Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Recharacterisation of certain transactions - Recharacterisation of certain commercial arrangements

FA 18: Treatment of amounts paid in income years after agreement ends

You could also call this:

“How payments after a hire purchase agreement ends are treated for tax purposes”

This part of the law talks about what happens when you pay money for something you bought on hire purchase after the agreement has ended. Here’s what you need to know:

If you’re the buyer and you have to pay money to the seller after the agreement has ended, the seller gets to count that money as income. They’ll need to report it under section CC 13(2).

If you’re the seller and you have to pay money to the buyer after the agreement has ended, and you didn’t count this money before, two things happen. First, you can count this as money you spent in the year you paid it. Second, if the buyer was allowed to claim this as a deduction when they bought the item, they now have to count it as income under section CC 13(3).

Remember, when the law talks about the seller or the buyer, it also means people who are connected to them in some way.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516325.

Topics:
Money and consumer rights > Taxes
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FA 17: Treatment when agreement ends: when buyer is cash basis person, or

“How to calculate the sale price when a hire purchase agreement ends for cash basis buyers”

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FB 1: When this subpart applies, or

“This section explains when the rules apply to property transfers during relationship settlements”

Part F Recharacterisation of certain transactions
Recharacterisation of certain commercial arrangements

FA 18Treatment of amounts paid in income years after agreement ends

  1. This section applies when an amount that is liable to be paid under a hire purchase agreement is paid in an income year that is later than the income year in which the agreement ends.

  2. If the buyer is liable to pay the amount under the terms of the agreement to the seller, the amount is income of the seller under section CC 13(2) (Amounts paid in income years after hire purchase agreement ends).

  3. If the seller pays the amount to the buyer under the agreement and, consequent on the ending of the agreement, the amount was not taken into account, the amount is treated as—

  4. expenditure incurred by the seller in the income year in which the amount is paid; and
    1. income of the buyer under section CC 13(3), if they have been allowed a deduction in relation to the property under the agreement in the income year in which the amount is paid.

      1. In this section, the seller or the buyer includes a person associated with them.

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