GST treatment for hire purchase and lease arrangements

Under a hire purchase arrangement, an asset is:

• Purchased through instalment payments;
• Used while the instalments are being paid; and
• Not owned by the purchaser until the final instalment has been paid

Under a lease arrangement:

• The owner of the asset is the person who grants the lease (lessor); and
• The lessee uses the asset for a specified time and, in return, makes a series of payments that can be fixed or variable.

For a hire purchase agreement entered into after July 1, 2012, GST credits may be claimed on the purchase price of the asset immediately at the time of purchase.

For an agreement entered into before July 1, 2012, the accounting method used will determine whether GST credits can be claimed upfront or over the life of the hire purchase.

In addition, GST credits on any fees and charges incurred under the hire purchase may also be claimed, depending on when the agreement was entered into.

Under a lease arrangement, GST credits can only be claimed as each lease payment becomes due or paid, depending on the accounting method used.

If the lessee chooses to take ownership of the asset at the end of the lease, GST credits can be claimed for any GST paid in the price of the purchase.

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