Commentary

B5.247 Land sold and leased back–payments connected with transferred land

Business tax
Business tax | Commentary

B5.247 Land sold and leased back–payments connected with transferred land

Business tax | Commentary

Land sold and leased back

B5.247 Land sold and leased back–payments connected with transferred land

The provisions of CTA 2010, ss 834–848 (Pt 19, Ch 1) and ITA 2007, ss 681A–681AN (Pt 12A, Ch 1), are designed to counter tax-avoidance devices where land owned by a trader is transferred and leased back to him for use in his trade. They are comparable with CTA 2010, ss 863–886 (Pt 19, Ch 3 and 4) and ITA 2007, ss 681C–681DP (Pt 12A, Chs 3 and 4), which are designed to achieve the same object in relation to machinery and plant1.

The common method of transaction is where a trader grants a long lease (ie over 50 years) of his land (including business premises) to a property-dealing company at a nominal rent in consideration of a large premium but the legislation is not confined to long leases. The company then grants a lease back to the trader at an excessive rent for the early years of the lease which, in effect, repays the premium plus interest and profit, the rent falling to a nominal one for the remainder of the term of the lease. Apart from CTA 2010, Pt 19 Ch 1 and ITA 2007, Pt 12A Ch 1 the excessive rent payable by the trader would be an allowable deduction in computing his profits in return for which he would obtain a lump sum in the form of a large premium. As far as the property-dealing company is concerned, the excessive rent

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