The following illustrates a typical trade-in scenario:
- Your customer trades in his old equipment for new equipment.
- The retail price of the new equipment is $400.
- The trade-in value of old equipment is $300.
- Your customer pays an additional $100 for the new equipment.
For GST purposes, two supplies have taken place:
- You supplied the new equipment at $400 to the customer.
- Your customer supplied the old equipment to you for $300.
Charging and Accounting for GST
You should charge GST on the full retail price (i.e. $400) of the new equipment and issue a tax invoice to your customer for the full amount. You should not charge GST only on the net difference of $100.
If your customer is GST-registered, he should charge GST on the trade-in value of the old equipment (i.e. $300) and issue a tax invoice to you.
Common errors on output tax
Learn about the GST implications for trade-in transactions by watching the “Trade-in Transactions” chapter (at 1:40min) of this video! You may click here for more videos on commonly made output tax errors.