GST issues registers

Financial services - questions and answers

Hire purchase agreements and chattel mortgage

(a) added, (u) updated, (w) withdrawn

Issue no Issue Date
1.1 What is the meaning of hire purchase for GST purposes? 7 September 2012(u)
1.2 Which component of the hire purchase agreement is a financial supply and which component is subject to GST? 1 April 2019(u)
1.3 When will entitlement to an input tax credit arise for the recipient of goods in a hire purchase agreement? 7 September 2012(u)
1.4 When will liability for GST arise for the financier of goods in a hire purchase agreement? 7 September 2012(u)
1.5 Are there special rules for the phasing in of input tax credits on motor vehicles? 1 January 2001
1.6 What constitutes (a) an invoice and (b) a tax invoice for a hire purchase agreement? 2 May 2013(u)
1.7 What are the GST implications for hire purchase agreements entered into before 1 July 2000? 1 January 2001
1.8 How do I know which part of my hire purchase agreement is subject to GST? 7 September 2012(u)
1.9 What are the GST implications when the recipient under a hire purchase agreement obtains title to the property, either by making the final payment under the agreement or by making an early pay out of the agreement? 2 May 2013(u)
1.10 What are the GST implications if the recipient defaults in making payment under the agreement and the financier repossesses the goods? 7 September 2012(u)
1.11 What are the GST implications if the repossessed goods are subsequently sold to a third party and the agreement provides for any excess to be refunded to the recipient or any shortfall to be recouped from the recipient? 1 January 2001
1.12 Will Division 105 of the GST Act apply if the financier sells the repossessed goods to a third party in satisfaction of a debt owed to the financier by the recipient? 1 January 2001
1.13 What are the GST implications if a hire purchase agreement is restructured during the currency of the agreement, where the outstanding balance is refinanced as a new hire purchase agreement? 2 May 2013(u)
1.14 What are the GST implications if a hire purchase agreement is terminated during its currency by the financier granting a loan with title passing to the recipient? 7 September 2012(u)
1.15 If the recipient accounts for GST on a cash basis, how does the recipient calculate entitlement to input tax credits where the agreement shows the principal and interest components separately, but the instalments do not? 7 September 2012(u)
1.16 Can a recipient who accounts for GST on a cash basis pay the GST liability up front in a tax period and claim that whole payment as input tax credit in the same tax period? 7 September 2012(u)
1.17 If a recipient accounts for GST on a non-cash basis, how does the recipient calculate entitlement to input tax credits where the hire purchase agreement is for the acquisition of a car that is subject to the car input tax credit limit under section 69-10 of the GST Act? 7 September 2012(u)
1.18 If a recipient accounts for GST on a cash basis, how does the recipient calculate entitlement to input tax credits where the hire purchase agreement is for the acquisition of a car that is subject to the car input tax credit limit under section 69-10 of the GST Act? 7 September 2012(u)
1.19 What is a chattel mortgage? 1 January 2001
1.20 How does a chattel mortgage arrangement differ from a hire purchase agreement? 2 May 2013(u)
1.21 When will an entitlement to an input tax credit arise for a purchaser in relation to the acquisition of a chattel under a chattel mortgage? 2 May 2013(u)

1.1. What is the meaning of hire purchase for GST purposes?

Non-interpretative - other references (see paragraphs 190-202 of GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25)

For GST purposes, hire purchase has the meaning given by section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). This provision defines a hire purchase agreement to mean a contract for the hire of goods where:

the hirer has the right or obligation to buy the goods
the charge that is or may be made for hire, together with any other amount payable under the contract (including an amount to buy the goods or to exercise an option to do so), exceeds the price of the goods
title to the goods does not pass to the hirer until the option to purchase is exercised, or
there is an agreement for the purchase of goods by instalments where title in the goods does not pass until the final instalment is paid.

Essentially, hire purchase agreements represent financing arrangements which facilitate the sale and purchase of goods. Accordingly for GST, hire purchase agreements will be treated as a sale of goods and a separate supply of finance.

Supplies of goods or credit under hire purchase agreements are not progressive supplies under Division 156 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

1.2. Which component of a hire purchase agreement entered into before 1 July 2012 is a financial supply and which component is subject to GST?

Non-interpretative - other references:

paragraph 80 of GSTR 2004/4 Goods and services tax: assignment of payment streams including under a typical securitisation arrangement
line numbers C24 and C25 of GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions.

Under amendments made to the GST Regulations which became effective from 1 July 2012, the supply of the credit component will no longer be treated as a financial supply. This applies to all hire purchase agreements entered into from 1 July 2012. For hire purchase agreements entered into before 1 July 2012 the previously existing rules apply.

The total amount payable by a recipient under a hire purchase agreement is typically made up of a principal component (that is, the amount financed) and a credit component (that is, the terms and charges). The principal component usually represents the price of the goods financed and the credit component represents the interest and associated fees and charges payable by the recipient.

Sometimes the amount financed under a hire purchase agreement includes other amounts such as registration, stamp duty and insurance which are paid by the financier on behalf of the recipient. These are not taxable supplies made by the financier to the recipient.

GST is payable on the amount of the principal component represented by the taxable supply of goods under the agreement. For hire purchase agreements entered into before 1 July 2012 the credit component will not be subject to GST if it is provided separately and disclosed to the recipient of the goods under item 8 in the table in subsection 40-5.09(3) of the GST Regulations.

The charge is 'disclosed' to the recipient of the goods for the purpose of item 8 if in the hire purchase agreement:

the dollar amount of the credit charge
the interest rate
the formulas used to calculate the amount of the credit charge, or
any other relevant information sufficient to work out the amount of the credit charge.

is made known to the recipient.

Therefore, even in the period up until 30 June 2012 if the credit component is not disclosed to the recipient, the entire hire purchase agreement (principal and credit) is subject to GST.

Under the new law all supplies of goods or credit made under a hire purchase agreement entered into on or after 1 July 2012 are fully taxable regardless of whether the interest charge is separately identified and disclosed.

This new law will not impact on amendments made on or after 1 July 2012 to an existing hire purchase agreement entered into before 1 July 2012 if the amendments do not give rise to a new hire purchase agreement.

1.3. When will entitlement to an input tax credit arise for the recipient of goods in a hire purchase agreement?

For source of ATO view, refer to paragraphs 211 and 212 of GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25.

For hire purchase agreements entered into before 1 July 2012:

if the recipient accounts for GST on a cash basis and the item purchased is a creditable acquisition, the recipient is entitled to an input tax credit on the principal component, in a tax period, to the extent of payment made
where the recipient accounts for GST on a non-cash basis and the item purchased is a creditable acquisition, the recipient is entitled to the entire input tax credit on the principal, in the tax period in which the invoice is received or in which any payment is made, whichever is earlier.

For hire purchase agreements entered into on or after 1 July 2012:

if the recipient accounts on a cash basis the recipient is entitled to claim input tax credits on a creditable acquisition for both the principal and credit component as if they are accounting for GST on a non cash basis
where the recipient accounts for GST on a non-cash basis and the item purchased is a creditable acquisition, the recipient is entitled to the entire input tax credit on both the principal and the credit component in the tax period in which the invoice is received or in which any payment is made, whichever is earlier.

The recipient is required to hold a tax invoice in order to claim input tax credits, irrespective of whether the recipient accounts on a cash basis or non-cash basis.

1.4. When will liability for GST arise for the financier of goods in a hire purchase agreement?

For source of ATO view, refer to paragraphs 209 and 210 of GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25.

If the financier accounts for GST on a cash basis, GST payable on a taxable supply under the hire purchase agreement will be attributable to the tax periods in which payments are received for the supply.

If the financier accounts for GST on a non-cash basis, GST is payable upon issuing the invoice or receiving payment for the supplies made under the hire purchase agreement, whichever is earlier. If a tax invoice is issued in the tax period in which a hire purchase agreement is entered into, all the GST payable on the taxable part of the agreement is attributable to the tax period in which the agreement is entered into.

Goods and Services Tax Ruling GSTR 2000/29 provides further information on the attribution of GST under section 29-25 of the GST Act.

1.5. Are there special rules for the phasing in of input tax credits on motor vehicles?

Non-interpretative - straight application of the law

Section 20 of the A New Tax System (Goods and Services Tax Transition) Act 1999 (Transition Act) relates to the phasing in of input tax credits for new motor vehicles. The phasing in of input tax credits for new motor vehicles will apply to purchasers, including those who purchase under hire purchase agreements. This means that purchasers will not be entitled to input tax credits for new motor vehicles acquired under hire purchase agreements entered into prior to 23 May 2001.

A purchaser will be entitled to input tax credits for a new motor vehicle acquired under a hire purchase agreement entered into on or after 23 May 2001. This entitlement to an input tax credit will be reduced where the motor vehicle is partly for a creditable purpose or the car depreciation limit is exceeded.

The phasing in rules do not apply to new motor vehicles purchased by financiers for re-supply under hire purchase agreements, as they are holding the new motor vehicles as trading stock in accordance with subsection 20(4)(a) of the Transition Act. The provision also does not apply to second hand vehicles in accordance with subsection 20(4)(b) of the Transition Act.

1.6. What constitutes (a) an invoice and (b) a tax invoice for a hire purchase agreement?

For source of ATO view, refer to paragraphs 67-68 of GSTR 2013/1 Goods and services tax: tax invoices.

Where a hire purchase agreement notifies the recipient of an obligation to make a payment, this document will be treated as an invoice. This is in accordance with the definition of an invoice mentioned in section 195-1 of the GST Act.

A document, including a hire purchase agreement, will be a tax invoice if it meets the requirements of subsection 29-70(1), including containing information about the taxable supply and other matters.

Further guidelines on tax invoice requirements may be found in GSTR 2013/1 Goods and services tax: tax invoices

1.7. What are the GST implications for hire purchase agreements entered into before 1 July 2000?

Non-interpretative - other references (see paragraphs 200 to 203 of GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25).

A hire purchase agreement entered into before 1 July 2000 will not be subject to GST. This is because a hire purchase agreement is a one-off supply of goods and not a progressive supply.

1.8. How do I know which part of my hire purchase agreement is subject to GST?

For all hire purchase agreements entered into on and from 1 July 2012 the credit component will no longer be treated as a financial supply and will therefore be subject to GST.

For source of ATO view, refer to paragraph 213 of GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25.

For hire purchase agreements entered into before 1 July 2012 GST is payable on the principal component of your hire purchase agreement. Therefore, you will need to distinguish between the principal and credit components for GST attribution.

Some financiers have chosen to include an actual repayment schedule showing principal and credit components and instalment repayments.

As noted in the answer to question 1.2 above for hire purchase agreements entered into on or after 1 July 2012, all components supplied under the hire purchase agreement will be treated as taxable supplies.

1.9. What are the GST implications when the recipient under a hire purchase agreement obtains title to the property, either by making the final payment under the agreement or by making an early pay out of the agreement?

For source of ATO view, refer to paragraphs 208-213 of GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25. There will be no GST implications where the financier and recipient account for GST on a non-cash basis.

For hire purchase agreements entered into before 1 July 2012 where the financier accounts for GST on a cash basis, the financier will be required to remit 1/11th of the final payment of the principal or the early pay out to us. If the recipient accounts for GST on a cash basis, the recipient will be entitled to an input tax credit of 1/11th of the final payment of the principal or the early pay out.

For hire purchase agreements entered into on or after 1 July 2012 where the financier accounts for GST on a cash basis, there will be no change to the attribution rules and the financier will be required to remit 1/11th of the final payment to us.

For hire purchase agreements entered into on or after 1 July 2012, recipients however will be able to attribute GST on input tax credits in the same way as if they accounted for GST on a non-cash basis. This means that the recipient will generally have been entitled to claim the full input tax credit up front upon entering into the agreement. If so, there will be no GST implications when the recipient obtains title to the property by making the final payment or an early pay out of the agreement.

Where a rebate for the interest component is provided by the financier on account of the early pay out of an agreement entered into on or after 1 July 2012, adjustments may be required. A financier that accounts for GST on a non-cash basis may be required to make a decreasing adjustment and the recipient an increasing adjustment in accordance with Division 19 of the GST Act in respect of the GST paid and the input tax credits already claimed.

1.10. What are the GST implications if the recipient defaults in making payment under the agreement and the financier repossesses the goods?

For source of ATO view, refer to paragraph 215 of GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25.

For hire purchase agreements entered into before 1 July 2012 where the financier and recipient account for GST on a non-cash basis they may be required to make adjustments in accordance with Division 19 of the GST Act. The adjustments will be in respect of the GST previously paid and the input tax credits already claimed. The financier will be required to make a decreasing adjustment and the recipient an increasing adjustment.

Where they account on a cash basis there may not be any GST implications.

For hire purchase agreements entered into on or after 1 July 2012 the above adjustments may also be applicable in respect of the GST previously paid and the input tax credits already claimed on both the principal and the credit components.

Any subsequent sale, lease or hire purchase agreement in respect of the repossessed goods will be treated as a new transaction and the normal GST rules will apply.

1.11. What are the GST implications if the repossessed goods are subsequently sold to a third party, and the agreement provides for any excess to be refunded to the recipient or any shortfall to be recouped from the recipient?

For source of ATO view, refer to:

paragraphs 215 and 216 of GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25
paragraphs 72-106A of GSTR 2000/19 Goods and services tax: making adjustments under Division 19 for adjustment events.

The financier and recipient will be required to make adjustments under Division 19 of the GST Act, irrespective of whether they account for GST on a cash basis or a non-cash basis.

These adjustment events arise because the repayment of excess by the financier to the recipient, or the recoupment of shortfall by the financier from the recipient, gives rise to a change to the original contract price of the agreement.

Where the sale proceeds exceed the residual value

A decreasing adjustment event arises for the financier where the sale proceeds exceed the residual value and the financier pays the difference to the recipient. There is an increasing adjustment for the recipient.

Where the sale proceeds are less than the residual value

An increasing adjustment event arises for the financier where the sale proceeds are less than the residual value and the recipient is required to make a shortfall payment. There is a decreasing adjustment for the recipient.

1.12. Will Division 105 of the GST Act apply if the financier sells the repossessed goods to a third party in satisfaction of a debt owed to the financier by the recipient?

Non-interpretative - straight application of the law

No. Division 105 will not apply. Division 105 makes a creditor liable for GST on supplies of property 'owned by a debtor' where the supply is in satisfaction of a debt owed to the creditor. However, under hire purchase agreements the goods are not 'owned' by the debtor (recipient) - title to the goods is with the financier until final payment.

1.13. What are the GST implications if a hire purchase agreement is restructured during the currency of the agreement, where the outstanding balance is refinanced as a new hire purchase agreement?

For source of ATO view, refer to paragraphs 215 and 216 of GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25.

Where the original hire purchase agreement was entered into before 1 July 2012 and the new hire purchase agreement was also entered into before 1 July 2012 the following applies:

Where the financier and recipient account for GST on a non-cash basis, they may be required to make adjustments under Division 19 of the GST Act. The financier would be required to make a decreasing adjustment and the recipient an increasing adjustment.
There would be an adjustment to the principal component where the credit component was originally disclosed and the principal component has changed.
However, there is no adjustment if the restructured agreement relates only to a change to the credit component and the credit component was originally disclosed.

Where the original hire purchase agreement was entered into before 1 July 2012 and the new hire purchase agreement was entered into on or after 1 July 2012 the following applies:

For the new agreement all components of the supply will be subject to GST.
In respect of the original agreement, where the financier and recipient account for GST on a non-cash basis, they may be required to make adjustments under Division 19 of the GST Act. The financier would be required to make a decreasing adjustment and the recipient an increasing adjustment.
There would be an adjustment where the credit component was originally disclosed and the principal component has changed.
Where the financier and recipient account on a cash basis there may not be any GST implications.

Where both the original hire purchase agreement and the new hire purchase agreement were entered into on or after 1 July 2012 the following applies:

In respect of the original agreement, where the financier and recipient account for GST on a non-cash basis, they may be required to make adjustments under Division 19 of the GST Act. The financier would be required to make a decreasing adjustment and the recipient an increasing adjustment.
Where the financier and recipient both account on a cash basis there may be no GST implications for the financier. However, if the recipient attributed the GST credit as if they accounted for GST on a non-cash basis they may be required to make adjustments under Division 19 of the GST Act.

1.14. What are the GST implications if a hire purchase agreement is terminated during its currency and the financier subsequently grants a loan to enable the recipient to purchase the goods with title passing to the recipient?

For source of ATO view, refer to paragraph 215 of GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25

For hire purchase agreements entered into before 1 July 2012 and on or after 1 July 2012 where the financier and recipient account for GST on a non-cash basis, they may be required to make adjustments under Division 19 of the GST Act in relation to the termination of the agreement. The financier will be required to make a decreasing adjustment and the recipient an increasing adjustment.

For hire purchase agreements entered into before 1 July 2012 where the financier and the recipient account on a cash basis there will be no GST implications.

For hire purchase agreements entered into on or after 1 July 2012 where the financier and recipient both account on a cash basis there may be no GST implications for the financier, however, if the recipient attributed the GST credit as if they accounted for GST on a non-cash basis they may be required to make adjustments under Division 19 of the GST Act.

The supply of the loan by the financier is an input taxed financial supply. Where the recipient uses the loaned funds to purchase the goods the normal attribution rules apply.

1.15. If the recipient accounts for GST on a cash basis, how does the recipient calculate entitlement to input tax credits where the agreement shows the principal and interest components separately, but the instalments do not?

For source of ATO view, refer to:

paragraph 212 of GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25
paragraphs 28-31 of TR 93/16 Income tax: application of the Rule of 78 or other methods in calculating the interest component of instalments paid under a fixed term loan or extended credit transaction.

For hire purchase agreements entered into before 1 July 2012 if you account on a cash basis and you pay only part of the consideration during a tax period, subsection 29-10(2)(b) attributes a corresponding part of input tax credit to that tax period. The method used to calculate the input tax entitlement must accurately compute the amount of GST or input tax credit applicable to each instalment or part instalment. The calculation method should exclude that part of the instalment relating to any input taxed component of the supply and any part that was not subject to GST.

Where the amount of interest and principal is known

If the financier provides regular accounts or statements that show the principal and interest components of the instalments, the recipient must always use that statement as the basis for calculating input tax credits in the relevant tax period.

Where the amount of interest and principal is not known

If the recipient does not know the interest and principal components of the instalment, the recipient must take reasonable steps to find out these details from the financier. Where the financier does not provide these details but provides the method of calculation of interest, the recipient should use that method of calculation.

If neither the interest component nor the method of calculation of interest can be found out from the financier, estimating the interest component is acceptable. Division 240 of the ITAA 1997 provides a specific method to determine the amount of notional interest for income tax purposes. In respect of new hire purchase agreements entered into, it is acceptable if the method described in Division 240 is used for estimating interest for GST purposes. In respect of existing hire purchase agreements, if the recipient has used the guidelines provided in Taxation Ruling TR 93/16 in estimating the interest, the recipient should continue the same methodology adopted until the hire purchase agreement ceases.

The entitlement to input tax credit arises only for items on which GST has been paid. Therefore, in order to determine the recipient's input tax credit entitlement in a tax period, the recipient will be required to exclude the portion representing the interest component from the instalment payments made in that tax period. Also, if the instalment payments made in that tax period include any fees and charges that are not subject to GST, such as stamp duty or registration fees, it is necessary to exclude the portion representing such fees and charges. The entitlement to input tax credit to the recipient will be 1/11th of the resultant principal amount of the instalments paid in that tax period.

For hire purchase agreements entered into on or after 1 July 2012 the supply of the principal and interest components are taxable regardless of whether the interest component is separately identified and disclosed. If you account on a cash basis you will be able to attribute your input tax credits on the hire purchase as though you do not account on a cash basis and will have access to input tax credits upfront. The entitlement to input tax credits will be 1/11th of the principal and interest components as set out in the agreement excluding any fees and charges that are not subject to GST.

1.16. Can a recipient who accounts for GST on a cash basis pay the GST liability up front in a tax period and claim that whole payment as input tax credit in the same tax period?

Non-interpretative - straight application of the law

For hire purchase agreements entered into before 1 July 2012:

No. For any payment made in a tax period, the recipient can only claim 1/11th of that payment in that tax period as an input tax credit. The GST Act does not allow for the treatment of a part payment as one that solely represents the GST payable on the value of a taxable supply.

Subsection 29-10(2)(b) of the GST Act states that a recipient who accounts on a cash basis and provides part of the consideration in a tax period is entitled to an input tax credit in that tax period, but only to the extent of the consideration provided.

Where a recipient who accounts for GST on a cash basis makes an instalment payment, that payment represents part of the price of the goods financed under the hire purchase agreement. Accordingly, 1/11th of the price represents the GST payable. It is not possible to pay the GST up front.

For hire purchase agreements entered into on or after 1 July 2012 the recipient will be able to attribute GST on input tax credits in the same way as if they accounted for GST on a non-cash basis. This means that the recipient will generally be entitled to claim the full input tax credit upfront.

1.17 If a recipient accounts for GST on a non-cash basis, how does the recipient calculate entitlement to input tax credits where the hire purchase agreement is for the acquisition of a car that is subject to the car input tax credit limit under section 69-10 of the GST Act?

Non-interpretative - straight application of the law

Where the GST inclusive value of a car acquired exceeds the car limit, and the other requirements of section 69-10 of the GST Act are met, the amount of input tax credits on the acquisition will be limited to no more than 1/11th of the car limit. The car limit is $57,466 for the 2012-13 financial year. Therefore, the maximum amount of input tax credits available for a car subject to the car input tax credit limit will be $5,224 in 2012-13.

A recipient that accounts for GST on a non-cash basis will be entitled to the maximum entitlement of $5,224 in the earlier of the tax period in which any of the consideration is provided or the tax period in which an invoice is issued.

1.18 If a recipient accounts for GST on a cash basis, how does the recipient calculate entitlement to input tax credits where the hire purchase agreement is for the acquisition of a car that is subject to the car input tax credit limit under section 69-10 of the GST Act?

The content for this issue is a public ruling for the purposes of the Taxation Administration Act 1953 and can be found here.

1.19. What is a chattel mortgage?

Non-interpretative

A chattel mortgage is a security over chattels (that is, movable articles of property) held by the lender giving the lender recourse against the chattel in the event of default by the borrower.

1.20. How does a chattel mortgage arrangement differ from a hire purchase agreement?

Non-interpretative

Under a chattel mortgage, the purchaser takes title in the chattel from the time of purchase. The purchaser (the borrower) finances the purchase price (or part thereof) of the chattel by way of a loan, obtained from a lender, and applies the borrowed funds as payment to the supplier for the chattel.

A hire purchase agreement is a contract for the hire of goods where the title in the goods remains with the financier and does not pass to the purchaser until either the option to purchase is exercised by the purchaser, or the final instalment is paid. This is a fundamental difference between a chattel mortgage arrangement and a hire purchase agreement.

For GST purposes, hire purchase has the meaning given by section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). Refer to Issue 1.1 above for the definition of hire purchase.

1.21. When will an entitlement to an input tax credit arise for a purchaser in relation to the acquisition of a chattel under a chattel mortgage?

For source of ATO view, refer to paragraphs 14, 18, 32 and 35 of GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25

Where the purchaser accounts for GST on a non-cash basis and the chattel purchased is a creditable acquisition, the purchaser is entitled to the entire input tax credit in the tax period in which the invoice is received or any payment is made, whichever is the earlier. This is similar to that under a hire purchase agreement.

If the purchaser accounts for GST on a cash basis and the chattel purchased is a creditable acquisition, the purchaser is entitled to the entire input tax credit in the tax period in which the purchaser applies the borrowed funds to make full payment of the chattel at the time of acquisition. For an explanation of the GST treatment and entitlement to an input tax credit for an acquisition made under a hire purchase agreement by a recipient accounting on a cash basis, please refer to question 1.3 of the Frequently Asked Questions on Hire purchase agreements.

The purchaser must hold a tax invoice at the time of lodging its BAS to claim an input tax credit in a tax period, irrespective of whether the purchaser accounts for GST on a cash or non-cash basis.

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