BLM30035 - Taxation of leases that
are not long funding leases: tax advantages: comparing finance
leasing and lending - tax position
In contrast to the commercial accounting, the tax position
differs depending on whether there is a finance lease or an actual
loan.
Lessor / lender
- The taxable income of a lender is the
interest receivable. From this is deducted the interest payable and
other expenses. This is exactly the same as in the commercial
accounts.
- The gross taxable income of a finance
lessor is the gross rentals ('interest' and 'capital' elements).
From this is deducted interest payable, other outgoings and any
capital allowances. Unlike the commercial accounts, the 'loan
repayment' (capital) element in the rentals is also taxable income
but capital allowances are available instead if any expenditure
qualifies for them.
For lessors, there may be cases where the true profits only
emerge in a group's consolidated accounts.
Lessee / borrower
- The taxable profits of a borrower are
calculated by deducting the loan interest payable. This is the same
as in the commercial accounts.
- The taxable profits of a finance lessee
are calculated in principle in the same way as the commercial
accounts, by deducting
- the finance charge payable in accordance with
correct accounting principles; this is normally the same as the
figure in the commercial accounts; and
- the depreciation on the leased asset in accordance
with correct accounting principles; again, this is normally the
same as the depreciation charged in the commercial accounts. The
capital element of the rental payments will normally follow the
accounts depreciation charges.
Whether the tax treatment of the lessee actually follows the
commercial accounts depends mainly on whether those accounts were
drawn up in accordance with GAAP.
