A lease may require the lessee to provide plant or machinery. If
the lessee does that, the lessee may not be the owner of the plant
or machinery. For example, the lease of a shop may require the
lessee to provide a display case that becomes the property of the
lessor along with the shop.
If a lessee carrying on a qualifying activity incurs capital
expenditure on an asset:
then the lessee is treated as the owner of the asset while it is
used for the qualifying activity. The lessee does not need to bring
a disposal value to account when the lease ends.
If the lessee uses the plant until the lease ends and the
lessor holds the lease in the course of a qualifying activity, the
lessor has to bring a disposal value to account if there is a
disposal event after the lease ends.
Example Henley rents a shop from Walsh, who lets
it as part of a Schedule A business. The lease requires him to
provide a showcase that becomes Walsh's property. Henley provides
the showcase and uses it until the lease ends. Walsh decides to
turn the shop into a restaurant and sells the showcase. Walsh has
to bring a disposal value to account in his Schedule A
business.
