Tax Updates: 18 August 2025

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

Claiming secondhand goods for GST

GST has certainly been the flavour of the last few editions of AWIR, and it’s no different this week, with another draft interpretation statement (IS) issued, this time titled “GST – Secondhand goods input tax deduction,” with the reference PUB00514.

It’s a bit of a read being 46 pages in length, and it’s accompanied by two separate fact sheets: a 3-page “Meaning of secondhand” and a 4-page “secondhand goods input tax deduction requirements.”

As the curtains raise on the main event, we are told that the purpose of this latest IS is to discuss the requirements that must be met for a registered person to claim a secondhand goods input tax deduction. It highlights that the goods be secondhand and the meaning of secondhand accordingly, and outlines the exceptions and restrictions on the amount of secondhand goods input tax deduction that can be claimed, including where the supplier and the recipient are associated persons.

The starting point with any standard input tax deduction claim, is that the person must be a registered person and they must be acquiring the goods or services for making taxable supplies. With that principle firmly under your belt, moving on to the more specific rules for secondhand goods:

• The goods acquired must be secondhand goods (and note that services cannot be secondhand);

• The supply of the goods to the person must have been by way of sale;

• The goods must have been “situated in New Zealand” at the time of supply;

• The supply must not have been a taxable supply;
  

• A payment must have been made for the supply in the taxable period. A secondhand goods input tax deduction in a taxable period is allowed only to the extent that a payment has been made during that taxable period for the supply; and,
• Certain records must be kept of the supplies received.

You are unlikely to be entitled to make a claim however, if the goods were acquired before 1 October 1986, they relate to supplies of previously leased imported goods, or they relate to supplies of zero-rated financial services.

I’d suggest that the most important concept to take away from this document, is the meaning of “secondhand.” Under its ordinary meaning a good is secondhand when acquired, if it is not acquired from the original source (in other words, if it has been previously owned) or has been previously used. Case law has held that a good is secondhand if it has been used or treated or stored by a previous owner in such a manner that it can no longer be regarded as new. And “use” in this context means being used for the good’s intrinsic purpose as opposed to being used as trading stock, for example.

Also note that a good can still be a secondhand good, even if the supplier bought it for their use, but for whatever reason, never actually used it, so it’s still packaged in the original box when they obtained it. On the other hand, primary produce such as fruit, vegetables, eggs or honey, is generally not a supply of secondhand goods because produce is usually used through human consumption, after which the good no longer exists.

When it comes to secondhand goods claims, a common mistake I see is clients registered on the invoice basis trying to claim the full input tax component in the GST period during which they have paid a deposit on the goods. However, regardless of your registration basis, you can only claim input tax on a secondhand goods purchase to the extent that payment has been made during the relevant GST period. And don’t get caught out in this regard, by trying to claim that the deposit you’ve paid is actually the full GST component of the supply of the secondhand goods – this simply won’t fly with Inland Revenue (IR) and your claim will still be limited to 3/23rds of the deposit amount paid.

And finally, when the secondhand goods have been acquired from an unregistered associated supplier, do not forget that the input tax claim is limited to the lesser of:

• if the supplier also received the goods from an associated person, the tax fraction of the amount paid to the last non-associated supplier. Otherwise, the tax fraction of the original purchase price of the goods when they were received by the supplier (that is, the purchase price for the supplier’s acquisition of the goods);

• the tax fraction of the purchase price; and,

• the tax fraction of the open market value of the supply.

If you would like to make a submission on the draft IS, the closing date is 10^th September 2025. fee information provided directly to Inland Revenue (IR) by early child education providers.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.