Income Tax Act 2007 section 614BN

Relief for bad debts: reduction of cumulative normal rental excess

Section 614BN explains how bad debt deductions interact with the cumulative normal rental excess that a lessor may have built up under finance lease arrangements, ensuring that relief is only given against rental income that has genuinely been brought into account for tax purposes.

• Where accountancy rental earnings do not exceed normal rent and the bad debt deduction exceeds that rent, the cumulative normal rental excess is reduced by the amount of the excess of the deduction over the rent, down to a minimum of nil
• Where accountancy rental earnings exceed normal rent, the amount of cumulative normal rental excess that can be set against taxable rent is capped at the amount by which accountancy rental earnings exceed the bad debt deduction
• Where accountancy rental earnings exceed normal rent but the bad debt deduction exceeds those earnings, the cumulative normal rental excess is reduced by the amount of the excess, again down to a minimum of nil
• The terms "bad debt deduction" and "taxable rent" take their meanings from sections 614BL(6) and 614BG(2) respectively