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Business Tax Tips – Leasing and how GST applies

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Business Tax Tips – Hire Purchase and how GST applies

Hire Purchase and how GST applies

Businesses can acquire assets such as equipment by entering into hire purchase (covered last month) or leasing agreements to pay for and use goods over a period of time rather than paying the full cost up front. Then they need to know how GST applies.

Here is some information about leasing and how GST applies from the ATO website to assist, including links for further information –

Leasing

How does leasing work?

Leasing agreements commonly apply to goods such as vehicles, office equipment and machinery.

Under a lease agreement, the person who:

  • Grants the lease (lessor) is the owner of the goods;
  • Leases the goods under the lease (lessee) uses them for a specified time and, in return, makes a series of payments that can be fixed or flexible.

Do you pay GST on lease agreements?

Generally, lease agreements are subject to GST.

On each activity statement, you must report payments you make for goods under a lease agreement that extends over a number of tax periods. That is, you treat each payment as though you are making a separate purchase each tax period, even though each payment is for the same goods under the same lease agreement.

Find out more

Special rules apply where you lease property to make input taxed supplies, including financial supplies. For more information about whether you can claim GST credits, refer to Claiming GST credits.  

Special rules may also apply to leases you entered into before 1 July 2000 for a supply of goods still ongoing after 1 July 2005. For more information, refer to GST and long-term non-reviewable contracts.

End of find out more

How do you claim GST credits on lease agreements?

You may be able to claim GST credits for any GST included in the lease charges.

If you account for GST on a non-cash (accruals) basis, you are entitled to a GST credit of one-eleventh of the lease instalments for each tax period when you do any of the following:

  • Make any part of the lease payment due in that period;
  • Receive an invoice from the supplier.

If you account for GST on a cash basis, you claim a GST credit of one-eleventh of the lease instalment amounts paid in each tax period.

What happens if you take ownership of goods?

At the end of the lease, you may have to pay GST on residual payments under lease agreements. These are payments you make to take ownership of the goods, which is treated as a separate transaction to the lease agreement.

If you purchase the goods at the end of the lease agreement, you may be eligible to claim a GST credit for any GST you paid in the price of the purchase.

See some working examples further down the page at the ATO site HERE

Get a FREE 30 min answer to your query, and FREE ongoing email or phone support – No-one offers as much! Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

Email info@accountkeepingplus.com.au or call 0407 361 596 Australia

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Author: accountkeepingplus

Administration, bookkeeping and compliance for small business, Training, trouble-shooting, or we can do the books and payroll for you! Self Managed Superannuation Fund Service Provider, free support MYOB Certified Consultant, Reckon/QuickBooks Professional Partner.

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