Hire Purchase Tax Changes ? July 1 2012 ? Car Finance, Loans ...

Changes to Federal legislation will amend HP agreements to be a fully taxable supply. For these agreements, the supply of credit will now be taxable instead of input taxed.

Previously, GST was only payable on the purchase price of the Asset being financed. From 1 July 2012 GST is payable on the purchase price of the asset plus all term charges (interest) and fees.

?As of 1 July, 2012, businesses using Cash accounting and financing assets by way of a HP agreement, can claim GST charged on the purchase price of the asset financed plus GST on the interest in exactly the same way they do using the Accruals accounting method: up-front, when they lodge their next BAS. As hirers will be able to claim the GST on the interest upfront, it will provide an immediate cash flow benefit. It will exceed the cash flow benefit of equipment loans given that the GST credit is higher for hire purchase agreements, because the GST applies to the credit as well as the asset.

Early payout or variation to a HP agreement will also involve a GST adjustment.

HP Agreements funded prior to July 1, 2012 will continue unaffected unless they are re-financed to form a new agreement.

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