GST and amount of input tax credits for creditable acquisitions of second-hand goods

Can the entity, a second-hand goods dealer, use the acquisition cost of second-hand goods to determine the amount of its input tax credit under section 66-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it subsequently sells the second-hand goods for an amount less than the amount it paid to acquire them?

No, the entity cannot use the acquisition cost of second-hand goods to determine the amount of its input tax credit under section 66-10 of the GST Act when it subsequently sells the second-hand goods for an amount less than the amount paid to acquire them. The amount of the entity's input tax credit is the amount of goods and services tax (GST) payable on the entity's subsequent sale of the second-hand goods.

The entity is a second-hand goods dealer that is registered for GST. The entity makes a creditable acquisition of second-hand goods under section 66-5 of the GST Act. The consideration for this acquisition is $880.

The entity then sells the second-hand goods for $660. The entity does not divide the second hand goods before resupplying them. This subsequent supply is a taxable supply under section 9-5 of the GST Act.

Section 66-10 of the GST Act sets out the amount of the input tax credit allowed for a creditable acquisition of second-hand goods that are not divided for resupply.

Where the consideration for the acquisition of second-hand goods is more than $300, subsection 66-10(1) of the GST Act applies and the amount of the input tax credit is the lesser of: • an amount equal to 1/11th of the consideration that the entity provides, or is liable to provide, for the acquisition; or • the amount of the GST payable on the subsequent taxable supply of the second-hand goods.

In this case, the consideration provided by the entity for the acquisition of second-hand goods was more than $300. One eleventh of the consideration provided by the entity to acquire the goods is $80 ($880 x 1/11). The amount of the GST payable on the subsequent taxable supply of the second-hand goods is 10% of the value of the supply where the value of the supply is calculated, in accordance with Subdivision 9-C of the GST Act, as: Price x 10/11

The amount of the GST payable on the subsequent taxable supply is $60 (($660 x 10/11) x 10%).

Therefore, the amount of the GST payable on the taxable supply of the goods ($60) is less than 1/11th of the consideration provided to acquire the goods ($80). As such, the amount of the entity's input tax credit is $60.

Accordingly, the entity cannot use the acquisition amount of second-hand goods to determine the amount of its input tax credit under section 66-10 of the GST Act when it sells second-hand goods for an amount less than the amount it paid to acquire them. [Note: Where the consideration for an acquisition of a second-hand good is $300 or less, subsection 66-10(2) of the GST Act applies and the amount of the input tax credit is an amount equal to 1/11th of the consideration the entity provides, or is liable to provide, for the acquisition.]