GST Act – Hire Purchase Reform 2012

Changes to the GST Act have recently been made by the government and became effective from the 1st July 2012.

Previously, under Hire purchase contracts, only the upfront sale of the asset to the customer by the financier was considered taxable. Terms charges on the amount financed and all other fees and charges were input taxed, with no GST applicable.

The changes to the GST Act however means that all HP contracts are now treated as fully taxable, in other words, terms charges (interest) applicable to HP contracts, including the fees and charges as mentioned above, are now subject to GST.

These changes impact Hire Purchase contracts in the following way:

• Because HP is now a fully taxable financial supply and because of the increased GST this change will increase the instalment made by the customer.
• Cash basis taxpayers are now able to claim input tax credits upfront, similar to a chattel mortgage.

Please contact us if you would like to discuss the various options available to you.

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