Income Tax Act 2007 section 681AJ

Commercial rent: comparison with rent under a lease

Section 681AJ defines what "commercial rent" means when it needs to be compared with the actual rent payable under a lease, in the context of the sale and leaseback rules that restrict tax relief on certain land-related payments.

• Commercial rent is the rent that would be expected under a hypothetical open-market lease negotiated at the same time as the actual lease
• The hypothetical lease must match the actual lease in duration and in its terms for maintenance and repair obligations
• The hypothetical rent must be payable at uniform intervals and at an "appropriate rate" — meaning either a uniform rate or, where the actual lease has a progressive rent structure, one that increases in proportionate steps
• This definition applies when comparing rent for the purposes of limiting income tax relief or earnings deductions under the sale and leaseback provisions