ATO Interpretative Decision

ATO ID 2009/89 (Withdrawn)

Income Tax

Capital Allowances: tax break- sale and leaseback - used for the principal purpose of carrying on a business
FOI status: may be released

This ATO ID is withdrawn from 1 July 2012 as Division 41 of the Income Tax Assessment Act 1997 ceases to apply after 30 June 2012.
Despite its withdrawal, this ATO ID continues to be a precedential ATO view in respect of the income years in which the provision provides an entitlement to a deduction, 2008-09, 2009-10, 2010-11 and 2011-12.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 determining whether it is reasonable to conclude, at the first use time, that the taxpayer will use the asset for the principal purpose of carrying on a business for the purposes of paragraph 41-20(1)(d) of the Income Tax Assessment Act 1997 (ITAA 1997), is it only relevant to have regard to the taxpayer's use of the asset during the period it is held by the taxpayer?

Decision

No. To determine whether it is reasonable to conclude, at the first use time, that the taxpayer will use the asset for the principal purpose of carrying on a business, the taxpayer's use of the asset while it holds the asset together with the taxpayer's use while it is not the holder need to be considered.

Facts

The asset will be held by the taxpayer under item 10 of the table in section 40-40 of the ITAA 1997 as the legal owner for a period of one month and will be used by the taxpayer during this period for the sole purpose of carrying on its business.

At the end of this period the taxpayer proposes to sell the asset to a financier and then lease the asset back. While the taxpayer is the lessee, the asset will continue to be used by the taxpayer for the sole purpose of carrying on its business although it will no longer hold the asset for the purposes of section 40-40 of the ITAA 1997.

Reasons for Decision

All legislative references are to the ITAA 1997.

Under paragraph 41-20(1)(d), it must be reasonable to conclude, when the taxpayer starts to use the asset or installs it ready for use (the 'first use time'), that the taxpayer will use the asset principally in Australia for the principal purpose of carrying on a business. The words 'for the principal purpose of carrying on a business' in paragraph 41-20(1)(d) are known as the 'purpose test'.

The words 'the taxpayer will use the asset' in paragraph 41-20(1)(d) are clear and unambiguous and do not limit the application of the purpose test to the taxpayer's use of the asset while the taxpayer holds it for the purposes of section 40-40.

Therefore, in determining whether the purpose test is satisfied in this case, it is relevant to have regard to the taxpayer's use of the asset both during the period when it holds the asset and subsequently when it becomes the lessee and no longer holds the asset.

The taxpayer proposes to use the asset for the sole purpose of carrying on its business. After the asset is sold to the financier and leased back it will continue to be used solely for the same purpose.

The purpose test is therefore satisfied having regard to the taxpayer's proposed use of the asset at the first use time.

Date of decision: 3 August 2009

Year of income: Year ended 30 June 2009

Legislative References:
Income Tax Assessment Act 1997
   section 40-25
   section 40-40
   paragraph 41-20(1)(d)

Keywords
Investment allowances

Business Line: Private Groups and High Wealth Individuals

Date of publication: 14 August 2009

ISSN: 1445-2782

history

	Date:	Version:
	3 August 2009	Original statement
You are here	17 October 2014	Archived

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