GST and entitlement to input tax credit for acquisition under a vendor finance agreement

Is the entity, a business operator, entitled to an input tax credit on the full purchase price under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it acquires a chattel that is partly paid for under a vendor finance agreement?

Yes, the entity is entitled to an input tax credit on the full purchase price under section 11-20 of the GST Act when it acquires a chattel that is partly paid for under a vendor finance agreement.

The entity is a business operator and is registered for goods and services tax (GST).

The entity acquires a chattel for a creditable purpose. The supply of the chattel to the entity is a taxable supply under section 9-5 of the GST Act.

On signing the contract of sale for the chattel, the entity makes a payment for part of the purchase price and enters into an agreement to pay the balance of the purchase price on or before a future date. Under the terms of this agreement, the entity receives finance from the supplier of the chattel, whereby the balance of the purchase price is provided by way of a five-year loan. Interest is calculated annually on this loan.

On the entity taking possession and full title of the chattel, a mortgage is registered over the chattel, in favour of the supplier/lender.

Under section 11-20 of the GST Act, an entity is entitled to an input tax credit for any creditable acquisition that it makes. Section 11-5 of the GST Act provides that an entity makes a creditable acquisition if: • the entity acquires anything solely or partly for a creditable purpose • the supply of the thing to the entity is a taxable supply • the entity provides, or is liable to provide consideration for the supply, and • the entity is registered or required to be registered for GST.

The entity acquires the chattel for a creditable purpose, the supply of the chattel to the entity is a taxable supply and the entity is registered for GST. Therefore, it needs to be determined whether the entity provides, or is liable to provide consideration for the supply of the chattel.

Consideration is defined in section 195-1 of the GST Act to mean any consideration within the meaning given by sections 9-15 and 9-17 of the GST Act, in connection with the supply or acquisition. Subsection 9-15(1) of the GST Act provides that consideration includes any payment, act or forbearance in connection with a supply of anything or in response to, or for the inducement of the supply.

On signing the contract of sale for the chattel, the entity makes a payment for part of the purchase price and enters into an agreement to pay the balance of the purchase price on or before a future date. Under the terms of this agreement, the entity receives finance from the supplier of the chattel, whereby the balance of the purchase price is provided by way of a five-year loan, with interest calculated annually.

By entering into this agreement, the entity and the supplier of the chattel are agreeing to simply offset the supplier's obligation to advance the loan money to the entity against the entity's obligation to pay for the supply of the chattel. Accordingly, the entity's obligation to pay for the supply of the chattel is discharged and replaced with an obligation to repay the money lent (together with any interest that accrues).

As such, the entity provides consideration for the supply of the chattel and as all of the requirements of section 11-5 of the GST Act are satisfied, the entity is making a creditable acquisition.

Therefore, the entity is entitled to an input tax credit on the full purchase price under section 11-20 of the GST Act when it acquires a chattel that is partly paid for under vendor finance agreement. Note 1: The provision of the loan involves a separate supply by the supplier/lender-being a supply of an interest in a credit arrangement, which is an input taxed financial supply. The consideration for the supply of the credit arrangement is the amount of interest payable and the obligation to repay the loan. Please refer to Goods and Services Tax Ruling 2002/2 GST treatment of financial supplies and related supplies and acquisitions.

Date of amendment Part Comment 22 April 2013 Reason for Decision Amended by inserting section 9-17. As of 1 July 2012, section 9-17 is included within the definition of consideration as defined by section 195-1. Legislative References Section 9-17 added.

Date of amendment | Part | Comment

22 April 2013 | Reason for Decision | Amended by inserting section 9-17. As of 1 July 2012, section 9-17 is included within the definition of consideration as defined by section 195-1.

Legislative References | Section 9-17 added.