Income Tax Act 2007 section 681AE

Deduction from earnings not to exceed commercial rent

Section 681AE limits the tax deduction a person can claim from their earnings for leaseback payments connected with transferred land, ensuring the deduction does not exceed a commercially reasonable rent.

• This section applies where a person who has transferred land (or their associate) becomes liable to make rent or other payments connected with that land, and claims a deduction from earnings for those payments.
• Before applying the cap, any element of the payment that relates to service charges or similar expenses (as excluded under section 681AI) is stripped out — the restriction only applies to the remaining "non-excluded" element of the payment.
• The deduction allowed for the non-excluded element must not exceed the commercial rent for the period to which the payment relates, as determined under the commercial rent comparison rules.
• Because the calculation of deductions from earnings does not follow generally accepted accounting practice (GAAP), this section operates as a standalone rule, supplemented by sections 681AF to 681AH, rather than falling under the main rule in section 681AD.

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