ATO Interpretative Decision

ATO ID 2002/1083

Income Tax

Division 40: taxable purpose - commercial leasing
FOI status: may be released
Status of this decision: Decision Current

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Does the leasing of depreciating assets held by a partnership constitute use for a taxable purpose under Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes, the leasing partnership will use the assets for a taxable purpose by entering into a lease agreement which provides for the receipt of a stream of assessable rental payments.

Facts

A partnership purchased various depreciating assets under a manufacture and supply agreement. It immediately leased the assets on commercial terms to an unrelated entity that had been awarded a franchise by another unrelated entity to operate a business in which the assets are used. Under the lease agreement, the lessee is required to make quarterly payments of rent to the leasing partnership for use of the assets.

Reasons for decision

A taxable purpose includes the purpose of producing assessable income (subsection 40-25(7) of the ITAA 1997). Something is done for the purpose of producing assessable income if it is done for the purpose of gaining or producing assessable income or in carrying on a business for the purpose of gaining or producing assessable income (subsection 995-1(1) of the ITAA 1997).

The lease agreement provides that the lessee must make quarterly payments of rent to the lessor for use of the depreciating assets. Lease rental payments received by the leasing partnership from the lessee in these circumstances are assessable income of the leasing partnership. Use by the leasing partnership for this purpose constitutes use for a taxable purpose.

Date of decision: 12 July 2002

Year of income: 2000

Legislative References:
Income Tax Assessment Act 1997
subsection 40-25(7)

Keywords
Depreciating asset
Division 40
Partnership asset
Taxable purpose

Siebel/TDMS Reference Number: CW3046693-5

Business Line: Public Groups and International

Date of publication: 30 November 2002

ISSN: 1445-2782

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