Income Tax Assessment Act 1936

PART III - LIABILITY TO TAXATION  

Division 11A - Dividends, interest and royalties paid to non-residents and to certain other persons  

Subdivision A - General  

SECTION 128AC   DEEMED INTEREST IN RESPECT OF HIRE-PURCHASE AND CERTAIN OTHER AGREEMENTS  

128AC(1)   [Definitions]  

In this section:

agreement
means any agreement, arrangement or understanding, whether formal or informal, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings.

attributable agreement payment
, in relation to a relevant agreement, means so much of any payment made or liable to be made under the agreement as represents consideration for the use, sale or disposal of the relevant agreement property.

carry forward interest
, in relation to an attributable agreement payment in relation to a relevant agreement, means so much (if any) of the notional interest in relation to the payment as exceeds the amount of the payment.

eligible value
, in relation to the relevant agreement property in relation to a relevant agreement, means the market value of the property at the time at which the agreement commences or commenced to apply in relation to the property.

formula interest
, in relation to an attributable agreement payment in relation to a relevant agreement, means the amount ascertained in accordance with the formula

2 AC       B ( B + 1)

where:

A is the total interest in relation to the relevant agreement;

B is the total number of attributable agreement payments liable to be made under the relevant agreement; and

C is the number that is B , reduced by the number of attributable agreement payments made under the relevant agreement before the attributable agreement payment concerned.

notional interest
, in relation to an attributable agreement payment in relation to a relevant agreement, means the sum of the formula interest (if any) in relation to the payment and the carry forward interest (if any) in relation to the immediately preceding attributable agreement payment in relation to the relevant agreement.

relevant agreement
means an agreement entered into after 16 December 1984, being:

(a) a hire-purchase agreement; or

(b) a lease or any other agreement relating to the use by a person of property owned by another person, being a lease or agreement under which:

(i) the lessee or person using the property is entitled to purchase or require the transfer of the lease property or property subject to the agreement on the termination or expiration of the lease or agreement; or

(ii) the lease term or term of the agreement is for all, or substantially all, of the effective life of the lease property or property subject to the agreement.

relevant agreement property
, in relation to a relevant agreement, means:

(a) in the case of a hire-purchase agreement - the property that is the subject of the agreement; and

(b) in any other case - the property in relation to which subparagraph (b)(i) or (ii) of the definition of relevant agreement applies.

total interest
, in relation to a relevant agreement, means the sum of all of the attributable agreement payments liable to be made under the relevant agreement, reduced by the eligible value of the relevant agreement property.

128AC(2)   [2 or more items of property]  

Where an agreement (including a hire-purchase agreement and a lease) relates to the use by a person of 2 or more items of property owned by another person, this section applies as if, instead of the single agreement, there were separate agreements relating to the use of each of the items of property having such of the terms of the first-mentioned agreement as are relevant.

128AC(3)   [Variation of agreement]  

Where a variation is or was made in the terms of, or liability to make payments under, a relevant agreement, then, for the purposes of the application of this section:

(a) the relevant agreement shall be taken to be, or to have been, terminated at the time at which the variation has effect; and

(b) a new relevant agreement shall be taken to be, or to have been, entered into at the time at which the variation has effect and on the terms of the first-mentioned relevant agreement as so varied.

128AC(4)   [Right or option exercised]  

Where any right or option under an agreement to extend the term of, or otherwise vary the effect of, the agreement is or was exercised, then, for the purposes of this section, the exercise of that right or option shall be taken to be a variation of the terms of the agreement to provide for the extension or other effect.

128AC(5)   [Attributable agreement payment made]  

Where an attributable agreement payment in relation to a relevant agreement is made, so much of the attributable agreement payment as does not exceed the notional interest in relation to the payment shall, for the purposes of this Division, be deemed to be income that consists of interest.

128AC(6)   [Excess of total interest over deemed interest]  

Where:

(a) a relevant agreement is entered into after the commencement of this section; and

(b) at the time at which the relevant agreement is entered into, the total interest in relation to the relevant agreement exceeds the sum of all amounts that, if all of the attributable agreement payments liable to be made under the relevant agreement were made, would, disregarding this subsection, be deemed to be income that consists of interest under subsection (5) in relation to the relevant agreement,

the amount of the notional interest in relation to the first attributable agreement payment in relation to the relevant agreement shall, for the purposes of this section, be increased by an amount equal to the excess referred to in paragraph (b).

128AC(7)   [Withholding tax payable]  

For the purposes of section 128D , where withholding tax is payable on a part of an attributable agreement payment that is taken under subsection (5) of this section to be an amount of interest, the withholding tax shall be taken to be payable on the whole of the attributable agreement payment.