Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES

PART 3-10 - FINANCIAL TRANSACTIONS

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Division 250 - Assets put to tax preferred use

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History

Div 250 inserted by No 164 of 2007 , s 3 and Sch 1 item 1, effective 25 September 2007. No 164 of 2007 , s 3 and Sch 1 item 71 contains the following application provision:

Application
(1)
Subject to subitems (4), (6) and (8), Division 250 applies in relation to a tax preferred use of an asset if, and only if, the tax preferred use:

(a) starts on or after 1 July 2007; and

(b) does not occur under a legally enforceable arrangement that was entered into before 1 July 2007.

(2)
This subitem applies to an asset that is put to a tax preferred use if:

(a) the tax preferred use starts on or after 1 July 2007; and

(b) the tax preferred use occurs under a legally enforceable arrangement that was entered into before 1 July 2007; and

(c) but for this subitem:

(i) section 51AD would apply to the asset in relation to a taxpayer; or

(ii) Division 16D would apply to the asset; and

(d) you elect to have this subitem apply to the asset.

(3)
An election under paragraph (2)(d) in relation to an asset that is put to a tax preferred use:

(a) must be made by the day you lodge your income tax return for the income year in which the tax preferred use starts; and

(b) must be made for the whole of the arrangement period for the tax preferred use of the asset; and

(c) must extend to all assets that are, or are to be, put to a tax preferred use under the arrangement under which the asset is put to that use; and

(d) is irrevocable.

(4)
If subitem (2) applies:

(a) section 51AD and Division 16D do not apply to the asset; and

(b) Division 250 applies to the tax preferred use of the asset.

(5)
This subitem applies to an asset that is put to a tax preferred use if:

(a) the tax preferred use starts on or after 1 July 2007; and

(b) the tax preferred use occurs under a legally enforceable arrangement that was entered into before 1 July 2007; and

(c) immediately before 1 July 2007:

(i) section 51AD did not apply to the asset in relation to a taxpayer; and

(ii) Division 16D did not apply to the asset; and

(d) the arrangement referred to in paragraph (b) is materially altered on or after 1 July 2007; and

(e) but for this subitem and subitem (6):

(i) section 51AD would apply to the asset in relation to a taxpayer immediately after the alteration; or

(ii) Division 16D would apply to the asset immediately after the alteration.

For the purposes of applying paragraph (c), assume that the asset was in existence and was being put to the tax preferred use immediately before 1 July 2007.

(6)
If subitem (5) applies:

(a) section 51AD and Division 16D do not apply to the asset; and

(b) Division 250 applies to the tax preferred use of the asset after the alteration instead.

(7)
This subitem applies to an asset that is put to a tax preferred use if:

(a) the tax preferred use started before 1 July 2007; and

(b) immediately before 1 July 2007:

(i) section 51AD did not apply to the asset in relation to a taxpayer; and

(ii) Division 16D did not apply to the asset; and

(c) the arrangement under which the tax preferred use of the asset occurs is materially altered on or after 1 July 2007; and

(d) but for this subitem and subitem (8):

(i) section 51AD would apply to the asset in relation to a taxpayer immediately after the alteration; or

(ii) Division 16D would apply to the asset immediately after the alteration.

(8)
If subitem (7) applies:

(a) section 51AD and Division 16D do not apply to the asset; and

(b) Division 250 applies to the tax preferred use of the asset after the alteration instead.

(9)
For the purposes of applying subparagraphs (5)(c)(ii) and (e)(ii) and (7)(b)(ii) and (d)(ii), disregard the operation of section 159GL of the Income Tax Assessment Act 1936 .

(10)
For the purposes of applying Division 250 to the tax preferred use of an asset in accordance with subitem (6) or (8), the arrangement period for the tax preferred use of the asset is taken to start on the day on which the alteration referred to in paragraph (5)(d) or (7)(c) occurs.

(11)
Section 51AD does not apply to an asset for the income year commencing on 1 July 2007, or a later income year, if:

(a) the asset is put to a tax preferred use under a legally enforceable arrangement; and

(b) the arrangement was entered into before 1 July 2007; and

(c) the tax preferred use of the asset starts on or after 1 July 2003 and before 1 July 2007.

…

(13)
In this item:
arrangement
has the same meaning as in the Income Tax Assessment Act 1997 .

asset
includes property (within the meaning of section 51AD and Division 16D ).

Division 16D
means Division 16D of Part III of the Income Tax Assessment Act 1936 .

Division 250
means Division 250 of the Income Tax Assessment Act 1997 .

section 51AD
means section 51AD of the Income Tax Assessment Act 1936 .

tax preferred use
has the same meaning as in the Income Tax Assessment Act 1997 .

Subdivision 250-D - Deemed loan treatment of financial benefits provided for tax preferred use

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SECTION 250-160 Financial benefits that are subject to deemed loan treatment

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General rule

250-160(1)
Subject to subsections (3) and (4), a *financial benefit is subject to deemed loan treatment if:

(a) the financial benefit:

(i) has been; or

(ii) will, assuming normal operating conditions, be; or

(iii) can, assuming normal operating conditions, reasonably be expected to be;

provided to you (or a *connected entity); and

(b) the financial benefit has been, will be or can reasonably be expected to be *provided directly or indirectly by a *member of the tax preferred sector in relation to the *tax preferred use of the asset; and

(c) the right to receive, or the obligation to provide, the financial benefit is *cash settlable; and

(d) the financial benefit has not been, will not be or can be expected not to be provided by one of your connected entities.

Note:

Paragraph (d) stops a financial benefit passing between you and any of your connected entities from being counted twice.

End value also taken to be financial benefit subject to deemed loan treatment

250-160(2)
The relevant percentage of a reasonable estimate of the *end value of the asset is also taken to be a *financial benefit that is subject to deemed loan treatment if:

(a) the asset is not to be purchased or acquired by, or transferred to, a *member of the tax preferred sector at the end of the *arrangement period under a legally enforceable *arrangement; or

(b) the asset:

(i) is, or is to become, a *privatised asset; or

(ii) would be, or would become, a privatised asset if it were a *depreciating asset; or

(iii) would be a privatised asset if the asset were a depreciating asset and paragraphs 58-5(2)(a) and 58-5(4)(a) were not limited to acquisitions of depreciating assets that occurred on or after 1 July 2001.

The relevant percentage is the *disallowed capital allowance percentage if section 250-150 applies. Otherwise it is 100%.

Note:

See section 250-180 for how to work out the end value of the asset.

Financial benefits only subject to deemed loan treatment to the extent to which they represent a return on investment

250-160(3)
The *financial benefit is subject to deemed loan treatment only to the extent to which it reasonably represents a return of, or on, an investment in the asset (as distinct, for example, from representing consideration for the provision of services or the recovery of production costs), having regard to:

(a) the *market value of the asset; and

(b) the discount rate applicable under subsection 250-105(2) ; and

(c) your costs in relation to funding your interest in the asset; and

(d) any other relevant matter.

The regulations may provide rules to be applied in determining the extent to which a financial benefit reasonably represents a return of or on an investment in the asset.

Only financial benefits provided after Division starts applying to you and the asset

250-160(4)
If the *tax preferred use of the asset starts before this Division starts applying to you and the asset, only *financial benefits provided after this Division starts applying to you and the asset are subject to deemed loan treatment .

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