Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Recharacterisation of certain transactions - Recharacterisation of certain commercial arrangements

FA 9: Treatment when lease ends: lessee acquiring asset

You could also call this:

“Rules for buying leased items and how it affects your taxes”

When you are leasing something and you buy it when the lease ends, it’s treated as if you bought it at the start of the lease. This is the same as what happens in section FA 6.

If you or someone connected to you buys the leased item and later sells it for more money than you paid, the extra money is counted as your income. This is explained in section CC 11. The extra money is counted as income in the year when you or the connected person sells the item. The connection between you and the other person is looked at when they buy the item.

This rule about extra money being income doesn’t apply if the money from selling the item is already counted as income under a different part of this law.

If you spend money on an aircraft, including an aircraft engine without a set price, and you can deduct this money under sections DW 5 and DW 6, this spending isn’t included in how much you paid for the aircraft when looking at the rules in this section.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516284.

Topics:
Money and consumer rights > Taxes
Money and consumer rights > Banking and loans
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FA 8: Deductibility of expenditure under finance lease, or

“You can claim depreciation on property you lease under a finance lease”

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FA 10: Treatment when lease ends: lessor acquiring asset, or

“Rules for when a rented item is returned at the end of a long-term lease”

Part F Recharacterisation of certain transactions
Recharacterisation of certain commercial arrangements

FA 9Treatment when lease ends: lessee acquiring asset

  1. When a lessee under a finance lease acquires the personal property lease asset by the date on which the term of the lease ends, the acquisition is treated as the same sale that is treated as occurring under section FA 6.

  2. If a lessee under a finance lease, or a person associated with them, acquires the lease asset and later disposes of it for an amount that is more than the consideration they paid for it, the excess is income of the lessee under section CC 11 (Lessee acquiring lease asset on expiry of term of lease).

  3. For the purposes of subsection (2),—

  4. the excess is income of the lessee in the income year in which the lessee or associated person disposes of the asset:
    1. association is determined at the time of acquisition by the associated person.

      1. Subsection (2) does not apply if the consideration derived on the disposal is income of the lessee or an associated person under a provision of this Act other than this section.

      2. Expenditure of a person that relates to an aircraft including an unpriced aircraft engine and is deductible under sections DW 5 and DW 6 (which relate to aircraft engine acquisitions and overhauls) is not included in an amount of consideration paid by the person for the aircraft, for the purposes of this section.

      Compare
      Notes
      • Section FA 9(5) heading: inserted, on (applying for the 2017–18 and later income years), by section 95(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
      • Section FA 9(5): inserted, on (applying for the 2017–18 and later income years), by section 95(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
      • Section FA 9 list of defined terms aircraft engine: inserted, on , by section 95(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
      • Section FA 9 list of defined terms consideration: inserted, on , by section 95(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
      • Section FA 9 list of defined terms unpriced aircraft engine: inserted, on , by section 95(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).