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New Zealand law explained for everyone

Income Tax Act 2007

Recharacterisation of certain transactions - Recharacterisation of certain commercial arrangements

FA 14: Deductibility of expenditure or loss under hire purchase agreement

You could also call this:

“Rules for tax deductions on items bought through hire purchase”

When you buy something through a hire purchase agreement, you are treated as the owner of the property for depreciation purposes. This means you can claim depreciation on the item as if you owned it outright.

The seller, on the other hand, is not treated as the owner for depreciation purposes. They can’t claim depreciation on the item they’ve sold to you under the hire purchase agreement.

If the seller includes the cost of the item as trading stock or as part of their income for the year, there’s a special rule. In this case, the seller can’t claim a deduction for any amount that you still owe them under the hire purchase agreement. This applies even if the debt becomes bad or is sold at a discount.

These rules help to make sure that both the buyer and seller are treated fairly for tax purposes when using hire purchase agreements.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516307.

Topics:
Money and consumer rights > Taxes
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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”

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FA 15: Treatment when agreement ends: seller acquiring property, or

“What happens if a seller gets back property from an ended hire purchase agreement”

Part F Recharacterisation of certain transactions
Recharacterisation of certain commercial arrangements

FA 14Deductibility of expenditure or loss under hire purchase agreement

  1. The buyer in section FA 12 is treated as the owner of the property for the purposes of subpart EE (Depreciation).

  2. The seller in section FA 12 is not treated as the owner of the property for the purposes of subpart EE.

  3. Subsection (4) applies if the seller takes an amount calculated under section FA 15 into account as the cost of trading stock or in the calculation of their net income for an income year.

  4. The seller is denied a deduction under section DB 14 or DB 31 (which relate to debts sold at a discount and bad debts) for an amount owing under the hire purchase agreement.

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