Business assets include old furniture, office equipment and non-residential property. Generally, you have to account for GST (i.e. output tax) when you:
- sell your business assets (including disposal of or transfer of asset to another party with consideration received); and
- dispose of, transfer or give away your business assets for free and these assets still have market value, unless exceptions apply.
Selling Your Assets
When you sell your asset (including disposal or transfer of the asset to another party for a consideration), you are required to account for output tax based on the consideration (e.g. money) you receive.
Example: Selling an Old Photocopier
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.
Disposing of Your Assets for Free
When your asset still has market value and you dispose of, transfer or give away the asset for free, you are required to account for output tax based on the Open Market Value (OMV) of the asset. OMV of the asset refers to the price, excluding GST, that the asset could have fetched if it has been sold to an unrelated party at the time of disposal or transfer.
You are required to account for output tax based on the OMV of the asset unless:
- The cost of the asset is not more than $200; or
- No credit for input tax was allowed to you on the purchase or import of those assets.
If the asset is obsolete and has no market value, you need not account for output tax when you dispose of, transfer or give away the asset.
Example 1: Disposing of Your Assets for Free
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.
Example 2: Disposing Obsolete Goods with No Market Value
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 As the dented wood is obsolete and has no market value, the carpenter need not account for GST.
When to Account for Output Tax
When Assets Are Sold
You must account for GST at the earliest of the following events:
- The date when you issue the invoice;
- The date when you receive the payment; or
- The date when you deliver or hand over the business assets. This tax point is applicable for the sale of non-residential properties only.
When Assets Are Disposed of for Free
You must account for GST on the date when you dispose of, transfer or gave away the assets.