If you are registered for GST and buy goods or services for use in a taxable activity, you can claim an input tax deduction.
Input tax includes:
- the GST you pay on goods and services
- the GST you pay on goods that are imported or held in bond
- three-twenty-thirds of the cash price of second-hand goods bought from a non-GST-registered person
- three-twenty-thirds of the cash price of second-hand goods bought from a GST-registered person when the goods are not part of their business.
If you and the seller are associated persons, the input tax for second-hand goods is the lesser of:
- the GST component of the original cost of the goods to the seller
- three-twenty-thirds of the price you paid
- three-twenty-thirds of the current market value.
Apportioning input tax
Goods or services that are used both in the taxable activity and outside of it need to have their input tax apportioned depending on how you use them. For example, you might buy a car that will be used for business and private use. You will need to estimate how much of the car’s total use will be part of the taxable activity and then calculate the input tax based on this.
“Mixed-use assets” are a particular set of goods with special rules for apportioning input tax.
Your prediction of how goods and services would be apportioned between business purposes and private use might turn out to have been inaccurate. If this is the case, you may need to make an adjustment for change-in-use.
When you dispose of goods or services in the course of a taxable activity and you have not claimed a full input tax deduction, you may claim an additional deduction. For example, if you bought a car for both business and private use and so claimed 70% of the input tax deduction at that time, part of the GST due on the amount you later sold the car for can be claimed as an adjustment on disposal.