Sale and Disposal of Business Assets

Printing company A sells its old photocopying machine to printing company B. A has to charge B with GST for the machine, and account for the output tax based on the selling price to B.

You are required to account for output tax based on the OMV of free gifts of assets/goods unless:

1. The cost of the gift is not more than $200 and the gift does not form a series of gifts*; or
2. No input tax was allowed on the purchase of the gift.

*Series of gifts refers to a situation where 3 or more gifts (regardless of value) are given to the same person within a period of 3 months. In determining whether a gift constitutes a series of gifts, gifts purchased from non-GST registered persons must also be taken into account.

The following changes have been made for free gifts of assets/goods:

1. The series of gifts condition has been removed. You no longer have to track the number of goods given to a person. You are only required to account for output tax if the cost of each good exceeds $200; and
2. You are required to account for output tax only if input tax on those goods has been allowed to you. If you choose not to claim the GST incurred on those goods, you are not required to account for output tax when you subsequently give the goods away for free.

When GST on the supply of the goods has been suspended (e.g. goods imported under the Major Exporter Scheme), the GST suspended is treated as input tax allowed to you.

A clothes retailer gives clothes from her business stock to her friend for free. These clothes have a market value of $500.

In this case, he must account for output tax on $500 when she gives away the clothes if she had claimed input tax on her purchase of the business stocks.

However if she did not claim the input tax, she need not account for output tax when she gives away the clothes.

A carpenter gives away dented wood to a recycling centre for free. As the dented wood is obsolete and has no market value, the carpenter need not account for GST.