Definition of “hire purchase agreement”
(Clauses 88 and 168)
Summary of proposed amendment
The bill amends the definition of “hire purchase agreement” in section OB 1 of the Income Tax Act 2004 and section YA 1 of the Income Tax Act 2007 to correct a drafting error.
Application date
The amendment will apply from the commencement of the Income Tax Act 2004, with a “savings” provision for people who filed returns before the date of introduction of the bill.
Key features
The definition of “hire purchase agreement” in the Income Tax Act 2004 and the Income Tax Act 2007 will be amended to clarify that an agreement where the goods are let or hired to a person with an option to purchase does not require that option to be actually exercised.
Background
The definition of “hire purchase agreement”, which originates from the Hire Purchase Act 1971, is intended to cover two types of hire purchase agreement recognised by long-standing case law. The first is one where the goods are let or hired to a person with an option to purchase (the “option to purchase agreement”).[2] The second is one when a person has agreed to purchase the goods with a condition (a “conditional contract of sale”).[3] The main difference between the two is whether or not the person has agreed to purchase the goods at the time the relevant contract is entered into.
The rewrite of the hire purchase agreement definition in the Income Tax Act 1994 contained a drafting error. The option to purchase agreement in the definition imports the conditional contract of sale element – it is not intended that the person’s actual agreement to purchase the goods is also required.