GST and second-hand goods purchased for use in an enterprise other than as trading stock

Is the entity, a second-hand goods dealer, making a creditable acquisition under section 66-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it acquires second-hand goods for use in its enterprise other than as trading stock?

No, the entity is not making a creditable acquisition under section 66-5 of the GST Act, when it acquires second-hand goods for use in its enterprise other than as trading stock.

The entity is a second-hand goods dealer. The entity purchases second-hand goods. The supply of the second-hand goods to the entity is neither a taxable supply nor a GST-free supply. The entity uses the goods in carrying on its enterprise but they do not form part of the entity's trading stock.

The entity then sells the second-hand goods. This sale by the entity is a taxable supply.

The entity is registered for goods and services tax (GST).

Division 66 of the GST Act allows an entity, in some circumstances, to claim 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 to the entity is not a taxable supply does not stop the acquisition being a creditable acquisition.

The meaning of the expression 'goods acquired for the purpose of sale or exchange (but not for manufacture) in the ordinary course of business' is considered in Goods and Services Tax Ruling GSTR 2000/8. Paragraphs 31 and 34 of GSTR 2000/8 provides that the expression 'goods acquired for the purpose of sale or exchange (but not for manufacture) in the ordinary course of business' refer to 'trading stock' as that term is ordinarily used.

Although GSTR 2000/8 is a ruling on the operation of section 16 of the A New Tax System (Goods and Services Tax Transition) Act 1999 (Transition Act), it is appropriate to apply the same interpretation of the expression 'for the purpose of sale or exchange (but not for manufacture) in the ordinary course of business' to section 66-5 of the GST Act because that expression is used in the same context in section 16 of the Transition Act and section 66-5 of the GST Act.

The entity acquires the second-hand goods to use in its enterprise but they do not form part of the entity's trading stock. The acquisition of the second hand goods is not for the purpose of sale or exchange (but not for manufacture) in the ordinary course of the entity's business. Therefore, the entity is not making a creditable acquisition under section 66-5 of the GST Act, when it acquires second-hand goods for use in its enterprise other than as trading stock. [Note: The entity is not making a creditable acquisition under section 11-5 of the GST Act as the supply of the second-hand goods to the entity was not a taxable supply. In addition, the entity is not making a creditable acquisition under section 66-5 of the GST Act as the second-hand goods were not acquired for the purpose of sale or exchange in the ordinary course of business. Therefore, the entity is not entitled to an input tax credit for the acquisition of the second-hand goods under section 11-20 of the GST Act.]