ATO ID 2004/325: GST and assignment of a hire purchase agreement
Date of decision: 7 February 2003
Business line: Indirect Tax

Issue
Is the entity, a company, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it assigns its rights under a hire purchase agreement to a third party that is not an associate, for which the entity receives no payment from the third party?

Decision
No, the entity is not making a taxable supply under section 9-5 of the GST Act, when it assigns its rights under a hire purchase agreement to a third party that is not an associate, for which the entity receives no payment from the third party as the entity is not making a supply for consideration.

Facts
The entity is a company. The entity entered into a hire purchase agreement with a financier. This agreement is in respect of a car to be used for business purposes. The entity entered into a 'Deed of Assignment of Hire Purchase Agreement' (Deed) with the financier and an independent and unrelated third party that is not an associate of the entity. Under this Deed, the entity assigned to the third party, for the residual of the term of the hire purchase agreement, all the entity's rights, title and interest under the original hire purchase agreement. This assignment was made subject to the condition that the third party will pay the instalments and perform and observe the covenants, conditions and stipulations expressed or implied in the hire purchase agreement. The Deed also provides that upon payment of all instalments up to the date of the Deed being paid, the entity will be released from all liability under the hire purchase agreement. The entity is registered for goods and services tax (GST).

Reasons for decision
Summary: Section 9-5 of the GST Act sets out the requirements that must be met for an entity to make a taxable supply. The first requirement is that there must be a supply for consideration (paragraph 9-5(a) of the GST Act). Section 9-10 of the GST Act defines 'supply'. Paragraph 9-10(2)(e) of the GST Act provides that a supply includes the creation, grant, transfer, assignment or surrender of any right. Accordingly, when the entity assigns its rights under the hire purchase agreement, to the third party, it is making a supply under section 9-10 of the GST Act. 'Consideration' is defined in subsection 9-15(1) of the GST Act to include any payment, act or forbearance in connection with, in response to or for the inducement of a supply of anything. The third party has agreed to pay the instalments and perform and observe the covenants, conditions and stipulations expressed or implied in the hire purchase agreement. These instalments and obligations made by the third party under the hire purchase agreement are made to the financier. The entity does not receive any payment, act or forbearance from the third party that is in connection with the assignment of the hire purchase agreement to the third party. Therefore, there is no consideration for the supply of the assignment of the hire purchase agreement. Accordingly, the entity is not making a taxable supply under 9-5 of the GST Act when it assigns its rights under a hire purchase agreement to a third party, for which the entity receives no payment from the third party.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 paragraph 9-5(a) section 9-10 paragraph 9-10(2)(e) subsection 9-15(1) Division 72
Subject references: Goods and services tax GST supplies without consideration GST consideration GST supply GST hire purchase