Which component of the hire purchase arrangement is a financial supply and which component is subject to GST?
The total amount payable by a recipient under a hire purchase agreement is typically made up of a principal component (ie. the amount financed) and a credit component (ie. The terms and charges). The principal component represents the price of the goods financed and the credit component represents the interest and associated fees and charges payable by the recipient. GST is payable on the amount of the principal component if the supply of the goods is a taxable supply. The credit component will not be subject to GST if it is provided separately and disclosed to the recipient of the goods under item 8 of subregulation 40-5.09(3) of the GST Regulations. The credit component will be treated as ‘disclosed’ if the actual amount of the credit component is made known to the recipient. The mere provision of the implicit interest rate to the recipient will not satisfy the requirement that the credit component be ‘disclosed’ to the recipient of the goods. Therefore if the credit component is not
