GST and second-hand goods acquired from an unregistered entity

Is the entity, a second-hand goods dealer, making a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), and can thus attribute an input tax credit, when it acquires goods from another entity that is neither registered nor required to be registered for goods and services tax (GST)?

Yes, the entity is making a creditable acquisition under section 11-5 of the GST Act, and can thus attribute an input tax credit, when it acquires goods from another entity that is neither registered nor required to be registered for GST.

The entity is a second-hand goods dealer and is registered for GST. The entity acquires second-hand goods, as trading stock for the purposes of sale or exchange (but not for manufacture) in the ordinary course of its business. The goods are not divided for re-supply.

The entity acquires second-hand goods from a supplier that is neither registered nor required to be registered for GST. The entity subsequently sells the goods to a customer. The supply of the goods to the customer is a taxable supply.

Section 11-5 of the GST Act sets out the requirements that must be satisfied for an acquisition to be a creditable acquisition. An entity makes a creditable acquisition if: (a) it acquires anything solely or partly for a creditable purpose; (b) the supply of the thing to the entity is a taxable supply; (c) the entity provides, or is liable to provide consideration for the supply; and (d) the entity is registered, or required to be registered for GST.

In this case, the acquisition of the second-hand goods satisfies the requirements in paragraphs 11-5(a), 11-5(c) and 11-5(d) of the GST Act. As such, it is necessary to determine whether the supply of the goods to the entity is a taxable supply.

In order for the supply of the second-hand goods to the entity to be a taxable supply, among other requirements, the supplier of the second-hand goods must be registered for GST or required to be registered for GST (paragraph 9-5 (d) of the GST Act).

In this case, the entity acquires the second-hand goods from an entity that is neither registered nor required to be registered for GST. Therefore, the supply of the second-hand goods to the entity is not a taxable supply. Accordingly paragraph 11-5(b) of the GST Act is not satisfied.

However, Division 66 of the GST Act allows an entity, in some circumstances, to attribute an input tax credit for an acquisition of second-hand goods even though the supply to the entity was not a taxable supply. Section 66-5 of the GST Act outlines when an entity will make a creditable acquisition of second-hand goods.

Subsection 66-5(1) of the GST Act provides that when an entity acquires second-hand goods for the purpose of sale or exchange (but not for manufacture) in the ordinary course of business, the fact that the supply of the goods to the entity is not a taxable supply does not stop the acquisition being a creditable acquisition.

In this case, the supply of the second-hand goods to the entity is not a taxable supply and the entity acquired the goods for the purposes of sale or exchange (but not for manufacture) in the ordinary course of its business.

Accordingly, the requirements in subsection 66-5(1) of the GST Act are satisfied and, as the exclusions in subsection 66-5(2) of the GST Act do not apply, the entity is making a creditable acquisition for the purposes of section 11-5 of the GST Act. Therefore the entity can attribute an input tax credit. [Note: Division 66 of the GST provides the special rules that apply to the amount of the input tax credit and the tax period to which the input tax credit can be attributed.]