Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1012731465764

Ruling

Subject: Australian taxation implications of proposed substantial equipment lease/change of the sub-lessor

Issue 1

Question 1.1

Will the Sub-Lessor be liable to pay income tax on the rent payable by the Lessee to the Sub-Lessor under the new operating Sub-Lease pursuant to subsection 128B(5A) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No

Question 1.2

Will the Head Lessor be liable to pay income tax on the rental income derived under the new operating Head Lease between Head Lessor and the Sub-Lessor pursuant to subsection 128B(5A) of the ITAA 1936?

Answer

No

Issue 2

Question 2.1

Will the Sub-Lessor be treated as having a permanent establishment for the purposes of the applicable Business Profits of the relevant tax agreement and accordingly have a liability for Australian income tax in respect of the rental income pursuant to section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

Question 2.2

Will the rental income derived by the Head Lessor under the operating Head Lease be deemed to be Australian sourced by virtue of the applicable double tax agreement and accordingly be subject to Australian income tax pursuant to section 6-5 of the ITAA 1997?

Answer

Yes

Issue 3

Question 3.1

Will the Head Lessor be entitled to claim a tax deduction for the decline in value of the substantial equipment pursuant to section 40-25 of the ITAA 1997?

Answer

Yes

Issue 4

Question 4.1

Apart from Division 240, would the Head Lessor be entitled to claim a deduction for the interest component of the hire-purchase payments made to the Financier under the Finance Lease (subject to the Australian thin capitalisation provisions) pursuant to section 8-1 of the ITAA 1997, such that section 240-50 permits the Head Lessor to deduct the 'notional interest' in respect of the Finance Lease?

Answer

Yes

Issue 5

Question 5.1

Will the former Sub-Lessor be assessable to any amount under section 6-5 or 6-10 of the ITAA 1997 as a result of the execution of the Lease Transaction and Amendment Deeds?

Answer

No

Issue 6

Question 6.1

Will the Commissioner make a determination under paragraphs 177F(1)(a), 177F(1)(b) or subsection 177F(2A) of the ITAA 1936 to cancel a tax benefit that has been obtained, or would, but for section 177F of the ITAA 1936 be obtained, by the Head Lessor or the Sub-Lessor in connection with any of the following schemes:

Answer

No

Issue 7

Question 7.1

Will the Financier be liable to pay income tax on interest derived under the Finance Lease pursuant to subsection 128B(5) of the Income Tax Assessment Act 1936 (ITAA 1936)

Answer

No

Issue 8

Question 8.1

Will the Financier be liable to pay income tax on the rent derived from the Head Lessor pursuant to subsection 128B(5A) of the ITAA 1936?

Answer

No

Issue 9

Question 9.1

Will the Financier be liable to pay income tax on the rent derived from the Head Lessor pursuant to subsection 6-5(3)) of the ITAA 1936?

Answer

No

This ruling applies for the following periods:

1 January 2012 to 31 December 2025

The scheme commences on:

1 January 2015

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 taxpayer applied for a private ruling in relation to a leasing transaction.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 701-1

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1936 Section 128B

Income Tax Assessment Act 1936 Subsection 128B(2B)

Income Tax Assessment Act 1936 Subsection 128B(3)

Income Tax Assessment Act 1936 Subsection 128B(5A)

Income Tax Assessment Act 1936 Part IVA

Income Tax Assessment Act 1936 Section 177A

Income Tax Assessment Act 1936 Section 177C

Income Tax Assessment Act 1936 Section 177CA

Income Tax Assessment Act 1936 Section 177D

Income Tax Assessment Act 1936 Section 177F

Income Tax Assessment Act 1936 Paragraph 177F(1)(b)

Income Tax Assessment Act 1936 Subsection 177F(2A)

International Tax Agreements Act 1953 Section 4

International Tax Agreements Act 1953 Subsection 4(2)

International Tax Agreements Act 1953 Section 17A

International Tax Agreements Act 1953 Subsection 17A(5)

International Tax Agreements Act 1953 Paragraph 17A(5)(b)

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