Income Tax Act 2007

Recharacterisation of certain transactions - Recharacterisation of certain commercial arrangements

FA 5: Assets acquired and disposed of after deduction of payments under lease

You could also call this:

"Tax on selling something you used to lease"

You lease something like a machine or a car and you get to deduct the rental payments from your income. If you later buy the thing you leased and then sell it, you might have to pay tax on the money you get from selling it. You can find out more about this in section CG 7. You only have to pay tax on the amount you got from selling the thing if it is more than what you paid for it. If you sell the thing with other things, the total amount of money you get has to be divided up among the things you sold. If you give the thing away or sell it for less than it is worth, it is treated as if you sold it for what it is worth. If someone related to you buys the thing and then sells it for more than they paid, you might still have to pay tax on some of the money they got. There are some exceptions to these rules, like if you get the thing as part of a settlement when a relationship ends.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516274.

This page was last updated on 29 January 2026 — View changes

Topics:

Money and consumer rights > Taxes

FA 4: Recharacterisation of shareholder’s base: company reacquiring share, or

"Company buying back shares: How it affects your remaining shares' cost"

FA 6: Recharacterisation of amounts derived under finance leases, or

"Treating finance leases as sales and loans for tax purposes"

Part FRecharacterisation of certain transactions
Recharacterisation of certain commercial arrangements

FA 5Assets acquired and disposed of after deduction of payments under lease

This section applies when a person (the lessee)—
leases, rents, or hires an asset that is—
1. plant, machinery, or other equipment; or
2. a motor vehicle; or
3. a temporary building; and
is allowed a deduction for the rental payments; and
acquires the asset and later disposes of it; and
the consideration derived on the disposal is not income of the lessee under a provision of this Act other than this section.

If the consideration derived by the lessee for the asset is more than the cost of its acquisition, the excess is income of the lessee under section CG 7 (Recoveries after deduction of payments under lease). Subsection (3) overrides this subsection.
If the total amount of the deductions referred to in subsection (1)(b) is less than or equal to the excess, the amount of income under subsection (2) is the total amount of the deductions.
If the asset is disposed of together with other assets, the total consideration must be apportioned to reflect the respective market values of the assets.
If the asset is disposed of without consideration or for a consideration that is less than market value at the date of disposal, the asset is treated as having been disposed of at its market value.
Subsection (2) also applies if a person associated with the lessee acquires the asset, whether from the lessee or not, and disposes of it for an amount that is more than the amount paid to acquire it. Association is determined at the time of acquisition by the associated person. The lesser of the excess and the total amount of the lessee’s deductions is treated as income of the lessee.
In this section,—
subsection (1)(c) does not apply to an acquisition on a settlement of relationship property:
subsection (5) does not apply to a disposal on a settlement of relationship property.

Compare

2004 No 35 s FC 5