Income Tax Act 2007 section 681AA

Transferor or associate becomes liable for payment of rent

Section 681AA sets out the conditions under which anti-avoidance rules apply when someone transfers land and then becomes liable to pay rent on that same land — a classic sale-and-leaseback arrangement.

• Where land or an interest in land is transferred and the transferor (or an associate) becomes liable to pay rent under a lease of that land, the rent deduction may be restricted to a commercial level
• The definition of "transfer" is broad — it covers not only outright sales but also the granting of leases, surrenders, forfeitures, and changes in ownership structures where someone becomes or ceases to be a co-owner
• A person is treated as a transferor if they were an owner before the transaction but are not the sole owner afterwards, and the rent liability can arise from a leaseback or any other transaction affecting the land
• These rules do not apply to transfers made on or before 14 April 1964, preserving the position that pre-existing arrangements are not caught by legislation introduced after that date