Income Tax Act 2007

Avoidance and non-market transactions - Market value substituted

GC 5: Leases for inadequate rent

You could also call this:

"What happens when you rent something for too little money"

This law is about leases for inadequate rent. It applies when a property is leased and the rent is too low. You need to know that the Commissioner decides what an adequate rent is. The lessee is treated as paying this rent and the lessor is treated as earning it. When a lease has no rent payment dates, the rent is treated as paid daily. The lessor earns the rent on the day it is treated as paid. The rent also accrues daily. A lease can be for real or personal property. It can be a tenancy of any length, including a sublease or bailment. Rent includes a premium or other consideration for the lease. Some types of leases are subject to this law, such as a lease by a company or a lease by a person to a relative. A related company is a company associated with the lessor or their relatives. This law does not apply when the property is an asset to which subpart DG applies. The Commissioner determines the adequate rent. You are treated as paying this rent and the lessor is treated as earning it. This law is important for people who lease properties and need to know about adequate rent.

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This page was last updated on 5 April 2026 — View changes

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Money and consumer rights > TaxesHousing and property > RentingHousing and property > Buying and selling homes

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Part GAvoidance and non-market transactions
Market value substituted

GC 5Leases for inadequate rent

This section applies in relation to leases of real and personal property if and to the extent to which—
a property is leased; and
the lease is 1 of the types referred to in subsection (2); and
the lessee uses the property in deriving income; and
no rent is payable, or the Commissioner considers that the rent is less than adequate.

This section does not apply when the property is an asset to which subpart DG (Expenditure related to use of certain assets) applies.
The following types of leases are subject to this section:
a lease by a company:
a lease by a person to a relative or a related company:
a lease by 2 or more persons to a relative or a related company of any of those persons:
a lease by a partnership, ignoring section HG 2 (Partnerships are transparent), to a relative of a partner or a related company of the partnership.

The lessee is treated as paying, and the lessor is treated as deriving as income, an adequate rent determined by the Commissioner.
The adequate rent is treated as—
paid on the rent payment dates set out in the lease, if any; and
paid on a daily basis on each day of the lease term, if there are no rent payment dates; and
income derived by the lessor on the date on which it is treated as being paid; and
accruing on a daily basis.

In this section,—
lease means a tenancy of any duration, including a sublease or bailment
related company means a company that is associated with—
1. in the case of a single lessor, the lessor, 1 or more relatives of the lessor, or a combination of them:
2. in the case of multiple lessors, including a partnership, any of the lessors, 1 or more relatives of any of the lessors, or a combination of them
rent includes a premium or other consideration for the lease.

Compare

2004 No 35 s GD 10

Notes

Section GC 5(1): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 48(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section GC 5(1B) heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 59(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section GC 5(1B): inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 59(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section GC 5(2)(d): amended (with effect on 1 April 2008), on 29 March 2025, by section 66(1) (and see section 66(2) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
Section GC 5(5) related company: amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 245(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 5 list of defined terms asset: inserted (with effect on 1 April 2013), on 17 July 2013, by section 59(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).