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ATO Interpretative Decision

ATO ID 2004/325

Goods and Services Tax

GST and assignment of a hire purchase agreement
FOI status: may be released

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the entity, a company, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it assigns its rights under a hire purchase agreement to a third party that is not an associate, for which the entity receives no payment from the third party?

Decision

No, the entity is not making a taxable supply under section 9-5 of the GST Act, when it assigns its rights under a hire purchase agreement to a third party that is not an associate, for which the entity receives no payment from the third party as the entity is not making a supply for consideration.

Facts

The entity is a company. The entity entered into a hire purchase agreement with a financier. This agreement is in respect of a car to be used for business purposes.

The entity entered into a 'Deed of Assignment of Hire Purchase Agreement' (Deed) with the financier and an independent and unrelated third party that is not an associate of the entity.

Under this Deed, the entity assigned to the third party, for the residual of the term of the hire purchase agreement, all the entity's rights, title and interest under the original hire purchase agreement.

This assignment was made subject to the condition that the third party will pay the instalments and perform and observe the covenants, conditions and stipulations expressed or implied in the hire purchase agreement. The Deed also provides that upon payment of all instalments up to the date of the Deed being paid, the entity will be released from all liability under the hire purchase agreement.

The entity is registered for goods and services tax (GST).

Reasons for Decision

Section 9-5 of the GST Act sets out the requirements that must be met for an entity to make a taxable supply. The first requirement is that there must be a supply for consideration (paragraph 9-5(a) of the GST Act).

Section 9-10 of the GST Act defines 'supply'. Paragraph 9-10(2)(e) of the GST Act provides that a supply includes the creation, grant, transfer, assignment or surrender of any right. Accordingly, when the entity assigns its rights under the hire purchase agreement, to the third party, it is making a supply under section 9-10 of the GST Act.

'Consideration' is defined in subsection 9-15(1) of the GST Act to include any payment, act or forbearance in connection with, in response to or for the inducement of a supply of anything. The third party has agreed to pay the instalments and perform and observe the covenants, conditions and stipulations expressed or implied in the hire purchase agreement. These instalments and obligations made by the third party under the hire purchase agreement are made to the financier. The entity does not receive any payment, act or forbearance from the third party that is in connection with the assignment of the hire purchase agreement to the third party. Therefore, there is no consideration for the supply of the assignment of the hire purchase agreement.

Accordingly, the entity is not making a taxable supply under 9-5 of the GST Act when it assigns its rights under a hire purchase agreement to a third party, for which the entity receives no payment from the third party.

Note 1: As the third party is not an associate, Division 72 of the GST Act, which ensures that supplies to associates for no consideration are brought within the GST system, does not apply.

Date of decision:  7 February 2003

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   paragraph 9-5(a)
   section 9-10
   paragraph 9-10(2)(e)
   subsection 9-15(1)
   Division 72

Keywords
Goods and services tax
GST supplies without consideration
GST consideration
GST supply
GST hire purchase

Siebel/TDMS Reference Number:  3466706

Business Line:  Indirect Tax

Date of publication:  8 April 2004

ISSN: 1445-2782


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