Section FA 11 — Income Tax Act 2007: Adjustments for leases that become finance leases

FA 11 Adjustments for leases that become finance leases When this section applies (1) This section applies when a lease is entered into on or after 20 May 1999 and— (a) the lease is a consecutive or a successive lease— (i) that is treated as 1 lease under the definition of lease ; and (ii) with a term of the lease that the lessor and lessee do not contemplate, at the start of the term, will be more than 75% of the personal property lease asset's estimated useful life; and (iii) with a term of the lease that is more than 75% of the asset's estimated useful life: (b) the lease is an operating lease that becomes a finance lease under paragraph (c) of the definition of finance lease . Adjustment required (2) The lessor and lessee must each adjust their income and expenditure calculated for the lease by including an adjustment in a return of income for the tax year corresponding to the income year in which the lease becomes a finance lease. Amount of adjustment (3) The amount of the adjustment is calculated for the relevant person in relation to the period described in subsection (5) using the formula— finance income − finance expenditure − unadjusted income + unadjusted expenditure. Definition of items in formula (4) In the formula,— (a) finance income is the income that would have been derived by the person under the lease if the lease were a finance lease for the period: (b) finance expenditure is the expenditure that would have been incurred by the person under the lease if the lease were a finance lease for the period: (c) unadjusted income is the income derived by the person under the lease: (d) unadjusted expenditure is the expenditure incurred by the person under the lease. Adjustment period (5) The period starts on the date on which the lease starts and ends on the last day of the income year in which the lease becomes a finance lease. Adjustment positive (6) If the adjustment is positive, the amount is income of the relevant person under section CH 6 (Adjustments for certain finance and operating leases). Adjustment negative (7) If the adjustment is negative, the amount is a deduction of the relevant person under section DB 51B (Adjustments for leases that become finance leases). Defined in this Act: amount , estimated useful life , finance lease , income , income year , lease , lessee , lessor , operating lease , personal property lease asset , return of income , tax year , term of the lease Compare: 2004 No 35 s FC 8H Section FA 11: substituted, on 1 April 2008, by section 406 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).