Special arrangements
Layby
A layby lets a customer pay for goods by instalments before taking them home. GST on a layby sale follows special timing rules, so it is not always reported as each instalment arrives.
Layby is a common retail arrangement. A customer chooses goods, pays a deposit, and then makes regular payments while the shop holds the goods. Once the full price is paid, the customer collects the goods. For GST, the questions are when the sale takes place, when the GST must be reported, and what happens if the customer changes their mind.
The GST law includes specific rules for layby sales, so these arrangements are not simply treated like several separate payments. The usual approach to timing for ordinary sales is that GST is reported in the period of the invoice or payment, depending on the accounting method. For layby sales, the law deals with the timing of when the supply is treated as made and when GST is attributed. The details can depend on whether the supplier uses cash or accrual accounting.
What matters most in practice is that a retailer should not assume it can ignore GST until the goods leave the shop, or that it must pay GST on each instalment. Instead, it should follow the layby rules, which are described in ATO guidance. Many point of sale systems have layby settings, and it is worth checking that the GST coding and timing in the system match the rules.
If a layby is cancelled before completion, the retailer typically refunds the amounts paid, sometimes keeping a cancellation fee. How the cancellation fee is treated depends on the contract and the nature of the fee. A fee that compensates for the retailer's costs of holding goods is not always treated in the same way as a forfeited deposit, and the treatment of any refund or adjustment needs to be considered in the context of the original GST treatment.
Customers who are registered businesses buying goods on layby can claim credits only when they have a valid tax invoice and the supply is treated as acquired. A tax invoice is required for purchases over $82.50 including GST, and a retailer should issue one when the goods are supplied or the layby is complete, not necessarily for each instalment. Customers who buy for private use claim nothing.
Common mistakes include reporting the full GST at the first instalment when the rules do not require this, or failing to adjust GST when a layby is cancelled and money refunded. Another is not having clear terms and conditions covering cancellation fees. State and territory consumer laws may also set rules about layby terms and refunds, which are separate from GST.
Because the timing depends on the arrangement and accounting method, this page is general information only. Confirm your position with the ATO or a registered tax professional.
Worked example
A registered furniture retailer sells a $1,650 taxable lounge on layby with a $150 deposit and monthly payments of $150 until paid. When the customer pays the final instalment and takes delivery, the sale is complete and GST of $1,650 divided by 11, which is $150, is accounted for under the layby rules. If the customer cancels midway and receives a refund, the retailer reviews what was reported.
Practical tips
- Check your point of sale system's layby settings against the ATO guidance on layby sales.
- Spell out cancellation fees in your layby terms and treat any retained fee correctly.
- Issue a tax invoice to business customers when required, rather than relying on instalment receipts.