BLM51035 | Right-of-use assets: right-of-use asset lessees: taxation of right-of-use asset lessees: taxation of long funding leases

A long funding lease which is accounted for as a right-of-use asset by a lessee is taxed as a long funding finance lease.

The only exception to this rule is where a lessee has an existing long funding operating lease and adopts an accounting standard whereby they account for a right-of-use lease. Under those circumstances, the lease treatment is grandfathered and it continues to be taxed as a long funding operating lease (s70YI CAA 2001).

If the lessee has a right-of-use asset which is being taxed as a long funding finance lease and it moves to another accounting standard where the lease is neither a right-of-use asset nor a finance lease, the lessee is treated as if all of the following apply:

• the lease had terminated immediately before the time of the change

• another lease had been entered into immediately after the time of the change

• the lease was a long funding lease in the case of the lessor

The practical effect of this provision is that the lessee will be taxed as though they have disposed of a long funding finance lease and entered into a new long funding operating lease (s70YA CAA 2001).