Second-hand goods input tax credit

2012 amendment to the GST Act covering the second-hand goods input tax credit and supply of goods by non-residents.

Section 3A(2)(b) of the Goods and Services Tax Act 1985

In 1995, an amendment was made to the Goods and Services Tax Act 1985 to prevent input tax credits from being claimed twice on the same goods: once when the goods were imported under a lease, and again through the second-hand goods input tax credit, when the leased goods situated in New Zealand were purchased from a non-resident owner.

The 1995 amendment ensured that a second-hand goods input tax credit could not be claimed when the sale of goods is a non-taxable supply by a non-resident, and any GST originally charged at the border on the goods when they were first leased from the non-resident had already been claimed.

However, the 1995 amendment referred to the same non-resident supplier making the supply as when the goods were imported under a lease. This may not always be the case as the original non-resident supplier may later sell the goods (subject to lease) to another non-resident supplier, who later sells the goods to a GST-registered resident.

Key features

Section 3A(2)(b) has been replaced to deny a second-hand input tax credit when the supply:

  • is a supply of goods by a non-resident; and
  • is a supply of goods that have previously been supplied to a registered person who has entered them for home consumption under the Customs and Excise Act 1996.

It does not matter if the person who enters the goods for home consumption was registered for GST purposes at the time the goods were entered, or was registered at a later date and claimed an input credit under section 21B. It also does not matter whether the non-resident making the supply of goods was the same non-resident who earlier supplied the goods when they were entered for home consumption.

Detailed analysis

Both the 1995 amendment and the current amendment concern the following situation. Goods are leased from a non-resident to a resident. The resident lessee enters the goods for home consumption under the Customs and Excise Act 1996. The New Zealand Customs Service charges GST on the value of the assets, and the registered lessee claims an input tax credit. At a later point, the non-resident owner sells the goods, now situated in New Zealand, to a GST-registered person. As the seller is a non-resident, the supply is not a taxable supply and GST output tax is not charged. However, as the goods are already situated in New Zealand, the registered purchaser is potentially able to claim a second-hand goods input tax credit. This could lead to GST input credits being claimed twice, while GST is paid only once.

The 1995 amendment denied a second-hand goods input tax credit if the non-resident selling the goods is the same non-resident who previously supplied (i.e. leased) the goods to a registered person (the lessee) who entered the goods for home consumption.

The new amendment extends the provision to also deny a second-hand input tax credit when the non-resident owner who sells the goods to a registered person in New Zealand is not the same person who originally leased the goods to a registered person in New Zealand. It also covers the situation when the lessee who entered the goods for home consumption was not registered for GST at the time of entry, but registers after the event and claims a GST input credit under section 21B.

Application date

The amendment comes into force on the date of introduction of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill, that is, 14 September 2011.