You acquire a good or service when you either:
- purchase it
- introduce it into your business.
Principal purpose method (goods and services acquired for $10,000 or less)
From 1 April 2023, when you acquire a good or service for $10,000 or less (excluding GST), you need to determine whether the principal purpose is for making taxable supplies.
You can claim the full GST amount of goods or services if they are acquired for the principal purpose of making taxable supplies.
You cannot claim any GST if the principal purpose is not for making taxable supplies.
For goods and services valued at $10,000 or less, you cannot make any GST adjustments, even if the principal purpose of those goods or services changes.
Apportionment method (goods and services acquired for $10,000 or less)
You can choose to claim the business percentage of goods and services, using the apportionment method (regardless of the principal purpose for acquiring the good or service). No further adjustments in future periods will be required.
If you choose to use apportionment, instead of the principal purpose method, you will need to use this for all goods or services acquired for at least 24 months.
Goods and services acquired over $10,000
When you acquire a good or service valued at over $10,000 (excluding GST), you need to work out how much it will be used in your business. You then apportion the amount of GST you claim based on the percentage of the good or service used in your business.
If the good or service will also be used privately or to make exempt supplies, you must apportion the GST amount you can claim based on your estimate of the percentage it will be used in your taxable activity.
You can choose how you work out the percentage of business use, if the method used gives a fair and reasonable result. This can be based on past records, experience, business plans or another suitable method.
Goods that are commonly used in a business and privately include:
- your home (when you have a home office)
You can claim for your home office by comparing the floor area of your office to the total floor area of your home.
You can calculate a private use adjustment for a vehicle by keeping a logbook and comparing private kilometres travelled with total kilometres travelled.
Please contact us if you'd like to use a special apportionment method for your business. You can send us a message in myIR.
Electing to treat goods as non-taxable supplies
For goods not acquired or used for the principal purpose of making taxable supplies, you can choose to treat them as non-taxable supplies.
This only applies to goods such as land, dwellings and vehicles.
You will not have to add GST to any future sale of the good under this election.
To qualify, the following criteria must be met:
- no previous GST deduction has been claimed for the goods
- the goods were not acquired or used for the principal purpose of making taxable supplies
- the goods were not acquired as zero-rated supplies (see below for the exception).
Once applied, you will not need to monitor the use of the good at the end of each GST adjustment period.
Output adjustment for zero-rated supplies
There might be situations where you acquire zero-rated goods, but the principal purpose of the goods is not for making taxable supplies.
To treat the goods as non-taxable, you can make a debit adjustment for the GST you would have been charged, if the goods were not zero-rated (nominal GST amount).
Transitional rule for goods acquired before 1 April 2023
If you have claimed GST for a percentage of taxable use, for goods that were not acquired or used principally for making taxable supplies, you can make a debit adjustment under the transitional rule.
If you choose to use the transitional rule, you need to:
- return any GST you have previously claimed
- notify Inland Revenue by sending a message through myIR, before 1 April 2025.
When the transitional rule is applied, future disposal of those goods can be treated as a non-taxable supply.
Once applied, future adjustments may only be required if the use of the goods changes to principally making taxable supplies.
Phil is a GST-registered contractor who bought a laptop for $3,000 (GST exclusive) for use in his business, for the principal purpose of making taxable supplies. Phil also uses it occasionally for private use.
Phil can claim the full cost of purchasing the laptop as an expense in his next GST return.
Amy has a GST-registered business and bought a car for $10,350 (including GST of $1,350). Amy bought the car principally for private use but will sometimes use it for business. Amy estimates she will use the vehicle for 10% business use.
Under the principal purpose method, Amy would not be able to claim the cost of the car purchase in her GST return, as the GST exclusive price of the car is less than $10,000.
Under the apportionment method, Amy could claim 10% of the GST in her next return. Amy needs to apply this method to all goods and services valued at $10,000 or less (GST exclusive), for a minimum of 24 months.
Rebecca is GST-registered and has a small farming business. While her farmhouse is used to help run her business, the principal purpose is for her private residence.
When Rebecca bought the farmhouse, the purchase was not zero-rated for GST (as the seller was not GST-registered). Rebecca did not claim any GST on the purchase or any capital improvements relating to the farmhouse.
Rebecca can elect to treat a future sale of the farmhouse as a non-taxable supply for GST purposes. She will not have to pay GST on the sale. The land used for farming would still be subject to GST.
Rebecca can still claim part of her operating costs (such as rates, insurance and utilities), based on the percentage of the farmhouse used for making taxable supplies.
If the property use does not change, Rebecca will not have to charge GST on a future sale or disposal of the farmhouse.
Gavin is GST-registered and buys a holiday home for $1 million from another GST-registered person. The sale was zero-rated for GST purposes. The principal purpose for buying the house is for private recreation. However, Gavin also intends to rent out the property for short term accommodation.
Gavin can choose to make the future disposal of this property a non-taxable supply, by returning output tax of $150,000 in his next GST return (the nominal GST amount that would have been charged, had the purchase not been zero-rated).
If the property use does not change, Gavin will not have to charge GST on a future sale or disposal of the holiday home.
Mary is GST-registered and bought a lifestyle block next to her beef farm in March 2022, for $1.15 million dollars. The seller was not GST registered.
The principal purpose for buying this property was for long-term residential rental. The property included land which Mary uses in her beef farming business. Only 25% of the total property value relates to her farming. Mary claimed GST of $37,500 in her March 2022 GST return.
In September 2023, Mary decides to use the transitional rule for the lifestyle block and notifies us. Mary makes a debit adjustment of $37,500 in her September 2023 GST return. If the property use does not change, Mary will not have to charge GST on a future sale or disposal of this property.