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Business Tax Tip – What are input-taxed sales?
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Published on Thursday, 25 August 2022 09:21
A business owner called me - and said she heard some comments and asked me to explain Input-Taxed Sales.
Answer– Input-Taxed sales/supplies are when a supplier CANNOT charge GST and also cannot claim GST on the sale.
Input-taxed sales are sales of goods and services that don't include GST in the price, even though GST was included in the price of inputs used to sell the supply. You can't claim GST credits for the GST included in the price of your 'inputs'.
The most common input-taxed sales are:
- Financial supplies (such as lending money or the provision of credit for a fee); and
- Selling or renting out residential premises.
Financial sales (supplies) are input taxed, provided certain requirements are met. A financial sale (supply) is the provision, acquisition or disposal of an interest listed in the GST Regulations.
Financial supplies are input-taxed sales and do not have GST in their price.
You generally make a financial supply when you do any of the following:
- Lend or borrow money;
- Grant credit to a customer;
- Buy or sell shares or other securities;
- Create, transfer, assign or receive an interest in, or a right under, a superannuation fund;
- Provide or receive credit under a hire purchase agreement entered into before 1 July 2012, if the credit is provided for a separate charge that is disclosed to the purchaser. (For hire purchase agreements entered into after 30 June 2012, the provision of credit is taxable.)
In special cases, you may be entitled to claim a GST credit for a purchase that you use to make a financial supply (sale) if any of the following applies:
- You do not exceed the 'financial acquisitions threshold';
- Your purchase relates to an amount you borrowed and used to make a non-input-taxed supply;
- Your purchase qualifies as a 'reduced credit acquisition' – you will be entitled to a reduced input tax credit.
Residential premises
Generally, selling or renting existing residential premises are input-taxed sales and do not include GST.
However, if the residential premise is considered 'new', it is a taxable sale and GST is applicable.
If you buy property - old or new - with the intention of selling it at a profit or developing it to sell, you may be considered to be carrying on a business and may be required to register for GST.
Generally, you are not considered to be carrying on a business if your property transactions are for private purposes such as when you are constructing or selling your family home.
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