Income Tax Act 2007 section 681CC

Tax deduction not to exceed commercial rent

Section 681CC limits the income tax deduction a trader can claim for lease payments on a previously owned asset, ensuring the deduction does not exceed the commercial rent for the period.

• The allowable tax deduction for lease-back payments is capped at the commercial rent for the relevant period, preventing traders from claiming inflated deductions above market rates.
• The calculation compares cumulative accounting expenses (amount E) against cumulative tax deductions already claimed, producing a figure called "cumulative unrelieved expenses" — the deduction is the lower of this figure and the commercial rent.
• Once all lease-back payments have been made and a "post-spread period" is reached, no further deductions are allowed in that or any subsequent period.
• Only the non-excluded element of payments counts — any portion relating to long funding finance leases is stripped out before the calculation is performed.