INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART III - LIABILITY TO TAXATION  

Division 4 - Leases  

SECTION 86   NOTIONAL INCOME OF A TAXPAYER DERIVING A PREMIUM  

86(1)   [Spreading of premium]  

Where a premium which exceeds the sum of the allowable deductions directly relating thereto, and in respect of which the term of the lease is not less than 25 complete months, is included in the assessable income of a taxpayer, the following provisions shall apply for the determination of a notional income, for the purpose of any Act that fixes a rate or rates of income tax by reference to a notional income:

(a) Where the taxable income exceeds the net premium, or the sum of the net premiums, if there are more than one of the premiums so included, the notional income of the taxpayer shall be the amount obtained by deducting the net premium or the sum of the net premiums, as the case may be, from the taxable income, and adding to the result the amount or amounts ascertained by dividing each of the net premiums by one twenty-fourth of the number of complete months in the term of the lease.

(b) Where the taxable income is not more than the net premium, or the sum of the net premiums if there are more than one of the premiums so included, the notional income shall be -

(i) where there is only one of those premiums - the amount ascertained by dividing the taxable income by one twenty-fourth of the number of complete months in the term of the lease; and

(ii) where there are more than one of those premiums - the sum of the amounts ascertained by apportioning the taxable income among the net premiums in proportion to their amounts, and dividing the amount so apportioned to each net premium by one twenty-fourth of the number of complete months in the term of the lease.

86(2)   [Application]  

This section shall not apply in relation to an assessment of the taxpayer in accordance with section 99A or in any case:

(a) where the taxpayer is a company, except where, in respect of the premium, it is assessable as a trustee;

(ab) where a premium or premiums for the lease is or are payable in each of 3 or more years of the lease; or

(b) where the provisions of Division 16 of this Part or Division 392 (Long-term averaging of primary producers tax liability) of the Income Tax Assessment Act 1997 are applied in the assessment of the taxpayer.

86(2A)   [Net income of closely held trust]  

This section does not apply in working out a share of the net income of a closely held trust for the purposes of applying paragraph 102UK(2)(a) or 102UM (2)(a) (which deals with ultimate beneficiary non-disclosure tax). However, this subsection does not as a result affect the way in which a share of the net income of a closely held trust is worked out for the purposes of applying paragraph 102UK(2)(b) or 102UM (2)(b).