Sales Tax (GST/HST, PST) on Used Equipment and Secondhand Goods

Do I charge sales tax (GST/HST) when I sell a used truck, machine or computer from my business?

A GST/HST registrant charges tax on the sale of a used business asset it keeps and uses, such as a van or a machine (capital property), when the asset was used more than 50% in its commercial activities just before the sale. At 50% or less, the registrant charges none (CRA RC4022; Excise Tax Act s. 200(3)). The test is all or nothing: tax applies to the whole price, not to a business-use share of it.

A case stops being simple when any of these applies:

• The asset is a passenger vehicle or aircraft owned by an individual or a partnership. The Act sets the section 200 use test aside for these (s. 200(1)(b)). Instead, the sale is not taxable if, at any time after the owner registered, the vehicle or aircraft was not used exclusively in commercial activities (s. 203(3)). The Act's "substantially all" rule in s. 141 applies when you check that history. If it was used only in the business since registration, the general rule in s. 141.1(1) applies and the sale is taxable. Moving from exclusive to mixed use can itself trigger tax (s. 203(2)). "Passenger vehicle" has the Income Tax Act meaning, and some work vans and pickups fall outside it. Gather the full use history and the credit you claimed on purchase before you invoice. A registrant that does charge tax on a passenger vehicle it held as capital property may claim a credit for part of the tax it could not claim on purchase (s. 203(1)).
• The item is in CCA Class 12, 14, 14.1 or 44. Class 12 includes small tools, uniforms and application software. The Act's definition of capital property leaves these classes out (s. 123(1)), so the 50% test does not apply. The general rule applies instead: a sale of property you last acquired for use in your business is treated as a business sale (s. 141.1(1)(a)), so tax applies to the full price even if some use was personal. Confirm the class in your capital cost allowance schedule.
• A corporation sells to its owner, an employee or a related company. A sale below fair market value to a buyer you do not deal with at arm's length is taxed as if made at fair market value, unless the buyer is a registrant using the item only in its business (s. 155), so the invoice price may not be the tax base. Two related corporations may be able to elect instead.
• Your shop is near the small-supplier limit, or you bought used equipment and no PST was charged. Registration changes what you charge on every item, and PST you did not pay is yours to self-assess. See the small-supplier and PST sections below.
• You are selling the whole business or closing the account. See the last section.

In British Columbia, PST can apply to the same sale: see the PST sections below. Whether you paid tax or claimed a credit when you bought the asset does not change whether you charge on the sale; the use test decides.

Gather an asset list with purchase date and cost, how the asset was used in the stretch before the sale, your registration status and date, whether you claimed an input tax credit (ITC) when you bought it, and the buyer's name and province.

I'm not registered: do I charge tax on a used asset sale?

A small supplier that is not registered does not charge GST/HST on any sale, a used asset included. The sale price of capital property is also left out of the $30,000 small-supplier test (Excise Tax Act s. 148; CRA), so selling a van does not by itself push a business into registering. That carve-out uses the Act's definition of capital property, so sales of items it leaves out, such as small tools and software, still count toward the limit.

Sales of ordinary stock do count toward the test. A business that sells secondhand goods and passes the limit must register: see when to register for GST/HST.

What if I used the equipment partly for personal use?

A registrant looks at how the asset was used just before the sale, not at its whole history. The Act asks whether the registrant "was last using" the property other than primarily in commercial activities before ownership or possession passed (s. 200(3)). The CRA reads "primarily" as more than 50% (RC4022).

A computer used mostly for the business is therefore sold with tax on the full price. A computer that moved mostly to home use before the sale is sold with none. The move itself can have triggered a deemed sale and a tax amount to pay when the use fell to 50% or less: the CRA's change-in-use rules are in RC4022.

Keep a note of the business-use share and the date it changed. Without one, the share is hard to prove if the CRA asks.

Do I charge GST/HST on every secondhand item in my resale, vintage or consignment shop?

A registered shop charges GST/HST on the full price of each taxable secondhand item it sells, as it would on new stock. A sale of goods bought only to resell is treated as made in commercial activities (s. 141.1(2)), and GST/HST has no separate rate for used goods. An unregistered small supplier shop charges none.

Tax on stock you buy is a different matter. You cannot claim a credit for tax you never paid when you buy used goods from, or take them in trade from, someone who is not required to charge GST/HST, such as a private seller (CRA B-084R; a credit follows tax that became payable or was paid, Excise Tax Act s. 169(1)). Stock bought from a registered seller who charged tax can carry a normal ITC.

Who charges the tax on consigned goods and trade-ins?

Who charges depends on how the consignment is set up and on whether the owner would have to charge tax on a direct sale to the buyer (CRA GI-009). Registration alone does not decide this: a registrant selling goods it used for personal purposes, or an asset it last used 50% or less in the business, would not have to charge. The table assumes a registered shop and taxable goods.

Check whether an election was made before you apply the table. When the owner must charge, a registered owner and shop can sign Form GST506 so the shop accounts for the tax; both stay jointly liable for it, and each keeps the form instead of sending it to the CRA (Form GST506; s. 177(1.1)). A separate written election in s. 177(1)(d) lets a registered owner and the shop treat an agency sale as taxable that would otherwise not be; it is not made on GST506.

A registered auctioneer selling a vendor's goods charges the tax on the sale, whether or not the vendor is registered, and charges none on its commission, unless the sale is zero-rated. Two registrants can instead sign Form GST502 so the vendor accounts for the tax, if the vendor's direct sale would be taxable, the goods are prescribed property such as highway motor vehicles, and at least 90% of the proceeds from that vendor's goods sold that day are for prescribed property. The auctioneer then charges tax on its commission and services, and both keep a signed copy rather than sending it to the CRA (CRA; s. 177(1.3)).

A trade-in works one of two ways, depending on the customer (CRA).

The trade-in's value is the allowance credited to the customer, even if a loan or lien is still owed on the item (B-084R). If you and the customer do not deal at arm's length, an allowance above the trade-in's fair market value is capped at that value for the net calculation (s. 153(4)).

How do I show the tax on the invoice, and which rate applies?

Charge the rate of the province where the goods are delivered or made available to the buyer, or to which they are sent or shipped (CRA). That is 5% GST in a province that does not use HST. In a province that uses HST, charge that province's HST rate. A specified motor vehicle has its own rule: if the buyer registers it (other than temporarily) in another province within seven days after delivery and you hold satisfactory proof, that province's rate applies (CRA). A buyer in another province, or one outside Canada, changes the answer: see which tax to charge by province and charging GST/HST to US customers.

A registered buyer needs an invoice or other business paper detailed enough to support an ITC, and the detail required grows with the total: see what the invoice must show.

If you agreed a price without saying whether tax is extra, see tax-included prices and GST/HST.

Do I owe PST on used equipment I buy, and do I self-assess it?

In British Columbia, PST applies to used goods as it does to new goods unless an exemption applies. If the seller does not charge PST when you owe it, you self-assess it (BC small business guide). This page reads British Columbia's rules only and does not cover Saskatchewan, Manitoba or Québec: see provincial sales tax.

BC gives no input tax credit for PST on goods a business buys, and goods bought for resale are the usual exemption (BC small business guide). A small seller cannot use the resale exemption (Bulletin PST 003). Vehicles have their own rules: PST is owed whether the use is personal or business, and when the seller does not charge it, it is due at the earliest of registering the vehicle (ICBC collects it then), the next PST return (with a PST number) or the FIN 405 deadline (without one). The rate depends on the vehicle type and price, and on a private sale of a motor vehicle in BC the tax is generally worked out on the greater of the price paid and the vehicle's average wholesale value. If a FIN 320 appraisal and the price are both below that value, the greater of the two is used (Bulletin PST 308).

How do I record PST I self-assess on used equipment?

Record the PST as part of the equipment's cost, because there is no PST credit to claim back, and set up a PST payable balance for the amount. When you pay it on the return or on the FIN 405, clear the payable against the bank account. The capital cost allowance class and amount follow from the total cost: see capital cost allowance.

When do I charge PST on used goods I sell in BC?

A seller registered for PST charges it on taxable used goods, including sales of business assets such as office equipment and furniture outside its usual sales (BC small business guide). A business that must register but has not is still treated as a PST collector. A seller that is not a collector, or that does not charge, leaves the buyer to self-assess (BC). Vehicle sales follow Bulletin PST 308, above.

A small seller charges no PST. It must be located in BC and have $10,000 or less in retail sales in the past and coming 12 months. A shop with a storefront or a consignment store never qualifies, whatever its sales, and neither does a seller that sold at wholesale in the past 12 months or sells vehicles in the ordinary course (Bulletin PST 003). Used clothing and footwear sold for under $100 per item are exempt from PST, not from GST.

How do I record the tax collected on the sale, and where does it go on the return?

Book the tax collected as GST/HST payable, not as sale proceeds, and report it on the return for the period in which it was collected or became collectible.

1. Debit the bank account or receivable for the total received.
2. Credit GST/HST payable for the tax.
3. Credit the equipment account for its cost, debit its accumulated amortization, and book the difference between the price before tax and the book value as a gain or loss.

Line 103 of the regular-method GST/HST return takes the tax you collected or were required to collect, including on sales of real property and other capital property, on paid and unpaid invoices (CRA return instructions). The other lines are in filing GST/HST and input tax credits.

On the Quick Method, a sale of capital assets is not an eligible supply. Account for it as if the election were not in effect: the tax on it is calculated in full and added on line 103 (CRA RC4058; see the Quick Method guide). Income tax on the gain or loss is in selling a business asset.

What changes if I sell the whole business or cancel my account instead of one item?

Selling a whole business or closing the account follows different rules from selling one item.

• Selling the business. Seller and buyer can jointly elect on Form GST44 so the sale goes ahead without tax if the purchaser acquires at least 90% of the property needed to carry on the business. It is not available if you sell only individual assets, or if you are a registrant and the buyer is not. A registered buyer files it by the due date of its first GST/HST return covering tax that would otherwise arise on the transfer. Taxable services the seller still performs and taxable leases or licences stay taxable (CRA; s. 167).
• Cancelling the account. You are treated as selling your capital property just before you cancel, with tax equal to its basic tax content. Other property, including stock, is treated as sold at fair market value. You report the tax on your last return (CRA RC4022). The steps and deadline are in closing a GST/HST account.
• PST in BC. PST applies to the taxable assets in a business sale. A purchaser should get a clearance certificate first, or it becomes liable for amounts the seller still owes (BC).

Example

These examples are illustrative and use Canadian dollars.

A corporation sells a used van

An Ontario contractor corporation, registered for GST/HST, sells a van it used 80 percent for business to a buyer in Ontario for $15,000. The van was used primarily in the business, so HST at 13 percent applies to the whole price: $1,950. The invoice total is $16,950. A van used 50 percent or less in the business just before the sale would carry no tax on the sale itself.

A vintage shop passes the small-supplier limit

A Vancouver vintage shop with a storefront sells about $45,000 a year of secondhand items. Over four consecutive quarters its taxable sales pass $30,000, though not in any one quarter, so it stops being a small supplier at the end of the month following the quarter in which you exceed the limit and must register for GST. The sales below are made after its registration takes effect. As a storefront it was never a PST small seller, so it already charges PST. A $250 lamp carries GST of $12.50 and PST of $17.50 (7 percent), for $280. A used jacket at $80 carries GST of $4.00 and no PST, because used clothing under $100 per item is exempt from PST: the total is $84.00.

A designer buys a used printer with no PST charged

A self-employed designer in BC, not registered for GST/HST and with no PST number, buys a used printer from a private seller for $3,000 in June. The seller charges no PST. She self-assesses PST of $210 (7 percent) on a Casual Remittance Return (FIN 405) and pays by July 31. She books the printer at $3,210, with $210 in PST payable until she pays it.

Different for you?

• Your corporation is selling equipment or a vehicle, including to its owner or a related company: the same test applies, but the use history, the CCA class and the tax on the gain or recapture are separate questions. See selling a business asset, and gather the asset list and use records before using bookkeeping support to settle whether to charge and which rate applies.
• You own a passenger vehicle or aircraft as an individual or partner: the section 200 test does not decide the sale; section 203(3) can make it non-taxable if the use was ever mixed. Have the use history reviewed through bookkeeping support before you invoice.
• Your resale shop's taxable sales, over the last four quarters or in any one quarter, are near or past $30,000: see when to register for GST/HST and PST rules by province, then use bookkeeping support to set up the tax accounts and invoices.
• You bought used equipment across provinces and no PST was charged: this page covers British Columbia only. See provincial sales tax, then use bookkeeping support to work out what to self-assess and record.
• You charged tax when you should not have, or did not when you should have: see registered but did not charge GST/HST, charged the wrong GST/HST rate and correcting a filed GST/HST return. Past invoices across several returns are a job for bookkeeping support.