ATO Interpretative Decision
ATO ID 2003/1199
Income Tax
Division 240: end of a hire purchase agreementFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 hire purchase agreement to which Division 240 of the Income Tax Assessment Act 1997 (ITAA 1997) applies, end when the taxpayer extends or renews the agreement?
Decision
Yes. A hire purchase agreement to which Division 240 of the ITAA 1997 applies is taken to have ended if it is extended or renewed.
Facts
In January 2000, the taxpayer entered into an arrangement which was a hire purchase agreement with a plant supplier for plant used by the taxpayer in carrying on a business for the purpose of producing assessable income. The arrangement conferred upon the taxpayer an option to purchase the plant.
The term of the hire purchase agreement was for 12 months. The agreement was extended or renewed twice, for a period of 12 months and 6 months respectively. The plant was returned to the plant supplier at the end of the 30 months.
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) entered into after 27 February 1998. 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.
An arrangement to which Division 240 of the ITAA 1997 applies is taken to have ended if, among other things, the arrangement is:
- (a)
- stated to cease to have effect at a particular time or the time at which the arrangement ceases to have effect, whichever is sooner (subsection 240-75(1) of the ITAA 1997);
- (b)
- extended or renewed (subsection 240-75(2) of the ITAA 1997).
Where the hire purchase agreement is extended or renewed, Division 240 of the ITAA 1997 applies as if the original arrangement has ended and the extended arrangement or renewed arrangement is a separate arrangement (subsection 240-80(2) of the ITAA 1997).
As the hire purchase agreement entered into by the taxpayer was extended or renewed twice, the agreement is taken to have ended at the end of the initial 12 months. Each extension or renewal constituted a separate arrangement.
Date of decision: 22 December 2003Year of income: Year ended 30 June 2002 Year ended 30 June 2001 Year ended 30 June 2000
Legislative References:
Income Tax Assessment Act 1997
subsection 240-75(1)
subsection 240-75(2)
subsection 240-80(2)
Division 240
subsection 995-1(1)
Keywords
Hire purchase
ISSN: 1445-2782