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What is a Hire Purchase agreement?
A hire purchase arrangement is an agreement to purchase a vehicle subject to certain payment terms to the finance company.
Hire purchase is different to a lease because you own the goods when you make the final payment.
Under GST, a hire purchase agreement is treated as a “taxable supply” at the start of the arrangement between the hirer and the financier.
What hire purchase means
With a hire purchase arrangement, there is deemed to be a sale of the equipment from the financier to the hirer, so the GST liability arises at the start of the arrangement.
This happens even though the total amount payable under the agreement will be paid by periodic instalments and ownership of the equipment will not pass to the hirer until the final repayment.
The financier, being the supplier, is responsible for paying the GST liability.