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.
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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.