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  • 3.6. Is a late payment penalty subject to GST?

    Non-interpretative – other references:

    • GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions
    • GSTR 2000/19 Goods and services tax: making adjustments under Division 19 for adjustment events

    This will depend on the facts of each case.

    Where the late payment penalty is consideration for a financial supply (for example, a supply of an interest in a credit arrangement), there is no need for the supplier to account for GST for that supply. A charge for late payment penalty that is consideration for a financial supply is not an adjustment event. Where the late payment penalty charge is commercial compensation based on the time value of money (that is, interest), this will indicate that it is consideration for a financial supply.

    Where a supplier makes a taxable supply and the recipient incurs a late payment penalty that is not consideration for a financial supply, and that has the effect of changing the consideration, the late payment penalty will give rise to an adjustment event.

    Please refer to paragraph 29 of GST Ruling GSTR 2000/19 for further discussions on late payment charges and adjustment events.

      Last modified: 31 Oct 2017QC 16359