ATO ID 2005/194: GST and a credit arrangement by way of an instalment contract for the sale of residential premises
Date of decision: 18 November 2002
Business line: Indirect Tax

Issue
Is the entity, a property investor, making an input taxed financial supply of a credit arrangement under subsection 40-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it gives the purchaser time to pay for a property under an instalment contract?

Decision
Yes, the entity is making an input taxed financial supply of a credit arrangement under subsection 40-5(1) of the GST Act when it gives the purchaser time to pay for a property under an instalment contract.

Facts
The entity is a property investor. The entity is selling residential premises that it owns. The entity and the purchaser enter into an instalment contract, by which the entity provides the purchaser with a credit arrangement to enable the purchaser to purchase the residential premises. Under the terms of the contract, the purchaser agrees to pay monthly instalments and interest over an extended period of time. The purchaser has a right to occupy the residential premises from the date on which the contract is signed (possession date) until the date on which the purchaser is required to pay the final instalment (settlement date). Title to the property does not pass to the purchaser until the settlement date. The entity is registered for goods and services tax (GST). The supply is made in the course of its enterprise and is connected with Australia.

Reasons for decision
Summary: Under subsection 40-5(1) of the GST Act, a financial supply is input taxed. Subsection 40-5(2) of the GST Act provides that a financial supply has the meaning given in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations). GST Regulations subregulation 40-5.09(1) provides that the provision, acquisition, or disposal of an interest mentioned under GST Regulations subregulation 40-5.09(3) or 40-5.09(4) is a financial supply if: Item 2 in the table in GST Regulations subregulation 40-5.09(3) (Item 2) lists a debt, credit arrangement or right to credit, including a letter of credit. The glossary in Schedule 1 of Goods and Services Tax Ruling GSTR 2002/2 defines a credit arrangement as 'an arrangement under which an entity lends money on terms that include deferred repayment, or under which payment of a debt owed by one entity to another is deferred or time is allowed to pay'. The entity provides time to pay, by way of an instalment contract, to the purchaser of the residential premises. This supply is the provision of an interest in a credit arrangement and is covered by Item 2. The consideration received for the supply of an interest in a credit arrangement is the monthly interest payments paid by the purchaser under the terms of the contract. In addition, the provision of this interest is made in the course of the entity's enterprise and it is connected with Australia. Therefore, all of the requirements of GST Regulations paragraph 40-5.09(1)(a) are satisfied. The entity is registered for GST. As the entity created the interest in the credit arrangement, it is the financial supply provider in relation to the supply of the credit arrangement (GST Regulations subregulation 40-5.06(1)). Therefore, the requirements in GST Regulations paragraph 40-5.09(1)(b) are satisfied. As all the requirements of GST Regulations subregulation 40-5.09(1) are satisfied, the supply of the credit arrangement is a financial supply. The entity is making an input taxed financial supply of a credit arrangement under subsection 40-5(1) of the GST Act.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 subsection 40-5(1) subsection 40-5(2)
Related public rulings and determinations: Goods and Services Tax Ruling GSTR 2002/2
Subject references: Goods and services tax GST financial supplies GST debt, loan and credit GST sale of residential premises GST residential premises