GST CHANGE OF USE RULES
It is quite often in reality, when the goods or assets (over $5000 (GST exclusive) you previously purchased for private use or business use before registering GST have been subsequently used in making taxable supplies.
When a person was not a GST registered person and becomes registered person, the goods and assets purchased prior registration is now solely or partly used for the purpose of making taxable supplies. Then the GST Change of Use Rules apply, s 21B of the Goods and Service Tax Act 1985 (the Act).
This rule gives you opportunity to have a claim the GST input portion you have previously paid when you are not registered for GST. Adjustments can be used to claim the GST, the number of adjustments to be used are dependable on the original purchase price:
• $5,001-10,000 – two adjustments periods
• $10,001 – 500,000 – five adjustments periods
• $500,001 or more – ten adjustments periods
The First adjustment period starts on the actual date of acquisition of the goods and services and ends on the first balance date.
For example (to simplify the calculation, we assume the asset is solely 100% used for the business, there is no private use):
1. John was not previously registered for GST becomes
registered on 1 April 2019;
2. He purchased a boat from Rayglass in NZ on 1 Oct 2018 for $345,000.00 (GST inclusive);
3. The Boat is now 100% used for charters from 1 Apr 2019;
4. Then in his GST return for the period ended 31 March 2020 the GST input credit would be available (assume his is registered for 2 monthly GST), the GST credit is:
a. GST portion of the asset x No. of taxable periods used for making taxable supplies / number of taxable period owned
b. $34,500 x 6/9=$23,000
Further subsequent adjustments can be made for the balance of the GST paid s21 FB (2) of the Act. The longer time you owned assets, the small portion of GST you may be able to claim in your first adjustment, For the same case if John purchased the boat in 1 Oct 2017, then the GST input calculation would be $34,500 x 6/15= $13,800
When the Boat is subsequently sold, John is required to pay GST only on the portion of the sale proceeds 21F (2). The formula to calculating the GST on the sales can be complicated in this scenario.
You are also required to make adjustment when you have a private use portion mixed with the business use. If you are interested in finding out more, please contact us.