A further complicated calculation needs to be made at the termination of the lease to see if the lessor has made a further profit that needs to be charged to tax, after taking into account any termination payments to the lessee, or indeed whether the lessor has incurred an allowable loss. The legislation prescribes a four-step calculation, the eventual goal of which is to charge to tax any excess of the residual value of the asset over the termination amount less termination payments to the lessee or to allow against tax any reverse excess.

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