Previously, if you reported on Accrual basis (as invoiced/billed, not when payment was made/received) you could claim the FULL amount of GST credit upfront at the time of the first payment, but if you were on Cash Reporting, you claimed the GST EACH payment only. For example you could enter the Hire Purchase via bill or journal to the asset account including the GST and it will come up for the full amount in your GST reports to be included in your BAS for that period. Any payments are made to the asset account to pay it off (the capital portion of the payment) and NO GST is on the transaction ( the interest portion can be split to an expense account or you can leave it for the accountant to do at year end).
NOW both Accrual AND Cash reporters can claim the FULL GST upfront on the first payment of all Hire Purchase arrangements from 1 July 2012. Division 158 introduces this in the GST Act, allowing Businesses to account for GST on a cash basis.
Under Hire Purchase (HP) equipment or assets are obtained by hiring the item over the repayment term, where, upon the final payment, ownership is transferred to you or the business. A fixed amount of interest is agreed/offered and depreciation can be claimed. A balloon payment can be included. Before 1 July 2012, HP was best suited to businesses on accrual basis, and Chattel Mortgage (CM) as a means to purchase for those on cash basis reporting. Now the similarities between the tax benefits of HP and CM are much closer.
Remember to get your tax agent to claim the full GST, or ensure you claim it yourself on your BAS for that period!
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