Depreciating assets which improve or are fixed to leased land



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If a depreciating asset is fixed to leased land and the lessee has a right to remove it, they are the holder while the right to remove the asset exists.


Holder of depreciating asset fixed to leased land

Jo leases land from Bill who owns the land. Jo purchases some machinery and fixes it to the land. Under property law the machinery is treated as part of the land so Bill is its legal owner.

However, under the terms of her lease, Jo can remove the machinery from the land at any time. Because she has acquired and fixed the machinery to the land and has a right to remove it, Jo holds the machinery as long as the right to remove it exists.

If a lessee or owner of certain other rights over land (for example, an easement) improves the land with a depreciating asset, they are the holder of the asset if the asset is for their own use even though they have no right to remove it from the land. They remain the holder as long as the lease or right exists.


Holder of depreciating asset which improves leased land

Jo leases land from Bill to use for farming. Jo installs an irrigation system on the land which is an improvement to the land. While Bill is the legal owner under property law as the irrigation system is part of his land, Jo holds the irrigation system and, even though she has no right to remove it under her contract with Bill, she may deduct amounts for its decline in value for the term of the lease because:

  • she improved the land
  • the improvement is for her use.
Last modified: 01 Jun 2005QC 27399