Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-1 - CAPITAL GAINS AND LOSSES: GENERAL TOPICS  

Division 104 - CGT events  

Subdivision 104-F - Leases  

SECTION 104-125   Lessee receives payment for changing lease: CGT event F4  

104-125(1)    
CGT event F4 happens if a lessee receives a payment from the lessor for agreeing to vary or waive a term of the lease.

The payment can include giving property: see section 103-5 .

104-125(2)    
The time of the event is when the term is varied or waived.

104-125(3)    
The lessee makes a capital gain if the *capital proceeds from the event are more than the lease's *cost base (at the time of the event). If the lessee makes a *capital gain, the lease's cost base is also reduced to nil.

Note:

The lessee cannot make a capital loss.

104-125(4)    
On the other hand, if those *capital proceeds are less , the lease's *cost base is reduced by that amount at the time of the event.

Example:

On 1 January 1999 a lessee enters a lease. On 1 May 1999 the lessee agrees to waive a term. The lessor pays the lessee $1,000 for this.

If the lease's cost base at the time of the waiver is $2,500, it is reduced from $2,500 to $1,500.

On 1 September 1999 the lessee agrees to waive another term. The lessor pays the lessee $2,000 for this.

If the lease's cost base at the time of the waiver is $1,500, the lessee makes a capital gain of $500, and the cost base is reduced to nil.

Exceptions

104-125(5)    
A *capital gain the lessee makes is disregarded if:

(a) the lease was granted before 20 September 1985; or

(b) for a lease that has been renewed or extended - the start of the last renewal or extension occurred before that day.