Edited version of private ruling

Authorisation Number: 1011602246527

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Ruling

Subject: Section 51AD, Division 16D and Division 250

Question 1

Please confirm that Exempt A will not constitute an end-user of Asset A for the purposes of section 250-50 of the Income Tax Assessment Act 1997 (ITAA 1997) during the term of the Transitional Agreement and accordingly that the scheme with respect to Exempt A will not result in Asset A being put to a tax preferred use for the purposes of section 250-15 of the ITAA 1997.

Answer

No.

This ruling applies for the following period<s>:

During the term of the Transitional Agreement.

Question 2

Please confirm that Exempt A will not constitute an end-user of Asset A for the purposes of section 250-50 of the ITAA 1997 following the expiry of the Transitional Agreement and accordingly that the scheme with respect to Exempt A will not result in Asset A being put to a tax preferred use for the purposes of section 250-15 of the ITAA 1997.

Answer

Yes.

This ruling applies for the following period<s>:

From the date of expiry of the Transitional Agreement to year ending 30 June 2015

Question 3

Please confirm that Exempt A will not constitute an end-user of Asset B for the purposes of section 250-50 of the ITAA 1997 during the term of the Transitional Agreement and accordingly that the scheme with respect to Exempt A will not result in Asset B being put to a tax preferred use for the purposes of section 250-15 of the ITAA 1997.

Answer

No.

This ruling applies for the following period<s>:

During the term of the Transitional Agreement.

Question 4

Please confirm that Exempt A will not constitute an end-user of Asset B, for the purposes of section 250-50 of the ITAA 1997 following the expiry of the Transitional Agreement and accordingly that the scheme with respect to Exempt A will not result in Asset B being put to a tax preferred use for the purposes of section 250-15 of the ITAA 1997.

Answer

Yes.

This ruling applies for the following period<s>:

From the date of expiry of the Transitional Agreement to year ending 30 June 2015.

Question 5

Please confirm that Division 250 of the ITAA 1997 will not apply to the taxpayer in respect of Assets A and B.

Answer

Yes.

This ruling applies for the following period<s>:

From the date of commencement of the arrangement to year ending 30 June 2015.

Question 6

Please confirm that Exempt B would not be considered an end-user for the purposes of subsection 51AD(4) of the Income Tax Assessment Act 1936 (ITAA 1936) and accordingly section 51AD of the ITAA 1936 will not apply to Asset A.

Answer

Yes.

This ruling applies for the following period<s>:

Year ending 30 June 2011.

Question 7

Please confirm that Exempt B would not be considered an end-user for the purposes of Division 16D of the ITAA 1936 and accordingly Division 16D of ITAA 1936 will not apply to Asset A.

Answer

Yes.

This ruling applies for the following period<s>:

Year ending 30 June 2011.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The scheme is as identified in the request for ruling and in documentation provided with the request.

Assumption

The Transitional Agreement will have a term of no more than 12 months. It is expected that once the Transitional Agreement expires or is terminated, the taxpayer through its employees will be operating Assets A and B.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 51AD(4),

Income Tax Assessment Act 1936 Division 16D,

Income Tax Assessment Act 1997 section 250-15 and

Income Tax Assessment Act 1997 section 250-50.

Reasons for decision

These reasons for decision accompany the Notice of private ruling.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

Summary

Exempt A will be an end user of Asset A as it uses or effectively controls the use of Asset A for the purposes of subsection 250-50(1) of the ITAA 1997 during the term of the Transitional Agreement.

Detailed reasoning

Division 250

Section 250-15 of the ITAA 1997 provides that Division 250 applies to you and an asset at a particular time if:

(a) the asset is being *put to a tax preferred use; and

(b) the *arrangement period for the *tax preferred use of the asset is greater than 12 months; and

(c) *financial benefits in relation to the tax preferred use of the asset have been, will be or can reasonably be expected to be, *provided to you (or a *connected entity) by:

(i) a *tax preferred end user (or a connected entity); or


(ii) any *tax preferred entity (or a connected entity); or


(iii) any entity that is not an Australian resident; and

(d) disregarding this Division, you would be entitled to a *capital allowance in relation to:

(i) a decline in the value of the asset; or


(ii) expenditure in relation to the asset; and

(e) you lack a *predominant economic interest in the asset at that time.

Tax preferred use

In order to determine if there is tax preferred use pursuant to section 250-60 of the ITAA 1997, what needs to be established is whether there is a tax preferred end user pursuant to section 250-55 which in turn requires there to be an end user for the purposes of section 250-50.

Subsection 250-50(1) states:

An entity (other than you) is an end user of an asset if the entity (or a *connected entity):

a) uses, or effectively controls the use of, the asset; or

b) will use, or effectively control the use of, the asset; or

c) is able to use, or effectively control the use of, the asset; or

d) will be able to use, or effectively control the use of, the asset.

To be an end user for the purposes of section 250-50, Exempt A must use or effectively control the use of Assets A and B (together 'the Assets').

Use and Control of use

Taxation Rulings IT 2602 and TR 96/22 set out the Commissioner's interpretation of the meaning of effective control for these purposes. These rulings continue to be relevant in determining 'control of use' for the purposes of subsection 250-50(1) of the ITAA 1997. Paragraphs 1.30 to 1.33 of the Explanatory Memorandum to Division 250 further expand on the meaning of effective control and the factors which may be relevant in determining whether an entity has effective control over the use of an asset.

One of the factors to consider would be the day to day operations pertaining to the arrangement in question. Under the draft Transitional Agreement which will be for a period of no more than 12 months, it is intended that Exempt A will provide a suite of services to the taxpayer which would include services to operate and maintain the Assets on a daily basis. Exempt A as the operator will have effective day to day control over the Assets as contemplated in Taxation Rulings IT 2602 and TR 96/22.

Exempt A will be an end user of the Assets for the purposes of section 250-50 of the ITAA 1997 during the term of the Transitional Agreement.

Question 2

Summary

Exempt A will not be an end user of Asset A as it neither uses nor effectively controls the use of those assets for the purposes of subsection 250-50(1) of the ITAA 1997 following the expiry of the Transitional Agreement.

Detailed reasoning

By the time the Transitional Agreement is terminated or expires, the Assets would be operated by employees of the taxpayer without the assistance of Exempt A employees. Accordingly, Exempt A will no longer be in day to day control of the Assets following expiry of this Agreement. Other than being the day to day operator of the Assets during the term of the Transitional Agreement, there is no direct use of the Assets by Exempt A, nor is there a grant of a right to Exempt A to use the Assets following expiry of this Agreement.

The nature of the arrangement is such that the taxpayer is providing a service to Exempt A. The relevant agreements by themselves do not comprise use of the Assets in the context required by the provision and neither do they lead to the conclusion that Exempt A has effective control over the use of the Assets, taking into account the factors set out in Taxation Rulings IT 2602 and TR 96/22.

Accordingly, Exempt A will not be an end user for the purposes of section 250-50 of the ITAA 1997 as it will not be considered to be either using or controlling the use of the Assets following expiry of the Transitional Agreement.

Question 3

Summary

Exempt A will be an end user of Asset B as it uses or effectively controls the use of Asset B for the purposes of subsection 250-50(1) of the ITAA 1997 during the term of the Transitional Agreement.

Detailed reasoning

Refer to reasons given under Question 1.

Question 4

Summary

Exempt A will not be an end user of Asset B as it neither uses nor effectively controls the use of those assets for the purposes of subsection 250-50(1) of the ITAA 1997 following the expiry of the Transitional Agreement.

Detailed reasoning

Refer to reasons given under Question 2.

Question 5

Summary

Division 250 will not apply to the taxpayer as the tax preferred use of the Assets will not exceed 12 months pursuant to paragraph 250-15(b) of the ITAA 1997.

Detailed reasoning

For the reasons set out in Questions 1 and 2, Exempt A will be a tax preferred end user of the Assets during the term of the Transitional Agreement. Those Assets would therefore be put to a tax preferred use pursuant to paragraph 250-15(a) of the ITAA 1997. However, because the term of the Transitional Agreement will not be greater than 12 months, paragraph 250-15(b) of the ITAA 1997 will not be satisfied.

Division 250 of the ITAA 1997 will therefore not apply to the taxpayer.

Question 6

Summary

Exempt B will not be an end user of property comprising Asset A as it neither uses, controls or will be able to control the use of the relevant property for the purposes of subsection 51AD(4) of the ITAA 1936.

Detailed reasoning

The arrangement between the taxpayer and Exempt B as represented by the relevant Agreement falls for consideration under section 51AD of the ITAA 1936 as the arrangement commenced prior to 1 July 2007.

Exempt B will be an end user of Asset A if it either uses, controls or will be able to control the use of Asset A for the purposes of subsection 51AD(4) of the ITAA 1936.

The terms of this Agreement are materially the same as the Agreement governing the arrangement between Exempt A and the taxpayer. For the same reasons, the nature of the arrangement is such that the taxpayer is merely providing a service to Exempt B. It does not constitute use or the control of use of Asset A by Exempt B for the purposes of subsection 51AD(4) of the ITAA 1936.

Question 7

Summary

Exempt B will not be an end user of Asset A as it will not be using or controlling the use of the relevant property for the purposes of Division 16D of the ITAA 1936.

Detailed reasoning

Subject to the tests in subsection 159GG(1) of the ITAA 1936, the arrangement between the taxpayer and Exempt B will constitute a 'qualifying arrangement' where Exempt B (referred to as an 'end-user') either uses, or controls the use of Asset A.

For the reasons given in Question 6, Exempt B will not be an end user of eligible property comprising Asset A as it will not be using or controlling the use of the relevant property for the purposes of Division 16D of the ITAA 1936.

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