New Business Tax System (Integrity and Other Measures) Act 1999 (Incorporating amendments up to Act No. 78 of 2001) (169 of 1999)

Schedule 1   Disposal of leases and leased plant

Income Tax Assessment Act 1997

12   Before Division 46

Insert:

Division 45 - Disposal of leases and leased plant

Guide to Division 45

45-1 What this Division is about

This Division is designed to prevent tax being avoided through:

(a) the disposal of leased plant, or an interest in leased plant; or

(b) the disposal of a partnership interest in a partnership that leased plant; or

(c) the disposal of shares in a 100% subsidiary that leased plant;

where amounts have been deducted for depreciation of the plant.

It includes amounts in assessable income. Any benefit received, and any reduction in a liability, is taken into account in calculating the amounts included.

Where the disposal of shares in a 100% subsidiary is involved, the companies in the former wholly-owned group may be made jointly and severally liable for tax that the former subsidiary does not pay.

Table of sections

45-5 Disposal of leased plant or lease

45-10 Disposal of interest in partnership

45-15 Disposal of shares in 100% subsidiary that leases plant

45-20 Disposal of shares in 100% subsidiary that leases plant in partnership

45-25 Group members liable to pay outstanding tax

45-30 Reduction for certain plant acquired before 21.9.99

45-35 Limit on amount included for plant for which there is a CGT exemption

[This is the end of the Guide.]

Operative provisions

45-5 Disposal of leased plant or lease

(1) An amount is included in your assessable income if:

(a) you have deducted or can deduct an amount for depreciation of *plant; and

(b) for most of the time when you owned or were the *quasi-owner of the plant, you leased it to another entity; and

(c) all or part of the lease period occurred on or after 22 February 1999; and

(d) on or after that day, you dispose of the plant or an interest in the plant, and that disposal constitutes a *balancing adjustment event; and

(e) the sum of the following amounts is more than the plant's *written down value or of that part of it that is attributable to that interest:

(i) the money you receive or are entitled to receive for the disposal;

(ii) the amount of any reduction in a liability of yours as a result of the disposal;

(iii) the market value of any other benefit you receive or are entitled to receive as a result of the disposal.

(2) The amount included is the excess referred to in paragraph (1)(e). It is included for the income year in which the disposal occurred.

Example: Sean owns a leased asset. The asset has a written down value of $20,000. He has an outstanding loan for the asset of $60,000.

Sean sells a 50% interest in the asset to Leprechaun Pty Ltd for $40,000. Leprechaun agrees to take over 50% of Sean's obligation to make debt service payments.

The excess referred to in paragraph 45-5(1)(e) is:

($40,000 + $30,000 = $70,000) - $10,000 = $60,000

That amount is included in Sean's assessable income.

This amount would be reduced if part of it is included in Sean's assessable income under another provision (see subsection 45-5(5)).

Note 1: There is a reduction of the amount included for certain plant acquired before 21 September 1999: see section 45-30.

Note 2: There is a limit on the amount included for plant for which there is a CGT exemption: see section 45-35.

(3) An amount is also included in your assessable income if:

(a) you have deducted or can deduct an amount for depreciation of *plant; and

(b) for most of the time when you owned or were the *quasi-owner of the plant, you leased it to another entity; and

(c) all or part of the lease period occurred on or after 22 February 1999; and

(d) on or after that day, you dispose of:

(i) your interest in the plant, or part of it; or

(ii) a right under, or an interest in, the lease;

and that disposal does not constitute a *balancing adjustment event.

(4) The amount included is the sum of the following amounts:

(a) the money you receive or are entitled to receive for the disposal;

(b) the amount of any reduction in a liability of yours as a result of the disposal;

(c) the market value of any other benefit you receive or are entitled to receive as a result of the disposal;

It is included for the income year in which the disposal occurred.

(5) However, an amount is not included in your assessable income under this section to the extent that:

(a) it is included in that assessable income under a provision of this Act outside this Division; or

(b) you apply it under section 42-285, 42-290 or 42-293 (about offsetting balancing charges); or

(c) roll-over relief is available for the disposal under section 41-20.

Note: There are special rules for disposals between 22 February 1999 and 21 September 1999: see Division 45 of the Income Tax (Transitional Provisions) Act 1997.

45-10 Disposal of interest in partnership

(1) An amount is included in your assessable income if:

(a) a partnership of which you are (or were) a member has deducted or can deduct an amount for depreciation of *plant; and

(b) the deductions have been or would be reflected in your interest in the partnership net income or partnership loss; and

(c) for most of the time when the partnership owned or was the *quasi-owner of the plant, it leased it to another entity; and

(d) all or part of the lease period occurred on or after 22 February 1999; and

(e) on or after that day, you dispose of your interest in the plant, or part of it, and that disposal constitutes a *balancing adjustment event; and

(f) the sum of the following amounts is more than that part of the plant's *written down value that is attributable to that interest:

(i) the money you receive or are entitled to receive for the disposal;

(ii) the amount of any reduction in a liability of yours as a result of the disposal;

(iii) the market value of any other benefit you receive or are entitled to receive as a result of the disposal.

(2) The amount included is the excess referred to in paragraph (1)(f). It is included for the income year in which the disposal occurred.

Example: Chris has a 50% share in a partnership formed to lease an asset. The asset has a written down value of $124,000 (of which Chris' share is $62,000).

Chris assigns his partnership share to another entity for $34,000 plus the other entity agreeing to take over Chris' obligations to service his share of the partnership debt (which is $165,000). The total consideration is:

($34,000 + $165,000 = $199,000)

The amount assessable under section 45-10 is the excess referred to in paragraph 45-10(1)(f), which is:

($199,000 - $62,000 = $137,000)

This amount would be reduced if part of it is included in Chris' assessable income under another provision (see subsection 45-10(5)).

Note 1: There is a reduction of the amount included for certain plant acquired before 21 September 1999: see section 45-30.

Note 2: There is a limit on the amount included for plant for which there is a CGT exemption: see section 45-35.

(3) An amount is also included in your assessable income if:

(a) a partnership of which you are (or were) a member has deducted or can deduct an amount for depreciation of *plant; and

(b) the deductions have been or would be reflected in your interest in the partnership net income or partnership loss; and

(c) for most of the time when the partnership owned or was the *quasi-owner of the plant, it leased it to another entity; and

(d) all or part of the lease period occurred on or after 22 February 1999; and

(e) on or after that day, you dispose of:

(i) your interest in the plant, or part of it; or

(ii) a right under, or an interest in, the lease;

and that disposal does not constitute a *balancing adjustment event.

(4) The amount included is the sum of the following amounts:

(a) the money you receive or are entitled to receive for the disposal;

(b) the amount of any reduction in a liability of yours as a result of the disposal;

(c) the market value of any other benefit you receive or are entitled to receive as a result of the disposal.

It is included for the income year in which the disposal occurred.

(5) However, an amount is not included in your assessable income under this section to the extent that:

(a) it is included in that assessable income under a provision of this Act outside this Division; or

(b) you apply it under section 42-285, 42-290 or 42-293 (about offsetting balancing charges).

Note: There are special rules for disposals between 22 February 1999 and 21 September 1999: see Division 45 of the Income Tax (Transitional Provisions) Act 1997.

45-15 Disposal of shares in 100% subsidiary that leases plant

(1) A company (the former subsidiary ) is treated as if it had disposed of *plant, received its market value for that disposal and immediately reacquired it for the same amount if:

(a) the former subsidiary has deducted or can deduct an amount for depreciation of the plant; and

(b) the former subsidiary was a *100% subsidiary of another company in a *wholly-owned group at a time when it owned or was the *quasi-owner of the plant; and

(c) for most of the time when the former subsidiary owned or was the quasi-owner of the plant, the plant was leased to another entity; and

(d) the main *business of the former subsidiary was to lease assets; and

(e) all or part of the lease period occurred on or after 22 February 1999; and

(f) on or after that day, the direct or indirect beneficial ownership of more than 50% of the *shares in the former subsidiary is acquired by an entity or entities none of which is a member of the wholly-owned group; and

(g) the plant's *written down value at the time of that acquisition is less than its market value at that time.

(2) However, the former subsidiary is not treated as if it had disposed of *plant and reacquired it if the main business of each of the entities that acquired the direct or indirect beneficial ownership of *shares in the former subsidiary is the same as the main business of the *wholly-owned group of which the former subsidiary was a member.

(3) The disposal and reacquisition of the *plant:

(a) is taken to have occurred when that direct or indirect beneficial ownership was acquired; and

(b) is taken not to have affected any lease of the plant.

(4) Despite sections 42-285 and 42-290, offsetting is not available under those sections for the disposal referred to in this section.

45-20 Disposal of shares in 100% subsidiary that leases plant in partnership

(1) A company (also the former subsidiary ) is treated as if it had disposed of its interest in *plant, received its market value for that disposal and immediately reacquired it for the same amount if:

(a) a partnership of which the former subsidiary is (or was) a member has deducted or can deduct an amount for depreciation of the plant; and

(b) the former subsidiary was a *100% subsidiary of another company in a *wholly-owned group at a time when:

(i) it was a member of that partnership; and

(ii) the partnership owned or was the *quasi-owner of the plant; and

(c) for most of the time when the partnership owned or was the quasi-owner of the plant, the plant was leased to another entity; and

(d) the main *business of the partnership was to lease assets; and

(e) all or part of the lease period occurred on or after 22 February 1999; and

(f) on or after that day, the direct or indirect beneficial ownership of more than 50% of the *shares in the former subsidiary is acquired by an entity or entities none of which is a member of the wholly-owned group; and

(g) the plant's *written down value at the time of that acquisition is less than its market value at that time.

(2) However, the former subsidiary is not treated as if it had disposed of the interest and reacquired it if the main business of each of the entities that acquired the direct or indirect beneficial ownership of *shares in the former subsidiary is the same as the main business of the *wholly-owned group of which the former subsidiary was a member.

(3) The disposal and reacquisition of the interest:

(a) is taken to have occurred when that direct or indirect beneficial ownership was acquired; and

(b) is taken not to have affected any lease of the plant.

(4) Despite sections 42-285 and 42-290, offsetting is not available under those sections for the disposal referred to in this section.

45-25 Group members liable to pay outstanding tax

(1) The consequences specified in subsection (2) apply if:

(a) an amount is included in the former subsidiary's assessable income for an income year because of section 45-15 or 45-20; and

(b) the former subsidiary is liable to pay an amount of income tax for that income year; and

(c) the former subsidiary does not pay all of that income tax within 6 months after it became payable.

(2) The consequences are that:

(a) the former subsidiary remains liable to pay the outstanding amount of income tax (reduced by any payments of tax imposed by the New Business Tax System (Former Subsidiary Tax Imposition) Act 1999); and

(b) each company that was, just before the time when the direct or indirect beneficial ownership referred to in paragraph 45-15(1)(f) or 45-20(1)(f) was acquired, a member of the former subsidiary's former *wholly-owned group, is jointly and severally liable to pay tax imposed by the New Business Tax System (Former Subsidiary Tax Imposition) Act 1999.

45-30 Reduction for certain plant acquired before 21.9.99

(1) The amount included in your assessable income under subsection 45-5(2) or 45-10(2) is reduced if:

(a) you acquired the *plant at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999 and you disposed of the plant or an interest in it after that time; and

(b) the sum of the amounts (your proceeds ) referred to in paragraph 45-5(1)(e) or 45-10(1)(f) is more than the plant's *cost, or that part of it that is attributable to the interest you disposed of.

(2) The amount included is reduced by the lesser of:

(a) the amount (if any) by which the *plant's *cost base exceeds its *cost, or that part of the excess that is attributable to the interest you disposed of; and

(b) the difference between your proceeds and the plant's cost, or that part of its cost that is attributable to the interest you disposed of.

(3) However, the amount is not reduced under this section if:

(a) the *plant was a *pre-CGT asset at the time of the *balancing adjustment event; or

(b) a *capital gain or *capital loss from the plant or interest would be disregarded because of a provision listed in the table in this subsection if:

(i) you had made the gain or loss from *CGT event A1; and

(ii) that CGT event had happened at the time of the balancing adjustment event.

45-35 Limit on amount included for plant for which there is a CGT exemption

(1) For *plant to which subsection 45-30(3) applies there is a limit on the amount that can be included in your assessable income under subsection 45-5(2) or 45-10(2).

(2) The limit for subsection 45-5(2) is the lesser of:

(a) the excess referred to in paragraph 45-5(1)(e); and

(b) the amounts you have deducted or can deduct for depreciation of the *plant or, if you disposed of an interest in the plant, so much of those amounts as is attributable to that interest.

(3) The limit for subsection 45-10(2) is the lesser of:

(a) the excess referred to in paragraph 45-10(1)(f); and

(b) that part of the amounts the partnership has deducted or can deduct for depreciation of the *plant that has been or would be reflected in your interest in the partnership net income or partnership loss (your partnership amount ) or, if you disposed of part of your interest in the plant, so much of your partnership amount as is attributable to that part of that interest.