Tax
relief on Lease payment
Lease payment is a regular
equal payment and therefore tax on lease payment is also a regular payment of
equal amount.
Tax
relief on Lease payment Example (Tax in Arrear)
|
Term
of Lease
|
4 Year
|
|
Lease
Rental (paid in advance)
|
40,000
|
|
Rate
of interest is
|
12%
|
|
Tax
Rate
|
30%
|
Solution
1. Tax Relief
= 40,000 x .3 = 12,000
2. Time line of payment
|
0
|
1
|
2
|
3
|
4
|
5
|
|
|
|
12,000
|
12,000
|
12,000
|
12,000
|
3. Calculate present value at year 1
=
1- (1+.12)-4/i
=3.037
4. Calculate present value at Zero 0
= 12,000 x 3.037 x
(1.12)-1
=32,539
Present
value of tax relief on lease rental is 32,539
