Income Tax (Income from Finance Leases) Regulations

Status:

Current version
as at 21 Nov 2024

Income Tax Act

(Chapter 134, Section 10D)

Income Tax (Income from Finance Leases) Regulations

Rg 13

G.N. No. S 23/1992

REVISED EDITION 1993

(1st April 1993)

[1st April 1990]

Citation and application

1.—(1) These Regulations may be cited as the Income Tax (Income from Finance Leases) Regulations.

(2) These Regulations shall apply to any finance lease entered into on or after 1st April 1990.

Definitions

2. In these Regulations —

“leveraged lease” is a finance lease the parties to which include a lessor, lessee and one or more long-term creditors who provide a substantial part of the financing for the acquisition of the leased machinery or plant without any recourse to the lessor for the repayment of the loan;

“limited use asset” means any machinery or plant —

(a)	for which there is no other user;
(b)	where it is not commercially feasible for the lessor to lease the machinery or plant to another user; or
(c)	where the costs of dismantling and reassembling the machinery or plant are so high as to render a subsequent lease not economically viable;

“sale and lease-back transaction” means a transaction where the asset is sold and subsequently leased back to the seller.

Allowances made to lessee

3. Allowances under section 19, 19A, 20, 21, 22 or 23 of the Act in respect of any machinery or plant which is leased under a finance lease shall be made to the lessee if the finance lease is treated as a sale agreement.

Leases treated as sale agreements

4.—(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.

Income from lease

5. In determining the income of a lessor derived from the leasing of any plant or machinery under any finance lease (other than a lease which has been treated as a sale agreement under regulation 4) —

(a)	the value of the receipts from the sale by the lessor of the machinery or plant shall be determined in accordance with the open market value of the machinery or plant; and
(b)	the income from the hire or rentals in respect of the lease shall be assessed in accordance with their open market value.

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