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GST Changes to Hire Purchase

Joe Serra18 July 2012

GST CHANGES TO HIRE PURCHASE

Government changes to the GST treatment of Asset/Hire Purchase came into effect on 1st July 2012. Most financiers have advised us (accredited brokers) of the proposed changes and of the financier's particular response to the changes. Some have withdrawn HP as a product while others have invested considerable time and resources into modifying their systems to cope with the changes.

These changes will impact the Hire Purchase product in the following way:

·  It will change to be a fully taxable financial supply, meaning GST will be payable on the terms charges of the contract

· Due to the increased GST this change will increase the instalment made by the customer

·  Cash basis taxpayers will be able to claim input tax credits upfront, similar to a Chattel Mortgage

·  All fees and charges will now include GST

These changes will not have an impact on Hire Purchase agreements that were settled prior to 1st July 2012, unless those agreements are amended in such a way that a new agreement is executed (e.g. variation agreement).

The following example demonstrates the impact of these changes:

 

 

Pre-July 1st Contract

Post July 1st Contract

Invoice / loan amount

$44,000.00

$44,000.00

GST in loan amount

$4,000.00

$4,000.00

Term

60 Months

60 Months

Balloon

$8,000.00

$8,000.00

Base rate

8.25%

8.25%

Monthly payments

$783.88

$806.72

Total GST paid

$4,000.00

$5,127.56

 

GST paid on the post July 1st contract includes an amount of $1,127.56 being the GST payable on the term charges. Clients who are registered for GST may be able to claim the full GST amount as an input tax credit when lodging their next BAS return.

It is important to note for motor vehicle transactions under the new legislation the following items are still treated as GST-free supplies:

·  Vehicle purchase stamp duty, registration and CTP

·  Negative equity financed (where amount exceeds value of the asset)

 

Joe Serra

jserra@southernfinance.com.au

www.serrafinance.com

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