ATO ID 2008/49: GST and when consideration is provided where a debt is deferred
Date of decision: 20 March 2008
Business line: Indirect Tax

Issue
Under a contract for the sale of land by instalment payments, when is consideration provided by the purchaser and received by the vendor, where the vendor supplies to the purchaser an interest in a credit arrangement that does not involve a loan or advance?

Decision
Consideration for the sale of the land is provided by the purchaser and received by the vendor when each instalment amount is paid.

Facts
A vendor entered into a transaction for the sale of land to a purchaser. No payment for the land was made by the purchaser before or at the time of settlement. The parties had entered into an arrangement for the purchaser to pay the purchase price to the vendor in instalments after settlement, with interest accruing on the outstanding balance. The sale of the land is a taxable supply. The consideration for the supply is the instalment payments. This arrangement does not constitute a loan or advance, nor is it in the nature of a line of credit or overdraft. However, the arrangement to pay the debt (owed by the purchaser to the vendor at the time of settlement) by instalments is a credit arrangement, with the consideration for the supply of the credit arrangement being the interest accruing under the terms of the agreement. To secure the purchaser's performance of its obligation to pay the consideration by instalments, a mortgage over the property is provided by the purchaser to the vendor at settlement. The vendor and purchaser are registered for goods and services tax (GST).

Reasons for decision
Summary: A determination of the tax period in which consideration is provided and received is one of the matters central to the attribution of GST payable on taxable supplies and input tax credits for creditable acquisitions under the attribution rules in Subdivision 29-A of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). It is therefore necessary to ascertain when consideration for the supply of the land is provided and received under the credit arrangement. In circumstances where an arrangement between a hypothetical vendor and purchaser constitutes a loan, the vendor's obligation to advance loan money may be offset against the purchaser's obligation to pay for the property. The consideration is provided by the purchaser and received by the vendor when the obligation to advance the loan money is offset (by the parties) against the obligation to pay for the property (refer to paragraphs 25 to 27 of Goods and Services Tax Determination GSTD 2004/4 Goods and services tax: can consideration for a supply be provided or received without transferring money (such as where the parties only make book entries recording their agreement that the supply is paid for)? and paragraph 77 of Goods and Services Tax Ruling GSTR 2003/12 Goods and services tax: when consideration is provided and received for various payment instruments and other methods of payment). However, the credit arrangement between the parties is not a loan and no advance is made by the vendor to the purchaser. The vendor is providing the purchaser with time to pay the debt owed by instalments and interest accrues until each instalment payment is made. This arrangement is akin to a sale on credit. Paragraph 78 of GSTR 2003/12 provides the Commissioner's views on when consideration is received for sales on credit. This paragraph states: Sale on credit 78. Where a supply is made on credit (for example, 30 days to pay), consideration is provided and received when an amount is paid, unless the arrangement is in the nature of a line of credit or overdraft as described in paragraph 77 of this ruling. Consideration is provided and received when actual payment is made, and this is determined by the payment instrument used. As the arrangement is not in the nature of a line of credit or overdraft, but is an arrangement where the debt is deferred and interest is accrued until each instalment is paid, it more closely resembles a sale on credit as contemplated by paragraph 78 of GSTR 2003/12. Accordingly, the consideration for the supply of the land pursuant to the credit arrangement is provided and received when each instalment amount is paid. The mortgage is given merely as security to ensure payment of the consideration by instalments. The mortgage is not consideration received for the land for the purposes of section 29-5 of the GST Act. Similarly, the acquisition of the interest in the credit arrangement by the purchaser may be an input taxed financial supply where the requirements of subdivision 40-A of the GST Regulations are satisfied.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 Subdivision 29-A section 29-5 section 29-10
Related public rulings and determinations: Goods and Services Tax Ruling GSTR 2003/12 | Goods and Services Tax Determination GSTD 2004/4
Subject references: Attribution rules Goods and services tax GST debt, loan and credit GST financial supplies GST tax periods Input taxed supplies