Scrap metal: claiming GST credits

If you're a GST-registered scrap metal dealer, you can claim GST credits for purchases you make that are:

• for business use, not to make input-taxed or private sales
• subject to GST.

You must have a valid tax invoice to claim GST credits for purchases greater than $82.50

This applies to scrap metal and equipment (such as trucks, and sorting and crushing machinery) that you use in your business. You can claim GST credits even if the sale you then make is GST-free – for example, a GST-free export of scrap metal.

To claim GST credits on goods you purchase for export you must buy them from a GST-registered seller. You must hold a tax invoice from the seller.

How you claim GST credits differs for:

• purchases from GST-registered sellers
• purchases from sellers not registered for GST.

Purchases from GST-registered sellers

You may be able to claim GST credits when you purchase from GST-registered sellers. The amount you can claim as a GST credit is normally 1/11th of the cost of a purchase.

Find out about:

• What you need to make a claim
• When to claim GST credits

What you need to make a claim

In order to claim a GST credit for a purchase greater than $82.50, you will need to hold a tax invoice from your seller or a recipient-created tax invoice (RCTI).

For purchases less than $82.50, you will need proof of purchase, such as a receipt or documentation that includes:

• the name and address of the seller
• a description of the type and quantity of the goods
• the date and cost of the purchase.

When to claim GST credits

If you are a small business, you can choose to account for your GST obligations on either a cash or a non-cash basis.

If you use cash accounting, you can claim the GST credit in the tax period you:

• provide payment for the purchase
• hold a tax invoice for the transaction.

If you use non-cash accounting (accruals), you can claim the GST credit in whichever is the earlier of:

• the tax period in which you make any payment for the purchase
• the tax period when a tax invoice is issued to you, or you issue a recipient-created tax invoice (RCTI).

You may issue RCTIs for scrap metal you buy from registered sellers. To do this you must be a scrap metal dealer and have a written agreement with the seller. Written agreements must comply with the conditions set out in determination RCTI 2009/1.

Whether you account on a cash or non-cash basis, you must document your transactions.

See also:

• Recipient created tax invoices – scrap metal
• RCTI 2009/1 Recipient Created Tax Invoice – Embedded Agreement Amending Legislative Instrument 2009

Purchases from sellers not registered for GST

You may be able to claim GST credits when you purchase second-hand goods from an unregistered seller for resale.

Find out about:

• Statement by a supplier
• Second-hand goods purchased for resale
• What you need to make a claim
• Export goods purchased from unregistered sellers

Statement by a supplier

An unregistered seller cannot give you a tax invoice and you cannot issue them with a recipient-created tax invoice (RCTI). They must provide you with a 'statement by a supplier' when your purchase is greater than $82.50.

They can use the form Scrap metal industry: statement by a supplier or incorporate the information required into their normal invoicing system.

See also:

• Scrap metal industry: statement by a supplier

Second-hand goods purchased for resale

The value of second-hand goods you purchase for resale affects when and how you can claim GST credits.

Purchases of $300 or less

You can claim GST credits for purchases of $300 or less in the tax period you make the purchase, regardless of when you intend to sell it.

Purchases costing more than $300

You can only claim GST credits for purchases costing more than $300 when you resell the goods. You calculate and claim the GST credit in the period of your sale.

The GST credit which you can claim is equal to the lesser of:

• 1/11th of the your payment for the second hand goods
• the amount of the GST payable on the sale of the second-hand goods.

Purchases divided for resale

If you choose to divide purchases for resale the process for claiming GST credits is slightly different. This process is called global accounting.

The global accounting process applies when:

• you purchase second hand goods
• the purchase costs more than $300
• you expect to divide it into two or more separate sales.

You may also choose to use this process when you purchase second-hand goods for $300 or less and sell them in at least two separate sales.

When using this method (global accounting), you pool your GST credits and GST payable so that you only need to pay GST when the GST payable exceeds the amount of credit available. Where the amount of GST credit exceeds the GST payable, no refund is payable. However, this net amount is carried forward and off-set against the GST payable you need to pay in the next tax period.

In all circumstances, care needs to be taken in claiming GST credits when goods are subsequently exported. 

What you need to make a claim

In order to claim a GST credit for a purchase greater than $82.50, the seller must provide you with a statement by a supplier for your records.

For purchases less than $82.50 you will need documentation that includes:

• the name and address of the seller
• a description of the type and quantity of the goods
• the date and cost of the purchase.

Export goods purchased from unregistered sellers

Exported goods are GST-free.

If the seller is not registered for GST, you cannot claim GST credits on your purchases which you subsequently export.

See also:

Information on how to claim the correct GST credits if you are a GST-registered scrap metal dealer.