ATO Interpretative Decision
ATO ID 2005/263
Income Tax
Deemed interest in respect of a hire purchase agreement for non-resident interest withholding tax purposesFOI status: may be released
Status of this decision: Decision Current
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Where both Division 240 of the Income Tax Assessment Act 1997 (ITAA 1997) and section 128AC of the Income Tax Assessment Act 1936 (ITAA 1936) apply to an arrangement entered into by the taxpayer, is the notional interest for an arrangement payment determined under Division 240 relevant for determining the notional interest for an attributable agreement payment for the purposes of the interest withholding tax provision in section 128AC?
Decision
No. The notional payments determined under Division 240 of the ITAA 1997 would not be relevant for the purposes of section 128AC of the ITAA 1936. The implicit interest component of actual rental payments made, or liable to be made, under the hire purchase agreement will be determined according to the requirements of section 128AC.
Facts
The taxpayer is a resident of Australia for tax purposes.
In July 2003, the taxpayer entered into an agreement with a non-resident plant supplier for plant used by the taxpayer in carrying on a business for the purpose of producing assessable income. The agreement conferred upon the taxpayer a right to use and possess the plant, and an option to purchase the plant at the end of the term of the agreement.
On the facts of the case:
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- Division 240 of the ITAA 1997 would apply to the agreement which met the paragraph (a) definition of 'hire purchase agreement' in subsection 995-1(1) of the ITAA 1997.
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- Section 128AC of the ITAA 1936 would apply to the agreement in accordance with Taxation Ruling TR 98/21.
The plant supplier has an address outside Australia.
Reasons for Decision
In the present case both Division 240 of the ITAA 1997 and section 128AC of the ITAA 1936 applied to the arrangement between the taxpayer and the non-resident plant supplier.
Division 240 of the ITAA 1997 has no effect for the purposes of Division 11A of Part III of the ITAA 1936 (paragraph 240-15(b) of the ITAA 1997). Hence, the implicit interest component of actual rental payments made, or liable to be made, under the hire purchase agreement would be determined according to the requirements of section 128AC of the ITAA 1936.
Date of decision: 7 December 2004Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
Division 240
paragraph 240-15(b)
subsection 995-1(1)
Division 11A of Part III
section 128AC
Related Public Rulings (including Determinations)
Taxation Ruling TR 98/21
Keywords
Cross border leasing
Hire purchase
Lease & hire income
Non resident interest withholding tax
ISSN: 1445-2782