Edited version of your written advice

Authorisation Number: 1051267928360

Date of advice: 14 September 2017

Ruling

Subject: Capital Allowances

Question 1

Will deductions be available to Company D under section 40-25 of the Income Tax Assessment Act 1997 (ITAA 1997) for the decline in value of depreciating assets acquired and installed or constructed by Entity E in procuring the Facility under the contract that are affixed to the land leased to Entity E?

Answer

Yes

Question 2

Will deductions be available to Company D under Division 43 of the ITAA 1997 for capital works expenditure incurred by Entity E in procuring the Facility under the contract that relate to the construction of the Facility?

Answer

Yes

Question 3

Will Division 250 of the ITAA 1997 operate to deny deductions for capital allowances referred to in Questions 1 and 2 above?

Answer

No

Question 4

Will costs of a capital nature incurred by Entity E for the purpose of procuring certain assets associated with the Facility that do not otherwise qualify for deductions under section 40-25 of the ITAA 1997 or Division 43 of the ITAA 1997, be deductible to Company D as project pool expenditure under section 40-832 of the ITAA 1997?

Answer

Yes

Question 5

Will section 51AD and Division 16D of the Income Tax Assessment Act 1936 apply to Company D in relation to deductions for capital allowances for future periods?

Answer

No

Question 6

Will amendments to the First Contract cause Division 250 of the ITAA 1997 to apply to Company D and any of the assets of the Facility?

Answer

No

Question 7

Will deductions be available to Company D under section 40-25 or Division 43 of the ITAA 1997 for costs incurred by the unrelated party in association with the acquisition of services of the Builder by that party in relation to the Facility?

Answer

No

Question 8

Will deductions be available to Company D under section 40-25 or Division 43 of the ITAA 1997 for costs incurred by Entity G in association with the acquisition of services of the Builder by Entity G in relation to the Facility?

Answer

No

Relevant facts and circumstances

Company D is the head company of an income tax consolidated group of which Entity E and Entity F are subsidiary members. Entity G is related to Company D, Entity E and Entity F.

Entity F entered into the First Contract a number of years ago to construct a Facility with a second, unrelated party. The contract enables Entity F to charge amounts (of a revenue nature) for a specified period.

Entity E, Entity G and the unrelated party entered into a Second Contract to modify the Facility. Entity E, Entity G and the unrelated party each engaged the Builder and agreed to make separate payments to the Builder for different changes made to the Facility.

Entity F and the unrelated party agreed to amend the First Contract which includes the amounts Entity F charges as part of the consideration for Entity E and Entity G making changes to the Facility under the Second Contract with the unrelated party. The amendments affected certain leases.

The changes to the Facility include constructing or installing certain depreciating assets and additional capital expenditure items. Entity E will only use the depreciating assets for a ‘taxable purpose’ as defined in subsection 40-25(7) of the ITAA 1997. Entity E will have the right to remove the depreciating assets in certain circumstances under the terms of the Second Contract.

Entity E will incur additional capital expenditure in the course of constructing the Facility in order to enhance certain assets on land which is not subject to a lease.

The arrangement includes the following features:

● Entity E managed and controlled the day-to-day operations of the relevant parts of the Facility with its own staff and any subcontractors it appointed. The unrelated party had no role to play in managing or controlling Entity E’s operations.

● Entity E will use its own employees and subcontractors. Entity E’s employees and subcontractors will not be supervised by employees of the unrelated party.

● Entity E will set the charges payable in respect of the Facility (within the parameters of the First and Second Contracts).

● Company D, Entity E, Entity F and Entity G will fund the changes to the Facility, bear the risk of loss if the charges are insufficient to cover any costs of constructing and operating the Facility, and stand to benefit if the charges exceed the costs.

● The unrelated party will have limited step in rights when a default occurs, and in accordance with certain procedures, the event is not remedied.

● At all relevant times the land on which the Facility is constructed is owned by the unrelated party. The Facility will revert back to the unrelated party when the terms of the first and second contracts expire.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 51AD

Income Tax Assessment Act 1936 subsection 51AD(1A)

Income Tax Assessment Act 1936 subparagraph 51AD(4)(b)(ii)

Income Tax Assessment Act 1936 Division 16D

Income Tax Assessment Act 1936 subsection 159GG(1)

Income Tax Assessment Act 1936 subsection 159GH(1A)

Income Tax Assessment Act 1997 section 40-25

Income Tax Assessment Act 1997 subsection 40-25(1)

Income Tax Assessment Act 1997 subsection 40-25(2)

Income Tax Assessment Act 1997 subsection 40-25(7)

Income Tax Assessment Act 1997 section 40-30

Income Tax Assessment Act 1997 section 40-40

Income Tax Assessment Act 1997 subsection 40-45(2)

Income Tax Assessment Act 1997 subsection 40-832(1)

Income Tax Assessment Act 1997 subsection 40-840(2)

Income Tax Assessment Act 1997 paragraph 40-840(2)(a)

Income Tax Assessment Act 1997 paragraph 40-840(2)(b)

Income Tax Assessment Act 1997 paragraph 40-840(2)(c)

Income Tax Assessment Act 1997 section 43-10

Income Tax Assessment Act 1997 subsection 43-10(2)

Income Tax Assessment Act 1997 paragraph 43-10(2)(a)

Income Tax Assessment Act 1997 paragraph 43-10(2)(b)

Income Tax Assessment Act 1997 paragraph 43-10(2)(c)

Income Tax Assessment Act 1997 section 43-20

Income Tax Assessment Act 1997 subsection 43-20(2)

Income Tax Assessment Act 1997 subsection 43-20(3)

Income Tax Assessment Act 1997 section 43-25

Income Tax Assessment Act 1997 section 43-30

Income Tax Assessment Act 1997 subsection 43-70(1)

Income Tax Assessment Act 1997 subsection 43-75(1)

Income Tax Assessment Act 1997 subsection 43-85(1)

Income Tax Assessment Act 1997 section 43-120

Income Tax Assessment Act 1997 subsection 43-120(1)

Income Tax Assessment Act 1997 section 43-140

Income Tax Assessment Act 1997 section 250-5

Income Tax Assessment Act 1997 section 250-15

Income Tax Assessment Act 1997 paragraph 250-15(a)

Income Tax Assessment Act 1997 paragraph 250-15(b)

Income Tax Assessment Act 1997 paragraph 250-15(c)

Income Tax Assessment Act 1997 paragraph 250-15(d)

Income Tax Assessment Act 1997 paragraph 250-15(e)

Income Tax Assessment Act 1997 subsection 250-50(1)

Income Tax Assessment Act 1997 subsection 250-50(2)

Income Tax Assessment Act 1997 subsection 250-50(4)

Income Tax Assessment Act 1997 paragraph 250-55(a)

Income Tax Assessment Act 1997 subsection 250-60(1)

Income Tax Assessment Act 1997 paragraph 250-60(1)(a)

Income Tax Assessment Act 1997 paragraph 250-60(1)(b)

Income Tax Assessment Act 1997 subsection 250-60(2)

Income Tax Assessment Act 1997 paragraph 250-60(2)(a)

Income Tax Assessment Act 1997 paragraph 250-60(2)(b)

Income Tax Assessment Act 1997 section 250-145

Income Tax Assessment Act 1997 section 701-1

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

Reasons for decision

All legislation references are to provisions of the Income Tax Assessment Act 1997 (ITAA 1997) unless specified otherwise.

Question 1

Summary

Deductions will be available to Company D under section 40-25 for the decline in value of depreciating assets acquired and installed or constructed by Entity E through the Builder which were affixed to the land leased to Entity E.

Detailed reasoning

Section 40-25 allows a taxpayer to deduct an amount for the decline in value of a depreciating asset for an income year, as specified in section 40-30.

A deduction for capital expenditure incurred in constructing ‘capital works’ such as buildings and structural improvements that is deductible under Division 43 is not available under Division 40 (subsection 40-45(2)).

Subsection 40-25(1) states:

You can deduct an amount equal to the decline in value for an income year (as worked out under this Division) of a *depreciating asset that you *held for any time during the year.

Note 1: Sections 40-70, 40-72 and 40-75 show you how to work out the decline for most depreciating assets. There is a limit on the decline: see subsections 40-70(3), 40-72(3) and 40-75(7).

…

Note 3: Generally, only one taxpayer can deduct amounts for a depreciating asset. However, if you and another taxpayer jointly hold the asset, each of you deduct amounts for it: see section 40-35.

For the modified Facility which Entity E acquired and installed or constructed, Company D will be entitled to deductions pursuant to section 40-25 for the decline in value of depreciating assets that were affixed to the land that is leased to Entity E by the unrelated party.

Although the unrelated party will at all relevant times remain the legal owner of the land and any improvements to land made or affixed to the land (as common law fixtures), Entity E will hold a ‘quasi-ownership right’ over the land to which the depreciating assets are affixed. . As such, Company D, as head company of the income tax consolidated group of which Entity E is a subsidiary member, will be taken to be the entity that ‘holds’ the depreciating assets (under the single entity rule in section 701-1), which Entity E installed or constructed.

A ‘quasi-ownership right’ over land is defined in subsection 995-1(1) 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.

Entity E (and hence Company D as head company) will ‘hold’ two (2) categories of depreciating assets under the table in section 40-40:

● upon completion of the Facility, the unrelated party granted Entity E a lease over the land. The lease allows Entity E to remove certain depreciating assets (to replace, maintain and upgrade as required) that are affixed to the land during the term of the lease which commenced on the date when the Facility was completed. This means that Company D will hold these depreciating assets in accordance with Item 2 of the table in section 40-40, from the later of when the unrelated party granted the lease or the asset was installed or constructed.

● Company D will hold other depreciating assets in accordance with Item 3 in the table in section 40-40 which applies where Entity E did not have a right to remove the assets, as the assets are improvements to the land which Entity E made for its own use. Company D will hold these depreciating assets from the later of when the unrelated party granted the lease or the asset was installed or constructed by Entity E.

Question 2

Summary

Deductions will be available to Company D under Division 43 for capital works expenditure incurred by Entity E for that relate to the construction of the Facility and associated structural improvements.

Detailed reasoning

Division 43 allows a deduction for certain types of capital expenditure incurred in constructing capital works such as buildings and structural improvements as specified in section 43-20.

No deductions are allowed until the capital works are completed (section 43-30).

Capital works includes ‘structural improvements’ as set out in subsection 43-20(2) and paragraph 40-20(3)(a). The rate of deduction in each income year is 2½% for the parts of the capital works begun after February 1992 that are used as set out in Table 43-140 (subsection 43-25(1) and section 43-140).

The requirements to deduct an amount for capital works are set out in section 43-10.

Relevantly, subsection 43-10(2) states:

You can only deduct the amount if:

(a) the capital works have a ^*construction expenditure area; and

(b) there is a ^*pool of construction expenditure for that area; and

(c) you use ^*your area in the income year in the way set out in Table 43-140 (Current year use).

Note 1: The deduction is limited to capital works to which this Division applies, see section 43-20.

Note 2: Amongst other things, the definition of your area ensures that only owners and certain lessees of capital works, and certain holders of quasi-ownership rights over land on which capital works are constructed, can deduct an amount under this Division.

The requirements in subsection 43-10(2) are considered below:

‘Construction expenditure area’ for capital works

‘Construction expenditure area’ is defined in section 43-75.

Subsection 43-75(1) states:

The construction expenditure area of capital works begun after 30 June 1997 is the part of the capital works on which the ^*construction expenditure was incurred that, at the time when it was incurred by an entity, was to be owned or leased by the entity or held by the entity under a ^*quasi-ownership right over land …

Construction expenditure, as defined in subsection 43-70(1), was or will be incurred by Entity E in procuring the Facility under the contract that relates to the construction of the Facility.

At the time when the construction expenditure for the Facility is incurred, that part of the capital works were or will be held by Entity E under a ‘quasi-ownership right’ over land (defined in subsection 995-1(1) to mean a lease of the land, an easement in connection with the land, or any other right, power or privilege over the land or in connection with the land).

Accordingly, the construction expenditure incurred by Entity E in procuring the Facility under the Second Contract that relates to the construction of the Facility will have a ‘construction expenditure area’.

Company D as the head company (through Entity E) will satisfy the paragraph 43-10(2)(a) requirement.

A ‘pool of construction expenditure’ for that area

A ‘pool of construction expenditure’ is defined in section 43-85.

Subsection 43-85(1) states:

A pool of construction expenditure is so much of the ^*construction expenditure incurred by an entity on capital works as is attributable to the ^*construction expenditure area.

The construction expenditure which Entity E incurred or will incur under the Second Contract on the relevant capital works, which represents the ‘construction expenditure area’, was or will constitute a ‘pool of construction expenditure’ for that area.

Company D through its consolidated group subsidiary member Entity E therefore satisfy the paragraph 43-10(2)(b) requirement.

Use of ‘your area’ for producing assessable income

The term ‘your area’ for lessees and quasi-ownership right holders is defined in section 43-120.

Subsection 43-120(1) states:

Your area is the part of the ^*construction expenditure area that you lease, or hold under a ^*quasi-ownership right over land granted by an ^*exempt Australian government agency or an ^*exempt foreign government agency, and that:

(a) is attributable to a ^*pool of construction expenditure that you incurred; and

(b) you have continuously leased or held since the construction was completed.

As discussed above:

● Entity E held or will hold the ‘construction expenditure area’ under a lease or quasi-ownership right over land granted by the unrelated party, and

● the construction expenditure which Entity E incurred or will incur under the Second Contract in carrying out modifications to the Facility (being the ‘construction expenditure area’), will constitute a ‘pool of construction expenditure’ for that area incurred by Entity E.

The ‘construction expenditure area’ was or will be continuously leased (from the time the unrelated party granted a lease of the land after the construction of the Facility is completed), or held under a quasi-ownership right, by Entity E once the construction is completed.

Accordingly, the ‘construction expenditure area’ will constitute ‘your area’.

Paragraph 43-10(2)(c) requires that you use ‘your area’ in the income year in the way set out in Table 43-140. The first row of Table 43-140 (set out in subsection 43-140(1)) states:

Table 43-140 – Current year use

Column 1 Date capital works begin	Column 2 Type of capital works	Column 3 Use of your area at some time in the income year
Time period 1: After 30/6/97	Any capital works	You use * your area for the purpose of: (a) producing assessable income; or (b) conducting *R&D activities

…

Entity E used or will use the Facility constructed on its behalf and at its expense under the contract (being ‘your area’) for the purpose of producing assessable income in carrying on its business. That use is covered by paragraph (a) of Column 3 of the first row in Table 43-140 above.

Company D as head company (through Entity E) will satisfy the paragraph 43-10(2)(c) requirement.

Question 3

Summary

Division 250 will not operate to deny the deductions for capital allowances referred to in the Detailed reasoning for Questions 1 and 2 above.

Detailed reasoning

If Division 250 applies, it has the effect of denying deductions for capital allowances (as provided in section 250-145) that would otherwise be available to an entity under Division 40 and Division 43.

Under section 250-10, Division 250 can only apply to you and an asset at a particular time if the general test in section 250-15 is first satisfied. Section 250-15, states:

This Division 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 a foreign 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.

Each of the conjunctive requirements in paragraphs 250-15(a) to (e) must be present for the general test to be satisfied. If one of the paragraph requirements is not present, it is sufficient to conclude that the general test is not satisfied and accordingly Division 250 does not apply.

You

The term ‘you’ means the entity that would be entitled to a ‘capital allowance’ (defined in subsection 995-1(1) to mean a deduction under Division 40 or 43) but for Division 250. In this case, Company D as the head company of an income tax consolidated group (through Entity E) is the relevant entity.

Asset

The term ‘asset’ in section 250-15 means an asset for which an entity would be entitled to a ‘capital allowance’.

For the purposes of considering Division 250, the term ‘asset’ means each of the assets which Entity E will install or construct in procuring the Facility under the contract, being the depreciating assets and the capital works (including structural improvements) that will constitute the Facility.

First requirement: the asset is put to a tax preferred use

Paragraph 250-15(a) requires that the asset is ‘put to a tax preferred use’.

Subsection 995-1(1) defines the term ‘put to a tax preferred use’:

… in relation to an asset, has the meaning given by section 250-60.

Section 250-60 sets out two circumstances where an asset is ‘put to a tax preferred use’.

First test

Subsection 250-60(1) states that:

… an asset is put to a tax preferred use at a particular time if:

(a) an *end user (or a *connected entity) holds, at that time, rights as lessee under a lease of the asset; and

(b) either or both of the following subparagraphs is satisfied at that time:

(i) the asset is, or is to be, used by or on behalf of an end user who is a *tax preferred end user because of paragraph 250-55(a) (tax preferred entity);

(ii) the asset is, or is to be, used wholly or principally outside Australia and an end user of the asset is a tax preferred end user because of paragraph 250-55(b) (foreign resident or business).

If this subsection applies, the tax preferred use of the asset is the lease referred to in paragraph (a).

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.

Subsection 250-50(1) confirms that the end user must be an entity ‘other than you’ – other than the taxpayer (Company D as head company) which seeks to establish whether or not Division 250 applies to it and an asset at a particular time to disqualify it from claiming a deduction for capital allowances. Therefore, the ‘end user’ must be an entity other than Company D or a subsidiary member of its income tax consolidated group.

Subsection 250-50(4) states:

To avoid doubt, an entity is taken to be an end user of an asset if the entity (or a *connected entity) holds rights as a lessee under a lease of the asset.

The land on which the Facility is situated will be leased by the unrelated entity to Entity E. To the extent that the depreciating assets and the capital works (including structural improvements) that form part of the Facility constitute fixtures under the common law, these will be part of the land that is the subject of the lease. This means that Company D (as the head company of an income tax consolidated including Entity E will hold rights as a lessee under a lease of the land that includes those fixtures), will be an end user of the relevant assets under subsection 250-50(4).

Therefore the paragraph 250-60(1)(a) requirement is satisfied.

However, the paragraph 250-60(1)(b) requirement will not be satisfied, because:

● the assets will be used by Entity E (an end user under subsection 250-50(4)) in operating the Facility, but Company D – as head company of the income tax consolidated group including Entity E – will pay income tax on its taxable income) will not be a tax preferred end user because of paragraph 250-55(a) (as neither it nor a connected entity is a ‘tax preferred entity’), and

● the assets (identified above) are not used outside Australia.

Therefore, the assets will not be put to a tax preferred use under subsection 250-60(1).

Second test

The second test, in subsection 250-60(2), states:

An asset is also put to a tax preferred use at a particular time if:

(a) at that time the asset is, or is to be, used (whether or not by you) wholly or partly in connection with:

(i) the production, supply, carriage, transmission or delivery of goods; or

(ii) the provision of services or facilities; and

(b) either or both of the following subparagraphs is satisfied at that time:

(i) some or all of the goods, services or facilities are, or are to be, produced for or supplied, carried, transmitted or delivered to or for an *end user who is a *tax preferred end user because of paragraph 250-55(a) (tax preferred entity) but is not an *exempt foreign government agency;

(ii) the asset is, or is to be, used wholly or principally outside Australia and an end user of the asset is a tax preferred end user because of paragraph 250-55(b) (foreign resident or business).

If this subsection applies, the tax preferred use of the asset is the production, supply, carriage, transmission, delivery or provision referred to in paragraph (a).

At the time the asset is to be used

The assets will be used by Company D wholly or partly in connection with one of the specified activities in paragraph 250-60(2)(a).

Therefore, the paragraph 250-60(2)(a) requirement is satisfied.

End user

In order to apply paragraph 250-60(2)(b), there must be an ‘end user’. The issue is whether some or all of the facilities will be supplied to or for an end user that is a tax preferred end user because of paragraph 250-55(a).

As discussed above for subsection 250-50(1) for the First test, the ‘end user’ must be an entity other than Company D or a subsidiary member of its income tax consolidated group.

The end user must be an entity that either uses the asset or effectively controls the use of the asset. Subsection 250-50(2) states that the control may be direct or indirect.

Indicia which the Commissioner sets out for considering requisite ‘control’ for section 51AD of the ITAA 1936 are set out in Income Tax Ruling No. IT 2602: section 51AD – deductions not allowable if an asset financed by non-recourse debt is used by a tax exempt or other entity and Taxation Ruling TR 96/22 will be applicable to the Facility for the purposes of applying Division 250.

Based on the matters set out in the Relevant facts and circumstances, the Commissioner accepts that section 250-15 will not apply to Company D as, under the Second Contract, Entity E will control of the day to day operations of the Facility.

The unrelated party will not use the Facility, or have the right to effectively control its use.

Accordingly, as one of the requirements in section 250-15 will not be satisfied, Division 250 will not apply to deny Company D deductions for capital allowances and capital works as discussed in the Reasons for decision for Questions 1 and 2 above.

Question 4

Summary

Costs of a capital nature incurred by Company D (through Entity E) for the purpose of procuring certain assets associated with the Facility that do not otherwise qualify for deductions under section 40-25 or Division 43, will be deductible to Company D as project pool expenditure under section 40-832.

Detailed reasoning

Section 40-832 allows you to deduct ‘project amounts’ if the project pool contains only project amounts incurred on or after 10 May 2006 for projects that start to operate on or after that day.

An amount will only qualify as a ‘project amount’ provided it is not expenditure on a depreciating asset and it is not otherwise deductible.

Subsection 40-840(2) states:

Another amount of capital expenditure you incur is also a project amount so far as:

(a) it does not form part of the ^*cost of a ^*depreciating asset you ^*hold or held; and

(b) you cannot deduct it under a provision of this Act outside this Subdivision; and

(c) it is directly connected with a project you carry on or propose to carry on for a ^*taxable purpose; and

(d) it is one of these:

…

In delivering the Facility, Entity E incurred additional capital expenditure in procuring certain assets.

This means that the additional expenditure will not form part of the cost of a depreciating asset that Company D held or will ‘hold’ under section 40-40.

Also, the additional expenditure was not or will not be deductible under Division 43 for Company D because, it did not or will not form part of ‘your area’ as required by subsection 43-10(2).

The expenditure will be directly connected with the Facility which Company D carried on or will carry on for a taxable purpose (being the purpose of producing assessable income under subsection 40-25(7).

The additional expenditure which Entity E incurred or will incur to modify the Facility, will be a ‘project amount’ under subsection 40-840(2), and will be deductible to Company D (as head company) under section 40-832.

Question 5

Summary

Section 51AD and Division 16D of the ITAA 1936 will not apply to Company D in relation to deductions for capital allowances deductions.

Detailed reasoning

Amendments to the First Contract

The First Contract will be amended as part of the modifications to the Facility.

None of the amendments will result in any additional rights being granted to the unrelated party that will enable the unrelated party to subsequently control the use of the Facility.

Such control would be a prerequisite to the application of section 51AD and Division 16D (see subparagraph 51AD(4)(b)(ii) of the ITAA 1936 and subsection 159GG(1) of the ITAA 1936).

Therefore, section 51AD and Division 16D of the ITAA 1936 will not apply following entry into the Second Contract (subsections 51AD(1B) and 159GH(1A) of the ITAA 1936).

Question 6

Summary

The amendments to the First Contract will not cause Division 250 to apply to Company D and any of the assets of the Facility.

Detailed reasoning

In general terms, Division 250 will only apply in circumstances where:

● the tax preferred use of an asset commences on or after 1 July 2007, and

● the taxpayer has insufficient economic interest in the asset (section 250-5).

In certain circumstances where section 51AD or Division 16D of the ITAA 1936 would apply, a taxpayer may instead choose that Division 250 applies (sub-item 71(1) of Schedule 1 to the Tax Laws Amendment (2007 Measures No. 5) Act 2007).

Division 250 will not apply to Company D on the basis that section 51AD and Division 16D of the ITAA 1936 (as referred to in the Detailed reasoning for Question 5 above) will not otherwise apply as a consequence of the amendments to the First Contract which will subsequently commence.

Therefore, the amendments to the First Contract will not cause Division 250 to apply to Company D and any of the assets of the Facility.

Question 7

Summary

Deductions will not be available to Company D under section 40-25 or Division 43 for costs incurred by the unrelated party in association with the acquisition of the services of the Builder by that party in relation to the Facility.

Detailed reasoning

To ensure the construction of the Facility, the unrelated party will acquire the services of the Builder to complete and deliver the Facility.

Therefore, the unrelated party will make separate payments to the Builder for its contribution the Facility.

Neither Entity E, nor another subsidiary member of the Company D income tax consolidated group, will incur losses, outgoings or expenditure in relation to that part of the Facility undertaken by the unrelated party, as these will be incurred directly by the unrelated party.

Accordingly, Company D will not be entitled to claim deductions for capital allowances under section 40-25 or Division 43 for losses, outgoings or expenditure incurred by the unrelated party in association with the acquisition of services of the Builder by that party in relation to the Facility.

Question 8

Summary

Deductions will not be available to Company D under section 40-25 or Division 43 for costs incurred by Entity G in association with the acquisition of services of the Builder by Entity G in relation to the Facility.

Detailed reasoning

To ensure the construction of the Facility, Entity G will acquire the services of the Builder to complete and deliver the Facility.

Therefore, Entity G will make separate payments to the Builder for its contribution to the Facility.

Neither Entity E, nor another subsidiary member of the Company D income tax consolidated group, will incur losses, outgoings or expenditure in relation to that part of the Facility undertaken by Entity G, as these will be incurred directly by Entity G.

Accordingly, Company D will not be entitled to claim deductions for capital allowances under section 40-25 or Division 43 for losses, outgoings or expenditure incurred by Entity G in association with the acquisition of services of the Builder by Entity G in relation to the Facility.

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