Document ID: chunk:federal_register_of_legislation:C2011C00610:clause:3_2:p1
Version: federal_register_of_legislation:C2011C00610
Segment Type: clause
Provision Reference: sch 3 cl 2 (pt 1/9)
Character Range: 134600–137323

2  After Division 240
Insert:

Division 242—Leases of luxury cars

Table of Subdivisions

 Guide to Division 242
242‑A Notional sale and loan
242‑B Amount to be included in lessor's assessable income
242‑C Deductions allowable to lessee
242‑D Adjustments if total amount assessed to lessor differs from amount of interest
242‑E Extension, renewal and final ending of the lease

Guide to Division 242

242‑1  What this Division is about

      A luxury car is one whose market value exceeds the car limit set for a car's capital allowance deductions by section 40‑230.
      If the lessor of a luxury car is tax exempt, or taxed at a lower rate than the lessee, the lease could be structured to give both parties a better after‑tax outcome than if the lessee had bought the car. The lessee could fully deduct the lease payments, thereby avoiding the capital allowance limit for luxury cars, and the lessor would receive higher lease payments.
      This Division removes the tax benefit for the lessee by putting both parties in the same position as if the lessor had sold the car to the lessee and lent the lessee the purchase price.

Subdivision 242‑A—Notional sale and loan

Guide to Subdivision 242‑A

242‑5  What this Subdivision is about

      A leased luxury car is treated for income tax purposes as if it had been sold by the lessor to the lessee for the car's market value. The lessor is treated as having lent the lessee the money to buy the car, and the lease payments are treated as payments of the principal and interest on that notional loan.

Table of sections

Operative provisions

242‑10 Application
242‑15 Notional sale and acquisition
242‑20 Consideration for notional sale, and cost, of car
242‑25 Notional loan by lessor to lessee

Operative provisions

242‑10  Application

 (1) This Division applies to a *car that:
 (a) is leased (but not under a *short‑term hire agreement or a *hire purchase agreement) for consideration; and
 (b) was a *luxury car when the lessor first leased it; and
 (c) is not *trading stock of the lessee; and
 (d) is not a car covered by subsection 40‑230(2) (about cars modified to carry individuals with a disability).

 (2) The provisions of this Division do not have effect for the purposes of Division 11A of Part III of the Income Tax Assessment Act 1936 (about withholding tax on dividends, interest and royalties).

Note: This subsection prevents interest on the notional loan that this Division creates being subject to withholding tax under Division 11A.

 (3) For the purposes of paragraph (1)(a), the question whether an agreement is a *short‑term hire agreement is determined on the basis that an employee or employer of an entity is an *associate of