ATO Interpretative Decision
ATO ID 2001/314
Income Tax
Holder of depreciating assets under long term leaseFOI status: may be released
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This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
In relation to a proposal by a taxpayer to enter into a long term lease with an option to purchase over certain depreciating assets ("the Plant Lease"), whether the taxpayer would be the "holder" of the Original Plant the subject of the Plant Lease under section 40-40 of the Income Tax Assessment Act 1997 (ITAA 1997).
Decision
In the particular circumstances proposed, the taxpayer would be the "holder" of the Original Plant under Item 6 of the hold table in section 40-40 of the ITAA 1997.
Facts
The essential features of the proposed arrangement are as follows:
- (1)
- The taxpayer enters into long term leases of various depreciating assets and land.. The term of the Plant Lease substantially exceeds the useful life of all of the relevant depreciating assets in existence at the commencement of the lease arrangements ("the Original Plant").
- (2)
- The taxpayer prepays the total rent in respect of the leases by making upfront cash payments at the commencement of the lease arrangements. The amount of the rent prepayment in respect of the Plant Lease corresponds to the market value of the Original Plant.
- (3)
- As far as possible, the taxpayer bears all the risks and rewards incidental to ownership of the relevant depreciating assets. Generally, this includes the obligation to replace all assets that become obsolete or redundant during the term of the lease. The lease arrangements are intended to ensure that the taxpayer has rights which enable it to use the assets for their entire useful lives.
- (4)
- Under the Plant Lease, the taxpayer has a present right to acquire all of the Original Plant. This right is exercisable at the end of the Original Plant's remaining useful life or when the parties otherwise agree that the Original Plant has become obsolete, whichever is the earlier.
- (5)
- It is reasonable to expect that, within the term of the Plant Lease, all of the Original Plant will become obsolete, will be replaced and will be acquired by the taxpayer by exercising its right to do so.
Legislative References:
Income Tax Assessment Act 1997
section 40-40
Related Public Rulings (including Determinations)
IT 28
Keywords
Depreciation
Capital Allowances Long Term Leasing
Decline in value
Depreciating asset
Hold
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 13 July 2001 | Original statement |
| 20 August 2004 | Archived |