The Federal Budget in May 2010 introduced some important changes to the GST treatment of Commercial Hire Purchase Agreements which come into effect on 1st July this year.

At the moment GST is only payable on the upfront purchase price of an asset which is financed under a Commercial Hire Purchase Agreement. Term charges imposed on the amount financed and any related fees and charges are considered input taxed, with no GST being levied. From 1st July 2012, this distinction will be removed and Commercial Hire Purchase Agreements will be treated as fully taxable.

This means that term charges imposed on Commercial Hire Purchase Agreements and all fees directly related to a Commercial Hire Purchase Agreement will be subjected to GST.

In simple terms you will pay GST on the interest charged for the term of the Commercial Hire Purchase Agreement and also on any associated fees relating to the Agreement.

As long as you are GST registered and the asset is for business use, then the GST may be claimed as an Input Tax Credit.

Another important change is if you are using the Cash Accounting method you may be able to claim the GST back in the same way as those using the Accrual Accounting method, in your next BAS. Currently, if you are using the Cash Accounting method the GST paid on the purchase of an asset must be claimed progressively over the term of the Commercial Hire Purchase Agreement. This changes from 1st July 2012.