Income Tax Act 2007 section 564I

Purchase and resale arrangements

Section 564I defines how to calculate the "alternative finance return" — the profit element treated similarly to interest — arising from purchase and resale arrangements under section 564C, depending on whether the second purchase price is paid in a lump sum or by instalments.

• Where the second purchase price is paid in full on one day, the alternative finance return is simply the difference between the second purchase price and the first purchase price.
• Where the second purchase price is paid by instalments, the alternative finance return within each instalment is calculated by reference to the interest that would notionally have arisen on an equivalent conventional loan.
• The notional loan assumes an arm's length arrangement, with total interest equal to the excess of the second purchase price over the first, accounted for under generally accepted accounting practice.
• Terms used in this section carry the same meanings as in section 564C, which sets out the conditions for purchase and resale arrangements to qualify as alternative finance.