Lease Payments and Business Income: Clarifications from Ordinance No. 30985/2025

The determination of business income follows precise rules that often diverge from the immediate financial perception of cash flows. One of the most complex issues concerns the timing of revenue recognition from the lease of business or asset-holding properties. The Court of Cassation, with ordinance No. 30985 of November 26, 2025, has revisited this point, reiterating the prevalence of the accrual principle over the cash basis for business income earners.

The Accrual Principle and Article 109 of TUIR

In the Italian tax system, business income is governed by the accrual principle, established by Article 109 of the Consolidated Text of Income Taxes (TUIR). According to this rule, revenues and costs must be recognized in the fiscal year in which the factual and legal conditions for their accrual occur, regardless of when the actual collection or payment takes place. In the case of lease payments, jurisprudence has consistently maintained a strict approach.

The ordinance in question emphasizes that the accrual of the lease payment represents the relevant tax moment. This means that the lessor company is required to declare lease payments as revenue in the reference year stipulated by the contract, even if the lessee is in default. The certainty of the existence of the credit and its determinability are indeed guaranteed by the lease agreement itself, which serves as the legal title until its eventual termination.

The Supreme Court's Decision

The case brought to the attention of the judges of legitimacy concerned a dispute between the State Attorney General's Office and the taxpayer F. regarding the correct recognition of lease payments. The Court of Cassation upheld the State's appeal, quashing the decision of the Regional Tax Commission of Sardinia. The central point of the dispute lies in the interpretation of Article 109 of TUIR concerning the certainty of positive income components. Here is the legal principle expressed in the summary:

In matters of business income, revenues derived from lease payments must be considered earned, pursuant to Article 109, paragraph 2, letter b), of TUIR, as of the date of their accrual, because, until the contract is eventually terminated, they cannot be classified as positive components whose existence or amount is uncertain, irrespective of actual payment.

This passage is fundamental: the Court clarifies that the risk of lessee insolvency does not shift the tax accrual of the revenue. As long as the contract is in force, the right to the lease payment is certain and liquid, and therefore must contribute to the formation of taxable income. Only the formal termination of the contract can interrupt this mechanism.

What Happens in Case of Default?

For companies, unlike what is provided for individuals who do not carry out commercial activities (for whom there are reliefs in case of proven default), the taxation of uncollected lease payments can represent a burdensome obligation. To interrupt the taxation of revenues not actually received, contractual action must be taken promptly. Here are some key points to consider:

• Contract termination: this is the only event that interrupts the accrual of fiscally relevant revenues.
• Proof of termination: a court order for eviction due to non-payment or a formally registered termination agreement is required.
• Bad debt losses: uncollected lease payments can be deducted as bad debt losses only if the requirements of Article 101 of TUIR are met, demonstrating their uncollectibility.

Conclusions

Ordinance No. 30985/2025 confirms a consolidated trend that places companies in a position of particular attention in managing lease agreements. It is not enough for the lessee not to pay to avoid taxes on those sums; it is necessary for the legal relationship to be formally dissolved. This ruling reminds all economic operators of the importance of proactive management of receivables and contracts, to prevent a financial loss from being compounded by an unjustified tax burden arising from "phantom" but legally certain revenues.