Quick Summary
When disposing of an asset that was used in a taxable activity in New Zealand, you must make a final GST adjustment. This ensures that the total GST accounted for over the asset's life, including its sale, correctly reflects its taxable use. The specific calculation depends on the asset's value and previous GST treatment.
Details
Accounting for GST on Asset Disposal
Disposing of an asset that has been used in a taxable activity (business) in New Zealand requires a 'final adjustment' for GST purposes. This ensures that the entire lifecycle of the asset's GST treatment is correctly reconciled.
- Why it's Required: Over an asset's life, GST may have been claimed (fully or partially) on its purchase, and subsequent adjustments might have been made due to changes in its taxable use. The final adjustment reconciles all this at the point of sale or removal from the business.
- Sale of the Asset: When a GST-registered business sells an asset that was used in its taxable activity, the sale itself is generally considered a taxable supply. This means GST must be charged on the sale price.
- Calculating the Adjustment: The final adjustment typically involves calculating the total GST that should have been claimed or repaid over the asset's life, considering both its use and the sale proceeds, and comparing this to what was actually accounted for. Any difference results in a final payment to or refund from the IRD.
- Interaction with Wash-Up Rule: This final adjustment often works in conjunction with the 'wash-up rule' to ensure complete and accurate GST reconciliation.
Source: GST guide (IR375)