Financial services - questions and answers

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.

Sections within Hire purchase agreements and chattel mortgage

• 1.1. What is the meaning of hire purchase for GST purposes?
• 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?
• 1.3. When will entitlement to an input tax credit arise for the recipient of goods in a hire purchase agreement?
• 1.4. When will liability for GST arise for the financier of goods in a hire purchase agreement?
• 1.5. Are there special rules for the phasing in of input tax credits on motor vehicles?
• 1.6. What constitutes (a) an invoice and (b) a tax invoice for a hire purchase agreement?
• 1.7. What are the GST implications for hire purchase agreements entered into before 1 July 2000?
• 1.8. How do I know which part of my hire purchase agreement is subject to GST?
• 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?
• 1.10. What are the GST implications if the recipient defaults in making payment under the agreement and the financier repossesses the goods?
• 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?
• 1.12. 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?
• 1.13. 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?
• 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?
• 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?
• 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?
• 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?
• 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?
• 1.19. What is a chattel mortgage?
• 1.20. How does a chattel mortgage arrangement differ from a hire purchase agreement?
• 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?