Capital Gains Tax Act, 1975

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SCHEDULE 3

Leases

Section 11 and 51.

Leases of land as wasting assets: restriction of allowable expenditure

1.—(1) A lease of land shall not be a wasting asset until the time when its duration does not exceed fifty years.

(2) If at the beginning of the period of ownership of a lease of land it is subject to a sub-lease not at a rent representing the full value of the land together with any buildings thereon and the value of the lease at the end of the duration of the sub-lease, estimated as at the beginning of the period of ownership, exceeds the expenditure allowable under paragraph 3 (1) (a) of Schedule 1 in computing the gain accruing on a disposal of the lease, the lease shall not be a wasting asset until the end of the duration of the sub-lease.

(3) In the case of a wasting asset which is a lease of land, the rate at which expenditure is assumed to be written off shall, instead of being a uniform rate as provided by paragraph 9 of Schedule 1, be a rate fixed in accordance with the Table to this paragraph.

(4) Accordingly, for the purposes of the computation under Schedule 1 of the gain accruing on a disposal of a lease, and where—

(a) the percentage derived from the Table for the duration of the lease at the beginning of the period of ownership is P (1),

(b) the percentage so derived for the duration of the lease at the time when any item of expenditure attributable to the lease under paragraph 3 (1) (b) of Schedule 1 is first reflected in the nature of the lease is P(2), and

(c) the percentage so derived for the duration of the lease at the time of the disposal is P(3),

then—

(i) there shall be excluded from the expenditure attributable to the lease under the said paragraph 3 (1) (a) a fraction equal to , and

(ii) there shall be excluded from any item of expenditure attributable to the lease under the said paragraph 3 (1) (b) a fraction equal to .

(5) This paragraph applies notwithstanding that the period of ownership of the lease is a period exceeding fifty years and, accordingly, no expenditure shall be written off under this paragraph in respect of any period earlier than the time when the lease becomes a wasting asset.

(6) Paragraph 10 of Schedule 1 shall apply in relation to this paragraph as it applies in relation to paragraph 9 of that Schedule.

TABLE

If the duration of the lease is not an exact number of years the percentage to be derived from the Table above shall be the percentage for the whole number of years plus one-twelfth of the difference between that and the percentage for the next higher number of years for each odd month counting an odd 14 days or more as one month.

Premiums for leases

2.—(1) Subject to this Schedule where the payment of a premium is required under a lease of land, or otherwise under the terms subject to which a lease of land is granted, there is a part disposal of the freehold or other asset out of which the lease is granted.

(2) In applying paragraph 6 of Schedule 1 to such a part disposal, the property which remains undisposed of includes a right to any rent or other payments, other than a premium, payable under the lease, and that right shall be valued as at the time of the part disposal.

Payment during currency of lease treated as premium

3.—(1) Where, under the terms subject to which a lease of land is granted, a sum becomes payable by the lessee in lieu of the whole or part of the rent for any period, or as consideration for the surrender of the lease, the lease shall be deemed for the purposes of this Schedule to have required the payment of a premium to the lessor (in addition to any other premium) of the amount of that sum for the period in relation to which the sum is payable.

(2) Where, as consideration for the variation or waiver of any of the terms of a lease of land, a sum becomes payable by the lessee otherwise than by way of rent, the lease shall be deemed for the purposes of this Schedule to have required the payment of a premium to the lessor (in addition to any other premium) of the amount of that sum for the period from the time when the variation or waiver takes effect to the time when it ceases to have effect.

(3) If under subparagraph (1) or (2) a premium is deemed to have been received by the lessor, otherwise than as consideration for the surrender of the lease, then—

(a) subject to clause (b), both the lessor and the lessee shall be treated as if that premium were, or were part of, the consideration for the grant of the lease due at the time when the lease was granted, but

(b) if the lessor is a lessee under a lease the duration of which does not exceed fifty years, this Schedule shall apply as if—

(i) the said premium had been given by way of consideration for the grant of the part of the sub-lease covered by the period in respect of which the premium is deemed to have been paid, and

(ii) that consideration were expenditure incurred by the sub-lessee and attributable to the said part of the sub-lease under paragraph 3 (1) (b) of Schedule 1.

(4) Where subparagraph (3) (a) applies, the gain accruing to the lessor on the disposal by way of grant of the lease shall be recomputed and any necessary adjustments of tax, whether by way of assessment for the year in which the premium is deemed to have been received or by way of discharge or repayment of tax, made accordingly.

(5) Where under subparagraph (1) a premium is deemed to have been received as consideration for the surrender of a lease, that premium shall be regarded as consideration for a separate transaction consisting of the disposal by the lessor of his interest in the lease.

(6) Subparagraph (2) shall apply in relation to a transaction not at arm's length, and in particular in relation to a transaction entered into gratuitously, as if such sum had become payable by the tenant otherwise than by way of rent as might have been required of him if the transaction had been at arm's length.

Sub-leases out of short leases

4.—(1) This paragraph applies in relation to a lease which is a wasting asset.

(2) In the computation under Schedule 1 of the gain accruing on the part disposal of a lease by way of the grant of a sub-lease for a premium (in this paragraph referred to as the actual premium), the expenditure attributable to the lease under clauses (a) and (b) of paragraph 3 (1) of Schedule 1 shall be apportioned in accordance with this paragraph, and paragraph 6 of Schedule 1 shall not apply.

(3) Out of each item of the expenditure attributable to the lease under the said clauses (a) and (b) there shall be apportioned to the part disposal—

(a) if the amount of the actual premium is not less than the amount which would be obtainable by way of premium for the said sub-lease if the rent payable under the sub-lease were the same as the rent payable under the lease (in this paragraph referred to as the full premium), the amount (in this paragraph referred to as the allowable amount) which, under paragraph 1 (3), is to be written off over the period which is the duration of the sub-lease, and

(b) if the amount of the actual premium is less than the full premium, such proportion of the allowable amount as is equal to the proportion which the actual premium bears to the full premium.

(4) If the sub-lease is a sub-lease of part only of the land comprised in the lease, this paragraph shall apply only in relation to a proportion of the expenditure attributable to the lease under the said clauses (a) and (b) which is the same as the proportion which the value of the land comprised in the sub-lease at the time when the sub-lease is granted bears to the value of that and the other land comprised in the lease at the said time; and the remainder of that expenditure shall be apportioned to the other land.

Exclusion of premiums taxed under Case V of Schedule D

5.—(1) Where by reference to any premium income tax has become chargeable under section 83 of the Income Tax Act, 1967 (treatment of premiums, etc., as rent), on any amount, that amount shall be excluded from the consideration brought into account in the computation under Schedule 1 of a gain accruing on a disposal of the interest in respect of which income tax becomes so chargeable, except where, in an apportionment under paragraph 6 of the said Schedule, the value of the consideration is taken into account in the aggregate of the said value and the market value of the property which remains undisposed of.

(2) Where by reference to any premium in respect of a sub-lease granted out of a lease the duration of which (that is, of the lease) does not, at the time of granting the lease, exceed fifty years, income tax has become chargeable under the said section 83 on any amount, that amount shall be deducted from any gain accruing on the disposal for which the premium is consideration as computed in accordance with the provisions of this Act apart from this subparagraph, but not so as to convert the gain into a loss, or to increase any loss.

(3) Where income tax has become chargeable under section 85 of the Income Tax Act, 1967 (sale of land with right of reconveyance), on any amount, that amount shall be excluded from the consideration brought into account in the computation under Schedule 1 of a gain accruing on the disposal of the estate or interest in respect of which income tax becomes so chargeable, except where, in an apportionment made under paragraph 6 of the said Schedule, the value of the consideration is taken into account in the aggregate of the said value and the market value of the property which remains undisposed of:

Provided that if the part or interest disposed of is the remainder of a lease or a sub-lease out of a lease the duration of which does not exceed fifty years, the foregoing provisions of this subparagraph shall not apply but the said amount shall be deducted from any gain accruing on the disposal as computed in accordance with the provisions of this Act apart from this subparagraph, but not so as to convert the gain into a loss, or to increase any loss.

(4) References in subparagraphs (1) and (2) to a premium include references to a premium deemed to have been received under subsection (3) or (4) of section 83 of the Income Tax Act, 1967 (which correspond to paragraph 3 (1) and (2)).

(5) Paragraph 2 of Schedule 1 shall not be taken as authorising the exclusion of any amount from the consideration for a disposal of assets taken into account in the computation under that Schedule by reference to any amount chargeable to tax under Chapter VI of Part IV of the Income Tax Act, 1967 .

Disallowance of premium treated as rent under superior lease

6.—(1) If under section 92 (1) of the Income Tax Act, 1967 (allowance, on the grant of a sub-lease, by reference to premiums etc. paid), a person is to be treated as paying additional rent in consequence of having granted a sub-lease, the amount of any loss accruing to him on the disposal by way of the grant of the sub-lease shall be reduced by the total amount of rent which he is thereby treated as paying over the term of the sub-lease (and without regard to whether relief is thereby effectively given over the term of the sub-lease), but not so as to convert the loss into a gain, or to increase any gain.

(2) Nothing in paragraph 2 of Schedule 1 shall be taken as applying in relation to any amount on which tax is paid under section 84 of the Income Tax Act, 1967 (charge on assignment of lease granted at undervalue).

(3) If any adjustment is made under section 85 (2) (b) of the Income Tax Act, 1967 (adjustment of charge on sale of land with right to reconveyance), on a claim under that paragraph, any necessary adjustment shall be made to give effect to the consequences of the claim on the operation of this paragraph or paragraph 5.

Expenditure by lessee under terms of lease

7.—If under section 83 (2) of the Income Tax Act, 1967 (lessee's expenditure treated as premium), income tax is chargeable on any amount, as being a premium the payment of which is deemed to be required by the lease, the person so chargeable shall be treated for the purposes of the computation of any gain accruing to him on the disposal by way of grant of the lease, and on any subsequent disposal of the asset out of which the lease was granted, as having incurred at the time the lease was granted expenditure of that amount (in addition to any other expenditure) attributable to the asset under paragraph 3 (1) (b) of Schedule 1.

Duration of leases

8.—(1) In ascertaining for the purposes of this Act the duration of a lease of land, the following provisions shall have effect.

(2) Where the terms of the lease include provision for the determination of the lease by notice given by the lessor, the lease shall not be treated as granted for a term longer than one ending at the earliest date on which it could be determined by notice given by the lessor.

(3) Where any of the terms of the lease (whether relating to forfeiture or to any other matter) or any other circumstances render it unlikely that the lease will continue beyond a date falling before the expiration of the term of the lease, the lease shall not be treated as having been granted for a term longer than one ending on that date and this subparagraph applies in particular where the lease provides for the rent to be increased after a given date, or for the lessee's obligations to become in any other respect more onerous after a given date, but includes provision for the determination of the lease on that date by notice given by the lessee, and those provisions render it unlikely that the lease will continue beyond that date.

(4) Where the terms of the lease include provision for the extension of the lease beyond a given date by notice given by the lessee, this paragraph shall apply as if the term of the lease extended for as long as it could be extended by the lessee, but subject to any right of the lessor by notice to determine the lease.

(5) The duration of a lease shall be decided, in relation to the grant or any disposal of the lease, by reference to the facts which were known or ascertainable at the time when the lease was acquired or created.

Leases of property other than land

9.—(1) Paragraphs 2, 3, 4 and 8 shall apply in relation to leases of property other than land as they apply to leases of land subject to any necessary modifications.

(2) In the case of a lease of a wasting asset which is movable property, the lease shall be assumed to terminate not later than the end of the life of the wasting asset.

Interpretation

10.—In this Schedule “premium” includes any like sum, whether payable to the intermediate or a superior lessor and for the purposes of this Schedule any sum (other than rent) paid on or in connection with the granting of a tenancy shall be presumed to have been paid by way of premium except in so far as other sufficient consideration for the payment is shown to have been given.