Enhancing access to asset backed financing
The Government is seeking to align the treatment of asset backed financing arrangements to interest bearing loans and investments. Asset backed financing arrangements include hire purchase arrangements and deferred payment plans like finance and operating leases. These changes are proposed to apply from 1 July 2018.
Changes to asset backed financing arrangements
Currently, the tax treatment of an asset backed financing arrangement depends on its classification as an operating lease or a hire purchase arrangement. As an operating lease, the lessee is entitled to a tax deduction for lease payments incurred during the year. Under a hire purchase agreement, the lessee is entitled to a tax deduction on the interest repayment portion of the lease payment and depreciation deductions for the cost of the asset.
While the announcement suggests that the changes will broaden the scope for capital investment and remove barriers to using these arrangements, the specific details are yet to be released.
While we’re still waiting further details, these changes will potentially allow greater flexibility for how infrastructure projects are financed by allowing the lessee or borrower to access depreciation deductions in a broader range of circumstances. We should also see increased certainty around the classification of leases for tax purposes.