GST and attribution rules for an asset financed under an asset loan agreement

Is the entity, a business operator, entitled under section 29-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), to attribute the input tax credit to the tax period in which it purchases an asset financed under an asset loan agreement?

Yes, the entity is entitled under section 29-10 of the GST Act to attribute the input tax credit to the tax period in which it purchases an asset financed under an asset loan agreement.

The entity is a business operator. The entity purchased an asset that is to be used solely for business purposes. The purchase of the asset was fully financed by a finance company under an asset loan agreement. The entity has title to the asset and holds a tax invoice for the purchase.

The entity is entitled to an input tax credit under section 11-20 of the GST Act (see ATO ID 2001/727).

An asset loan agreement is similar to a chattel mortgage where the borrower assumes ownership of the goods but transfers to the lender an equitable interest in the goods, enabling the lender to seize and sell the goods in the event of default. By providing a mortgage over the goods as security, the borrower is able to obtain funds from the lender. The borrower uses these funds for the purchase of goods.

The entity is registered for goods and services tax (GST) and accounts for GST on a cash basis.

Section 29-10 of the GST Act provides the rules to determine which tax period an input tax credit for a creditable acquisition is attributable to.

Under paragraph 29-10(2)(a) of the GST Act an entity which accounts for GST on a cash basis attributes an input tax credit for a creditable acquisition in the tax period in which it provides all of the consideration for that acquisition. However, under subsection 29-10(3) of the GST Act an entity must also hold a tax invoice before an input tax credit can be attributed to a tax period.

In this case, the entity uses borrowed funds to provide full payment for the asset at the time of purchase. Therefore, as all of the consideration for the asset was provided at the time of the purchase and the entity holds a tax invoice for the purchase, the entity is entitled under section 29-10 of the GST Act to attribute the input tax credit to the tax period in which it purchases the asset financed under an asset loan agreement.