Senate

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 6 - Leases of luxury cars

Overview

6.1 Part 1 of Schedule 6 of the Bill will insert a new Schedule 2E into the Income Tax Assessment Act 1936 (the Act) to provide that lease arrangements involving cars whose cost is more than the depreciation cost limit applicable under section 57AF will be treated as sale and loan transactions. The new schedule is inserted to fit within the proposed new structure of the Act under the tax law improvement program.

Summary of the amendments

Purpose of the amendments

6.2 The amendments have the following broad features:

•

The lessor is treated as having disposed of the luxury car at the commencement of the lease to the lessee for a consideration generally equal to the cost of the vehicle and is thereafter denied deductions for depreciation.

•

The lessor is taken to have made a loan (the notional loan ) to the lesseeof an amount generally equal to the cost of the luxury car for a term equal to the lease term stipulated in the lease contract. The lessee is treated as a borrower and is taken to have borrowed the same amount.

•

The lesseeis treated as the owner of the car from the time the lease commences and is therefore entitled to claim depreciation deductions.

•

Actual lease payments , except to the extent that they are taken into account in calculating the lessor's income and the lessee's deductions under the notional loan, will be neither assessable to the lessor nor deductible to the lessee.

•

The lessor's assessable income and lessee's allowable deductions will be determined by reference to the lessor's return on funds (the " finance charge " under the notional loan), being the difference between the notional loan and the sum of the periodic lease paymentsand any other amounts payable under the lease or on termination of the lease (including, for example, the agreed residual value or the value of the luxury car at the end of the lease term).

•

The amount of the finance charge to be brought to account as assessable income of the lessor in each income year will be calculated on a compounding accruals basis by applying the implicit interest rate under the lease to the notional loan principal outstanding at the beginning of each lease payment period ( accrual period ). The sum of the accrual amounts calculated for each of the accrual periods, including part periods, occurring during the income year will be included in the lessor's assessable income.

•

An equivalent amount calculated on a corresponding basis will be allowable as a deduction to the lessee to the extent to which the lessee otherwise would have been entitled to a deduction in respect of losses or outgoings incurred under the lease in the income year.

•

Upon expiry or termination of the lease the taxation treatment of the luxury car depends upon whether possession is retained by the lesseeor reverts to the lessor. If the lesseeretains possession, the lessee will continue to be treated as the owner entitled to taxation depreciation allowances. Any termination amount payable will be treated as a payment in discharging the loan and will be neither deductible to the lesseenor assessable to the lessor. If possession reverts to the lessor (or goes to a third party) the lessee is treated as having sold the vehicle. The consideration receivable for the sale broadly equals the amount credited to the lesseeunder the terms of the lease for the return of the car. If the car is returned without a specified amount being credited, the amount that is taken to be credited to the lesseefor the return of the car is generally the value of the car at the time of termination.

•

On expiry or termination of the lease an adjustment may be necessary to correct for any overstatement or understatement of assessable income or allowable deduction arising from any change in the basis of the calculation of the accrual amounts, for example, due to early termination without full payment of the agreed lease instalments, the imposition of penalty payments or variations to estimated residual values.

•

These rules will apply where luxury cars are sub-leased, but will not apply to hire purchase agreements .

Date of effect

6.3 The amendments apply toleases (including extensions of pre-existing leases) of new or second hand motor vehicles entered into after 7.30 pm by legal time in the Australian Capital Territory on 20 August 1996.

Background to the legislation

6.4 Section 57AF of the Act applies a cost limit for tax depreciation purposes on certain motor cars and station wagons (referred to as 'luxury cars') and requires that balancing adjustments on disposal of luxury cars be calculated by reference to that limit. A related provision, section 26AAB, brings within assessable income certain profits made on the disposal of a previously leased luxury car.

6.5 Leasing arrangements have been developed which circumvent the effect of the limit, primarily by ensuring the lessor is a tax exempt or tax preferred entity. The arrangements effectively allow end-users to obtain greater tax deductions than would otherwise be the case if the car was purchased.

6.6 The scope of these amendments is to treat lease arrangements involving luxury cars as if they are sale and loan transactions. The amendments will apply to all leases of luxury cars, irrespective of whether the luxury car is new or second-hand, other than genuine short-term hiring agreements . The amendment does not have effect for the purpose of Division 11A of Part III of the Act.

Exclusions

6.7 The proposed rules will not apply in respect of arrangements involving genuine short-term hiring agreements [refer to section 42A-115: definition of 'lease' ], hire purchase agreements [refer to section 42A-115: definition of ' lease'] and to luxury cars that constitute trading stock of the lessee . [New section 42A-10]

Notional sale of car, and notional loan, to the lessee

Application of this Division

6.8 The rules will apply where a person (the lessor ) has leased a luxury car to another person (the lessee) under a lease contract entered into after 7.30 pm by legal time in the Australian Capital Territory on 20 August 1996. [New section 42A-10]

6.9 A car will be a luxury car where the cost of the car exceeds the depreciation limit specified in section 57AF. In determining whether or not section 57AF applies, or would apply, the relevant luxury car depreciation limit is that applicable to the financial year in which the lease commences. For that purpose, the cost of the car is the amount for which the lesseeis taken to have purchased the car. See definition of luxury car in new section 42A-120 .

Notional sale of car by lessor and notional acquisition of car by lessee

6.10 The lessor is to be treated as having disposed of the luxury car to the lessee. The time of disposal will be the time of commencement of the lease term under the lease. The lessee will be treated as the owner of the car during the term of the lease(but will cease to be the owner if the lessee subleases the car while it is a luxury car). [New section 42A-15]

Consideration for notional sale, cost of notional acquisition, and depreciated value, of the car

6.11 Where the lessor and lessee are dealing at arm's length and the lease contract specifies an arm's length price of the luxury car, that amount will be taken to be the consideration on disposal and the lessee's cost of the luxury car. In other cases, the consideration will be equal to the amount that the lessee could have been expected to pay to purchase the luxury car under an arm's length transaction. [New subsection 42A-20(1)]

6.12 If a lessee subleases a luxury car to an associate the cost of the car to the sublessee for depreciation purposes will be the depreciated value (under section 62) applicable to the lesseeat the date the sublease commences and any balancing adjustment included in the lessee's assessable income under subsection 59(2) as a result of the notional disposal of the car under new section 42A-15 by the lessee to the associated sub-lessee [new subsection 42A-20(2)] . In this context, associate is defined in new section 42A-115 to have the same meaning as in section 318 of the Act, but to include as well persons who are in an employer/employee relationship.

Notional loan by lessor to lessee

6.13 The lease transaction is to be treated as if it were a loan made by the lessor to the lessee for a period equal to the lease term and subject to the payment of a finance charge .

6.14 The amount of the notional loan principal will be equal to the amount which is treated as the consideration for the disposal of the luxury car from the lessor to the lesseereduced by any non-lease advance or immediate payments by the lessee made at, or prior to, the commencement of the lease. The reduction would reflect, for example, the value allowed for a traded-in vehicle or a deposit paid by the lessee.

6.15 Lease payments will be treated as payments of principal and finance charge under the loan. [New section 42A-25]

Amounts to be included in lessor's assessable income

6.16 The finance charge is assessable income of the lessor on an accruals accounting basis during the lease term.

6.17 The amount which the lessor is required to include in assessable income in the income year is the sum of the accrual amounts for each of the accrual periods in the income year [new subsection 42A-35(1)] . The accrual period as defined in new section 42A-140 is the lease payment period as defined in new section 42A-135 .

6.18 Where an accrual period falls into more than one income year the assessable amount includes that portion of the accrual amount referable to the relevant period within the income year, apportioned under generally accepted accounting principles. [New paragraph 42A-35(1)(b)]

6.19 The assessable income of the lessor also includes the difference between the acquisition cost of the car to the lessor and the consideration for the car under the notional sale to the lessee [new subsection 42A-35(2)] .(See example 'Profit on sale of car'). Where the car is returned to the lessor (ie a notional re-acquisition under new subsection 42A-90(2) or 42A-105(2) by the lessee and subsequently sold, the assessable income of the lessor will also include any excess of the selling price over the cost of re-acquisition. [New subsection 42A-35(3)]

Lease payments not to be included in lessor's assessable income

6.20 Lease rental payments received or receivable by the lessor will not be assessable income to the lessor but are taken into account in calculating the accrual amount. [New section 42A-40]

Deductions allowable to lessee

Extent to which deductions are allowable to the lessee

6.21 Where the lessee would have been entitled to a deduction in respect of losses or outgoings incurred under the lease in the income year, the lesseecan deduct the finance charge component of the lease payments, calculated in the same way as the lessor's assessable amount. The deduction will be limited to the extent to which the lessee would, but for the non-deduction rule contained in new section 42A-55 , have been able to deduct the lease paymentsincurred in the income year. [New section 42A-50]

Lease payments not to be allowable deductions

6.22 Lease payments made by the lesseewill not be allowable deductions to the lesseeexcept to the extent they are taken into account in calculating the accrual amount. [New section 42A-55]

Adjustments if total amount assessed to lessor differs from amount of finance charge

Adjustments for lessor

6.23 The calculation of the accrual amounts included in the lessor's assessable income may in some cases be based on estimated amounts or amounts that have been varied by the time the notional loan is taken to have been repaid. The notional loan can be considered to be repaid when the lease expires, is terminated, extended or renewed. As a result, there may be a need to make an adjustment to income assessed.

6.24 Such variation may be due, for example, to an early termination without full payment of lease rentals or to a termination amount on expiry of the lease which varies from an estimated amount that was used to calculate the accrual amounts.

6.25 The adjustment is to be made by adding an amount to, or subtracting an amount from, the lessor's taxable income in the income year in which the termination or expiry etc of the lease occurs.

6.26 The adjustment to the lessor's taxable income is calculated as the sum of all amounts paid or payable to the lessor under the lease contract (including the termination amount) adjusted by the following formula:

Notional loan principal + Assessed accrual amounts
where: Notional loan principal is the notional loan principal at the commencement of the lease andAssessed accrual amounts is the aggregate of the accrual amounts included in the lessor's assessable income.

[New subsection 42A-65(4)]

6.27 Where the sum of all amounts paid or payable to the lessor under the lease contract (including the termination amount) exceeds the amount calculated using the formula, the amount of the excess is to be included in the assessable income of the lessor in the income year in which the lease is terminated [new subsection 42A-65(2)] . If that sum is less than the amount calculated using the formula, the difference is allowable as a deduction to the lessor in the income year in which the lease is terminated [new subsection 42A-65(3)] .

Adjustments for lessee

6.28 Where an adjustment amount is or would be included in the lessor's assessable income and the lesseeis entitled to deductions, an amount calculated in a similar manner is allowable as a deduction to the lesseein the income year of the lessee in which the lease terminates or expires [new subsection 42A-70(1)] . Correspondingly, if an adjustment amount is or would be allowable as a deduction to the lessorand the lesseehas claimed deductions, an amount calculated in a similar manner is included in the lessee's assessable income in the lessee's income year [new subsection 42A-70(2)] .

6.29 The lessee's deduction or assessable amount, as the case requires, is reduced to the extent to which lease payments made under the lease would not have been deductible to the lessee e.g. because the car in question was only partly used in income producing activities. [New subsection 42A-70(3)]

What happens when the lease expires

What happens if the lease term is extended or the lease is renewed

6.30 If the lesseecontinues to retain possession of the car (which includes temporary loss of possession prior to renewal or extension of the lease) because the lease is extended or renewed:

(i)

the lessee's continuing ownership for depreciation purposes is not disturbed (provided the lessee has not subleased the car) [new subsections 42A-80(1), (2) and (3)] ; and

(ii)

the lessor is to be treated as providing a new notional loan for the new lease period. The notional loan in relation to the previous lease is treated as being repaid [new subsections 42A-80(4) and (5)] .

6.31 Where the lessor and lesseeare dealing at arm's length and the new lease contract specifies a cost or value of the luxury car, the new notional loan principal will be taken to be equal to the specified amount. In other cases, the amount of the new notional loan principal will be equal to the amount that the lesseecould have been expected to pay to purchase the luxury car under an arm's length transaction [new subsection 42A-80(7)] . An adjustment on termination of the previous lease may be necessary under new section 42A-65, treating the new notional loan as a termination amount under that lease.

What happens if an amount is paid by or on behalf of the lessee to acquire the car

6.32 If the lessor is paid an amount by the lesseeor on behalf of the lessee to acquire the luxury car:

(i)

the amount is neither an allowable deduction to the lesseenor assessable income of the lessor;

(ii)

the lessee 's ownership of the luxury car for the purposes of the depreciation provisions is not disturbed; and

(iii)

transfer of legal title to the luxury car from the lessor to the lessee is not to be treated as a disposal of the car.

[New section 42A-85]

What happens if the lessee ceases to have the right to use the car

6.33 If the lesseeceases at the end of the lease to hold the luxury car and does not otherwise acquire legal ownership of it, the car is to be treated for the purposes of the depreciation provisions as being disposed of by the lessee and acquired by the lessor. [New subsections 42A-90(1) and (2)]

6.34 For depreciation purposes, the consideration for the disposal is calculated according to the following formula:

Balance of notional loan - Payable amount + Refundable amount
where:

Balance of notional loan is the sum of

(a)

the outstanding notional loan principal at the end of the lease term; and

(b)

any amounts payable by the lessee in respect of the notional loan that were not paid at or before that time (usually arrears); and

(c)

any amount payable by the lessee because of the expiry of the lease, other than a 'payable amount' (see below).

'Payable amount' is any additional amount payable by the lessee because the value of the car is less than the balance of notional loan, as defined.

'Refundable amount' is any amount payable to the lessee by the lessor because the value of the car is more than the balance of notional loan, as defined.

[New paragraph 42A-90(6)]

6.35 If it is not practicable to calculate the amount using this formula (e.g. if no amount is payable to or by the lessee), the value of the car at the time the lease expires is the consideration for the sale. [New paragraph 42A-90(3)(b)]

6.36 The lessor is treated as having acquired the vehicle for the same amount the lesseeis taken to have disposed of it for. [New subsection 42A-90(3)]

6.37 New subsection 42A-90(4) contains special rules which apply where a previously leased car is acquired by an associate of the lessee. The special rules will apply where the associate either acquires ownership of the car or, as lessee, is taken by new section 42A-15 to have acquired the car at the start of the lease term. The cost of the carfor calculating the associate's entitlement to depreciation deductions is taken to be the lesser of:

(i)

the depreciated value applicable to the associated lesseeas if it had remained the lesseeof the car, adjusted for any balancing charge that applies because the car is taken to have been disposed of by the associated lessee; and

(ii)

the acquisition cost of the car to the associate .

What happens if the lease is terminated before the end of the lease term

What happens if an amount is paid by or on behalf of the lessee to acquire the car

6.38 If the lease is terminated and an amount is paid to the lessor by the lessee or on behalf of the lesseeto acquire the car:

(i)

the amount is neither an allowable deduction to the lessee nor assessable income of the lessor;

(ii)

the lessee's ownership of the luxury car for the purposes of the depreciation provisions is not disturbed; and

(iii)

transfer of legal title to the luxury car from the lessor to the lessee is not to be treated as a disposal of the car.

[New section 42A-100]

What happens if the lessee ceases to have the right to use the car

6.39 Where the lease contract is terminated before the expiry of the lease term such that the lessee ceases to hold the luxury car, the lessee is treated as having disposed of the luxury car to the lessor at the time the lease is terminated. [New subsections 42A-105(1) and (2)]

6.40 For the purpose of calculating adjustments on disposal under section 59, the disposal will be treated as being by way of sale, and the consideration calculated according to the following formula:

Balance of notional loan - Payable amount + Refundable amount


6.41 The formula has the same effect as that contained in new subsection 42A-90(6) in relation to cases where a lessee ceases to have the right to use a car when the lease term expires. [New subsection 42A-105(5)]

6.42 If it is not practicable to calculate the amount using this formula, the value of the car at the end of the term of the lease is the consideration for the sale. [New paragraph 42A-105(3)(b)]

6.43 The lessor is taken to have acquired the vehicle for the same amount for which the lesseeis taken to have disposed of it. [New subsection 42A-105(3)]

6.44 New subsection 42A-105(4) contains special rules which apply where a previously leased car is acquired by an associate of the lessee . The rules are the same as those contained in new subsection 42A-90(4) , the effect of which is explained above.

Interpretation

Consecutive short-term hiring agreements

6.45 This Division will not apply in respect of arrangements that are genuine short-term hiring agreements . (See the definition of 'lease' in new section 42A-115 .)

6.46 A short-term hiring agreement as defined in new section 42A-115 is an agreement for the taking of property on hire which is ordinarily entered into by persons taking on hire intermittently as the occasion requires on an hourly, daily, weekly, monthly or other short term basis.

6.47 Where consecutive short-term hiring agreements in respect of the same luxury car extend over a period greater than six months, each of the consecutive agreements is to be treated as a lease which may be subject to the operation of the rules contained in new Schedule 2E .

6.48 Car hiring arrangements will be treated as consecutive provided the car is let on hire by the same person or persons who were associates of each other and the car is hired by the same person or persons who were associates of each other. Consecutive agreements also include arrangements where the commencement of the subsequent agreement is shortly after the expiry or termination of the previous agreement but there is substantial continuity of hiring of the car by the lessee and/or associates of the lessee.

[New section 42A-125]

Finance charge

6.49 The lessor's assessable income from a notional loan to a lessee is to be determined by reference to the lessor's finance charge under the lease, which is calculated as:

the sum of:

(a)

the aggregate of lease payments under the lease;

and

(b)

any other amounts payable under the lease including any amount payable on the expiry or termination of the lease (see the definition of 'termination amount' in new section 42A-115) .

reduced by

the notional loan principal, i.e. the loan that the lessor is taken to have made to the lessee to acquire the car.

[New section 42A-130]

Lease payment periods

6.50 The lease payment period is the period under the lease in respect of which a lease payment is allocated or expressed to be payable, provided the period does not exceed six months. [New subsection 42A-135(1)]

6.51 Where a payment period under the lease exceeds six months (an excessive period), it is divided into lease payment periods of six months duration. Where the payment period is not an exact multiple of six months, the last lease payment period in that payment period is the residual part. For example, a 15 month payment period specified in a lease agreement will be an excessive period and will be divided up into three lease payment periods for the purpose of this Division of six months, six months and three months. [New subsection 42A-135(2)]

Accrual periods and accrual amounts

6.52 The amount of the finance charge to be brought to account as assessable income each income year by the lessor is to be determined on an accruals basis under which a proportion of the finance charge (known as an 'accrual amount') is determined for each accrual period (or part period) in the income year. New subsection 42A-140(1) makes it clear that the lease payment periods defined in new section 42A-135 are accrual periods for this purpose.

6.53 The accrual amount for each accrual period is to be calculated on a reducing balance basis by applying the formula:

Notional loan principal outstanding at the beginning of the accrual period

multiplied by

Interest rate implicit under the lease for the accrual period.

[New section 42A-140]

Outstanding notional loan principal

6.54 The formula for the notional loan principal outstanding at beginning of an accrual period is contained in new section 42A-145 and means the sum of

the notional loan principal

plus

the aggregate of all accrual amounts in respect of previous accrual periods

reduced by

the aggregate of all payments that the lessee paid or was required to pay under the lease at or before the beginning of the accrual period.

Implicit interest rate

6.55 The implicit interest rate for an accrual period under a lease in respect of which there is a notional loan by the lessor to the lessee is that rate of compound interest for the accrual period which causes the present value of:

(a)

the lease payments; and

(b)

any termination amount and other amounts payable by the lesseeunder the lease

to be equal to the notional loan principal. [New subsection 42A-150(1)]

6.56 Where at the start of the lease the lease payments, the termination amount expected to accrue to the lessor or other payments payable under the lease are not known (e.g. because they are subject to indexing) a reasonable estimate may be made at the beginning of the lease term for the purpose of working out the implicit interest rate and used for each year of income . Where a reasonable estimate of the variable cannot be made,an estimate of the amount or amounts is to be made at the end of each income year based on amounts payable to date and whatever reasonable assumptions are necessary in respect of future amounts payable that are not certain at that time. [New subsection 42A-150(2)]

Consequential amendment

6.57 Part 2 of Schedule 6 of the Bill makes an amendment to section 63 of the Act consequential to the enactment of new Division 42A of Schedule 2E relating to leases of luxury cars.

6.58 The amendment will ensure that amounts of lease payments written off as bad debts in relation to a leasing arrangement to which the Division applies are deductible under section 63 only to the extent of the finance charge under the relevant notional loan.

Example

(This example is for the purposes of illustration only and may not precisely reflect industry practice.)

It is assumed that the car is wholly used for income producing purposes. The end of year amounts will be rounded off to whole dollars in the taxpayers' returns.

Depreciation

The depreciation allowances, subject to the $55,134.00 limit for the 1996-97 income year (as per section 57AF), at the rate of 22.5% (diminishing balance method) would be:

Profit on sale of car

Where the lease is treated as a sale of the car by the lessor to the lessee, any profit on the sale will need to be included in the lessor's assessable income in the year the leaseis granted.

Profit = Selling price (ie cost price to lessee) less Purchase price to lessor$5,000.00 = $120,000.00 - $115,000.00
Accordingly, $5,000.00 will be brought into account as assessable income of the lessor in the 1996-97 income year because the date of sale is the date the lease is entered into - 15/12/96.

Accrual Amount

The first accrual period:

•

commences with the date of commencement of the lease when the first payment is due and payable; and

•

ends with the day immediately preceding the day on which the next succeeding instalment is payable.

An adjustment needs to be made to the accrual / lease payment period at the end/beginning of each income year as it straddles two income years. The accrual amount for inclusion in the relevant income year has to be calculated in a manner consistent with generally accepted accounting principles. For instance, in the income year 1996-97 the following calculation is required.

The accrual amount for the June/July accrual period of $838.69 may be apportioned as follows for the income year of 1996-97:

$838.69 x 16/30* = $447.30


* There are 16 days in the month of June 1997 that the payment made on 15 June 1997 refers to.

$447.30 would form part of the lessee's allowable deductions and the lessor's assessable income in the 1996-97 income year. Therefore, the total accrual amount that will be allowable to the lessee and assessable to the lessor, in the 1996-97 income year, would be $5,674.77.

Scenario 1

At the expiry of the lease term on 15 December 2000, the lessee pays to the lessor a termination amount of $57,063.18 to acquire the luxury car. The lessee sells the car to a third party for $63,000.00 on 15 December 2000.

As at the expiry of the lease term the termination amount varies from the residual value used to calculate the accrual amounts($51,063.18), an adjustment needs to be made to the lessor's and lessee's taxable income in the financial year 2000-01. The adjustment to the lessor's taxable income is calculated using the formula

A - (B + C)
where:A = the aggregate of all amounts received or receivable by the lessor (see Repayment Schedule) under the lease contract, including the termination amount;B = the notional loan principal at the commencement of the lease (see Repayment Schedule); andC = the aggregate of the accrual amounts previously included in the lessor's income (see Repayment Schedule) .

Therefore, the adjustment amounts to $6,000.00 [$157,390.38* - ($120,000.00 + $31,390.38)]. This amount is included in the lessor's assessable income in the 2000-01 income year and may be an allowable deduction to the lessee in the same year.

[* $157,390.38 (aggregate of lease payments - not including the estimated termination value of $51,063.18) plus $57,063.18 (termination amountpaid)]

As the lessee sells the car for $63,000.00 to a third party a balancing adjustment on disposal would be required. In order to calculate the balancing adjustment on sale, the actual sale price of the car is reduced in the following manner:

Adjusted sale price = $63,000.00 x $55,134.00/$120,000.00 = $28,945.35


Depreciated value as at date of sale = $20,198.19

A balancing adjustment of $8,747.16, the difference between the adjusted sale price and the depreciated value of the car as at date of sale , has to be included in the lessee's assessable income in the financial year 2000-01.

Scenario 2

At the end of lease term on 15 December 2000 the lessee returns the car after making the final monthly lease payment. The lessee receives a refund of $2,000.00 On 15 December 2000 the market value of the luxury car is $55,000.00.

When the luxury car is returned by the lessee to the lessor, the return is treated as a disposal of the luxury car by the lessee.

The sale price for the purposes of subsection 59(3) is the sum of amounts taken to be credited by the lessor to the lessee for the return of the car. In this instance, as all the lease payments have been made and the car is returned before making the residual payment, the consideration for disposal would be $53,063.18 which is a sum of the balance of notional loan ($51,063.18) and the refundable amount of $2,000.00.

The lessee would make a balancing adjustment on disposal based on a sale price of $53,063.18. In order to calculate the balancing adjustment on sale, the sale price of the car is reduced in the following manner:

Adjusted sale price = $53,063.18 x $55,134.00/$120,000.00 = $24,379.88


Depreciated value as at date of sale = $20,198.19

A balancing adjustment of $4,181.69, the difference between the adjusted sale price (or adjusted termination value) and the depreciated value of the car as at date of sale , has to be included in the lessee's assessable income in the 2000-01 income year.

If the lessor decides to sell the car and receives $55,000.00, then the lessor would include $1,936.82 ($55,000.00 less $53,063.18) in the 2000-01 income year.