The rules governing whether and when small businesses (registered for GST) can currently claim GST credits on the financing of assets for business purposes depends on the type of finance arrangement used to acquire the assets.
- A Chattel Mortgage is a type of finance typically used for the purpose of purchasing vehicles or other business plant equipment. You own the goods, however the financier retains title until final payment (hence the word "mortgage"). If you purchase the asset through a Chattel Mortgage, you can claim the whole of your GST credits at the time of the first payment, whether your business reports on a cash or accrual method for GST purposes.
- If you lease the asset, you cannot claim GST credits on the leased asset itself, but you can claim the GST included in each lease payment at the time of making each lease payment.
- If you purchase the asset through a Hire Purchase agreement, when you can GST credits depends on your GST reporting method:
- if you use Cash Basis reporting, you claim back GST credits over the life of the agreement, on each payment made under the Hire Purchase agreement;
- if you use Accruals Basis reporting (i.e. non-cash basis), you claim back the whole of your GST credits in the reporting period when the first payment was made under the Hire Purchase agreement.
This has meant that small businesses using Cash Basis reporting are disadvantaged compared to those using Accruals Basis reporting. Under the new rules, for new Hire Purchase Agreements entered into from 1 July 2012, you will be able to claim the whole of the GST credits at the time of the first payment under the Hire Purchase plan, whether you use Cash Basis or Accruals Basis reporting.
Accordingly you can make use of your GST credits sooner. The old rules however continue to apply for Hire Purchase Agreements entered into before 1 July 2012.