Income Tax Act 2007 section 681BB

Taxation of consideration

Section 681BB determines how the consideration received by a lessee (L) on assigning or surrendering an existing lease — where a new lease is granted back — is taxed as income rather than treated as a capital receipt.

• An "appropriate amount" of the consideration (or of each instalment, if paid in stages) must be identified and treated as income, not as a capital receipt.
• If the new lease term is one year or less, the entire consideration or instalment is the appropriate amount; if the term exceeds one year, the appropriate amount is the proportion given by the formula (16 − N) / 15, where N is the lease term in years.
• Where L receives the consideration in the course of a trade, profession or vocation, and the rent under the new lease is deductible for tax purposes, the appropriate amount is treated as a trading receipt of that trade, profession or vocation.
• Where those conditions are not met, the appropriate amount is charged to income tax on L, apportioned to each tax year in which it arises, and treated as income for all income tax purposes.