18 Jan 2012

Changes to GST Regulations - treatment of trustee services and hire purchase arrangements

Commonwealth Treasury has proposed changes to the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) which would fundamentally alter the tax treatment of routine commercial transactions as well as providing clarification on some contentious areas of GST and financial supplies.

The proposed change to the ability of entities to claim reduced input tax credits (RITCs) for the acquisition of trustee services will not only change the "net cost" of acquiring those services but will also affect disclosure documents issued to investors and the economics of finely tuned financial products. Instead of a 75% RITC, certain trustee services will now only be eligible for a 55% RITC – introducing further complexity and compliance costs.

On the other hand, the proposed changes to the treatment of hire purchases will finally resolve one of the nagging anomalies within the GST law by eradicating the unnecessary distinction between the hire purchase of goods with a disclosed credit charge (which is partially input taxed) and the hire purchase of goods without a disclosed credit charge (which would be wholly taxable). The proposed amendments will treat all supplies of goods by way of hire purchase as taxable supplies, removing the complexity and compliance costs associated with the partial denial of input tax credits under the current rules.

Other minor changes seek to resolve uncertainty regarding the GST treatment of:

  • guarantees and indemnities;
  • lenders mortgage reinsurance; and
  • monitoring services.

The proposed amendments are intended to take effect from 1 July 2012. Treasury is engaging in a consultation process regarding the detail of the proposals and is accepting submissions until 24 February.

The proposed amendments to the treatment of hire purchase arrangements should be uncontroversial as they provide much needed clarity and simplification. However, the changes to the RITC regime for trustee services are likely to be complex in their implementation, will increase costs and are likely to be met with some resistance.

Read on for further detail regarding the proposed amendmentsRead on for further detail regarding the proposed amendments (PDF 783.6KB).

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.