GST – INPUT TAX DEDUCTIONS – DEFERRED PAYMENT TERMS. The IRD has released a draft QB (PUB00330) for comment regarding when a person registered for GST on a payments basis can claim an input tax deduction for goods purchased on deferred payment terms.
Although the statement focuses on persons who account for GST on a payments basis, it is also relevant for persons who account for GST on a hybrid basis (as the input tax treatment is the same under both).
The deadline for comment on the draft QB is 24 December 2021. Once issued, the QB will replace the earlier guidance in “Payments made by instalments – accounting for GST on payments basis”, Tax Information Bulletin Vol 6, No 4 (October 1994): 6.
The Commissioner’s view is that the treatment will depend on the classification of the sales agreement. The draft QB discusses the GST treatment for the following different types of agreements:
- standard sales agreements;
- buy now, pay later agreements;
- hire purchase agreements; and
- layby sales agreements.
Broadly, for the first two types of agreements above, the general time of supply rule for payments basis persons applies. That is, the registered person can claim an input tax deduction only when and to the extent that payment has been made in that taxable period. If payment is by way of instalments, the purchaser can deduct only the portion of input tax that relates to the payment actually made.
By contrast, for hire purchase agreements, the draft QB notes the effect of the legislation is that a person who is registered for GST on a payments basis can claim an input tax deduction in the taxable period in which they enter into the agreement, before any instalment payments are made (i.e., this overrides the general time of supply rule for payments basis persons and provides them with a timing advantage).
On the other hand, for layby sales agreements, the draft QB notes that purchasers can claim an input tax deduction only in the taxable period in which property in the goods is transferred, not when the agreement is entered into or when instalment payments are made (i.e. less advantageous from a timing perspective for payments basis persons compared with a hire purchase agreement).