Instead of paying the full price upfront for an asset such as equipment or vehicle, a businesses can acquire assets by entering into a leasing arrangement to pay for and use goods over a period of time – then they need to account correctly for the GST. Next they need to know how GST applies. Here is some information from the ATO website to assist, including links for further information –
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.
Paying GST on lease agreements
Generally, lease agreements are subject to GST.
On each activity statement you report payments you made in that tax period for leased goods. 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.
Claiming GST credits on lease agreements
You can claim GST credits for any GST included in the lease charges.
If you account for GST on a non-cash (accruals) basis, you’re entitled to a GST credit of one-eleventh of the lease instalments for each tax period when you either:
- 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.
If you take ownership of leased 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.
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