A trade-in transaction is treated as two separate supplies for GST purposes. When you accept trade-ins, you (the supplier) must charge GST on the full selling price of your goods and not on the net difference.

The following illustrates a typical trade-in scenario:

  1. Your customer trades in his old equipment for new equipment.
  2. The retail price of the new equipment is $400.
  3. The trade-in value of old equipment is $300.
  4. Your customer pays an additional $100 for the new equipment.

For GST purposes, two supplies have taken place:

  1. You supplied the new equipment at $400 to the customer.
  2. 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 video below. You may also view other videos on "Common GST Errors on Output Tax".