INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART III - LIABILITY TO TAXATION  

Division 10D - Deductions for capital expenditure on certain buildings and structural improvements  

SECTION 124ZF   INTERPRETATION  

124ZF(1)   [Definitions]  

In this Division, unless the contrary intention appears:

agreement
means any agreement, arrangement or understanding:


(a) whether formal or informal or partly formal and partly informal;


(b) whether written or oral or partly written and partly oral; and


(c) whether or not having legal or equitable force and whether or not based on legal or equitable rights.

associate
, in relation to a person, means:


(a) in a case where the person is a private company in relation to the year of income concerned - a director or member of the company, or a spouse, parent or child of such a director or member;


(b) in a case where the person is a partnership - a partner in the partnership, or a spouse, parent or child of such a partner;


(c) in a case where the person is a trustee of a private trust estate - another trustee, or a beneficiary, of the trust estate, or a spouse, parent or child of a trustee or beneficiary of the trust estate; or


(d) in a case where the person is a natural person - a spouse, parent or child of the person.

building
includes:


(a) a structural improvement covered by section 124ZFB ; and


(b) an earthwork covered by section 124ZFC .

construct
includes make.

Crown lease
has the same meaning as in section 54AA .

eligible building
means a building in respect of which there is an amount, or there are amounts, of qualifying expenditure.

eligible industrial manner
, in relation to a building, has the meaning given by section 124ZFA .

lease
includes a Crown lease.

lessee
, in relation to a Crown lease, means a person who is a lessee within the meaning of section 54AA .

parent
, in relation to a person, means a person of whom the first-mentioned person is a child.

post-26 February 1992 qualifying expenditure
means qualifying expenditure where the building, or the extension, alteration or improvement, in respect of the construction of which the qualifying expenditure was incurred commenced to be constructed after 26 February 1992.

pre-27 February 1992 qualifying expenditure
means qualifying expenditure where the building, or the extension, alteration or improvement, in respect of the construction of which the qualifying expenditure was incurred commenced to be constructed before 27 February 1992.

private trust estate
means a trust estate, other than a unit trust whose units are:


(a) listed for quotation in the official list of a stock exchange in Australia or elsewhere; or


(b) ordinarily available for subscription or purchase by the public.

research and development activities
means activities that:


(a) either:


(i) are research and development activities for the purposes of section 73B ; or

(ii) would be research and development activities for the purposes of that section if subsection (2A) of that section were amended so that references in that subsection to an eligible company included references to a person other than an eligible company; and


(b) are carried on by a person in connection with a business carried on by the person for the purposes of gaining or producing assessable income.

residential accommodation
includes short-term accommodation for travellers and other short-term accommodation of a residential nature.

spouse

124ZF(1A)   [ exempt agreement ]  

For the purposes of this Division, an agreement to which a person and an associate of the person are parties is an exempt agreement if, and only if, the Commissioner is satisfied, having regard to all the relevant circumstances, that:


(a) the parties to the agreement could reasonably be expected to have entered into the agreement if those parties had been independent parties each of whom was, in relation to the agreement, dealing at arm's length with each of the others; and


(b) none of the parties to the agreement entered into the agreement for the purpose of obtaining a deduction under this Division.

124ZF(1B)   [Purpose of entering agreement]  

Without limiting the generality of paragraph (1A)(b), a person shall be taken, for the purposes of that paragraph, to have entered into an agreement for a particular purpose if:


(a) the person entered into the agreement for purposes including that purpose; and


(b) that purpose was not merely an incidental purpose of the entering into, by the person, of the agreement.

124ZF(2)   [Reference to the prescribed part ]  

For the purposes of the application of this Division in determining the amount of a deduction allowable under section 124ZH or 124ZK , or the amount of the residual capital expenditure, in respect of an amount of qualifying expenditure in respect of a building, a reference in this Division, in relation to that amount of qualifying expenditure, to the prescribed part shall be read as a reference to the part of the building to which that amount of qualifying expenditure is attributable.

124ZF(3)   [Prescribed part used to produce assessable income]  

Subject to subsection (4), for the purposes of the application of this Division in determining the amount of any deduction allowable under section 124ZH or 124ZK , or the amount of the residual capital expenditure, in respect of an amount of qualifying expenditure, a person who owned the prescribed part or a part of the prescribed part at a particular time shall be taken to have dealt with the prescribed part or the part of the prescribed part, as the case may be, in the prescribed manner at that time if, at that time, the person used the whole or a part of the prescribed part or of that part of the prescribed part, as the case may be, for the purpose of producing assessable income or, if that time occurred or occurs on or after 21 November 1987, for the purpose of carrying on research and development activities.

124ZF(4)   [Uses not for the purpose of producing assessable income]  

For the purposes of the application of this Division in determining the amount of any deduction allowable under section 124ZH or 124ZK , or the amount of the residual capital expenditure, in respect of an amount of qualifying expenditure in respect of a building (in this subsection referred to as the relevant building ), a person shall not be taken to have used, at a particular time, property, being the whole or a part of the prescribed part, or of a part of the prescribed part, of the relevant building , for the purpose of producing assessable income, if, at that time:


(a) in a case where the building, or the extension, alteration or improvement, in respect of the construction of which the amount of qualifying expenditure was incurred commenced to be constructed before 18 July 1985 - the property:


(i) was used or available for use (whether by that person or by another person or other persons) wholly or principally for, or in association with, residential accommodation; or

(ii) was used or for use (whether by that person or by another person or other persons) wholly or principally for exhibition or display in connection with:

(A) the sale of the whole or any part of the relevant building or any other building; or

(B) the lease of the whole or any part of the relevant building or any other building for use (whether by that person or by another person or other persons) wholly or principally for, or in association with, residential accommodation; or


(b) in any other case - the property was used or for use (whether by that person or by another person or other persons) wholly or principally for exhibition or display in connection with the sale of the whole or any part of the relevant building or any other building.

124ZF(4A)   [Use as residential accommodation of owner or associate]  

Where:


(a) there is an amount of qualifying expenditure in respect of a building (in this subsection referred to as the relevant building );


(b) the building, or the extension, alteration or improvement, in respect of the construction of which the amount of qualifying expenditure was incurred commenced to be constructed on or after 18 July 1985; and


(c) at a particular time, property, being the whole or a part of the prescribed part, or of a part of the prescribed part, of the relevant building :


(i) was used or for use by a person (in this subsection referred to as the relevant person ) wholly or principally for, or in association with, residential accommodation; or

(ii) was, pursuant to an agreement (other than an exempt agreement) to which a person (in this subsection also referred to as the relevant person ) and an associate of the relevant person were parties, used or for use by the associate wholly or principally for, or in association with, residential accommodation,

then, for the purposes of the application of this Division (other than this subsection) in determining the amount of any deduction allowable under section 124ZH or 124ZK , or the amount of the residual capital expenditure, in respect of the amount of qualifying expenditure, use by the relevant person at that time of the whole or a part of the property for the purpose of producing assessable income, other than assessable income consisting of payments made to the relevant person solely in consideration of the whole or a part of the property:


(d) being used or available for use by a person, being neither the relevant person nor an associate of the relevant person; or


(e) being used or available for use by an associate of the relevant person pursuant to an exempt agreement to which the relevant person and the last-mentioned associate are parties,

shall be deemed not to be use by the relevant person for the purpose of producing assessable income.

124ZF(5)   [Buildings not used for residential accommodation]  

For the purposes of paragraph (4)(a) of this section and subsection 124ZG(2) , where, at a particular time, the whole or a part of a building:


(a) is for use, or is used, for the provision of a facility of a kind not commonly provided in a hotel, motel or guest house in Australia; and


(b) would, but for the operation of subsection 124ZA(10) or (11) , as the case may be, be taken to be dealt with in the prescribed manner for the purposes of Division 10C ,

it shall be taken not to be used or available for use at that time for, or in association with, residential accommodation.

124ZF(6)   [Building used as home, hotel, motel, guest house]  

For the purposes of paragraph (4)(a) of this section and subsection 124ZG(2) , where property, being the whole or a part of a building:


(a) is, at a particular time, part of a person's home or used or for use wholly or principally for the purpose of operating a hotel, motel or guest house; and


(b) would, but for this subsection, be taken not to be, at that time, used or for use wholly or principally for, or in association with, residential accommodation,

the property shall, subject to subsection (5), be taken to be, at that time, used or for use wholly or principally for, or in association with, residential accommodation.

124ZF(6A)   [Property part of person's home]  

For the purposes of subsection (4A) of this section and subsection 124ZG(2B) , where, at a particular time, property, being the whole or a part of a building, is a part of a person's home and would, but for this subsection, be taken not to be, at that time, used or for use by that person wholly or principally for, or in association with, residential accommodation, the property shall be taken to be, at that time, used or for use by that person wholly or principally for, or in association with, residential accommodation.

124ZF(7)   [Temporary cessation of use]  

For the purposes of this Division, an eligible building or part of an eligible building shall not be taken not to have been used, for use or available for use for a particular purpose, or in a particular manner, at a particular time if:


(a) its use for that purpose or in that manner had, at that time, ceased, by reason only of a temporary cessation of use of the building or a part of the building by reason of the construction of an extension, alteration or improvement, or the making of repairs, to the building; or


(b) it was, at that time:


(i) maintained ready for use for that purpose or in that manner; and

(ii) not used or for use for any other purpose or in any other manner,
and its use or intended use for that purpose or in that manner had not been abandoned.

124ZF(8)   [Eligible lessee]  

For the purposes of this Division, a person shall be taken to be an eligible lessee in relation to an amount of qualifying expenditure in respect of an eligible building at a particular time (in this subsection referred to as the relevant time ) if:


(a) the person:


(i) was, at the relevant time, the lessee of the whole, or of a part, of the part of the building to which the expenditure is attributable;

(ii) incurred that amount of qualifying expenditure in respect of the eligible building; and

(iii) was, at all times after the completion of the relevant construction, and before the relevant time, the lessee of the whole, or of a part, of the part of the building to which that expenditure is attributable; or


(b) the person was, at the relevant time, the lessee of the whole, or of a part, of the part of the building to which the qualifying expenditure is attributable and obtained the lease of that part of the building, or of a part of that part of the building, by assignment from a person who, immediately before the assignment, was an eligible lessee in relation to that amount of qualifying expenditure by virtue of the application of paragraph (a) or by virtue of a previous application of this paragraph.

124ZF(9)   [ person includes partnership or trustee]  

References in this Division to a person shall be read as including references to a partnership or a person in the capacity of a trustee.

124ZF(10)   [No dealing in prescribed manner before construction completed]  

For the purposes of the application of this Division in determining the amount of a deduction allowable under section 124ZH or 124ZK in respect of an amount of qualifying expenditure, a person who owned the whole or a part of the prescribed part shall not be taken to have dealt with any part of the prescribed part in the prescribed manner at any time before the date on which the relevant construction was completed.

124ZF(11)   [Residual capital expenditure on eligible building]  

For the purposes of this Division, the residual capital expenditure in relation to an amount of pre-27 February 1992 qualifying expenditure in respect of an eligible building at any time (in this subsection referred to as the relevant time ) is the amount (if any) ascertained by deducting from that amount of qualifying expenditure the amount or the sum of the amounts that, in respect of the period commencing on the day on which the prescribed part was first used by any person for any purpose after completion of the relevant construction and ending at the relevant time, would have been allowed, or would be allowable, to a taxpayer as a deduction or deductions under section 124ZH if:


(a) the taxpayer were the owner of the eligible building during the whole of that period;


(b) the taxpayer had dealt with the prescribed part in the prescribed manner during the whole of that period; and


(c) section 124ZJ were not applicable in relation to that deduction or any of those deductions, as the case may be.

124ZF(11A)   [Post-26 February 1992 qualifying expenditure]  

For the purposes of this Division, if there is an amount of post-26 February 1992 qualifying expenditure in respect of an eligible building, the amount of so much of the residual capital expenditure at a particular time ( relevant time ) in relation to that qualifying expenditure as is attributable to the prescribed part or a part ( relevant part ) of the prescribed part is the amount (if any) worked out by:


(a) identifying the period:


(i) commencing on the day on which the prescribed part or relevant part was first used by any person for any purpose after completion of the relevant construction; and

(ii) ending at the relevant time; and


(b) calculating, for each day (if any) in that period during the whole of which any part ( 4% part ) of the prescribed part or relevant part, as the case may be, was dealt with in an eligible industrial manner by a taxpayer who owned that part of the prescribed part or relevant part, the amount worked out using the formula:


Portion of qualifying expenditure
Days in year          
× 0.04


where:
  • Portion of qualifying expenditure means so much of the qualifying expenditure as is attributable to the 4% part;
  • Days in year means the number of days in the financial year in which that day occurred; and

  • (c) calculating, for each day (if any) in that period during which any part of which any part ( 2.5% part ) of the prescribed part or relevant part, as the case may be, was not dealt with in an eligible industrial manner by a taxpayer who owned that part of the prescribed part or relevant part, the amount worked out using the formula:


    Portion of qualifying expenditure
    Days in year          
    × 0.025


    where:
  • Portion of qualifying expenditure means so much of the qualifying expenditure as is attributable to the 2.5% part;
  • Days in year means the number of days in the financial year in which that day occurred; and

  • (d) adding the amounts calculated under paragraphs (b) and (c); and


    (e) deducting the result of the addition mentioned in paragraph (d) from so much of the amount of that qualifying expenditure as is attributable to the prescribed part or relevant part, as the case requires.

    124ZF(12)   [Circumstances where eligible lessee deemed owner]  

    For the purposes of the application of this Division in determining the amount of a deduction allowable under section 124ZH or 124ZK in respect of an amount of qualifying expenditure in respect of a building, a person who, at a particular time (in this subsection referred to as the relevant time ), is an eligible lessee in relation to that amount of qualifying expenditure shall, subject to subsection (15), be taken at the relevant time to be the owner of so much of the building as satisfies the following conditions, namely:


    (a) is leased by the person at that time;


    (b) is a part of the building to which the whole or a part of the amount of qualifying expenditure is attributable; and


    (c) was, at all times after the completion of the relevant construction and before the relevant time, leased and was not, at any time after completion of the relevant construction and before the relevant time, leased by a person who was not an eligible lessee in relation to that amount of qualifying expenditure.

    124ZF(13)   [Eligible lessee deemed to be sole owner]  

    Where, for the purposes of the application of this Division in determining the amount of a deduction allowable under section 124ZH or 124ZK in respect of an amount of qualifying expenditure, a person is deemed by subsection (12) to be the owner of a building or of a part of a building at a particular time, no other person shall be taken to be the owner of the building or of that part of the building, as the case may be, at that time, for the purposes of the application of the provisions of this Division in determining the amount of a deduction allowable under section 124ZH or 124ZK in respect of that amount of qualifying expenditure.

    124ZF(14)   [Reference to relevant construction]  

    In this Division, a reference, in relation to an amount of qualifying expenditure, to the relevant construction shall be read as a reference to the construction of the building, or of the extension, alteration or improvement, as the case may be, to which the amount of qualifying expenditure is attributable.

    124ZF(15)   [Taxpayer owning two parts]  

    Where:


    (a) during the whole or a part of a year of income (which whole or part, as the case may be, is in this subsection referred to as the relevant period ) a taxpayer was the owner of a particular part (in this subsection referred to as the relevant part ) of the prescribed part in relation to an amount of qualifying expenditure; and


    (b) during a part only of the relevant period the taxpayer was also the owner of another part of that prescribed part,

    then, for the purposes of the application of this Division in relation to the taxpayer in relation to the relevant part (other than an application of this Division in relation to the whole of the prescribed part or in relation to a part of the prescribed part of which the relevant part is only a part), the taxpayer shall not be taken to have been the owner of the relevant part at any time during the part of the relevant period referred to in paragraph (b).

    124ZF(16)   [Holder of new lease under s 160ZSA]  

    For the purposes of the application of this Division in determining the amount of a deduction allowable under section 124ZH or 124ZK in respect of an amount of qualifying expenditure in respect of a building, where:


    (a) because of section 160ZSA , a person is taken for the purposes of Part IIIA to have disposed of an asset, being:


    (i) a building or a part of a building; or

    (ii) the whole or a part of an estate in fee simple; or

    (iii) the whole or a part of a lease or sublease; and


    (b) immediately before the grant of the new lease mentioned in section 160ZSA , the person is the owner for the first-mentioned purposes (whether because of one or more previous applications of this subsection or otherwise) of whichever of the following is applicable:


    (i) if subparagraph (a)(i) of this subsection applies - the building or the part of the building, as the case may be;

    (ii) if subparagraph (a)(ii) or (iii) of this subsection applies - any building or part of a building that is in the area to which the asset relates;

    then, subject to any subsequent application of this subsection, the following provisions have effect:


    (c) the holder of the new lease is to be taken to be and to have been, at all times during the subsistence of the new lease, the owner of the building or the part of the building mentioned in paragraph (b) of this subsection;


    (d) no other person is to be taken to be the owner of that building or that part of that building at any time during the subsistence of the new lease.


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