Does Shredded Inventory Count Toward the Small Supplier Threshold of GST?

Tax Topics
1

In the context of winding up a business, consider the following:

  • If the business decided to shred a portion of its inventory because it is no longer sellable.
  • The inventory had a book value of $3,000 (1,000 units at $3 each).
  • It was previously sold at $5 to $5.50 per unit.
  • Comparable products are currently sold in the market for $5 to $10 per unit.
  • The business qualifies as a small supplier for GST purposes.

Question:
Does the destruction of inventory (i.e., shredding or discarding unsold goods) constitute a “taxable supply” for the purpose of calculating the small supplier threshold under GST rules?
If it does, what value should be used in the calculation—book value, historical selling price, or fair market value?

2

Per 123(1) of the ETA, a supply is a “provision of property or service.” I can’t think of any situation in which the destruction of something would be considered providing it.

3

Wouldn’t the business have claimed the ITC’s when the inventory was purchased? There’s no sale when you write down inventory.

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4

OP noted that the taxpayer is a small supplier, so no they would not have claimed ITCs.

5

Why would there be an ITC arising from the destruction of the inventory? ITC stands for Input Tax Credit. What is the input?

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6

I think it should be the other way around. the client had unsold inventory, fully write off through valuation, that should be a pure business expense/loss, if you can sell at a deep discount, GST still apply and need to add to taxable sales when counting the $30,000 small supplier rule

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7

The distruction of the inventory is not a sale.