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New Zealand law explained for everyone

Income Tax Act 2007

Recharacterisation of certain transactions - Recharacterisation of certain commercial arrangements

FA 12: Recharacterisation of amounts derived under hire purchase agreements

You could also call this:

“Tax rules for hire purchase sales treat them as loans with immediate property transfer”

If you sell personal property to someone using a hire purchase agreement, the law treats it differently. This doesn’t apply to livestock or bloodstock. Here’s how it works:

The law sees this as a sale that happens when the agreement starts. It’s as if you, the seller, gave a loan to the buyer. The buyer then uses this loan to buy the property from you.

Because of this, different parts of the tax law apply to the agreement. This includes the rules about depreciation, financial arrangements, and other relevant parts of the Income Tax Act.

Remember, the law treats the agreement this way even though it’s called a hire purchase. This helps make sure the tax rules work fairly for these kinds of sales.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516301.

Topics:
Money and consumer rights > Taxes
Money and consumer rights > Banking and loans
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FA 13: Agreements recharacterised as sale with finance provided, or

“How hire purchase agreements are treated as sales for tax purposes”

Part F Recharacterisation of certain transactions
Recharacterisation of certain commercial arrangements

FA 12Recharacterisation of amounts derived under hire purchase agreements

  1. When a person (the seller) provides personal property other than livestock or bloodstock to another person (the buyer) under a hire purchase agreement, the agreement is treated as a sale by the seller to the buyer on the date on which the term of the agreement starts, and—

  2. the seller is treated as giving a loan to the buyer for the property; and
    1. the buyer is treated as using the loan to buy the property; and
      1. subpart EE (Depreciation), the financial arrangements rules, and the other provisions of this Act apply to the agreement as recharacterised.

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