be creditable acquisitions entitled to input tax credits. You account on a cash basis, therefore you can claim the GST credit in each of the reporting periods that you paid for the purchases that are for $300 or less. For purchases more than $300, you can claim the GST credit for the purchase in each reporting period you receive a payment for the sale of the item.