A commercial car hire purchase (CHP) is a method of vehicle financing. It essentially means that a finance company buys a vehicle for a customer and then grants the client use and custody of the motor vehicle on a contractually stated payment plan. The customer does not own the goods until they have paid the final loan instalment.
The Federal Budget in May 2010 introduced some important changes to the GST treatment of Commercial Hire Purchase Agreements which came into effect on 1st July 2012.
Prior to July 2012 GST was 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 are removed and Commercial Hire Purchase Agreements are 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 that 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.