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Ruling

Subject: goods and services tax (GST) and hire purchase agreement

Question

How do you attribute your input tax credits on your purchase of the computer server, which you have purchased under a hire purchase agreement?

Answer

You will be entitled to claim an input tax credit in respect of the amount you refer to as a 'deposit' in the activity statement for the tax period in which you paid the deposit (provided that you hold a valid tax invoice when you lodge that activity statement). The input tax credit relating to this deposit will be 1/11th of the deposit amount.

You will be entitled to claim an input tax credit in respect of the payment that the finance company referred to as GST in the activity statement for the tax period in which you paid that amount (provided that you hold a valid tax invoice when you lodge that activity statement). The input tax credit relating to this payment will be 1/11^th of the payment amount.

For any given instalment, you will be entitled to claim an input tax credit in the activity statement for the tax period in which you pay the instalment (provided that you hold a valid tax invoice when you lodge that activity statement). The input tax credit will be 1/11^th of the principal component of the instalment.

If there is a balloon payment, you will be entitled to claim an input tax credit in the activity statement for the tax period in which you pay the balloon payment (provided that you hold a valid tax invoice when you lodge the activity statement). The input tax credit will be 1/11^th of the principal component of the balloon payment (or 1/11^th of the balloon payment if it does not include an interest component).

This ruling applies for the following periods:

The scheme commences on:

Relevant facts and circumstances

You are registered for GST and account for GST on a cash basis.

You purchased a computer server under a hire purchase agreement.

You are entitled to an input tax credit for the amount of GST that applies to this purchase.

You paid a deposit to the finance company. The finance company also issued you with an invoice for an amount that it has referred to on the invoice as GST. You have paid this amount.

You pay instalments under the hire purchase agreement on a monthly basis.

Interest is payable under the hire purchase agreement. The amount of interest has been disclosed by the finance company to you.

You understand that the interest components of the instalments are not subject to GST and that they represent consideration for an input taxed financial supply.

You have not paid the full purchase price of the computer server in a single tax period.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 29-10

A New Tax System (Goods and Services Tax) Act 1999 subsection 29-10(2)

A New Tax System (Goods and Services Tax) Act 1999 section 29-10(2)(b)

A New Tax System (Goods and Services Tax) Act 1999 subsection 29-10(3)

A New Tax System (Goods and Services Tax) Act 1999 section 29-15

A New Tax System (Goods and Services Tax) Act 1999 section 29-70

A New Tax System (Goods and Services Tax) Act 1999 subsection 29-70(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 29-70(1A)

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-5(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-5(2)

Reasons for decision

Summary

This decision was made pursuant to the rule contained in paragraph 29-10(2)(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which provides that where a purchaser accounts for GST on a cash basis and in a tax period, it provides part of the consideration for the acquisition, the input tax credit for the acquisition is attributable to that tax period, but only to the extent that the purchaser provided the consideration in that tax period.

Detailed reasoning

Section 29-10 of the GST Act provides the attribution rules for claiming input tax credits on acquisitions (purchases).

Subsection 29-10(2) of the GST Act provides the attribution rules for claiming input tax credits on acquisitions where the purchaser accounts on a cash basis. It states:

However, if you account on a cash basis, then

(a) if, in a tax period, you provide all of the *consideration for a

*creditable acquisition - the input tax credit for the acquisition is

attributable to that tax period; or

(b) if, in a tax period, you provide part of the consideration - the input tax

credit for the acquisition is attributable to that tax period, but only to

the extent that you provided the consideration in that tax period; or

(c) if, in a tax period, none of the consideration is provided - none of the

input tax credit for the acquisition is attributable to that tax period.

In accordance with subsection 29-10(3), a purchaser must hold a tax invoice for the purchase before they claim the input tax credit.

An example of the application of paragraph 29-10(2)(b) of the GST Act would be as follows:

· An entity accounts for GST on a cash basis.

· The entity reports GST monthly.

· The entity purchases something for a certain amount of money.

· The entity is entitled to an input tax credit of a certain amount of money for the purchase.

· The entity paid a certain percentage of the consideration (a certain amount of money) in a certain month of a certain year and a certain percentage of the consideration in a certain month of a certain year.

· The entity has a tax invoice for the purchase when it lodges its certain month of a certain year and certain month of a certain year activity statement.

As the entity paid only a certain percentage of the purchase price in a certain month of a certain year, it can only claim a certain percentage (a certain amount of money) of the total input tax credit in the activity statement for a certain month of a certain year. The entity would claim the remaining certain amount of money input tax credit in the activity statement for a certain month of a certain year.

Section 29-15 of the GST Act sets out the input tax credit attribution rules for creditable importations. It states:

(1) The input tax credit to which you are entitled for a *creditable importation

is attributable to the tax period in which you pay the GST on the

importation.

(2) However, if paragraph 33-15(1)(b) applies to payment of the GST on the

importation, the input tax credit is attributable to the tax period in which

the liability for the GST arose.

Paragraphs 208 and 212 of Goods and Services Tax Ruling GSTR 2000/29 discuss attribution of input tax credits in relation to hire purchase agreements. Paragraph 208 of GSTR 2000/29 states:

208. The application of the basic attribution rules to supplies and acquisitions under hire purchase agreements is the same as for a supply or acquisition of goods under an ordinary sale agreement. Note, however, that there is no GST payable on the part of the supply under a hire purchase agreement for which the consideration is a credit charge that is separately identified and disclosed to the hirer.

Paragraph 212 of GSTR 2000/29 states:

212. If you account for GST on a cash basis and you make a creditable acquisition of goods under a hire purchase agreement, you attribute input tax credits for the acquisition to the tax periods in which you provide consideration for the acquisition, but only to the extent that you provide consideration in those tax periods.

As can be seen from the above provisions, the attribution rules for claiming input tax credits for GST paid on importations are contained in a different provision to the provision that provides the attribution rules for claiming input tax credits on acquisitions. A purchase made under a hire purchase agreement is an acquisition and not an importation. There are no special rules in the GST Act for attributing input tax credits on purchases made under hire purchase agreements. You account for GST on a cash basis.

Therefore, the rules set out in subsection 29-10(2) of the GST Act apply to your purchase of the computer server under the hire purchase agreement.

You are providing consideration for your acquisition in instalments. You have not paid the full purchase price in a single tax period. Therefore, you will attribute your input tax credits in accordance with paragraph 28-10(2)(b) of the GST Act.

Where a recipient under a hire purchase arrangement pays a deposit or an instalment, that payment (less the interest charge if any where the interest is consideration for a financial supply) represents part of the price of the goods financed under the hire purchase agreement. Accordingly, 1/11th of the payment (less the interest charge if any where the interest is consideration for a financial supply) represents part of the GST payable. It is not possible to pay the entire GST on a purchase up front where the entire purchase price is not paid for up front (even where the up-front payment is 10% of the value of the supply and the supplier issues an invoice to the purchaser that refers to the up-front payment as GST). The GST Act does not allow for the treatment of a part payment (such as a deposit) as one that solely represents the GST payable on the value of a taxable supply. Although GST on taxable importations is paid up front (unless it is deferred) even if the associated purchase (if any) from the associated overseas supplier (if any) has not been paid for in full, this is not relevant to your inquiry, as you have sought advice regarding an acquisition; not an importation.

You will be entitled to claim an input tax credit in respect of the payment you refer to as a 'deposit' in the activity statement for the tax period in which you paid the deposit (provided that you hold a valid tax invoice when you lodge that activity statement). The input tax credit relating to this deposit will be 1/11^th of the deposit amount.

The payment that the finance company has referred to as GST is part of the consideration for your acquisition of the computer server. You will be entitled to claim an input tax credit in respect of the payment that the finance company referred to as GST in the activity statement for the tax period in which you paid that amount (provided that you hold a valid tax invoice when you lodge that activity statement). The input tax credit relating to this payment will be 1/11^th of the payment amount.

For any given instalment, you will be entitled to claim an input tax credit in the activity statement for the tax period in which you pay the instalment (provided that you hold a valid tax invoice when you lodge that activity statement). The input tax credit will be 1/11^th of the principal component of the instalment.

If there is a balloon payment, you will be entitled to claim an input tax credit in the activity statement for the tax period in which you pay the balloon payment (provided that you hold a valid tax invoice when you lodge the activity statement). The input tax credit will be 1/11^th of the principal component of the balloon payment (or 1/11^th of the balloon payment if it does not include an interest component).

The fact that you have made a payment up front for which the supplier has issued you with an invoice that refers to this payment as GST will not fast track the attribution of any parts of your total input tax credit. The attribution rule in paragraph 29-10(2)(b) of the GST Act must still be followed regardless of this invoicing practice.

You cannot claim your total input tax credit entitlement in the activity statement for the tax period in which you paid the finance company the amount it has referred to as GST.

Determining the principal component of each instalment

Goods and Services Tax Advice GSTA TPP 004 provides rules for determining the principal component of each hire purchase instalment. See copy enclosed.

Requirements of tax invoices

The requirements of tax invoices are set out in section 29-70 of the GST Act.

Subsection 29-70(1) of the GST Act states:

A tax invoice is a document that complies with the following requirements:

(a) it is issued by the supplier of the supply or supplies to which the

document relates, unless it is a *recipient created tax invoice (in which case it is issued

by the *recipient);

(b) it is in the *approved form;

(c) it contains enough information to enable the following to be clearly

ascertained:

(i) the supplier's identity and the supplier's *ABN

(ii) if the total *price of the supply or supplies is at least $1,000 or

such higher amount as the regulations specify, or if the document was issued by the recipient - the recipient's identity or the recipient's ABN;

(iii) what is supplied, including the quantity (if applicable) and the

price of what is supplied

(iv) the extent to which each supply to which the document relates is a

*taxable supply;

(v) the date the document is issued;

(vi) the amount of GST (if any) payable in relation to each supply to

which the document relates;

(vii) if the document was issued by the recipient and GST is payable in

relation to any supply - that the GST is payable by the supplier;

(viii) such other matters as the regulations specify;

(d) it can be clearly ascertained from the document that the document was

intended to be a tax invoice or, if it was issued by the recipient, a recipient created tax

invoice.

Subsection 29-70(1A) of the GST Act states:

A document issued by an entity to another entity may be treated by the other entity as a *tax invoice for the purposes of this Act if:

(a)  it would comply with the requirements for a tax invoice but for the fact that it does

not contain certain information; and

(b) all of that information can be clearly ascertained from other documents given by

the entity to the other entity.