When a financier enters into a hire purchase agreement with a hirer, it will result in the financier making two supplies to the hirer for GST purposes. They are the supply of goods and the supply of financial service (instalment credit finance).
- Supply of goods
The financier has to charge GST on the value of the goods at the point of transfer of possession. This is notwithstanding that the financier remains as the legal owner of the goods until the hirer exercises the option to purchase the goods or pays the last instalment.
- Supply of finance service (instalment credit finance)
If the financier separately charges and discloses the interest amount to the hirer, the provision of instalment credit finance is an exempt supply. The interest amount is exempted from GST.
However, if the interest amount is not separately disclosed or charged, then the financier has to charge GST on full amount paid or payable on the hire purchase.
If financier transfers/assigns the provision of instalment credit facility in a hire purchase agreement
If the financier transfers/assigns the instalment credit facility in a hire purchase agreement to another financier, such a transfer or assignment is an exempt supply. Hence, no GST will be levied.
The financier would also transfer/assign the title to goods when he assigns the hire purchase agreement to the new financier. Such transfer/assignment of the title to goods is not treated as a supply for GST purposes (i.e. will not attract GST).
If financier repossesses the goods
In the event that the hirer defaults on payment, the financier may repossess the goods. Repossession of the goods is not a supply and no GST is chargeable.
When the financier subsequently sells the goods, the supply will be treated as being made by the hirer. Thus, if the hirer is GST-registered, the financier (whether or not he is GST-registered) is required to charge GST on the sale. The financier is required to provide a statement of sale and remit the GST due to IRAS within 21 days from the date of sale. The hirer should not report such sales transaction in his GST return as the tax payable has already been accounted for in the statement. For more information, please refer to Selling/renting out assets in satisfaction of debt.