IRAS issues e-Tax Guide, “GST treatment of Hire Purchase Agreements and Financing Instruments (2nd Edition)

On By taxsgIn Goods and Services Tax

12 June 2015

On 5 June 2015, the Inland Revenue Authority of Singapore (IRAS) issued the second edition of the e-Tax Guide, “GST treatment of Hire Purchase Agreements and Financing Instruments (Second Edition)”.

This e-Tax Guide explains the conditions for treating financing instruments as “hire purchase agreements” for GST purposes the GST treatment for hire purchase agreements, their invoicing and reporting requirements as well as the applicability of Gross Margin Scheme to hire purchase agreements.

A financing or leasing instrument will be treated as a “hire purchase agreement” for GST purposes if the following two conditions are satisfied:

  1. The lease provides an option or right for the lessee to purchase the leased goods prior to or at the end of the lease period, and
  2. The leased goods are not recognised as the lessor’s assets in his accounting records.

When a financing instrument satisfies both conditions, paragraph 1(2)(b) of the Second Schedule to the GST Act and all provisions in the GST legislation that make reference to “hire purchase agreement” will apply to this instrument.

However, the scope of paragraph 1(2) (b) of the Second Schedule to the GST Act is not limited to hire purchase agreements. A financing instrument that is not regarded as a hire purchase agreement for GST purposes may still fall within the scope of paragraph 1(2)(b) if it provides for an option to purchase.

The mere naming of any financing agreement as “hire purchase agreement” will not render it to be treated as such for GST purposes unless both of the conditions are satisfied.

Likewise, an agreement termed differently (e.g. finance lease agreement) will be treated as “hire purchase agreement” if it satisfies the above conditions. It is the substance of the instrument, and not its label that will determine its GST treatment.

For full details, please refer the e-Tax Guide on the IRAS website.

The previous edition was published on 16 June 2014.

Source: This article was extracted from the Inland Revenue Authority of Singapore’s (IRAS) website. Visit http://www.iras.gov.sg/ for more information.