Commonwealth Numbered Acts

TAXATION LAWS AMENDMENT ACT (No. 2) 1997No. 95, 1997 - SCHEDULE 6

Schedule 6-Amendment of the Income Tax Assessment Act 1936:
leases of luxury cars
Part 1-Insertion of new Schedule 2E 1 Before Schedule 3
Insert:
Schedule 2E-Leases of luxury cars
Division 42A-Leases of luxury cars
Table of Subdivisions Guide to Division 42A 42A-A Notional sale of car, and
notional loan, to lessee 42A-B Amounts to be included in lessor's assessable
income 42A-C Deductions allowable to lessee 42A-D Adjustments if total amount
assessed to lessor differs from amount of finance charge 42A-E What happens
when the lease expires 42A-F What happens if the lease is terminated before
the end of
the lease term 42A-G Interpretation Guide to Division 42A 42A-1 What this
Division is about This Division provides for leases of luxury cars to be
treated as notional sale and loan transactions. The lessor under such a lease
is taken to have notionally sold the car to the lessee and made a loan to the
lessee to finance the cost of the notional acquisition of the car. The
lessor's assessable income of a year of income in which any part of the lease
term falls is to include a proportion of the finance charge for the notional
loan. A proportion of the finance charge for the notional loan is allowable as
a deduction to the lessee for a year of income to the extent that the lease
payments made for the year of income would have been deductible. As the lessee
is taken to be the owner of the car, the lessee is the person entitled to any
deductions for depreciation in accordance with the rules applying under this
Act to the owners of luxury cars.
Subdivision 42A-A-Notional sale of car, and
notional loan, to lessee Guide to Subdivision 42A-A 42A-5 What this
Subdivision is about This Subdivision:

   (a)  sets out the circumstances in which a leased car that is a luxury car
        is taken to be sold by the lessor to the lessee; and

   (b)  provides that the lease is taken to constitute a loan by the lessor to
        the lessee to finance the cost of the acquisition of the car.
Table of sections Operative provisions 42A-10 Application of this Division
42A-15 Notional sale of car by lessor and notional acquisition of
car by lessee 42A-20 Consideration for notional sale, cost of notional
acquisition,
and depreciated value, of car 42A-25 Notional loan by lessor to lessee
Operative provisions 42A-10 Application of this Division

(1) This Division applies to a motor car:

   (a)  that is a leased car; and

   (b)  that is a luxury car; and

   (c)  that is not trading stock of the lessee; and

   (d)  the lease of which was granted after 7.30 pm by legal time in the
        Australian Capital Territory on 20 August 1996.

(2) If:

   (a)  a lease of a car was granted before the time referred to in paragraph
        (1)(d); and

   (b)  an extension of the lease was granted after that time, whether the
        extension took effect before or after that time; the extension is
        taken for the purposes of that paragraph to be a new lease granted
        after that time.

(3) This Division has effect for the purposes of this Act other than Division
11A of Part III. 42A-15 Notional sale of car by lessor and notional
acquisition of car by lessee

(1) The car is taken to have been disposed of by the lessor by way of sale to
the lessee, and to have been acquired by the lessee, at the start of the lease
term.

(2) The lessee is taken to be the owner of the car until the lease term ends
or the lease is terminated before that time, as the case may be.

(3) However, the lessee ceases to be taken to be the owner of the car if:

   (a)  the lessee enters into, in respect of the car, an arrangement of a
        kind mentioned in paragraph (b) of the definition of lease in section
        42A-115; and

   (b)  this Division applies to the car in respect of that arrangement.
        42A-20 Consideration for notional sale, cost of notional acquisition,
        and depreciated value, of car

(1) The consideration for the sale of the car by the lessor, and the cost of
the acquisition of the car by the lessee, are each taken to have been:

   (a)  if the lease states an amount as the cost or value of the car for the
        purposes of the lease and the lessor and the lessee were dealing with
        each other at arm's length in connection with the lease- the amount so
        stated; or

   (b)  otherwise-the amount that could reasonably have been expected to have
        been paid by the lessee for the purchase of the car if:

        (i)    the lessor had actually sold the car to the lessee when the
               lease was granted; and

        (ii)   the lessor and lessee were dealing with each other at arm's
               length in connection with the sale.

(2) If:

   (a)  the lease is an arrangement of a kind referred to in paragraph (b) of
        the definition of lease in section 42A-115; and

   (b)  the lessee is an associate of the lessor; the cost of the car for the
        purpose of calculating its depreciated value at the time (the
        acquisition time) when it is taken to have been acquired by the lessee
        is taken, for the purposes of the application of this Act to the
        lessee, to be the sum of:

   (c)  the amount that would have been the depreciated value of the car at
        the acquisition time for the purposes of the application of this Act
        to the lessor if the lessor were not taken under this Division to have
        disposed of the car; and

   (d)  any amount that is included in the lessor's assessable income under
        subsection 59(2) because the lessor is taken to have disposed of the
        car. 42A-25 Notional loan by lessor to lessee

(1) On the grant of the lease, the lessor is taken to have made a loan (the
notional loan) to the lessee:

   (a)  for a period equal to the lease term; and

   (b)  of an amount (the notional loan principal) equal to the consideration
        for the sale of the car less any amount paid, or credited by the
        lessor as having been paid, by the lessee to the lessor, at or before
        the start of the lease term, for the cost of the car; and

   (c)  subject to payment of a charge (the finance charge).

(2) The notional loan principal is taken to be repaid, and the finance charge
is taken to be paid, by the making of the lease payments.
Subdivision 42A-B-Amounts to be included in lessor's
assessable income Guide to Subdivision 42A-B 42A-30 What this Subdivision is
about This Subdivision provides for the inclusion in the lessor's assessable
income of:

   (a)  amounts (accrual amounts) on account of the finance charge for the
        notional loan that the lessor is taken to have made to the lessee; and

   (b)  any profit made by the lessor:

        (i)    on the notional sale of the car to the lessee; or

        (ii)   on a sale of the car after any notional re-acquisition of the
               car by the lessor.
Table of sections Operative provisions 42A-35 Amounts to be included in
lessor's assessable income 42A-40 Lease payments not to be included in
lessor's assessable
income Operative provisions 42A-35 Amounts to be included in lessor's
assessable income Accrual amounts

(1) The lessor's assessable income of a year of income includes:

   (a)  if an accrual period for the notional loan that the lessor is taken
        under this Division to have made to the lessee occurs wholly during
        that year of income-the accrual amount for that accrual period; and

   (b)  if part of an accrual period for that notional loan occurs during that
        year of income-so much of the accrual amount for that accrual period
        as may appropriately be related to that year of income in accordance
        with generally accepted accounting principles. Profit on notional sale

(2) If the consideration for the sale of the car by the lessor that is taken
under this Division to have been made exceeds the cost of the acquisition of
the car by the lessor, the excess is included in the lessor's assessable
income of the year of income in which the sale is taken to have occurred.
Profit on actual sale after notional re-acquisition

(3) If:

   (a)  the lessor is taken under this Division to have re-acquired the car
        from the lessee; and

   (b)  the lessor afterwards sells the car; and

   (c)  the consideration for the sale exceeds the cost of the re-
        acquisition; the excess is included in the lessor's assessable income
        of the year of income in which the sale occurred. 42A-40 Lease
        payments not to be included in lessor's assessable income
The lease payments that the lessor receives, or is entitled to receive, under
the lease are not to be included in the lessor's assessable income of any year
of income, but they are taken into account in calculating accrual amounts that
are included in the lessor's assessable income under section 42A-35.
Subdivision 42A-C-Deductions allowable to lessee Guide to Subdivision 42A-C
42A-45 What this Subdivision is about This Subdivision provides that the
lessee may, in certain circumstances, be entitled to deductions for the
finance charge for the notional loan that the lessor is taken to have made to
the lessee. Table of sections Operative provisions 42A-50 Extent to which
deductions are allowable to lessee 42A-55 Lease payments not to be allowable
deductions Operative provisions 42A-50 Extent to which deductions are
allowable to lessee

(1) If an accrual period for the notional loan that the lessor is taken under
this Division to have made to the lessee occurs wholly during a year of income
of the lessee, the accrual amount for that accrual period is allowable as a
deduction to the lessee for that year of income.

(2) If part of an accrual period for that notional loan occurs during a year
of income of the lessee, so much of the accrual amount for that accrual period
as may appropriately be related to that year of income in accordance with
generally accepted accounting principles is allowable as a deduction to the
lessee for that year of income.

(3) An accrual amount, or part of an accrual amount, for an accrual period is
allowable as a deduction under subsection (1) or (2) to the lessee for a year
of income of the lessee only to the extent that the lease payments made for
that year of income would, apart from this Division, be allowable as
deductions to the lessee for that year of income. 42A-55 Lease payments not to
be allowable deductions
The lease payments that the lessee makes under the lease are not allowable as
deductions to the lessee for any year of income, but they are taken into
account in calculating accrual amounts that are allowable as deductions under
section 42A-50.
Subdivision 42A-D-Adjustments if total amount assessed
to lessor differs from amount of finance charge Guide to Subdivision 42A-D
42A-60 What this Subdivision is about This Subdivision provides for
adjustments if the sum of the amounts included in the lessor's assessable
income are greater or less than the finance charge, worked out at the end of
the lease term, for the notional loan. Table of sections Operative provisions
42A-65 Adjustments for lessor 42A-70 Adjustments for lessee Operative
provisions 42A-65 Adjustments for lessor

(1) This section applies at the following times (adjustment times):

   (a)  the end of the lease term;

   (b)  if the lease is terminated before that time-when the termination takes
        place;

   (c)  if the lease term is extended-when the extension takes effect;

   (d)  if the lease is renewed-when the renewal takes effect.

(2) If the sum of all amounts (whether lease payments, a termination amount or
any other payments) that were paid or payable to the lessor under the lease
exceeds the amount worked out using the formula in subsection (4), the excess
is included in the lessor's assessable income of the year of income in which
the relevant adjustment time occurs. Note: Subsection 42A-80(9) deems the
amount of a notional loan that is taken to be made by an extended or renewed
lease to be a termination amount paid under the previous lease.

(3) If the amount worked out using the formula in subsection (4) exceeds the
sum of all amounts (whether lease payments, a termination amount or any other
payments) that were paid or payable to the lessor under the lease, the excess
is allowable as a deduction to the lessor for the year of income in which the
relevant adjustment time occurs. Note: Subsection 42A-80(9) deems the amount
of a notional loan that is taken to be made by an extended or renewed lease to
be a termination amount paid under the previous lease.

(4) The formula for the purposes of subsections (2) and (3) is:
Notional loan principal + Assessed accrual amounts where:
notional loan principal means the notional loan principal for the notional
loan that is taken under this Division to have been granted by the lessor to
the lessee.
assessed accrual amounts means the sum of the accrual amounts that have been
or are to be included in the lessor's assessable income of any year of income.
42A-70 Adjustments for lessee

(1) If:

   (a)  an amount is included in the lessor's assessable income of a year of
        income under subsection 42A-65(2); or

   (b)  an amount would have been so included if the lessor had been subject
        to tax on assessable income; a corresponding amount is allowable as a
        deduction to the lessee for the lessee's year of income.

(2) If:

   (a)  an amount is allowable as a deduction to the lessor for a year of
        income under subsection 42A-65(3); or

   (b)  an amount would have been so allowable if the lessor had been subject
        to tax on assessable income; a corresponding amount is included in the
        lessee's assessable income of the lessee's year of income.

(3) An amount is not to be allowed as a deduction to the lessee for any year
of income under subsection (1), or to be included in the lessee's assessable
income of any year of income under subsection (2), except to the extent (if
any) that the lease payments made would, apart from this Division, be
allowable as deductions to the lessee.
Subdivision 42A-E-What happens when the lease expires Guide to Subdivision
42A-E 42A-75 What this Subdivision is about This Subdivision sets out what
happens at the end of the lease term. The situations dealt with are:

   (a)  the lease is extended or renewed;

   (b)  the lessee buys the car;

   (c)  the lessee ceases to have the right to use the car. Table of sections
        Operative provisions 42A-80 What happens if the lease term is extended
        or the lease
is renewed 42A-85 What happens if an amount is paid by or on behalf of the
lessee to acquire the car 42A-90 What happens if the lessee ceases to have the
right to use
the car Operative provisions 42A-80 What happens if the lease term is extended
or the lease is renewed

(1) If, after the end of the lease term, the lessee continues to have the
right to use the car because the term is extended or the lease is renewed, the
following provisions have effect.

(2) The lessee is taken to continue to be the owner of the car until:

   (a)  the end of the period of extension; or

   (b)  the end of the lease term of the renewed lease; as the case may be.

(3) However, the lessee ceases to be the owner of the car if:

   (a)  the lessee enters into, in respect of the car, an arrangement of a
        kind mentioned in paragraph (b) of the definition of lease in section
        42A-115; and

   (b)  this Division applies to the car in respect of that arrangement.

(4) The notional loan that is taken under this Division to have been made
because of the grant of the previous lease is taken to have been repaid and
Subdivision 42A-D applies.

(5) The lessor is taken to have made a loan (the notional loan) to the lessee:

   (a)  for the period of the extension of the lease term or the period of the
        renewed lease, as the case may be; and

   (b)  of an amount (the notional loan principal) equal to the amount worked
        out under subsection (7); and

   (c)  subject to the payment of a charge (the finance charge).

(6) The notional loan principal is taken to be repaid, and the finance charge
is taken to be paid, by the making of the lease payments under the lease as
extended or under the renewed lease, as the case may be.

(7) The notional loan principal is:

   (a)  if the lease as extended or renewed states an amount as the cost or
        value of the car for the purposes of the extension or renewal and the
        lessor and the lessee were dealing with each other at arm's length in
        connection with the extension or renewal-the amount so stated; or

   (b)  otherwise-the amount that could reasonably have been expected to have
        been paid by the lessee for the purchase of the car if:

        (i)    the lessor had actually sold the car to the lessee when the
               lease was extended or renewed; and

        (ii)   the lessor and lessee were dealing with each other at arm's
               length in connection with the sale.

(8) In determining whether subsection (1) applies to the lessee, any period
after the end of the lease term and before the extension or renewal is granted
during which the lessee did not have the right to use the car is disregarded
if the extension or renewal:

   (a)  has effect from the time immediately after the end of that term; or

   (b)  would otherwise result in substantial continuity of the leasing of the
        car to the lessee.

(9) The amount of the notional loan is taken, for the purposes of section
42A-65, to be a termination amount paid to the lessor under the previous
lease. 42A-85 What happens if an amount is paid by or on behalf of the lessee
to acquire the car
If, at the end of the lease term or any extension of that term, an amount is
paid to the lessor by, or on behalf of, the lessee to acquire the car, the
following provisions have effect:

   (a)  the amount paid is not included in the lessor's assessable income;

   (b)  a deduction is not allowable to the lessee because of the payment;

   (c)  the lessee is taken to continue to be the owner of the car until the
        lessee disposes of it;

   (d)  the transfer to the lessee of legal title to the car is not taken to
        be a disposal of the car by the lessor. 42A-90 What happens if the
        lessee ceases to have the right to use the car

(1) If, at the end of the lease term:

   (a)  the lessee ceases to have the right to use the car because the term is
        not extended and the lease is not renewed; and

   (b)  no amount is paid to the lessor by, or on behalf of, the lessee to
        acquire the car; the following provisions have effect.

(2) The car is taken to have been disposed of by the lessee by way of sale to
the lessor, and to have been acquired by the lessor, at the end of the lease
term.

(3) The consideration for the sale of the car by the lessee, and the cost of
the acquisition of the car by the lessor, are each taken to have been:

   (a)  the amount worked out in accordance with subsection (6); or

   (b)  if it is not practicable to work out an amount in accordance with that
        subsection-the market value of the car at the end of the lease term.

(4) If the car is afterwards acquired by an associate of the lessee, the cost
of the car for the purpose of calculating its depreciated value at the time of
the acquisition for the purposes of the application of this Act to the
associate is taken to be whichever is the lesser of:

   (a)  the sum of:

        (i)    the amount that would have been the depreciated value of the
               car at that time for the purposes of the application of this
               Act to the lessee if the lessee were not taken under this
               Division to have disposed of the car; and

        (ii)   any amount that is included in the lessee's assessable income
               under subsection 59(2) because the lessee is taken to have
               disposed of the car; or

   (b)  the cost of the acquisition of the car by the associate.

(5) For the purposes of paragraph (1)(a), the lessee is not taken to have
ceased to have the right to use the car if:

   (a)  the lease term is extended, or the lease is renewed, at a time after,
        but not immediately after, the end of that term with effect from the
        time immediately after the end of that term; or

   (b)  the extension or renewal would otherwise result in substantial
        continuity of the leasing of the car to the lessee.

(6) For the purposes of paragraph (3)(a), the amount of the consideration for
the sale, and of the cost of the acquisition, is the amount worked out using
the formula:
Balance of notional loan - Payable amount + Refundable amount where:
balance of notional loan means the sum of:

   (a)  the outstanding notional loan principal at the end of the lease term;
        and

   (b)  any amounts payable by the lessee for the notional loan that were not
        paid at or before that time; and

   (c)  any amounts (other than the payable amount) payable by the lessee
        because of the expiry of the lease.
payable amount means the amount (if any) payable to the lessor by the lessee
because the value of the car at the end of the lease term was less than the
balance of notional loan.
refundable amount means the amount (if any) payable to the lessee by the
lessor because the value of the car at the end of the lease term was more than
the balance of notional loan.
Subdivision 42A-F-What happens if the lease is terminated
before the end of the lease term Guide to Subdivision 42A-F 42A-95 What this
Subdivision is about This Subdivision sets out what happens if the lease is
terminated before the end of the lease term. The situations covered are:

   (a)  the lessee buys the car;

   (b)  the lessee ceases to have the right to use the car.
Table of sections Operative provisions 42A-100 What happens if an amount is
paid by or on behalf of the
lessee to acquire the car 42A-105 What happens if the lessee ceases to have
the right to use
the car Operative provisions 42A-100 What happens if an amount is paid by or
on behalf of the lessee to acquire the car
If, on the termination of the lease before the end of the lease term, an
amount is paid to the lessor by, or on behalf of, the lessee to acquire the
car, the following provisions have effect:

   (a)  the amount paid is not included in the lessor's assessable income;

   (b)  a deduction is not allowable to the lessee because of the payment;

   (c)  the lessee is taken to continue to be the owner of the car until the
        lessee disposes of it;

   (d)  the transfer to the lessee of legal title to the car is not taken to
        be a disposal of the car by the lessor. 42A-105 What happens if the
        lessee ceases to have the right to use the car

(1) If, on the termination of the lease before the end of the lease term, no
amount is paid to the lessor by, or on behalf of, the lessee to acquire the
car, the following provisions have effect.

(2) The car is taken to have been disposed of by the lessee by way of sale to
the lessor, and to have been acquired by the lessor, on the termination of the
lease.

(3) The consideration for the sale of the car by the lessee, and the cost of
the acquisition of the car by the lessor, are each taken to have been:

   (a)  the amount worked out in accordance with subsection (5); or

   (b)  if it is not practicable to work out an amount in accordance with that
        subsection-the market value of the car on the termination of the
        lease.

(4) If the car is afterwards acquired by an associate of the lessee, the cost
of the car for the purpose of calculating its depreciated value at the time of
the acquisition for the purposes of the application of this Act to the
associate is taken to be whichever is the lesser of:

   (a)  the sum of:

        (i)    the amount that would have been the depreciated value of the
               car at that time for the purposes of the application of this
               Act to the lessee if the lessee were not taken under this
               Division to have disposed of the car; and

        (ii)   any amount that is included in the lessee's assessable income
               under subsection 59(2) because the lessee is taken under this
               Division to have disposed of the car; or

   (b)  the cost of the acquisition of the car by the associate.

(5) For the purposes of paragraph (3)(a), the amount of the consideration for
the sale, and of the cost of the acquisition, is the amount worked out using
the formula:
Balance of notional loan - Payable amount + Refundable amount where:
balance of notional loan means the sum of:

   (a)  the outstanding notional loan principal at the termination of the
        lease; and

   (b)  any amounts payable by the lessee for the notional loan that were not
        paid at or before that time; and

   (c)  any amounts (other than the payable amount) payable by the lessee
        because of the termination of the lease.
payable amount means the amount (if any) payable to the lessor by the lessee
because the value of the car at the termination of the lease was less than the
balance of notional loan at that time.
refundable amount means the amount (if any) payable to the lessee by the
lessor because the value of the car at the termination of the lease was more
than the balance of notional loan at that time.
Subdivision 42A-G-Interpretation Guide to Subdivision 42A-G 42A-110 What this
Subdivision is about This Subdivision explains the meanings of various
expressions used in this Division.
Table of sections Operative provisions 42A-115 General definitions 42A-120
Luxury car 42A-125 Consecutive short-term hiring agreements 42A-130 Finance
charge 42A-135 Lease payment periods 42A-140 Accrual periods and accrual
amounts 42A-145 Outstanding notional loan principal 42A-150 Implicit interest
rate Operative provisions 42A-115 General definitions
In this Division, unless the contrary intention appears:
accrual amount has the meaning given by section 42A-140.
accrual period has the meaning given by section 42A-140.
associate has the meaning given by section 318 but, in addition:

   (a)  a person and any employer of the person are taken to be associates;
        and

   (b)  a person and any employee of the person are taken to be associates.
extension of the lease term of a lease means (except in subsection 42A-10(2))
extension of the term on the same terms and conditions as applied under the
lease before the extension.
finance charge means the finance charge referred to in section 42A- 25 or
42A-80, as the case may be, as worked out under section 42A-130. hire purchase
agreement means:

   (a)  an agreement for letting property on hire under which the hirer has an
        option to buy the property where:

        (i)    title in the property does not pass to the hirer until the
               option is exercised; and

        (ii)   amounts paid under the agreement are taken into account in
               working out the amount payable on the exercise of the option;
               or

   (b)  an agreement to buy property by instalments, where title in the
        property does not pass to the hirer until the final instalment is
        paid.
implicit interest rate has the meaning given by section 42A-150. lease of a
motor car means:

   (a)  any arrangement to let the car on hire under which a right to use the
        car is granted by the owner to another person for a monetary or other
        consideration; and

   (b)  any arrangement to let the car on hire under which a right to use the
        car, being a right derived directly or indirectly from a right
        referred to in paragraph (a), is granted by a person to another person
        for a monetary or other consideration; and includes a renewal of such
        an arrangement, but does not include a short-term hiring agreement or
        a hire purchase agreement.
leased car means a motor car of which a lease has been granted.
lease payment means an amount that the lessee under a lease of a motor car is
required to pay for the rental or hire of the car but does not include:

   (a)  an amount in the nature of a penalty payable for failure to make a
        payment for rental or hire on time; or

   (b)  a termination amount.
lease payment period has the meaning given by section 42A-135.
lease term of a lease means the period:

   (a)  starting on the day as from which the lease has effect; and

   (b)  ending on the day on which the lease is to cease to have effect or, if
        the lease is of indefinite duration, on the day on which it would be
        reasonable to conclude, having regard to the terms and conditions of
        the lease, that the lease will cease to have effect.
lessee of a leased car means the person to whom the right to use the car was
granted under the arrangement constituting the lease.
lessor of a leased car means the person by whom the right to use the car was
granted under the arrangement constituting the lease.
luxury car has the meaning given by section 42A-120.
motor car or car means a unit of property referred to in subsection 57AF(1).
notional loan has the meaning given by section 42A-25 or subsection 42A-80(5),
as the case may be.
notional loan principal of a notional loan means the amount that was the
notional loan principal under section 42A-25 or subsection 42A- 80(5), as the
case may be, of the notional loan at the time as at which that loan is taken
under this Division to have been granted.
outstanding notional loan principal has the meaning given by section 42A-145.
right to use a car includes the right to possess the car.
short-term hiring agreement means, subject to section 42A-125, an agreement
for taking a unit of property on hire where the agreement is of a kind
ordinarily entered into by persons taking property on hire intermittently as
the occasion requires on an hourly, daily, weekly, monthly or other short-term
basis.
termination amount means an amount payable on the expiry, or termination
before expiry, of a lease of a motor car and includes:

   (a)  if, on the expiry or termination, the lessee acquires the car from the
        lessor-an amount payable to the lessor for the acquisition; or

   (b)  otherwise-the value of the car at the time of the expiry or
        termination. 42A-120 Luxury car
A leased car is a luxury car for the purposes of this Division if, had the
car:

   (a)  been bought from the owner, at the first time when the owner granted a
        lease of the car, by the person who is the lessee for a price equal to
        the amount applying under paragraph 42A-20(1)(a) or (b), as the case
        may be; and

   (b)  been first used by that person for any purpose in the financial year
        in which that time occurred; the cost of the car, for the purpose of
        calculating the depreciation allowable to that person for the car,
        would have been reduced because of the operation of section 57AF.
        42A-125 Consecutive short-term hiring agreements

(1) If:

   (a)  2 or more consecutive agreements have been or are entered into for the
        hiring of the same motor car; and

   (b)  the total of the periods for which the car was hired under the
        agreements exceeds 6 months; and

   (c)  the car was or is let on hire under the agreements by the same person
        or by persons who were associates of each other; and

   (d)  the car was or is taken on hire under the agreements by the same
        person or by persons who were associates of each other; and

   (e)  each agreement would, apart from this section, be a short-term hiring
        agreement; each agreement is taken to have been or to be a lease of
        the car.

(2) For the purposes of paragraph (1)(a), if an agreement takes effect after,
but not immediately after, a previous agreement ceased to have effect, the
agreements are taken to be consecutive if the effect of the agreements is to
result in substantial continuity of the hiring of the car by the same person
or by persons who were associates of each other. 42A-130 Finance charge
For the purposes of this Division, the finance charge for a notional loan that
the lessor, under a lease of a motor car, is taken to have made to the lessee
is the amount worked out using the formula:
Total lease payments + Other payments - Notional loan principal where:
total lease payments means the sum of the lease payments under the lease.
other payments means the sum of the amounts (other than lease payments) that
are required under the lease to be paid and includes any termination amount.
notional loan principal means the notional loan principal of the notional loan
that the lessor is taken under this Division to have made to the lessee.
42A-135 Lease payment periods

(1) A lease payment period for a lease of a motor car, is a period for which a
lease payment, under the lease, is allocated or expressed to be payable.

(2) However, if a period (the excessive period) referred to in subsection (1)
exceeds 6 months, the excessive period is not a lease payment period but each
of the following parts of the excessive period is a separate lease payment
period:

   (a)  the part of the excessive period beginning at the start of that period
        and ending 6 months later;

   (b)  each part (a later part) of the excessive period:

        (i)    beginning immediately after a part of the excessive period that
               is a lease payment period under paragraph (a) or under a
               previous application of this paragraph; and

        (ii)   ending 6 months after the start of that later part or at the
               end of the excessive period, whichever first occurs. 42A-140
               Accrual periods and accrual amounts

(1) The accrual periods for a notional loan that the lessor, under a lease of
a motor car, is taken under this Division to have made to the lessee are the
lease payment periods under the lease.

(2) The accrual amount for an accrual period for such a notional loan is the
part of the finance charge that relates to the accrual period and is worked
out using the formula:
Outstanding notional x Implicit interest rate
loan principal where:
outstanding notional loan principal means the outstanding notional loan
principal at the start of the accrual period.
implicit interest rate means the implicit interest rate under the lease for
the accrual period. 42A-145 Outstanding notional loan principal
The outstanding notional loan principal at a particular time (the relevant
time) of a notional loan that the lessor, under a lease of a motor car, is
taken under this Division to have made to the lessee is the amount worked out
using the formula:
Notional loan principal + Previous accrual amounts - Previous lease
payments where:
notional loan principal means the notional loan principal of the notional
loan.
previous accrual amounts means the sum of the accrual amounts for accrual
periods that occurred before the relevant time.
previous lease payments means the sum of the lease payments that the lessee
paid or was required to pay under the lease at or before the relevant time.
42A-150 Implicit interest rate

(1) The implicit interest rate, under a lease of a motor car, for an accrual
period for the notional loan that the lessor is taken under this Division to
have made to the lessee, is the rate of compound interest for the accrual
period at which the sum of:

   (a)  the present value of the lease payments; and

   (b)  the present values of any other amounts that are required under the
        lease to be paid by the lessee; and

   (c)  the present values of any termination amounts; equals the notional
        loan principal.

(2) However, if an amount referred to in paragraph (1)(a), (b) or (c) is not
known at the start of the term of the lease:

   (a)  if a reasonable estimate of the amount can be made at that time- such
        an estimate is to be made and is to be used for the purposes of the
        application of subsection (1) for each year of income of the lessor;
        or

   (b)  otherwise-an estimate of the amount is to be made at the end of each
        year of income of the lessor for the purposes of the application of
        subsection (1) to the lessor for that year of income.
Part 2-Consequential amendments 2 After subsection 63(1A)
Insert:

(1B) If any debts relating to lease payments that have, or will, become liable
to be made under a lease of a motor car to which Division 42A in Schedule 2E
applies are written off as bad debts by a taxpayer, the maximum amount that
the taxpayer can deduct under subsection (1) for those debts is the amount of
the finance charge for the notional loan that the taxpayer is taken under that
Division to have made to the lessee.

(1C) Expressions used in subsection (1B) that are defined in Division 42A in
Schedule 2E have the same meanings as in that Division.

[Minister's second reading speech made in-
House of Representatives on 13 February 1997
Senate on 16 June 1997]