Can we claim the cost of secondhand purchases for my Business?
Buying secondhand goods for your business is often a valid decision. It can help keep expenses low. There are businesses start on the ‘smell of an oily rag’ when capital reserves are low so buying second hand is practical. Or perhaps you want to trial use of an secondhand item in business first to see if it is worthwhile having one.
But before you jump in and claim costs, here are few rules Inland Revenue has set out.
- Goods must be for use in your business activities.
- You need to record details about the purchase.
- Goods must be genuinely secondhand goods, that is they have been ‘used’.
Note: Unwanted ‘new’ products or marked down new stocks being onsold from another supplier are not secondhand goods.
Buying goods from a trader who is on selling goods – is not second-hand trade. Buying goods from a store or trader that are new but have been damaged, isn’t buying ‘secondhand’ goods. Inland Revenue point out goods must be genuinely used and owned by someone who bought them for their use. Merely having them owned by someone else is not enough and does not automatically make goods ‘second-hand’. This is an important distinction to note.
Inland Revenue requires you record the following if no invoice is given.
- Name and address of the supplier (if you picked goods at sale by organisation or charity, record that)
- Date of the purchase
- Description of the goods, and quantity of goods
- The price paid.
Inland Revenue has some rules about buying from closely related parties like family members, and selling your own personal goods into the business – the “associated person” rule. This is to ensure values being claimed, aren’t being inflated for excessive tax claims.
Can I claim GST on purchase of secondhand goods?
Even if the seller is not GST registered, Inland Revenue allows your business to claim GST on your secondhand goods purchase. But goods need to be paid in full before submitting the claim.
Damian bought a solid wheelbarrow at a local garage sale, for his Tiling business, for $50.00. To work out the GST he can claim – multiply 50 by 3 = 120 and then divide that number by 23 = $6.52 GST. This means the wheelbarrow will be a $43.48 business expense for the wheelbarrow, as he will get gst back on the purchase of the wheelbarrow.
Being a garage sale, they will need to record detail about the event, seller, location and price. Other places like Trade Me obviously send transaction receipt of sold goods. The main essence is to make sure the required details are available to Inland Revenue, if requested. Keep those details on your record for seven years.
Exclusions to Check:
Certain goods are excluded from ‘second hand’ classification, per Inland Revenue rules:
- Primary Produce
- Precious Metals (Gold, silver, platinum etc)
- Goods bought under any lease or rental agreement.
SecondHand Goods valued over $500.00
For purchases $500.00 excluding GST – your business will need to treat them as ‘asset’ purchases if their life is over 12 months. Check the depreciation rate finder on Inland Revenue’s site or contact your Accountant/Bookkeeper who can help. This means instead of claiming the full cost – you claim a ‘depreciation’ cost each year for the asset instead of the full cost, but you are able to claim the full GST value of the purchase during gst period at the time of purchase.
Find more information on this topic with the following IRD links:
Do The Sums Accounting and More offer a wide range of accounting services, and are Tax Agents. We aim to help small to medium sized businesses, and are happy to help support new business owners with set up of books to suit their business.
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