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Income Tax Act 2007

Deductions - Expenditure specific to certain industries

DW 6: Aircraft operators: payments and adjustments under finance leases

You could also call this:

“How aircraft lease payments for engine overhauls are treated for tax purposes”

If you’re leasing an aircraft engine or an aircraft with an unpriced engine under a finance lease, and you’re allowed to deduct costs for overhauling the engine, this is how it works:

When you pay money to the lessor during the lease for future engine overhauls, you can’t claim it as a deduction. If the lessor later pays you back when you actually do the overhaul, that money isn’t counted as your income.

At the end of the lease, if you’ve paid more for overhauls than you’ve been paid back, you can claim the difference as a deduction in that year.

Sometimes, the lease might say you need to pay the lessor (or they need to pay you) an amount at the end. This amount is based on how much of the engine’s overhaul period has passed. If you have to pay this, you can claim it as a deduction. If you receive this payment, it counts as your income.

These rules override the usual rules about receiving money for expenses or losses.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM7276309.

Topics:
Money and consumer rights > Taxes
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DW 5: Aircraft operators: aircraft engines and aircraft engine overhauls, or

“Rules for aircraft operators claiming deductions for engine costs and overhauls”

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Part D Deductions
Expenditure specific to certain industries

DW 6Aircraft operators: payments and adjustments under finance leases

  1. This section applies when a person leasing under a finance lease an aircraft engine, or an aircraft including an unpriced aircraft engine, meets the requirements of section DW 5(1) for being allowed a deduction for expenditure incurred in performing an aircraft engine overhaul of the aircraft engine.

  2. If, during the term of the lease, the person pays an amount under the lease to the lessor towards the cost of aircraft engine overhauls,—

  3. the person does not have a deduction for the payment; and
    1. a payment of a corresponding amount by the lessor to the person when the person incurs expenditure in performing an aircraft engine overhaul of the aircraft engine is not income of the person.

      1. If, at the end of the lease, the total amount of the payments referred to in subsection (2)(a) exceed the total amount of the payments referred to in subsection (2)(b), the person has a deduction for the income year in which the lease ends equal to the amount of the excess.

      2. If the lease requires the person to pay to the lessor, or the lessor to pay to the person, at the end of the lease an amount that is calculated from the cost of an aircraft engine overhaul and the proportion of the scheduled overhaul period for the aircraft engine that is expired when the lease ends,—

      3. an amount that the person is required to pay is allowed as a deduction of the person; and
        1. an amount that the person is entitled to receive is income of the person under section CG 4(2) (Receipts for expenditure or loss from insurance, indemnity, or otherwise).

          1. This section overrides section CG 4.

          Notes
          • Section DW 6: inserted, on (applying for the 2017–18 and later income years), by section 52(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).