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Leases treated as sale agreements

Income Tax (Income from Finance Leases) Regulations

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—(1) For the purposes of regulation 3, a finance lease shall be treated as a sale agreement if —(a)the lessee has an option to purchase the machinery or plant during the term of the lease including any extension or renewal thereof or upon its expiry;(b)the machinery or plant which is leased is a limited use asset;(c)the machinery or plant in a sale and lease-back transaction has been previously used by the lessee or any other person;(d)the lessor and lessee are related to each other and —(i)the lessee or any other person related to the lessee lends to the lessor any of the funds necessary to acquire the leased asset or guarantees any debt of the lessor incurred in connection with the lease;(ii)the terms of the lease are determined otherwise than on the basis that there is no such relationship between the lessor and the lessee; or(iii)the total value of the rentals or hire received or receivable for the term of those finance leases entered into by the lessor with lessees, who are related to the lessor, at any time during the basis period for any year of assessment exceeds half of the total value of the rentals or hire received or receivable for the term of all finance leases entered into by the lessor in that basis period; or(e)the lease is a leveraged lease unless the Comptroller determines that it shall be treated otherwise.(2) For the purposes of this regulation, a person shall be deemed to be related to another person where one of them, whether directly or indirectly, has the ability to control the other or exercises significant influence over the other in the making of financial and operational decisions, or where both of them, whether directly or indirectly, are under the control of or under such influence exercised by a common person.

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