Income Tax Act 2007 section 681CE

Commercial rent

Section 681CE defines how to calculate the "commercial rent" for the purpose of capping the tax deduction available on lease payments for trading assets in sale and leaseback arrangements.

• Commercial rent is the rent that would be expected under a hypothetical lease covering the rest of the asset's normal working life, paid at uniform intervals and at a uniform rate
• The hypothetical rent must give a reasonable return on the asset's market value at the time the actual lease was created, taking into account the actual lease's terms and conditions
• An asset's expected normal working life is the period from when it is first put into use until it would finally be retired as unfit for further use, assuming normal usage throughout
• Where the asset is used partly for the trade in question and partly for other purposes, the commercial rent is calculated by reference to what would be paid for that partial trade use only