In this blog post, we’ll discuss how you can calculate and record GST on sales and purchases of second-hand goods. Here, the term ‘second-hand’ means ‘not new’ or ‘previously used’.
Here are some goods that don’t come under the category of second-hand goods:
- Precious metal
- Goods that have silver, gold, platinum, or any other substance which, if it were of the required fineness, would be precious metal
- Plants or animals.
The definition of second-hand goods was changed from 1 April 2017 to clarify that goods consisting of silver, gold, or platinum are not second-hand goods. However, antiques and collectibles (consisting of precious metals) that are purchased and sold as such may still be considered second-hand goods. For instance, a collector’s coins may have some gold content which may be worth $50 but are sold as collectibles for $30 in the hope that they may increase in value as collectibles over time.
How can you account for second-hand goods: $1,000 or less?
You may choose to use the global accounting method for second-hand goods for which you have paid $1,000 or less, even if some or all of the items were sold to you as a taxable sale. For a list of second-hand goods and the conditions that should be met to apply this rule, you need to refer to SHG 2000/1 A New Tax System Rules for applying subdivision 66-B determination 2000. The explanatory statement accompanying the determination has information on how to complete the relevant GST labels on your activity statement where you have selected to apply the determination.
It might be very confusing or seem like a complex task; that’s why it’s recommended to seek help from a tax accountant Melbourne to deal with these types of matters.
Completing GST items on your activity statement
You have the option either to use the accounts method or the calculation worksheet method to complete GST boxes on your activity statement for the reporting time period. The reporting amount on your activity statement will be based on the accounting basis you have selected or are otherwise permitted or required to use. You can have the option to account on a cash basis or a non-cash basis.
When should you account for GST?
If the GST amount is shown at 1A on the activity statement, and you account for GST on a non-cash basis, you will account for any GST payable in the reporting period in which you will:
- Receive any part of the payment for the sale.
- Issue an invoice for the sale.
If you account for GST on a cash basis, account for any GST to be shown at 1A in the reporting time period in which you receive payment, and to the extent of the payment, for the sale.
Working out your GST credits
You are liable to claim GST credits for your purchases of second-hand goods even if the rate you paid didn’t include GST. You can do this for second-hand goods that you buy for resale from sellers who don’t charge GST in the cost of the goods. There are two ways to calculate these GST credits:
Direct approach
The direct approach can be used to calculate and claim GST credits on the purchase of second-hand goods where any of the following apply:
- You resell the second-hand goods as a single taxable item
- You divide the second-hand goods into separate items and sell them separately if:
- The purchase amount of the second-hand goods was separately itemised at the time of purchase,
- The way you divide the goods for resale matches that original itemisation or doesn’t involve any further subdivision.
- You purchased the second-hand goods for $300 or less and then divided them for resale.
Global accounting method
You can use the global accounting method to account for purchases of second-hand goods if:
- You paid more than $300 for the purchase
- You divide the second-hand purchase into two or more than two parts before you sell them.
However, you can choose whether or not to use the global accounting method for purchases costing $300 or less. There is a special rule for some second-hand goods purchased for $1,000 or less.
Conclusion
The blog shares information on GST rules for second-hand goods. If you find it difficult to understand these rules, it’s often recommended to reach out to an accounting firm Port Melbourne.