Buying a Truck? What You Need to Know About GST

Key GST considerations for New Zealand businesses when buying, financing or selling a truck.

By Yugraj Singh Mahil CA

Buying a truck is a major business decision. One of the first questions many truck owners ask is:

Can I claim the GST back?

If you are GST registered and the truck is bought for your taxable business activity, you may be able to claim GST. However, every transaction is different, so it is better to check the GST position before you sign the purchase agreement.

GST and tax compliance: Check before you buy

Before buying the truck, check:

• Are you GST registered?

• Is the seller GST registered?

• Is GST included in the price?

• Will the truck be used for your business?

• Is it a new or second-hand truck?

• Do you have the correct purchase documents?

Second-hand purchases can have different GST rules, particularly where the seller is not GST registered. Do not assume every truck purchase will have the same GST treatment.

Buying the truck on finance

Buying the truck through finance does not automatically stop you from claiming GST.

However, the truck purchase and the finance arrangement are separate matters.

You need to understand the purchase price, GST, deposit, loan, interest and repayments before signing the finance agreement.

Talk to your lender about the GST refund

If you are using finance, talk to your lender or finance broker about what they expect you to do with any GST refund.

Some lenders may expect the GST refund to be paid towards the truck finance.

Do not assume the GST refund will be available immediately. Inland Revenue may review a GST return and ask for supporting information before releasing a refund.

Keep your documents ready, including:

• purchase agreement

• invoice or taxable supply information

• proof of payment

• finance documents

• information showing how the truck is being used

It is also safer not to rely on an expected GST refund as normal working capital. You still need cash for diesel, RUC, wages, repairs and other day-to-day costs.

Business advice and cash flow: GST is only part of the decision

Getting a GST refund does not make a truck profitable.

Before buying, work out the ongoing costs such as finance repayments, diesel, RUC, wages, insurance, repairs, tyres and downtime.

Do not only ask:

“How much GST can I claim?”

Also ask:

“After all the costs, will this truck make a reasonable return?”

What happens when you sell the truck?

If you are GST registered and the truck has been used in your taxable business activity, you will generally need to account for GST when you sell it.

In simple terms, the GST portion of the sale will generally need to be included in your GST return, depending on the circumstances.

So remember: GST may be claimed when you buy the truck, but GST may also need to be returned when you later sell it.

Annual accounts and tax returns

The truck also needs to be recorded correctly in your accounting records.

A truck is normally treated as a business asset rather than an ordinary day-to-day expense. Its purchase, finance, depreciation and eventual sale can affect your annual accounts and tax returns.

Keep all purchase and finance documents from the beginning.

Accounting support for Indian business owners

Many Indian truck owners and owner-drivers in New Zealand are building and growing their businesses.

GST, finance and tax rules can sometimes be difficult to understand, especially when several issues are involved in one truck purchase.

Good accounting support should explain these matters in simple language so you understand:

What will the truck really cost?
What GST may be claimable?
What will the repayments be?
What does the lender expect you to do with the GST refund?
Will the business have enough cash after the purchase?
And will the truck be profitable after all its costs?

Final thought

A GST refund can be important, but it should not be the main reason for buying a truck.

Check the GST, understand the finance, talk to your lender, keep your documents ready and make sure the truck makes financial sense for your business.

Yugraj Singh Mahil CA
Yugraj Singh Mahil Chartered Accountants Limited
www.yugrajca.co.nz
Phone: 021 023 46659

Important information

This article provides general information only and is not personalised tax, accounting, financial or legal advice. GST treatment depends on the facts of each transaction and the law applying at the time. Please obtain professional advice based on your own circumstances before making a significant purchase, GST claim or sale.

For the internal website links, I would link “GST and tax compliance”, “Business advice and cash flow”, “Annual accounts and tax returns”, and “Accounting support for Indian business owners” to those exact service pages. Those four fit this article naturally without making it look like advertising.