GST & finance leases
Inland Revenue (IR) has published IS 22/02, which is an interpretation statement providing guidance surrounding issues of time of supply and value of supply for GST purposes, once it has been determined that a finance lease exists.
The document is 54 pages in length and commences with a basic summary of the time of supply rules once you have established that the finance lease is either an agreement to hire, a hire purchase agreement, or a third category agreement (one which falls outside of the previous two definitions). In this regard, IS 22/02 outlines the following timing rules:
• an agreement to hire -the goods are treated as being successively supplied and each successive supply is treated as taking place at the earlier of when a payment becomes due or is received,
• a hire purchase agreement – the time of supply is the time the agreement is entered into; and,
• a third category agreement – the ordinary rules will generally apply, and the time of supply is the earlier of the time the supplier issues an invoice or receives a payment for that supply.
In terms of value of supply issues, IS 22/02 suggests that firstly the reader must determine whether or not the finance lease is a credit contract (defined under the Credit Contracts Act 1981 or the Credit Contracts and Consumer Finance Act 2003 (as applicable)).
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