Income Tax Act 2007 section 681BG

Position where lease may be ended

Section 681BG deals with how the term of a new lease is determined where the lessor or certain connected persons have the power to terminate the lease early.

• This section applies where a new lease contains a provision allowing early termination by the lessor, L, or a person linked to L.
• Where such a power exists, the lease term is treated as ending on the earliest date that power could be exercised.
• The effect is to shorten the assumed lease term for tax purposes, which may affect the tax calculations under the new lease rules.
• This prevents arrangements where a long lease term is stated on paper but in practice the lessor or connected persons can bring it to an end much sooner.