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Inland Revenue

Tax Policy

Second-hand goods input tax credit

(Clause 136(1))

Summary of proposed amendment

The bill amends the definition of “input tax” in the Goods and Services Tax Act 1985 as it relates to second-hand goods, as a remedial base maintenance measure. It prevents a situation where GST is paid once but input tax credits can be claimed twice on the same goods.

Application date

The amendment applies from the date of the introduction of the bill.

Key features

Section 3A(2)(b) is being replaced to deny a second-hand input tax credit when the goods:

  • are supplied by a non-resident; and
  • have previously been supplied to a registered person who has entered them for home consumption under the Customs and Excise Act 1996.

It does not matter if the person who enters the goods was registered for GST purposes at the time the goods were entered or was registered at a later date.


In 1995, an amendment was made to the GST Act 1985 to counter the situation where input tax credits were being claimed twice on the same goods: once when the goods were imported under a lease, and again through the second-hand goods input tax credit, when goods situated in New Zealand were purchased from the non-resident owner. The 1995 amendment ensured that a second-hand goods credit could not be claimed when the sale of goods is a non-taxable supply by a non-resident, and any GST originally charged at the border on the goods has already been claimed.

Detailed analysis

Both the 1995 amendment and the amendment in this bill concern the following situation. Goods are leased from a non-resident to a resident. The resident lessee, who is registered for GST, enters the goods for home consumption under the Customs and Excise Act 1996. The New Zealand Customs Service charges GST on the value of the assets, and the registered lessee would claim an input tax credit. At a later point, the non-resident owner would sell the goods, now situated in New Zealand, to a GST registered person. As the seller is a non-resident, the supply is not a taxable supply and GST output tax is not charged. However, as the goods are already situated in New Zealand, the registered purchaser is potentially able to claim a second-hand goods credit. This could lead to GST input credits being claimed twice, while GST is paid only once.

The 1995 amendment denied a second-hand goods credit if the non-resident selling the goods is the same non-resident who has previously supplied (i.e. leased) the goods to the registered person (the lessee) who had entered the goods for home consumption.

The amendment in this bill extends the section to also deny a second-hand tax credit in situations where the non-resident owner who sells the goods to a registered person in New Zealand is not the same person who originally leased the goods to a registered person in New Zealand. It also covers the situation when the lessee who entered the goods for home consumption was not registered for GST at the time of entry, but registers after the event and claims a GST input credit under section 21B.