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Business Tax Tip – GST and Leasing – How it works

images/Business Tax Tips.PNGBusinesses can acquire assets such as motor vehicle s or equipment by entering into hire purchase 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 information about leasing and how GST applies from the ATO website to assist, including links for further information -

Leasing

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 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. (same).

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.

Need Help? - Email i This email address is being protected from spambots. You need JavaScript enabled to view it. or call 0407 361 596 Australia
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Accounting Software Australia, MYOB, Quickbooks, accounts software, bookkeeping software
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