ATO Interpretative Decision

ATO ID 2003/869 (Withdrawn)

Income Tax

Capital Allowances: balancing adjustment event - item of plant acquired under a hire purchase arrangement
FOI status: may be released

This ATO ID is withdrawn from the database because it contains a view in respect of a provision of the Income Tax Assessment Act 1997 that was repealed with effect from 1 July 2001. Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of decisions relating to the former provision. The current ATO view on this issue is contained in the Guide to depreciating assets (NAT 1996).

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Status of this decision: Decision Withdrawn 15 September 2006

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Does a balancing adjustment event occur, under subsection 42-30(3) of the Income Tax Assessment Act 1997 (ITAA 1997), for an item of plant where the notional buyer under a hire purchase arrangement ends the arrangement by acquiring the plant?

Decision

No. A balancing adjustment event does not occur, under subsection 42-30(3) of the ITAA 1997, for an item of plant as there has been no disposal. This is because there is a continuation of ownership for the purposes of Division 42 of the ITAA 1997.

Facts

In January 2000, the taxpayer entered into an arrangement to lease an item of plant with an option to purchase the plant at the end of 12 months. In January 2001, the taxpayer ended the arrangement by taking up the option to acquire the plant. The taxpayer consequently became the legal owner of the plant and continued to use it in their business.

Reasons for Decision

Division 240 of the ITAA 1997 deals with hire purchase agreements as defined in subsection 995-1(1) of the ITAA 1997. The broad scheme of the Division is to treat such hire purchase agreements as a sale of the relevant goods to the hirer (notional buyer) combined with a loan from the supplier (notional seller) to the notional buyer. The Division applies to hire purchase arrangements entered into after 27 February 1998.

A hire purchase agreement is defined in subsection 995-1(1) of the ITAA 1997 as a contract for the hire of goods where the hirer has the right, obligation or contingent obligation to buy the goods.

Paragraph 240-20(2)(a) of the ITAA 1997 treats the notional buyer to such an arrangement who has the right to use the property as the owner until the arrangement ends. If such an arrangement is ended by a taxpayer (notional buyer) acquiring the property, the taxpayer becomes its legal owner. Where this happens there is no interruption in the taxpayer's ownership for the purposes of Division 42 of the ITAA 1997 between possessing the asset under the hire purchase arrangement and possessing the asset as its legal owner.

Accordingly, no balancing adjustment event occurs under subsection 42-30(3) of the ITAA 1997 for the item of plant.

Date of decision: 18 September 2003

Year of income: Year ended 30 June 1998 Year ended 30 June 1999 Year ended 30 June 2000

Legislative References:
Income Tax Assessment Act 1997
   subsection 42-30(3)
   Division 42
   paragraph 240-20(2)(a)
   Division 240

Keywords
Leasing
Lease & hire expenses
Lease financing
Hire purchase
Depreciation
Depreciation rates
Accelerated depreciation
Depreciation deduction
Plant lease
Depreciable plant
Cost of plant
Acquisition of plant
Holder of an item of plant
Cost of a depreciating asset
Depreciating asset lease

Business Line: Effective Life and Capital Allowances Centre of Expertise

Date of publication: 26 September 2003

ISSN: 1445-2782

history

	Date:	Version:
	18 September 2003	Original statement
You are here →	15 September 2006	Archived

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