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Income Tax Act 2007

Income - Recoveries

CG 7: Recoveries after deduction of payments under lease

You could also call this:

“Income from selling a leased asset you later bought”

When you lease, rent, or hire certain types of assets like equipment, vehicles, or temporary buildings, and you’re allowed to deduct the rental payments from your taxes, this law might apply to you. If you later buy that asset and then sell it for more than you paid to acquire it, you might have to report some of that profit as income.

The amount you need to report as income is the smaller of two things: either how much more you sold the asset for compared to what you paid for it, or the total amount of deductions you claimed for the rental payments.

You need to report this income in the same tax year that you sell the asset.

This law is connected to section FA 5, which talks about assets that are acquired and sold after you’ve claimed deductions for lease payments on them.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1512842.

Topics:
Money and consumer rights > Taxes
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Part C Income
Recoveries

CG 7Recoveries after deduction of payments under lease

  1. This section applies, for the purposes of section FA 5 (Assets acquired and disposed of after deduction of payments under lease) when—

  2. a person leases, rents, or hires an asset that is—
    1. plant, machinery, or other equipment; or
      1. a motor vehicle; or
        1. a temporary building; and
        2. they are allowed a deduction for the rental payments; and
          1. they acquire the asset and later dispose of it for an amount that is more than the amount paid to acquire the asset.

            1. The amount described in subsection (3) is income of the person.

            2. The amount is the lesser of the amount by which the consideration on disposal is more than—

            3. the sum of the payments made; or
              1. the total amount of the deductions referred to in subsection (1)(b).

                1. The income is allocated to the income year of the disposal of the asset.

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