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I completed question 126 in F9 Kid, then having a concern as below. Please help me explain more clearly.
As the solution in the book, they should lease the asset from a business to benefit from tax allowance depreciation and share it that benefit via lower lease payment.
Tax exhaustion is when a business has a negative taxable income so it can not benefit tax relief.
Hence leasing the asset will increase leasing expenses that may leads to the decrease in taxable income,then may be making a negative taxable income whereas buying the asset did not incurred leasing interest. so Why?
In case, I borrow and buy the asset that might lead to the decrease in taxable income due to loan interest expense, hence supposing that loan interest expense is higher than lease payment, the answer in the book is likely right.
Sorry if this is a stupid question and makes little sense. If so please put me right!
Thank you!I assume you have watched my free lectures on lease v buy, and are therefore clear that normally if you lease you get the benefit of the tax saving on the lease payments, whereas if you buy you get the benefit of the tax savings on the tax allowable depreciation (the capital allowances).
However, if the company is making a loss and therefore is not able to get the benefit of any tax savings, leasing could prove cheaper because the company we lease it from will be getting the tax savings on the tax allowable depreciation and therefore they will charge us lower lease payments.
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