Income Tax (Trading and Other Income) Act 2005 section 148E

Long funding operating lease: lessor's additional expenditure

Section 148E provides for an additional tax deduction where a lessor of plant or machinery under a long funding operating lease incurs capital expenditure on the asset that was not reflected in its market value at the start of the lease.

• Where a trading lessor incurs additional capital expenditure on plant or machinery subject to a long funding operating lease, and that expenditure is not reflected in the asset's market value at the commencement of the lease, an additional deduction is available for income tax purposes.
• The deduction is based on the "expected reduction" in value, calculated as the additional expenditure less the remaining residual value of the plant or machinery resulting from that expenditure, with the remaining residual value determined under sections 148EA and 148EB.
• The expected reduction is apportioned on a time basis according to the proportion of the lease term that falls within each period of account, and the deduction applies for every period of account ending after the expenditure is incurred and during which the person remains the lessor under the lease.
• The "commencement time" is generally the start of the lease term, but where section 148DB applies (plant or machinery originally non-qualifying), it is the time the asset is first brought into use by the lessor for the purposes of the qualifying activity.

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