Section FA 10 — Income Tax Act 2007: Treatment when lease ends: lessor acquiring asset

FA 10 Treatment when lease ends: lessor acquiring asset When this section applies (1) This section applies when a finance lease ends by the date on which its term ends. Acquisition by lessor at end of lease (2) If the lessee does not acquire the personal property lease asset by the date on which the term of the lease ends, the lessor is treated as having acquired it on that date at its guaranteed residual value. If there is no guaranteed residual value, the consideration is treated as zero. In this section, the consideration is called the notional sale price . Further sale, assignment, or lease (3) Subsections (4) and (5) apply when the lessor sells, assigns, or leases the lease asset to another person under another finance lease on or after the date on which the term of the original lease ends. When consideration more than notional sale price (4) If the consideration is more than the notional sale price,— (a) to the extent to which it is paid by the lessor to the lessee under the original finance lease, the notional sale price is increased by the amount of the difference; and (b) to the extent to which it is not paid by the lessor to the lessee under the original finance lease, the amount of the difference is income of the lessor under section CC 12 (Lessor acquiring lease asset on expiry of term of lease) in the income year in which the original lease term ends. When consideration less than notional sale price (5) If the consideration is less than the notional sale price, and the lessee is required to pay the amount of the deficit to the lessor, the notional sale price is reduced by that amount. Acquisition by lessor when lease ends early (6) If the lease is terminated before the end of its term and the lessee does not acquire the lease asset, the lessor is treated as acquiring it for an amount calculated using the formula— outstanding balance − release payment. Definition of items in formula (7) In the formula,— (a) outstanding balance is the amount of the outstanding balance of the loan on the date on which the lease is terminated: (b) release payment is the amount the lessee paid to be released from their obligations under the lease. Relationship with section EE 45 (8) Subsections (2) to (6) override section EE 45 (Consideration for purposes of section EE 44 ). Defined in this Act: amount , finance lease , guaranteed residual value , income , lease , lessee , lessor , loan , notional sale price , outstanding balance , pay , personal property lease asset , term of the lease , Compare: 2004 No 35 ss FC 8B(3) , FC 8C , FC 8D