Income Tax Act 2007 section 614BL

Relief for bad debts: reduction of cumulative accountancy rental excess

Section 614BL deals with how bad debts on finance lease rentals interact with the cumulative accountancy rental excess, ensuring that the excess is appropriately reduced when rent becomes irrecoverable.

• Where a lessor has a cumulative accountancy rental excess and a bad debt arises on lease rent, the excess may need to be reduced to reflect the uncollectable amounts
• If accountancy rental earnings exceed normal rent but the bad debt deduction is larger still, the cumulative accountancy rental excess is reduced by the amount the bad debt exceeds the accountancy rental earnings, but not below nil
• If accountancy rental earnings do not exceed normal rent, the amount of cumulative accountancy rental excess that can be set against taxable rent is limited to the normal rent less the bad debt deduction, and any bad debt exceeding normal rent further reduces the cumulative excess
• The overall aim is that, over the life of the lease, the total rent taxed equals the total rent actually received after accounting for bad debts