Section FA 5 — Income Tax Act 2007: Assets acquired and disposed of after deduction of payments under lease

FA 5 Assets acquired and disposed of after deduction of payments under lease When this section applies (1) This section applies when a person (the lessee )— (a) leases, rents, or hires an asset that is— (i) plant, machinery, or other equipment; or (ii) a motor vehicle; or (iii) a temporary building; and (b) is allowed a deduction for the rental payments; and (c) acquires the asset and later disposes of it; and (d) the consideration derived on the disposal is not income of the lessee under a provision of this Act other than this section. Income (2) If the consideration derived by the lessee for the asset is more than the cost of its acquisition, the excess is income of the lessee under section CG 7 (Recoveries after deduction of payments under lease). Subsection (3) overrides this subsection. Adjustment to income (3) If the total amount of the deductions referred to in subsection (1)(b) is less than or equal to the excess, the amount of income under subsection (2) is the total amount of the deductions. Apportionment (4) If the asset is disposed of together with other assets, the total consideration must be apportioned to reflect the respective market values of the assets. Disposal below market value (5) If the asset is disposed of without consideration or for a consideration that is less than market value at the date of disposal, the asset is treated as having been disposed of at its market value. Associated persons acquiring asset (6) Subsection (2) also applies if a person associated with the lessee acquires the asset, whether from the lessee or not, and disposes of it for an amount that is more than the amount paid to acquire it. Association is determined at the time of acquisition by the associated person. The lesser of the excess and the total amount of the lessee’s deductions is treated as income of the lessee. Transfers on settlement of relationship property (7) In this section,— (a) subsection (1)(c) does not apply to an acquisition on a settlement of relationship property: (b) subsection (5) does not apply to a disposal on a settlement of relationship property. Defined in this Act: amount , associated person , deduction , income , lease , lessee , market value , pay , settlement of relationship property , temporary building , Compare: 2004 No 35 s FC 5