Goods and services may be purchased for use in your business or you may introduce already owned goods and services into your business. You need to make adjustments for how much you’ll use them (or they’re available for you to use) for business purposes rather than other purposes (like private use of a car).
There are different adjustment methods you can use depending on the value of the goods or services.
Goods and services purchased for $10,000 or less
When you purchase goods and services for $10,000 or less you can make GST adjustments using the principal purpose method or the apportionment method.
Principal purpose method
When you purchase individual goods or services that each cost $10,000 or less (excluding GST), you need to work out if the main (principal) purpose of getting the goods and services was to make taxable supplies.
You can claim the full GST amount of any goods or services you purchase with the main purpose of making taxable supplies.
You cannot claim any GST if the main purpose is not for making taxable supplies.
You cannot later make any other GST adjustments, even if the main purpose of those goods or services changes.
Apportionment method
You can choose to claim the business percentage of goods and services, using the apportionment method (regardless of the main purpose for purchasing the goods or services). You cannot make further adjustments in future periods.
If you choose to use the business percentage of goods and services, you will need to use this method for all goods or services you get for at least 24 months. You cannot change to the main purpose method.
Goods and services purchased for over $10,000
When you purchase goods or services valued at over $10,000 each (excluding GST), you need to work out how much you’ll use it in your business and how much (if any) you’ll use it privately. You then claim the amount of GST based on the percentage of the item or service you’ll use in your business.
You can choose how you work out the percentage of business use, if the method used gives a fair and reasonable result. You can base it on past records, experience, business plans or another suitable method.
Goods that are commonly used in a business and privately include:
- your home (when you have a home office)
- vehicles.
You can claim for your home office by comparing the floor area of your office to the total floor area of your home.
You can calculate a private use adjustment for a vehicle by keeping a logbook and comparing private kilometres travelled with total kilometres travelled.
Please contact us if you'd like to use a special apportionment method for your business. You can send us a message in myIR.
Electing to treat goods as non-taxable supplies
Goods you did not get or use for the main purpose of making taxable supplies, you can choose to treat as non-taxable supplies. This applies only to goods such as land, dwellings and vehicles.
You will not have to add GST to any future sale of these goods or make an adjustment if you keep these goods when you de-register from GST.
To qualify, the following criteria must be met:
- no past GST deduction has been claimed for the goods
- the goods were not acquired or used for the main purpose of making taxable supplies
- the goods were not acquired as zero-rated supplies (see below for the exception).
After you’ve applied these criteria to your land, dwelling or vehicle, you will not need to monitor their use at the end of each GST adjustment period.
Agreeing another method with us
You can agree an alternative adjustment method with us. If you do, that method can apply instead of any of the above methods.
Output adjustment for zero-rated supplies
There might be situations where you acquire zero-rated goods, but the goods’ main purpose is not for making taxable supplies.
To treat the goods as non-taxable, you can make a debit adjustment for the GST you would have been charged, if the goods were not zero-rated (nominal GST amount).
Transitional rule for goods acquired before 1 April 2023
If you have claimed GST for a percentage of taxable use, for goods that were not acquired or used mainly for making taxable supplies, you can make a debit adjustment under the transitional rule.
If you choose to use the transitional rule, you need to:
- return any GST you claimed in the past
- notify us by sending a message in myIR, before 1 April 2025.
When you apply the transitional rule, you can treat the goods as a non-taxable supply after you dispose of them. Adjustments in the future may be required if your use of the goods changes to mainly making taxable supplies.
Phil is a GST-registered contractor who bought a laptop for $3,000 (GST exclusive) for use in his business, for the main purpose of making taxable supplies. Phil sometimes uses it for private use.
Phil can claim the full cost of purchasing the laptop as an expense in his next GST return.
Amy has a GST-registered business and bought a car for $10,350 (including GST of $1,350). Amy bought the car mainly for private use but will sometimes use it for business. Amy estimates she will use the vehicle for 10% business use.
Under the main purpose method, Amy would not be able to claim the cost of the car purchase in her GST return, as the GST exclusive price of the car is less than $10,000.
Under the apportionment method, Amy could claim 10% of the GST in her next return. Amy needs to apply this method to all goods and services valued at $10,000 or less (GST exclusive), for a minimum of 24 months.
Rebecca is GST-registered and has a small farming business. While her farmhouse is used to help run her business, its main purpose is for her private residence.
When Rebecca bought the farmhouse, the purchase was not zero-rated for GST (as the seller was not GST-registered). Rebecca did not claim any GST on the purchase or any capital improvements relating to the farmhouse.
Rebecca can elect to treat a future sale of the farmhouse as a non-taxable supply for GST purposes. She will not have to pay GST on the sale. The land used for farming would still be assessable for GST.
Rebecca can still claim part of her operating costs (such as rates, insurance and utilities), based on the percentage of the farmhouse used for making taxable supplies.
If the property use does not change, Rebecca will not have to charge GST on a future sale or disposal of the farmhouse.
Gavin is GST-registered and buys a holiday home for $1 million from another GST-registered person. The sale was zero-rated for GST purposes. The main purpose for buying the house is for private recreation. However, Gavin also intends to rent out the property for short-stay accommodation.
Gavin can choose to make the future disposal of this property a non-taxable supply, by returning output tax of $150,000 in his next GST return (the nominal GST amount that would have been charged, had the purchase not been zero-rated).
If the property use does not change, Gavin will not have to charge GST on a future sale or disposal of the holiday home.
Mary is GST-registered and bought a lifestyle block next to her beef farm in March 2022, for $1.15 million dollars. The seller was not GST registered.
The principal purpose for buying this property was for long-term residential rental. The property included land which Mary uses in her beef farming business. Only 25% of the total property value relates to her farming. Mary claimed GST of $37,500 in her March 2022 GST return.
In September 2023, Mary decides to use the transitional rule for the lifestyle block and notifies us. Mary makes a debit adjustment of $37,500 in her September 2023 GST return. If the property use does not change, Mary will not have to charge GST on a future sale or disposal of this property.