Capital Allowances - finance lease
30/03/2000
Query
Instruction [10.1.3] Urban Renewal Relief on the issue of finance leases states that the question as to whether a lease is a finance lease should be considered primarily by reference to subparagraph (1)(b) of section 33(1) Finance Act 1990, i.e. is it a lease which provides for the lessee the risks and benefits of ownership. Is there further guidance as to when a lease provides for such risks and benefits?
Decision
Decision: A lease is considered in substance to provide for the lessee the benefits associated with ownership where the lessee has the benefit of any expected increase in the value of the property. Conversely, a lease is considered in substance to provide for the lessee the risks associated with ownership where the lessee has the risk of any expected decrease in the value of the property. This Office is of the view that the lessee is exposed to this variation if the property is acquired, in substance, through he lease payments.In the case of sale and leaseback arrangements, a lessee may have a call option to repurchase the property and the lessor may have a put option to transfer the property to the lessee. If the price at which the option can be exercised is equal to providing for the lessee the risks and benefits associated with ownership and accordingly the lease will not come within the definition of a finance lease for the purposes of double rent allowance.
Income Tax
Section 345(8), Taxes Consolidation Act, 1997
Origin: Office of the Chief Inspector of Taxes
File ref:99gm157