Capital Allowances Act 2001 section 70YC

Extension of term of lease that is not a long funding lease

Section 70YC deals with what happens when the term of a plant or machinery lease that is not a long funding lease is extended, and whether that extension causes the lease to be reclassified as a long funding lease.

• When the term of a non-long-funding plant or machinery lease is extended, the legislation requires a notional test to determine whether the extended lease would now qualify as a long funding lease.
• The test works by assuming the existing lease ends just before the effective date and a hypothetical new lease begins on that date for the remaining extended term — if that new lease would be a long funding lease, the lessor is treated as if this actually happened.
• If the hypothetical new lease would not be a long funding lease, the existing lease simply continues but its term is treated as the extended term for the purposes of any future reassessment under this section or the related rules on guaranteed residual amounts.
• The effective date is the earlier of the day after the original lease term would have ended, or the date on which any rental variation connected with the extension takes effect.