Compare documents

No. The residual value of a leased item should reflect its market value at the end of the lease.

The table at para. 20 of IT 28 is intended to be a rough guide to the minimum market value of items with different effective lives. It is based on a straight-line amortisation of the cost of an item over its effective life, requiring a minimum residual value of 75% of the cost written down in that way. It is not based on actual depreciation allowable, whether by the diminishing value method or at accelerated or broadbanded rates, although the table in IT 28 was set out, for convenience, according to prime cost depreciation rates.

A table based on effective lives, rather than depreciation rates, is set out below. Minimum residual values - percentage of cost Plant and machinery classified according to effective life in years Term of lease 5 6.66 10 13.3 20 1st year 60 63.75 67.5 68.5 70 2nd year 45 52.5 60.0 62.5 65 3rd year 30 41.25 52.5 55.0 60 4th year 15 30.0 45.0 50.0 55 5th year nil 18.75 37.5 45.0 50 A residual value lower than those outlined in the table may be used where a well considered and fair estimate of the likely market value of the item at the end of the lease would result in a lower value.