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INCOME TAX ASSESSMENT ACT 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-1 - ASSESSABLE INCOME    View history reference

Division 20 - Amounts included to reverse the effect of past deductions    View history reference

Subdivision 20-B - Disposal of a car for which lease payments have been deducted    View history reference

The associate case

SECTION 20-125  Disposal of a leased car for profit  

 View history reference ITAA 36

20-125(1)  

Your assessable income includes the *profit you make on disposing of a *car if:


(a) section 20-110 does not include an amount in your assessable income because of the disposal; and


(b) the car was designed mainly for carrying passengers; and


(c) the car was leased to you or your *associate; and


(d) you, your associate or another entity can deduct for the income year any of the lease payments paid or payable by the lessee, or have deducted or can deduct any of them for an earlier income year, under this Act; and


(e) either:


(i) you, your associate, or entities including you or your associate, acquired the car from the lessor; or

(ii) another entity acquired the car from the lessor under an *arrangement that enabled you or your associate to acquire the car.

Note 1:

Even if subsection (1) does not apply, an amount may be included in your assessable income if you disposed of an interest in a car (rather than the car itself): see section 20-160.

Note 2:

In some cases you do not include an amount in your assessable income:

· if there has been an earlier disposal of the car for market value: see section 20-135; or
· if you inherited the car: see section 20-145; or
· if the car was let on hire in the circumstances set out in section 20-155.

20-125(2)  

However, the amount included cannot exceed the smallest of these limits:


(a) the total lease payments for the lease that you, your *associate or another entity have deducted or can deduct under this Act for an income year;


(b) the amount of *notional depreciation for the lease period;


(c) if an entity other than you, or if entities including you, acquired the *car from the lessor - the amount by which the *consideration receivable for the disposal of the car by you exceeds the total of:


(i) the car's cost to that entity, or those entities; and

(ii) any capital expenditure that entity, or any of those entities, incurred on the car after that acquisition and before you acquired it.

Note 1:

If, because of more than one lease of the car, there is more than one way to work out the amount to be included, you only include the largest amount: see section 20-130.

Note 2:

In some cases you reduce the amount to be included:

· if there has been an earlier disposal of the car, or of an interest in it: see section 20-140; or
· if another provision requires you to include an amount because of the disposal: see section 20-150.

Example:

Your associate leases a car for 5 years and then acquires it from the lessor for $4,000. Your associate sells it to you for $3,000. You sell it for $10,000.

Your profit is $10,000 (the consideration receivable) less $3,000 (the car's cost to you) = $7,000.

The first 2 limits on the amount to be included in your assessable income are $9,000 (total deductible lease payments for the lease) and $8,000 (notional depreciation for the lease period).

Since your associate acquired the car from the lessor, the third limit is $10,000 (the consideration receivable by you) less $4,000 (the car's cost to the associate) = $6,000.

The amount you include in your assessable income cannot exceed the smallest of the limits. So, you do not include your profit of $7,000. Instead, you include $6,000 (the smallest of the limits).

20-125(3)  

You increase the first 2 limits if you, or your associate, have previously leased the *car from the same lessor, or from an associate of that lessor.

You increase the first limit by the total lease payments for each previous lease of that kind that you, your *associate or another entity have deducted or can deduct under this Act for an income year.

You increase the second limit by the amount of *notional depreciation for the period of each previous lease of that kind.


 



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