ATO ID 2003/1199: Division 240: end of a hire purchase agreement
Date of decision: 22 December 2003
Year of income: Year ended 30 June 2002 Year ended 30 June 2001 Year ended 30 June 2000
Business line: Public Groups and International

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
Summary: 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: 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.

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)
Subject references: Hire purchase