2012 changes align the treatment of goods and services acquired prior to registration with those purchased after registration.
Sections 3A(3C) and 21B of the Goods and Services Tax Act 1985
Section 21B of the GST Act allows a registered person to claim input tax deductions for goods or services acquired before registration. Previously input tax deductions were only when GST has been charged by the vendor. Section 21B also did not allow a deduction for an asset brought into a taxable activity if the original cost of goods or services, excluding GST, was $5,000 or less.
The amended section 21B allows for input tax deductions when:
- there was GST charged on the original supply (as was previously the case);
- there was GST charged on the importation of the goods or services; or
- the goods were acquired from an unregistered person (that is, a secondhand good input deduction).
These changes align the treatment of goods and services acquired prior to registration with those purchased after registration.
In addition, the $5,000 minimum threshold has been repealed. This will allow GST-registered taxpayers to claim input tax deductions for all goods and services acquired before registration.
In relation to secondhand goods, section 21B(5) will limit the input tax deduction to the tax fraction that applied at the time the goods were purchased by the person. This means that if, for example, the goods were acquired in 2010 (when the GST rate was 12.5%) the input deduction would be limited to 1/9th of the purchase price.
The person claiming the deduction must have adequate records to verify the claim. An amendment to section 21B(3)(a)(ii) clarifies that the relevant test for a secondhand goods claim is the same as it would be for any other registered person.
As this change confirms the intended policy behind assets being brought into a taxable activity, it applies from 1 April 2011.