Income Tax Act 2007 section 614BC

The conditions referred to in section 614BB(1)

Section 614BC sets out the five conditions (A to E) that must all be met for Chapter 2 (finance leases with a return in capital form) to apply to a particular leasing arrangement.

• Condition A: the leasing arrangements must be treated under generally accepted accounting practice (GAAP) as a finance lease or loan, and the lessor (or a connected person, or a group of which the lessor is a member) must be recognised as the finance lessor in the accounts
• Condition B: a "major lump sum" that is not rent must be payable to the lessor (or a connected person), where part of that sum is treated under GAAP as repayment of investment and part as a return on investment in respect of the finance lease or loan
• Condition C: not all of the return-on-investment element of the major lump sum would otherwise be brought into account for income tax as normal rent from the lease for tax years up to and including the relevant tax year
• Condition D: in either the lessor's current period of account (containing the relevant time) or an earlier period when the lessor held that role, the accountancy rental earnings from the lease must exceed the normal rent for that period — indicating the lease terms may be designed to convert rental income into a capital receipt

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