Income Tax Act 2007 section 681BH

Position where lease may be varied

Section 681BH deals with the treatment of a lease term where the lessee, or a person linked to the lessee, has the power to vary lease obligations in a way that benefits themselves.

• Where a new lease gives the lessee (or a linked person) the power to vary lease obligations in their own favour, special rules apply to determine the effective lease term.
• The variation must be one that is beneficial to the lessee or a person linked to the lessee — for example, a power to reduce the rent payable.
• If such a power exists, the lease term is treated as ending on the earliest date from which that power could be exercised.
• This prevents lessees from claiming tax advantages based on a longer lease term when they have the ability to alter the terms in their favour at an earlier date.