Claim input tax credits upfront on all cost component plus interest, instead of waiting until each instalment is paid. Provided you enter into hire purchase agreement on or after July 01, 2012.
How does hire purchase work?
Under a hire purchase agreement, you:
- Purchase goods through installment payments
- Use the goods while paying for them
- Do not own the goods until you have paid the final instalment.
Do you pay GST on hire purchases?
For a hire purchase agreement entered into before 1 July 2012
If the price you pay for the goods includes GST. If you use the goods in your business, you may be able to claim a GST credit for any GST included in the purchase price of the goods. But you do not have to pay GST on the interest as it is for a financial supply; provide that if supplier does not separately identifies and discloses the interest charge to you, which rarely happens.
For a hire purchase agreement entered into on or after 1 July 2012
All components of the supply made under a hire purchase agreement entered into on or after 1 July 2012 are taxable regardless of whether the credit component is separately disclosed. Any associated fees and charges, such as late payment fees incurred under the terms of the hire purchase arrangement, will also be subject to GST.
How do you claim GST credits on hire purchases?
If you account for GST on a non-cash (accruals) basis
You can claim the full GST credit on your hire purchase agreement in the tax periods when either:
- you make your first payment
- if before making your first payment, a tax invoice is issued to you.
If you account for GST on a cash basis
And, your purchase agreements entered into on or after 1 July 2012, you may claim input tax credits upfront instead of waiting until each installment is paid, in the same way as you would if you accounted for GST on a non-cash basis.
If your purchase agreements entered into before 1 July 2012 you may claim one-eleventh of the principal component of each installment in the period you pay it.
This commentary has been prepared for the purposes of general information and guidance only. It should not be used for specific advice or used for formulating decisions under any circumstances. If you would like specific advice about your own personal circumstances please
contact ATO or your Tax Agent.