Small business owners can occasionally have it tough when it comes to finances. In the current economic climate, it can be difficult enough to get a product to market, let alone kit out an office space or other premises with the latest and greatest equipment.
Consequently, many may consider purchasing secondhand items. In fact, due to the relative throwaway nature of many big enterprises, small business owners may even be able to pick up a few bargains.
However, while that sounds like an exciting prospect, there's a need to consider the applicable taxation rules.
Gaining GST credit
Goods and Services Tax (GST) is applicable to all new items purchased, but there are certain levies available to business owners providing they have all of the applicable information and are GST registered with the Inland Revenue Department (IRD).
So, what happens when one business buys goods from another that isn't registered? Well, the good news is, the levies still apply in most circumstances. The only stipulation is that the business must buy the goods outright before it can make a claim on the GST.
Getting the right information
Some sales of secondhand items are not covered by the same consumer laws as new purchases. In fact, many may not even include an applicable, proper tax invoice. Naturally, it's important to gain a copy of the right information, especially if the business is using small business software such as CashManager from Accomplish to stay up to date.
For the purpose of good recordkeeping, and to ensure that any claims against tax can be made accurately, the IRD explained that business owners need the following formalised:
- Quantity of the goods
- Date of purchase
- Name and address of the sellers
- Description of the items
- The price paid
Ultimately, purchasing secondhand can be a lot more cost effective for small business owners looking to keep up with their competition. Providing all of the applicable information is gathered, there are few downsides to pursuing items that have been owned by another individual or business previously.