Income Tax Act 2007 section 564C

Purchase and resale arrangements

Section 564C defines the type of purchase and resale arrangement that qualifies as an alternative finance arrangement, where an asset is bought and resold at a higher price with deferred payment, and the price difference effectively represents interest.

• A first purchaser buys an asset and immediately resells it to a second purchaser at a higher price, with all or part of the payment deferred to a later date — at least one party must be a financial institution, or the arrangement must be facilitated through a regulated peer-to-peer lending platform.
• The difference between the higher resale price and the original purchase price must, in substance, equate to the return on an investment of money at interest — this excess is treated as alternative finance return rather than as a trading profit or capital gain.
• Where the first purchaser is a financial institution, the sale to the second purchaser need not occur immediately after the initial purchase, provided the financial institution bought the asset specifically for the purpose of entering into this type of arrangement.
• These rules are subject to the anti-avoidance provision in section 564H, which excludes arrangements where the terms are not at arm's length.