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Finance lease taxation: surviving the TOFA tsunami


Finance leases are perceived to have anomalous tax benefits, such as fully deductible loan repayments and the ability to transfer tax preferences to the non-economic owner of an asset. This has resulted in several attempts at correction, the most recent being in the context of the TOFA rules. This paper reviews those anomalies in the context of the economic benefit of a finance leases when compared with the way that they are presently taxed and, also, the attempts to redress them. It argues that the taxation of finance leases should not change as some of those perceptions do not stand up under scrutiny. Also, it argues that one other perceived anomalous tax effect puts the debt providers for the acquisition of an asset on the same basis as the equity owners of the asset and, therefore, is unobjectionable. In that regard, the paper extends the understanding of tax and finance leases.

Author profiles

Gordon Mackenzie CTA
Gordon Mackenzie BSc LLB, LLM, Grad Dip Securities Analysis, CTA, F Fin, CA. Gordon is the convenor of the Master of Tax (Tax and Financial Planning) in the Tax School at UNSW, as well as teaching three superannuation regulation and tax subjects into the Master of Financial Planning run by the Banking and Finance School. He is also Director of the UNSW SMSF Specialisation for CA ANZ and CPA Australia, which has completed 600 candidates in 4 years. Before becoming an academic he was Global Tax Director at AMP Ltd and before that was their Technical Services Director with a staff of 30 professionals Australia wide servicing 3000+ advisers. As a lawyer for AMP Ltd he was responsible for the licensing of some of their licensed subsidiaries such as Hillross ltd - Current at 23 February 2017
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Geoffrey Hart
BA LLb (Qld) LLM (Lon) FTIA, Senior Lecturer Business Law Discipline, Faculty of Economics Sydney University - Current at 01 July 2008
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