Exploitation of the second-hand goods provisions to obtain Goods and Services Tax (GST) input tax credits.

Entity A applies for cancellation of its GST registration.

As a result of the cancellation, Entity A has an increasing adjustment in respect of equipment on hand for which it had previously claimed input tax credits.

Subsequent to cancellation of its registration, Entity A transfers all of its equipment to an associated entity (Entity B). This includes the equipment for which it had the increasing adjustment as well as equipment held before the commencement of GST.

Entity B subsequently sells the equipment to a financing entity (Entity C).

Entity B leases the equipment back from Entity C for use in its business.

Entity B claims an input tax credit in relation to its acquisition of the equipment from Entity A under the second-hand goods provisions. The credit claimed relates to the equipment for which Entity A had an increasing adjustment, as well as equipment acquired before the commencement of GST even though there was no GST embedded in the price paid to Entity A for that equipment.