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1 Are you entitled to claim input tax credits under Division 66 of the GST Act for your acquisitions of second-hand devices from XYZ customers?

1 Yes The scheme commenced on: N/A

You are registered for GST. Your business involves the purchase of second-hand technology devices by way of trade in programs and the subsequent sale of those devices through auctions. You purchase second-hand devices directly from end consumers and sell those devices on e-commerce and other disposition channels. You are a registered second-hand dealer. XYZ offers to purchase devices from eligible customers. Eligible customers are verified as being an individual acquiring goods and/or services in their personal capacity as end consumers and not as part of any business. Clause 4 of Schedule 4 of the Agreement details the following contractual agreements XXXX. The devices acquired by you are not divided for resale. You undertake any necessary repairs or maintenance of the devices, and the devices are sold on e-commerce channels, wholesale dealers or by way of auction to unrelated entities.

A New Tax System (Goods and Services Tax) Act 1999 section 9-5 A New Tax System (Goods and Services Tax) Act 1999 section 11-5 A New Tax System (Goods and Services Tax) Act 1999 subsection 11-15(4) A New Tax System (Goods and Services Tax) Act 1999 subsection 40-5(1) A New Tax System (Goods and Services Tax) Act 1999 Subdivision 66A A New Tax System (Goods and Services Tax) Act 1999 section 66-5 A New Tax System (Goods and Services Tax) Act 1999 section 66-10 A New Tax System (Goods and Services Tax) Act 1999 section 66-15

Under section 11-20, an entity is entitled to input tax credits for any creditable acquisitions that they make. Section 11-5 states that you make a creditable acquisition if: (a)           you acquire anything solely or partly for a creditable purpose; and (b)           the supply of the thing to you is a taxable supply; and (c)            you provide, or are liable to provide, consideration for the supply; and (d)           you are registered, or required to be registered. Paragraph 11-5(b) requires that the supply of the thing to you is a 'taxable supply' within the meaning of section 9-5. However, Division 66 qualifies the operation of Division 11 by allowing an input tax credit for the acquisition of second-hand goods even though the supply of the goods to you is not a taxable supply. Subsection 66-5(1) provides that 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.

However, Section 66-5(2) states that this section does not apply, and is taken never to have applied, to the acquisition if: (e)           you make a supply of the goods that is not a taxable supply. 'Second-hand goods' is defined in section 195-1 as follows: second-hand goods does not include: (a) goods (except incidental valuable metal goods) to the extent they consist of valuable metal; or (b) ... (c) animals or plants. 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. In your case, you acquire and take ownership of the devices from eligible customers. The devices have previously been owned and used by the eligible customer and therefore fall within the definition of 'second-hand goods'.

In the ordinary course of your business, you purchase second-hand devices by way of trade in specified programs and subsequently on-sell those devices on ecommerce and other disposition channels. It is accepted that as you on-sell devices to other parties in the same condition, albeit you may repair and/or maintain the device, they are held for sale or exchange and not for manufacture. The supply of the devices to you from eligible customers is not a taxable supply. You have not imported the devices, nor acquired the devices by way of hire. Subdivision 66-B of the GST Act (relating to acquisitions of second-hand goods that are divided for re-supply) does not apply to the acquisition. You make a taxable supply of the devices, when you supply the devices within the indirect tax zone. Therefore, paragraphs 66-5(2)(b), 66-5(2)(c), 66-5(2)(d), and 66-5(2)(e) of the GST Act do not apply to prevent you from claiming input tax credits in respect of the creditable acquisition of the devices.

Where you export the devices outside the indirect tax zone, you are not entitled to an input tax credit, as the supply is not connected with the indirect tax zone and doesn't satisfy section 9-5(c), and the supply is not a taxable supply. Under section 66-5(2)(e), the supply of the devices by you must be a taxable supply for Division 66 to apply. Your acquisition of goods satisfies the requirements of Division 66 of the GST Act. Therefore, your acquisition of goods is a creditable acquisition, and you can claim input tax credits for goods that you acquire from customers who are not registered for GST. Record keeping Subsection 29-10(3) requires you to hold a tax invoice to allow you to attribute input tax credits. A valid tax invoice will not be available where you receive goods from a customer who is not registered for GST. In this case, section 66-17 applies to vary this outcome for acquisitions of second-hand goods and requires you to prepare records which are similar to tax invoices to substantiate your input tax credit. Section 66-17 of the GST Act states: (1) If you make a creditable acquisition of second-hand goods and the supply of the goods to you was not a taxable supply:

(a) subsection 29-10(3) applies to the acquisition as if references to a tax invoice were references to a record you prepared that complies with this section; and (b) subsection 29-20(3) applies to an adjustment event relating to the acquisition as if references to an adjustment note were references to a record you prepared that complies with this section. (2) To comply with this section, the record must: (a) set out the name and address of the entity that supplied the goods to you; and (b) describe the goods (including their quantity); and (c) set out the date of, and the consideration for, the acquisition. (2A) Subsection 29-10(3) does not apply to a creditable acquisition of second-hand goods if: (a) the supply to which the acquisition relates is not a taxable supply; and (b) the amount that would have been the value of the supply (if it had been a taxable supply) does not exceed $50, or such higher amount as the regulations made for the purposes of subsection 29-80(1) specify. (2B) Subsection 29-20(3) does not apply to a decreasing adjustment relating to a creditable acquisition of second-hand goods if:

(a) the supply to which the acquisition relates is not a taxable supply; and (b) the amount of the adjustment does not exceed $50, or such higher amount as the regulations made for the purposes of subsection 29-80(2) specify. (3) This section has effect despite section 29-10 (which is about attributing the input tax credits for creditable acquisitions) and section 29-20 (which is about attributing decreasing adjustments). Consistent with the normal tax invoice rules, where the supply to which the acquisition relates is not a taxable supply and the amount that would have been the value of the supply (if it had been a taxable supply) does not exceed $75, then the record is not required to claim an input tax credit.