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Edited version of your written advice
Authorisation Number: 1012716559703
Ruling
Subject: Construction Works
Question 1
Will the payments made by the third party to related company be assessable to the tax consolidated group, under section 6-5 of the Income Tax Assessment Act 1997?
Answer
No
Question 2
Will the concession Rights and lease Rights be assessable to the tax consolidated group, pursuant to section 21A of the Income Tax Assessment Act 1936?
Answer
No
Question 3
Will the payments made by the third party to the related company be assessable to the tax consolidated group, pursuant to subdivision 20-A of the Income Tax Assessment Act 1997?
Answer
No
Question 4
Will the payments made by the third party to the related company be assessable to the tax consolidated group, pursuant to section 15-10 of the Income Tax Assessment Act 1997?
Answer
No
Question 5
Will a capital gain arise under CGT event D1 pursuant to section 104-35 of the Income Tax Assessment Act 1997 to the tax consolidated group, upon the entry into the works Deed by the related company and the third party?
Answer
No
Question 6
Will a capital gain arise under CGT event H2 pursuant to section 104-155 of the Income Tax Assessment Act 1997 to the tax consolidated group, upon the entry into and performance of the works Deed by the third party and the related company?
Answer
No
Question 7
Will costs incurred by related company be deductible to the tax consolidated group?
Answer
No
This ruling applies for the following period:
1 July 20xx to 30 June 20yy
The scheme commences on:
During the year ended 30 June 20xx
Relevant facts and circumstances
A tax consolidated group and a related company having ultimate common ownership, will contract with a third party land owner under an overall project to design and construct assets and improvements upon land owned by the third party. The related company is contracted by the third party to undertake certain preparatory works to the land and will be paid for that work by the third party. The related party will sub-contract the work. The tax consolidated group will undertake the main design and construction of assets to be affixed to the land. The tax consolidated group will subcontract the work. Upon completion the tax consolidated group will be given use of the land by the third party (and the assets affixed thereto) and will be able to derive income from that use.
Relevant legislative provisions
Income Tax Assessment Act 1997
section 6-5
section 8-1
section 15-10
Subdivision 20-A
Division 43
section 104-35
section 104-155
Income Tax Assessment Act 1936
section 21A
Reasons for decision
Question 1
No. Payments made by the third party to related company will not be assessable to the tax consolidated group under section 6-5. related company is not a subsidiary member of the tax consolidated group. The payments are considered to be beneficially derived by related company on its own behalf for services it is contracted to perform and are assessable to it.
Question 2
No. The concession Rights or lease Rights will not be assessable to the tax consolidated group under section 21A. The Commissioner is of the view that, to the extent that the concession Rights or lease Rights are a 'non-cash business benefit', in the circumstances of this arrangement the benefit(s) are not in the nature of income derived by the tax consolidated group as required by subsection 21A(2) even when deemed by subsection 21A(1) to be convertible to cash.
Question 3
No. Payments made by the third party to related company will not be assessable to the tax consolidated group under subdivision 20-A. related company is not a subsidiary member of the tax consolidated group. The payments are made to related company on its own account and are not considered to be a recoupment, refund or recovery etc of losses or outgoings incurred by the tax consolidated group.
Question 4
No. Payments made by the third party to related company will not be assessable to the tax consolidated group under section 15-10. related company is not a subsidiary member of the tax consolidated group. The payments are made to related company on its own account and are not considered to be in the nature of a bounty or subsidy by the third party to financially assist the business of the tax consolidated group.
Question 5
No. A capital gain under section 104-35 (CGT event D1) will not arise to the tax consolidated group upon the entry into the third party works Deed by related company and the third party. CGT event D1 happens if you create a contractual or other legal or equitable right in another entity. related company is not a subsidiary member of the tax consolidated group. The entry into the third party works Deed by related company is on its own account such that the tax consolidated group is not the party that creates a contractual or other legal or equitable right in the third party by the third party works Deed. Accordingly CGT event D1 does not happen to the tax consolidated group.
Question 6
No. A capital gain under section 104-155 (CGT event H2) will not arise to the tax consolidated group upon the entry into and performance of the third party works Deed by related company and the third party. CGT event H2 happens if an act, transaction or event occurs in relation to a CGT asset that you own and the act, transaction or event does not result in an adjustment being made to the asset's cost base. related company is not a subsidiary member of the tax consolidated group. The entry into and performance of the third party works Deed by related company is on its own account and is not considered to occur in relation to any assets owned by the tax consolidated group. Accordingly CGT event H2 does not happen to the tax consolidated group.
Question 7
No. Costs incurred by related company will not be deductible to the tax consolidated group for example under section 8-1 or Division 43. related company is not a subsidiary member of the tax consolidated group. The costs incurred by related company are on its own account such that they are not costs of the tax consolidated group.
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