How will second hand goods that are donated to a charity be treated under GST?

Principle

Donated second hand goods will be GST-free where supplied by charitable institutions and provided they retain their original character. Second hand goods are goods which have been used previously. The supply of donated new goods will be subject to GST.

Specific Questions and Answers

1. What is the definition of used as opposed to second hand?

   The definition of used is not relevant to the second hand goods provisions for charities. Second hand goods are goods that must not have previously been held for manufacture, sale or exchange. Other goods that are donated to charities may be assumed to be second hand with the exception of food items and animals unless the entity is aware of the circumstances that indicate they are new goods.

2. Subdivision 38-355 exempts supply of second-hand goods, particularly where goods are supplied as a gift. In practice, opportunity shops supplement their supplies from outside sources. At the point of sale, it will not be known which goods were donated as gifts and which came from outside sources.

   A supply of donated second hand goods to another charity is not a taxable supply. Purchases not made from another charity are taxable. Where the purchase is a creditable acquisition for a charity then tax is payable on the supply and the charity is entitled to an input tax credit.

   Note that proposed Division 123 of the GST Act provides for simplified accounting methods for non-commercial activities of charitable institutions etc. and could assist with compliance costs.

3. Where donated second hand goods are received by a charity and sold without changing their character, the sale will be GST-free. What approach should a charity employ in distinguishing between 'new' and 'second hand' goods received as donations in collection bins?

   Where donated goods are received by a charity in collection bins, the Commissioner will accept that all goods received in this manner are second hand, unless the charity has information to the contrary. For example, if a clothing manufacturer has advised the charity that it will be depositing 500 new shirts in their charity bin, and these shirts are identifiable because of their labelling, packaging etc., they would not be considered second hand goods. Where however an isolated shirt appears in a collection bin with labels attached and in its original packaging, this will still be considered second hand.

4. Does the same rationale apply to donations of second hand goods made direct to the charity's premises?

   Yes - unless the charity has information to the contrary, the donated goods would be considered second hand.

5. Where a charity receives donated second hand clothing, removes the buttons and/or lace, and sells them, have the buttons and lace retained their original character?

Yes. The character of a button (even when attached to clothing) is to operate as a fastener. Merely separating the buttons from the clothing does not change this character. Similarly, the character of lace is to serve as decoration. The removal of lace from clothing does not change this character. Accordingly, the sale of buttons and lace obtained from second hand clothing in this manner would be GST-free.