Page 27 - F6 - Capital Allowances - Leases

Solution (cont.)

Since the annual rental, R10 000, is less than 10% of the fair

market value as determined above, that is, R20 480, it is in

terms of s 8(5)(bB)(iii) deemed to be nominal and Mr Koontz

is under s 8(5)(bA) deemed to have acquired the equipment

for no consideration for the purposes of s 8(5)(b). He must

therefore include in his income in terms of s 8(5)(b) read

with s 8(5)(a) the the fair market value as determined limited

to rentals previously deducted = R204 800

Therefore R204 800 must be included in Mr Koontz’s

income. If the rental payable after the termination of the

initial lease had exceeded the nominal amount of R20 480 a

year, then there would have been no deemed recoupment

under s 8(5).