GST requires a different approach to budgeting for Hire Purchase and Chattel Mortgage contracts.
- Purchases of plant or equipment will generally include GST
- If the farmer pays cash the GST claimable will generally be 1/11th of the GST inclusive price
- Farmers may elect to finance the purchase of equipment by either Hire Purchase or Chattel Mortgage
- Where a Chattel Mortgage is used 100% of the GST paid is claimable in the period Chattel Mortgage contract was settled. This is regardless whether the business is registered for GST either on a cash or accruals basis
- Where the farmer elects to use Hire Purchase only those registered for accruals can claim 100% of the GST in the period the contract settles. Those registered on a cash basis can claim only the GST payable on the payments made in that period. Consequently, we recommend you seek advice from your accountant. You will need a payment schedule from either your accountant or the financier.
It is essential that the purchase price is shown in the budget. The same applies to the sale (trade in) of the old plant. The application of GST to second hand plant and machinery is complex so the example below will assume that both the purchase and sale are liable for GST.
The process will therefore be divided into three separate transactions:
- Sale of the old machine
- Purchase of the new machine
- Borrowing of money from a financier.
To budget for these transactions and have the programme calculate all GST for you, there are two options:
- Enter the three transactions into the direct entry section of a Full Budget
- Use the “Plant and Machinery” and the “Hire Purchase” worksheets.
|Codes Required||GST Category|
|Chattel Payments||Loans, Tax|
|HP Loans In||Loans, Tax|
|Chattel Loan In||Loans, Tax|
For this worksheet, we will complete the following as an example:
- Trade an old Ute for $7,000
- Purchase a new Ute for $27,000
- Finance the difference of $20,000
- Month of transaction – April
- Month of first Chattel payment – January
- Amount of first annual HP payment $5,000.
After the budget is recalculated the following will have happened. A previously empty budget is assumed.
- In April the “GST Collected” code will have $700 added. This is the GST received with the sale of the old Ute
- In April the “GST Paid” code will have $2700 added. This is the GST paid with the new Ute
- In April the “GST Refunded” code will have $2000 added. This is the difference between the GST received and the GST paid, which will be refunded by the ATO in July
- No GST will accrue from the Chattel Loan or the Chattel Payment. In practice (and the deals do vary), it is likely that the Financier will bill the Purchaser for the $2000 GST difference for which the farmer will write a cheque or pay by EFT.
The invoice may look like this:
|Trade Ute||7,000||700||7,700 Cr|
|New Ute||27,000||2,700||29,700 Cr|
|Finance Received||20,000||20,000 Cr|
|GST Due||2,000 Dr|
The data entry into the cashbook would be conducted in the same way so that all sections of the transaction are obvious.
To achieve the result using worksheets, refer to the following example:
- In the Plant Worksheet, the details of the sale and purchase of Utes have been entered. (See previous section)
- In the Hire Purchase Worksheet, the details of the financing and annual (or other period) payments have been entered.