76D Computation of income from finance leases

Summary

This section ensures that the computation for tax purposes of income from finance leasing does not change as a result of the move by certain companies to International Financial Reporting Standards.

Under section 76A, trading income of a company is based on the accounts of the company prepared in accordance with accounting standards. Accounting standards for finance leases involve applying substance over form and, in effect, accounting for such leases as if they were loans. This means that a lessor is taxable only on the “interest element” of lease payments.

For tax purposes, a finance lessor was always taxed on income determined by setting expenses against gross lease payments and allowing the lessor to claim capital allowances on the leased asset. This tax treatment is preserved.

Relevant Date: Finance Act 2021