What is Hire Purchase or Leasing Agreement
If you own the business and you have the goods through instalment payments, using it as you are paying them and don’t own the goods until you complete the instalments then you are under a hire purchase or leasing agreement.
Many businesses enter into Hire Purchase & leasing arrangement to use goods and pay it over a period of time rather than paying upfront for the price of the goods.
Hire purchase agreement is a taxable supply and if you use the goods for the business then you are entitled to claim GST credits on the purchase price of the goods.
If the supplier separately identifies and discloses the interest charges to you then you don’t need to pay GST on the interest charges and therefore, you cannot even claim GST on the Interest component.
Please note that if you obtain the goods for use under hire purchase on or after 1st July 2012, then you are credit component, any associated fee and charges and even the late payment fee is subject to GST payable and obtain as can be claimed as credit on hire purchases.
You can contact Reliable bookkeeping services anytime to get more information on this topic.
Claiming for GST credits on Accrual basis
If you account for GST on non-cash (accrual) Basis then you can claim GST on the hire purchase when you have been supplied with a tax invoice or make the first payment of the goods in instalment.
Claiming for GST credits on Cash basis
If you account for GST on cash basis and goods were obtained prior to 1st July 2012, then you claim the GST on each instalment you make on the principal amount.
If the goods were obtained on or after 1st July 2012, then you can claim input tax credit upfront without waiting for 1st instalment to be paid. You can claim GST for 1/11 for all components including credit components, associated fee or charges, which have been subject to GST under the agreement.
Contact us on 03 9310 7871 or visit us on www.reliablebookkeepingservices.com.au if you have any queries.