Taxation Ruling

IT 196

Plant purchased under hire purchase agreements - treatment of hiring charges

  • Please note that the PDF version is the authorised version of this ruling.
    This ruling contains references to repealed provisions, some of which may have been rewritten. The ruling still has effect. Paragraph 32 in TR 2006/10 provides further guidance on the status and binding effect of public rulings where the law has been repealed or repealed and rewritten. The legislative references at the end of the ruling indicate the repealed provisions and, where applicable, the rewritten provisions.

FOI status:

May be releasedFOI number: I 1102311

PREAMBLE

Representations have been made concerning the treatment for income tax purposes of interest, insurance payments and hiring charges in respect of plant purchased under hire purchase agreements.

RULING

2. In the course of a survey of the practices followed in Branch Offices in regard to the allowance of deductions in respect of the abovementioned items, it has been ascertained that there is substantial consistency in the treatment of this matter.

3. In most instances the deductions are allowed in the light of the claim made by the taxpayer or his agent. If the hire purchase charges, which include interest, insurance, and any other specific charges which cannot be held to constitute part of the actual purchase price of the plant, are claimed separately in the return for the year in which they are paid, deduction in respect thereof is allowable under section 51(1) of the Income Tax Assessment Act. On the other hand, if the hire purchase charges are capitalised and depreciation is claimed on the total cost of the plant to the purchaser, the hire purchase charges are amortised over the estimated life of the plant.

4. The only qualification which has been applied in some offices to the above procedures is that a claim on the first-mentioned basis would only be admitted if the hire purchase charges were shown separately on the face of the agreement. It has been decided, in the light of the decision in Darngavil Coal Co. Ltd. v. Francis 7 T.C.1, that such a distinction could not be maintained. Accordingly, where the taxpayer claims a deduction in respect of the actual hiring charges paid over and above the purchase price element in the instalments, the claim, provided that it is substantiated as to amount, may be allowed.

5. The practice of allowing the basis for a deduction in accordance with the claim made by the taxpayer is to be continued, and where a claim under either basis is clearly made, no action is to be taken to apply the alternative basis in that case.

COMMISSIONER OF TAXATION
25 October 1951

References

ATO references:
NO J 84/2 P2 F361

Date original memo issued:
25.10.51

Subject References:
HIRE PURCHASE CHARGES - PLANT
INTEREST
INSURANCE
DEPRECIATION

Legislative References:
51(1)


Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).