Is a late payment penalty subject to GST?
Generally, GST is payable on a late payment penalty. A charge for late payment that is consideration for the supply of an interest in a credit arrangement is not an adjustment event. The charge is consideration for a financial supply. Whether a charge for late payment is consideration for the acquisition of an interest in a credit arrangement will depend on the facts of each case. Where the charge is commercial compensation based on the time value of money (i.e. interest), this will indicate that it is consideration for a financial supply. Please refer to paragraph 29 of GST Ruling GSTR 2000/19.
