Taxes Consolidation Act 1997 section 76D

Computation of income from finance leases

Section 76D sets out how companies should calculate income and expenses from leases for tax purposes, requiring that lease payments be spread evenly over the lease term rather than following accounting treatment.

• A "finance lease" is one treated as such under accounting standards; an "operating lease" is any lease that does not qualify as a finance lease. "Lease payments" include all amounts payable under the lease, including guaranteed residual payments and refundable amounts at or after the end of the lease term.
• For a lessor engaged in a finance leasing trade, the total lease payments receivable must be spread evenly over the lease term as trading receipts, with related expenses similarly spread — the accounting treatment under section 76A does not apply.
• For a lessee (whether under a finance lease or an operating lease), the total lease payments payable must be treated as a trading expense spread evenly over the lease term, regardless of how the lease is recorded in the accounts or reflected in asset values.
• If the lease term or payment amounts change during the life of the lease, income or deductions must be recalculated. Where a change arises from unforeseen facts or circumstances, the adjustment is spread over the periods to which the change relates. Rebates of lease payments on termination are deductible by the lessor on the later of payment or accrual, and taxable for the lessee on the earlier of receipt or accrual.