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For income tax purposes, hire purchase transactions entered into after 27 February 1998 are treated as a sale of goods by the financier (or hire purchase company) to the hirer, financed by a loan from the financier to the hirer.
If the subject property is a depreciating asset, the hirer is treated as the holder of the depreciating asset and is entitled to deductions for the decline in value. The cost of the depreciating asset for this purpose is taken to be the cost or value stated in the hire purchase agreement or, if the dealing was not at arm's length, the amount that could have been expected to have been paid to buy the goods under an arm's length dealing-see Depreciating assets subject to hire purchase agreements.
Last modified: 01 Jun 2005QC 27399