Tax Specialsts Auckland
Chartered Accountants



It has come to our attention that there is considerable confusion out there amongst practitioners as to how the GST Change of Use Rules apply when an asset that has not previously been used in making taxable supplies is subsequently applied for the purpose of making taxable supplies e.g. where a taxpayer has not previously been registered for GST and becomes registered for GST with the consequence that an asset which was not used in making taxable supplies is now solely used for the purposes of making taxable supplies.

Section 21 B (2) of the GST Act 1985 provides that a person in such circumstances may make an adjustment under section 21 A treating as the first adjustment period, the period that –

a) starts on the date of acquisition of the goods or services and

b) ends on the first balance date that falls after the events referred to in subsection 1 (b). 

Accordingly, where for example a business which was not previously registered for GST becomes registered and that business has a motor vehicle which is used 100% for the purposes of making taxable supplies then if the vehicle was acquired on 10th June 2018 and the taxpayer becomes registered for GST on the 1st April 2019 then in their GST return for the period ending 31st March 2020 an input tax credit would be available  as follows:

  • Cost of Motor Vehicle x GST fraction x no of taxable periods used for making taxable supplies ÷ number of taxable periods owned. 
  • If the vehicle costs $57,500 the first adjustment in the March 2020 GST return becomes:
  • $7,500 x 6/11 = $4,090 (if registered two monthly and vehicle used 100% in taxable activity)

If the use remains 100% taxable then in the second adjustment period the taxpayer can claim the balance of the GST paid on acquisition – refer section 21 FB (2) GST Act 1985.

When that vehicle is subsequently sold section 21 F (2) effectively requires GST to be paid only on a portion of the sale proceeds, that portion being calculated by the fraction a/b where:

a = actual input tax deductions

b = full input tax deduction.

The full input tax deduction referred to above  is the total amount of input tax on the original supply – refer section 21 D (2).