ATO Interpretative Decision

ATO ID 2003/758 (Withdrawn)

Income Tax

• This ATO ID is a straight application of the law and does not contain an interpretative decision.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the taxpayer a 'holder', under section 40-40 of the Income Tax Assessment Act 1997 (ITAA 1997), of depreciating assets they attached to land they occupied under a site lease?

Decision

Yes. The taxpayer is a 'holder' of the depreciating assets for the duration of the lease under item 3 of the table in section 40-40 of the ITAA 1997 because they attached the assets to the land for their own use and do not have any right to remove them.

Facts

The taxpayer entered into an arrangement with an unrelated party to construct and operate a facility on land owned by the other party. The facility included a variety of depreciating assets that constituted improvements (including fixtures) to the land. Under the terms of the arrangement, the taxpayer occupied the land under a site lease and had no right to remove any of the assets they constructed on the land.

Reasons for Decision

Broadly speaking, section 40-25 of the ITAA 1997 allows to a holder of a depreciating asset an annual deduction for the decline in value of the asset.

The table in section 40-40 of the ITAA 1997 identifies a holder of a depreciating asset in any particular circumstance. Item 3 of that table specifies that the owner of the quasi-ownership right (while it exists) will be a holder of a depreciating asset where there is:

an improvement to land (whether a fixture or not) subject to a *quasi-ownership right (including any extension or renewal of such a right) made, or itself improved, by any owner of the right for the owner's own use where the owner of the right has no right to remove the asset

'Quasi-ownership right over land' is defined in subsection 995-1(1) of the ITAA 1997 to mean:

(a)

a lease of the land; or

(b)

an easement in connection with the land; or

(c)

any other right, power or privilege over the land, or in connection with the land.

The taxpayer's site lease over the land satisfies this definition because it confers all of the rights of use over the land that are necessary to undertake the arrangement.

The depreciating assets the taxpayer constructs constitute improvements they made to the land and they use those assets during the term of the site lease for the purpose of the arrangement. Lastly, under the terms of the arrangement, the taxpayer has no right to remove the constructed assets during or at the termination or expiry of the lease term. In the event of termination or expiry of the arrangement, all assets constructed by the taxpayer revert, under the terms of the site lease, to the lessor of the land.

Accordingly, the taxpayer is a holder of the depreciating assets they attached to the land pursuant to item 3 of the table in section 40-40 of the ITAA 1997.

Year of income:  Year ending 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   Section 40-25
   Section 40-40
   Subsection 995-1(1)

Keywords
Capital Allowances CoE
Depreciating assets
Hold a depreciating asset
Infrastructure & utilities
Ownership, interests, control & rights

Business Line:  Effective Life and Capital Allowances Centre of Expertise

Date of publication:  22 August 2003

ISSN: 1445-2782